Gap grows between new and existing homeowners

There's always been a house-sized gap separating homeowners from homebuyers. But as home prices and mortgage rates continue creeping higher, they're increasingly living in different worlds.

While homebuyers grapple with affordability problems, existing owners are enjoying near record-low monthly payments and increasing equity levels, an analysis by Black Knight says.

Home price increases are driving each, and their growth rate keeps accelerating: the Black Knight home price index went up by 0.8% in June, a record high.

"We've been noting for some months that the recent rate of home price gains would have a lagging, but significant, impact on the annual rate of appreciation," Black Knight's vice president of enterprise research, Andy Walden, said in a press release. "Well, June marked that inflection point."

After slowing for 14 months, Walden said, the pace of increases jumped up in June "amid widespread growth that saw annual rates of appreciation inflect and begin to trend higher in more than 80% of markets."

In almost every city measured by Black Knight, home values rose month-to-month. Hartford, Connecticut; Seattle; and San Jose, California led the pack, with a rise of 1.2% in each. Only two Texas cities, Austin and San Antonio, saw price drops versus May, but they were still modest, at 0.3% and 0.2% respectively.

Year-over-year, prices grew in 60% of U.S. markets. But patterns vary by region — values rose the most in the Midwest and Northeast, while in some western cities prices still remained lower than last year's, the report says.

More than anything else, prices are ballooning because of a housing stock shortage. Average inventory levels are still 51% lower than they were before the pandemic, and the gap has grown in over 90% of U.S. markets over the past year, Black Knight says.

The city with the highest monthly and yearly price gains, Hartford, is also the one with the biggest loss in housing stock since 2019. Since the pandemic, its deficit grew by 81%. Most other cities are struggling with the same issue: only Austin, Texas and Las Vegas' housing inventories are larger than they were pre-pandemic.

But the report notes that since the pandemic, inventories have often peaked late in the year, so homebuyers could get some good news this winter.

Right now, though, stunted supply is forcing prices higher, and debt-to-income ratios are rising with them — for Federal Housing Administration loans, the average DTI was 45% in July. 

Down payments are on the rise, too. Black Knight said July's average down payment for primary residences reached $90,200, another high. All loan types showed similar patterns. For conforming mortgages, the average down payment was over $110,000, for FHA, it was $21,000 and for Veterans Affairs loans, it was $29,400.

These prices, coupled with mortgage rates hovering near 7%, means homes are less affordable than ever. It now requires 12.6 percentage points more of buyers' income to afford the average priced home compared to that of the last 25 years. Homes are less affordable now than the average in all 100 markets studied by Black Knight.

An average priced home purchased in July would cost $2,308 a month in mortgage payments, Black Knight estimated. That makes up 36.4% of the median household income, which is "close to the worst it's been in 37 years," the report says.

Current homeowners' payments are much lower. On average, they pay $1,355 a month, which only makes up 21% of the median household income, lower than it's been since 2001. 

The average interest rate of these homeowners is 3.94%. Many refinanced their mortgages during 2020 and 2021, when interest rates hung around 2.7%. Black Knight says refinancing saved homeowners a cumulative $42 billion over the past three years.

Existing homeowners also benefit from rising prices because they inflate home equity. Total mortgage equity in the U.S. reached $16 trillion in June and tappable equity reached $10.5 trillion, close to an all time high set last summer. On average, mortgage holders have $199,000 available in equity, Black Knight said.

Outstanding mortgage debt, on the other hand, reached $13 trillion for the first time ever. Underwater borrowers, who owe more than they own, also increased dramatically year-over-year, but Walden doesn't think the uptick is cause for alarm.

"Yes, it's true that is a 70% jump from this time last year – which may sound ominous – but everything is relative," he said. "There are less than half as many underwater homeowners than there were in 2019 before the onset of the pandemic."

Black Knight also saw a small bump in the national delinquency rate, along with small increases in borrowers who missed one and two payments. But serious delinquencies fell to their lowest point since 2006, which the analysis attributed to "the strong credit quality of today's mortgage holders and an acute focus on loss mitigation by the industry at large."