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May Marks Least Affordable Housing Market in 16 Years

Rising home prices and unpredictable interest rates continue to complicate affordability pressures in the housing market. However, the same dynamics have also served to increase the housing wealth of American mortgage holders by a significant margin, according to the latest Mortgage Monitor Report from the Data & Analytics division of Black Knight, Inc.

According to Black Knight Data & Analytics President Ben Graboske, tappable equity —the amount available for mortgage holders to borrow against while retaining a 20% equity stake in their homes— has reached another all-time high.

"Home price growth cooled —albeit very slightly— in April," said Graboske. "While a downward shift from 20.4% to 19.9% annual growth is hardly cause for concern, it's also likely we've not yet seen the full impact of recent rate increases. Rather, April's decline is more likely a sign of deceleration caused by the modest rate increases in late 2021 and early 2022 when rates first began ticking upwards. The March and April 2022 rate spikes will take time to show up in repeat sales indices.”

Key Findings:

  • U.S. home prices are up 42% since the start of the pandemic, with the average home having gained almost 9% in value just since the start of 2022
  • Though the annual rate of appreciation cooled slightly (19.9% in April vs. an upwardly revised 20.4% for March), rising home prices and interest rates have made for the worst affordability since July 2006
  • The monthly principal and interest (P&I) payment on the average-priced home with 20% down is nearly $600 (+44%) more than it was at the start of the year and $865 (+79%) more than before the pandemic
  • As of May 19, with 30-year mortgage rates at 5.25%, the share of median income required to make that P&I payment had climbed to 33.7%, just shy of the 34.1% high reached in July 2006
  • While tightening affordability is hampering prospective homebuyers, the home price growth at the root of the issue continues to increase the housing wealth of current homeowners with mortgages
  • S. mortgage holders saw their collective tappable equity – the amount available to borrow against while retaining at least a 20% equity stake in the home – increase by $1.2 trillion in Q1 2022 alone
  • In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower

“Price growth thus far has created a very difficult environment for prospective homebuyers to navigate,” said Graboske. “The monthly P&I payment required for the average home purchase is up nearly $600 since the start of the year, and factoring in current income levels housing is now within a whisper of the record low affordability seen at the peak of the market in 2006. Even modest increases in either rates or home prices at this point would push us over that line.”

The Mortgage Monitor also looked at another key contributing factor to home prices and affordability – record-low for-sale inventories. Despite seeing a rise of 27,500 from March to April, active listings remain 67% below pre-pandemic levels, with 820,000 fewer listings than would be typical at this point in most homebuying seasons. New listing volumes were up 1% from the same time last year, but remained 11% below pre-pandemic levels for the month of April, suggesting that the number of homes hitting the market remains well below what would be considered "normal" levels.

"There's another side to this story, though; one of significant equity growth among current homeowners,” said Graboske. “With the average-priced home up 42% in value since the start of the pandemic, current homeowners with mortgages are sitting on an average $207,000 in equity that they could choose to tap while still keeping a 20% equity buffer in place. That's a result of an astonishing $1.2 trillion gain in tappable equity in the first quarter of 2022 alone – the largest such quarterly growth ever recorded. In total, American mortgage holders have more than $11 trillion in tappable equity, also a history-making total. It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years. Depending upon where you stand, this could be the best or worst of all possible markets."

The continued lack of supply continues to weigh on home sales and keep prices higher than they might otherwise be given current affordability metrics. In recent years, a 20.5% payment-to-income ratio has been a rough tipping point at which appreciation begins to soften, but given the severity of inventory shortages, home prices continue to rise – even as that ratio has climbed to 33.7%, just shy of the 34.1% high reached in July 2006.

To read the full report, including more charts and methodology, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport, with more than six years of writing experience. She has served as Editor-in-Chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington. She has covered events such as the Byron Nelson, Pac-12 Conferences, the Women in Dallas Film Festival, to freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, she is an avid jazz lover and reader. She can be reached at [email protected]
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