Home prices in July declined on a month-to-month basis for the first time in over two-and-a-half years but the impact is masked by strong annual growth, Black Knight said.
As a result of the slide, the amount of home equity an owner can tap could drop from quarter-to-quarter for the first time in three years.
Compared with June, prices were down by 0.77% in July. But when compared with July 2021, home values increased 14.5%, the Black Knight Mortgage Monitor Report found. Most of that year-over-year growth took place in the first half of the year.
The annual pace of growth slipped 2.5 percentage points, the largest drop in over 40 years. This topped June's year-over-year drop of
This report is more pessimistic than the
"In a market characterized by as much volatility and rapid change as today's, such backward-looking metrics can be misleading as they can mask more current, pressing realities," Ben Graboske, Black Knight president of data and analytics, said in a press release. "Case in point — this cooling has been indicated in our home price data for several months now, and at an increasing pace."
"Without timely, granular data, market-moving trends don't become apparent until they're right in front of you — like a sudden shift to the largest single-month decline in home prices in more than a decade," Graboske said.
And more bad news is on the horizon. The typical homeowner's tappable equity peaked in May, but has been on the downswing since.
"Tappable equity is now down 5% in the last two months, setting up Q3 to likely see the first quarterly decline in tappable equity since 2019," Graboske said. "Some of the nation's most equity-rich markets have seen significant pullbacks, most notably among key West Coast metros."
Between April and July, homeowners in San Jose, California lost 20% of their tappable equity, followed by Seattle, down 18%; San Diego, down 14%; San Francisco, down 14% and Los Angeles, down 10%.
The share of borrowers owing more on their house than it is worth is also likely to rise.
"Keep in mind that of the roughly 275,000 borrowers who would fall underwater from a 5% price decline, more than 80% purchased their homes in the first six months of 2022 — right at what appears to have been the top of the market," said Graboske.
However, that is coming off of record lows for underwater borrowers as of the end of the second quarter, the report said. Less than 0.5% of all mortgage holders owed more than their home's current market value as of June 30.
So if that 5% price decline were to happen, just 0.9% of borrowers would be underwater.
At a 10% blanket decline in home values the negative equity rate would rise to 1.9%, marginally above levels recorded between 2018 and 2020, with 2022 purchasers accounting for 70% of underwater properties and 2021 homebuyers representing another 21%, Black Knight found. A 15% blanket decline in prices would result in a 3.7% negative equity rate with purchases over the last two years accounting for more than 90% of borrowers falling underwater.
Still, even with June's decline, the second quarter ended with a record high $11.5 trillion of tappable home equity. That was up from $11 trillion in
Homeowners took out an estimated $127 billion in their property's value in the second quarter, equivalent to just 1.1% of tappable equity at the start of the period, the lowest such share dating back to 2005.
Home equity lending, an area that some nonbanks and depositories
