More than 250,000 homebuyers in 2022 underwater on mortgages

(NewsNation) – More than 250,000 borrowers who bought homes this year now owe more than their homes are worth today, according to a new analysis.

The reportby mortgage data firm Black Knight, also found that another million people who bought homes in the first nine months of the year have “limited equity”, owning less than 10% of their home .

The results reflect a housing market that has seen house prices fall in recent months amid a period of rapidly rising mortgage rates.

“A clear bifurcation in risk has emerged between mortgage homes purchased relatively recently and those purchased early or before the pandemic,” Ben Graboske, president of Black Knight Data & Analytics, said in a press release.

Graboske noted that negative equity rates are still well below historical averages and that the pace of cooling has recently slowed.

Those who bought homes during the peak of the market between May and July are most likely to have equity issues today. About one in three July homebuyers now face negative equity or limited equity (owning less than 10% of their home), Black Knight found.

That doesn’t mean it’s time to panic. Newer buyers will simply wait and hope that their home’s value will rebound when they are ready to sell.

“For most people, these changes don’t have an immediate economic impact,” said Laurence Kotlikoff, an economics professor at Boston University.

Others in the industry have pointed out that even limited equity provides an advantage that the alternative does not.

“Housing is not a short-term investment and renting does not create capital,” said James Martin, who will chair the National Association of Realtors’ Federal Finance & Housing Policy Committee in 2023.

Black Knight found that borrowers backed by the Federal Housing Administration (FHA) or Veterans Affairs (VA), which are popular among first-time buyers and low-income buyers, were more likely to have fallen under. . More than 20% of these loans issued in 2022 are “marginally underwater”.

But veterans and buyers with FHA mortgages also have a slight advantage in a higher-rate environment because of assumable loans, which allow them to sell their homes at the rates at which they bought them, Martin pointed out.

Martin said the recent drop in mortgage rateswhich have fallen since hitting a 10-year high in early November, suggest home values ​​will rise and equity fears “will be less of a concern” going forward.

There’s something else that works in favor of homeowners: a shortage of inventory.

The overall market remains about half a million listings below what would be considered normal, Graboske noted. This reality has offset other factors that might otherwise have driven home prices further down.

Today, the median home price is 3.2% below its peak in June, but with interest rates higher than they have been for most of the year.

“Affordability remains dangerously close to a 35-year low,” Black Knight found.

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