"Unusual housing market" closes with 2022 mortgage holders in the negative

Some 8% of 2022 purchase mortgages are underwater, with another 20% in low equity positions. More than 25% of FHA mortgages are underwater.

Published by

Verónica Silveri Pazos

9 de diciembre, 2022

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A report by real estate firm Black Knight Inc., revealed that Americans who decided to take out a mortgage loan to purchase their home earlier this year are not seeing good return on their investments.

Of the 450,000 homes mortgaged in the country through the third quarter of the year, nearly 270,000 (60%) are from in the first nine months of 2022. According to the firm's president, Ben Graboske:

More recent homebuyers don’t fare as well. Of the 450K underwater borrowers at the end of Q3, the mortgages of nearly 60% had been originated in the first nine months of 2022 – and these were overwhelmingly purchase loans.

Twenty-eight percent of mortgage holders in the negative

More than a quarter of Federal Housing Administration (FHA) purchase mortgage holders, which are government-backed loans, "have dipped into negative equity."

According to the study, Early Payment Defaults (EPD), mortgages that have gone delinquent within six months of origination, have increased among FHA loans to the highest level since 2009. In addition, nearly 40% of mortgage holders have less than 10% equity in their home "primarily among FHA loans that are popular with first-time and low-income buyers."

All in, 8% of purchase mortgages originated thus far in 2022 are now marginally underwater, with another 20% in low equity positions. Among FHA purchase mortgage holders specifically, more than 25% have slipped underwater and more than three-quarters have less than 10% equity.

Affordability the lowest in 35 years

The report reviews that the housing market is "in an unusual place." It noted that falling prices and high interest rates generally result in more Americans being able to afford a home. However, the opposite is true today because "affordability remains perilously close to a 35-year low".

Add in the effects of typical seasonality and one might expect a far steeper correction in prices than we have endured so far, but the never-ending inventory shortage has served to counterbalance these other factors.

New home sales listings in October were 19% lower than 2017-2019 levels, generating a ninth consecutive month of decline. This figure marks the largest shortfall in six years, excluding March and April 2020, when much of the country was shut down due to the COVID-19 pandemic.