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Black Knight: Signs of Cooling in Nation’s Least Affordable Markets as Inventory Levels Improve; May Sees Largest Monthly Slowdown in Home Price Growth Since 2006

Home price growth slowed in 97 of the 100 largest U.S. housing markets in May, with the national annual appreciation rate pulling back by more than a full percentage point from the month prior

-While the slowdown to 19.3% from a revised 20.4% in April marks the largest single-month deceleration since 2006, prices were still up 1.5% month over month – nearly twice the historical average for May

-Markets experiencing the strongest cooling in home price growth are those with comparatively poor affordability levels and low inventory deficits

-Housing is now the least affordable it has been since the mid-1980s, when sharp Fed hikes led to double-digit mortgage rates and a greater than 50% payment-to-income (P-to-I) ratio  

-Tightening affordability then was almost entirely interest rate-driven – with income growth largely keeping up with home prices

-Today’s 36.2% ratio is a result of both rising interest rates as well as soaring home values largely driven by historically low inventory levels

-Even though May saw the largest jump in housing inventory in the past five years as pending listings begin to normalize and existing listings sit longer on the market, for-sale inventory remains at a 60% deficit

JACKSONVILLE, Fla., July 6, 2022 /PRNewswire/ — Today, the Data & Analytics division of Black Knight, Inc. (NYSE:BKI) released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage, real estate and public records datasets. This month’s report looks at recent cooling in the annual rate of home price appreciation and the intertwined impacts of both affordability and inventory on those trends. According to Black Knight Data & Analytics President Ben Graboske, May marked the second consecutive month of cooling at the national level.

“The annual home price growth rate fell by more than a full percentage point in May, the largest monthly decline at the national level since 2006,” said Graboske. “However, even with growth slowing in 97 of the top 100 U.S. markets, overall home prices still rose 1.5% from April – nearly twice the historical average for the month of May. And while any talk of home values and 2006 might set off alarm bells for some, the truth is that price gains would need to see deceleration at this rate for more than 12 months just to get us back to a ‘normal’ 3-5% annual growth rate. That said, the pace of deceleration could very well increase in the coming months, as we’ve already begun to see in select markets such as Austin, Boise and Phoenix. 

“The record-low listing inventory that had been driving these price gains nationwide has also begun to improve, albeit slightly. Indeed, even with an increase in active listings of 107,000 in May – nearly double the traditional seasonal rise for the month – we are still 60% below the number of active listings we would normally see at this time of year. All major markets are still facing inventory deficits, but some have seen their shortages shrink much faster than others. Among these are some of the hottest housing markets in recent years: San Francisco, San Jose and Seattle. Unsurprisingly, these are also among the markets seeing the strongest levels of cooling so far this year, with annual home price growth rates in each down more than three percentage points in recent months.”

As mortgage interest rates continue their upward climb, this month’s Mortgage Monitor also examines the resulting further deterioration in home affordability. With 30-year rates hovering close to 6% and home prices up nearly 11% since the start of 2022, home affordability is at its worst point since the mid-1980s – when sharp Fed hikes led to high double-digit mortgage rates that resulted in a greater than 50% payment-to-income ratio. The affordability challenge back then was almost entirely driven by the interest rate environment, while incomes largely kept up with home price growth. Today’s falling affordability is due in equal measure to rising rates and soaring home values largely driven by historically low inventory levels. The average home price is now more than six times the median household income, the largest multiple on record since the early 1970s. As of mid-June 2022, it takes 36.2% of the median household income to make the mortgage payment on the average- priced home purchase, well above the 34.1% post-1980s peak in July 2006.

About the Mortgage Monitor
The Data & Analytics division of Black Knight manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

Black Knight’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.blackknightinc.com/data-reports/

About Black Knight
Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.

Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serving their customers. For more information on Black Knight, please visit www.blackknightinc.com/.

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