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Analysis: 8% of 2022 Mortgage Home Purchases Underwater

Though homeownership negative equity rates continue far below historical averages, homes purchased recently are at equity risk, according to Black Knight’s October 2022 Mortgage Monitor. The report shows that of all homes purchased with a mortgage in 2022, 8% are at least marginally underwater, with another 20% in low equity positions. Nearly 40% have less than 10% equity stakes in their home.

The report also indicated that the situation is primarily concentrated among FHA/VA loans. More than 25% of FHA/VA mortgage holders dipped into negative equity. Another metric showed that early payment defaults have been increasing over the past year, especially among FHA borrowers. These defaults are how above pre-pandemic levels.

“This is an illustrative and, unfortunately, potentially vulnerable cohort that we will continue to keep a close eye on in the months ahead,” said Ben Graboske, Black Knight’s data & analytics president. Homes purchased before the pandemic are not at as high a risk, due to a higher home equity buffer.

The national overall delinquency rate increased by 4.5%. Florida, which had been ravaged by Hurricane Ian, showed the highest delinquency rates.

The Mortgage Monitor also reported that, despite home price corrections drive by higher mortgage rates and tighter affordability, the price decline pace “has slowed measurably over the past two months.” According to the National Association of Realtors’ October 2022 data, the median home price stood at $379,000, a 6.6% increase from the year before. But total existing-home sales fell by 28.4% from the year before, the NAR said. The Black Knight data showed a 9.3% year-over-year annual home price growth rate.

“We’ve now seen four consecutive months of home price pullbacks at the national level,” Graboske said. “But after a couple of significant drops earlier in the summer, the pace of cooling has slowed considerably, with October’s non-seasonally adjusted drop of just 0.43% the smallest decline yet.” Additionally, new for-sale listings in October were 19% below 2017-2019 levels, marking the largest deficit in six years, excluding the March-April 2020 pandemic lockdown.

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Black KnightBlack Knight's Ben Graboske

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