April’s price gains may have set a record for record-setting and Black Knight in his Mortgage monitor for the month it runs down.
- The annual rate of price increase was 14.8 percent highest on the company’s records from the mid-1990s.
- The prices for single-family houses rose even higher by 15.6 percent. The increases in condominiums were significantly more restrained at 10 percent.
- April marked the 17th consecutive month of house price gains and they continue to accelerate sharply even when affordability runs short.
- Black Knight says the largest increase in a single month prior to 2021 was 1.53 percent in April 2004, and that prior-month appreciation before 2021 exceeded the previous month only two more times in Black Knight’s records (May 2004 and April 2005). through this barrier in each of the past three months and rose to 2.34 percent in March. The growth rate in April was 2.0 percent.
There were only a few weak points nationwide. Growth was again strongest in the western federal states. Arizona, Utah, Montana, and Washington all saw annual increases of over 20 percent, and Idaho led the way with an impressive 33.9 percent. Forty-four states had rates over 10 percent and a third rose 15 percent year over year. Six metropolitan areas, Austin, Phoenix, Riverside, California, Seattle, Sacramento, and San Diego all saw growth of over 20 percent.
Even at the lower end of the market, the growth is impressive. Pittsburg recorded the slowest growth of the 50 largest markets at 8.1 percent. Black Knight said this was the highest floor it has seen in 25 years, three times the previous record of 2.4 percent.
According to Ben Graboske, President of Black Knight Data & Analytics, “Two key elements are responsible for this growth: historically low interest rates and, more acutely, the lack of inventory for sale. The total number of active entries decreased by 60 percent on average from 2017 to 2019 for April.
“It doesn’t get any better either. Data from our Collateral Analytics group showed that there were two months of single-family inventory nationwide in March, the lowest percentage on record and falling 26 percent fewer newly listed properties in April compared to the seasonal level before the pandemic.“
To make matters worse, the number of active offers in April fell by 53 percent compared to April 2020 and was 60 percent below the average for the years 2017-2019 in April. There were a third more new admissions than a year earlier, though that comparison is with the month when the pandemic lockdowns nearly peaked. As the largest share of absorptions, the new listings made up more than 75 percent of the total volume in April, and the share is growing rapidly. All in all, the market in terms of homes for sale is around 750,000.
The price increases have started and will and will probably continue to create noticeable headwinds in the coming months for both purchase credits and the sales volume of existing homes. It’s already driving house prices up and affecting affordability.
By the beginning of June, the proportion of median income required to settle monthly payments to the median household had risen to 20.5 percent, exceeding the five-year average of 20.1 percent. While this is still more affordable than the 25-year average of 23.6 percent, Graboske notes, “In recent years, 20.5 percent has been roughly the tipping point where appreciation begins to slow, but given the severity of the Housing prices have become scarce – at least for now –
continued to accelerate sharply despite increasing affordability. “
Black Knight says current levels of property price growth will not be sustainable for any length of timeespecially when mortgage rates start to rise. They examined three example scenarios of affordability when home prices hold their current pace in different interest rate environments.
If the appreciation remains at the current level and the 30-year rates slowly rise to 3.5 percent by the end of 2022, the national payment-income ratio would reach 21.6 percent by the end of this year and 25 percent by 2022 at 4 Percent by the end of 2022, the rate would be 22 percent by the end of this year and 26.7 percent by the end of 2022.
If real estate values continued to rise at their current rate and The 30-year rates rose to 4.5% by the end of next year, which the company describes as still historically low, the payout ratio would rise to 22.5 percent by the end of this year and over 28 percent next year.
The company adds that tightening affordability may ultimately result in a slowdown in property price growth from today’s levels, but given the shortage of inventory, this is not something that can be taken for granted.
But that has a bright spot. The rising prices limit the number of loans with limited equity in deferral. Black Knight publishes a weekly report on forbearances and as of June 1, 2.12 million loans were still included in those plans, down from 71,000 the previous week. That’s 4.0 percent of all active mortgages.
With the plan’s term currently limited to 18 months after several three-month extensions, Black Knight estimates that 1.1 million loans will reach their final expiration later this year. Even if the improvement rate increased by 3.0 percent per month, at the end of the program there would still be 900,000 credits in the program. Even if multiple reinstatement options have been provided, significant unknowns remain about post-forbearance performance for long-term participants.
By mid-May, 7.2 million homeowners had taken part in the forbearance, 70 percent of whom have since left the program. 63 percent of these former deferred borrowers are either doing a renovation or have paid off their mortgages by selling or refinancing their homes. Another 5 percent are non-performing, but in harm reduction. Of 168,000 who have left the program and are still delinquent and do no damage control, 110,000 were overdue with their pre-COVID-19 mortgages.
The above price gains continue to improve the equity positions of those who remain in indulgence. Black Knight calculates that their Mark-to-Market Combined Loan-to-Value (CLTV) ratios as of February provide 96 percent of them with at least 10 percent equity in their homes, usually enough to sell the traditional way Avoid short sales or defaults. Even taking 18 months of delay into account, only 13 percent of them are below this 10 percent mark.
Most GSE and portfolio / PLS loans have over 10 percent equity, 99 percent and 96 percent, respectively, but of the 290,000 borrowers who don’t after accounting for overdue payments, more than 200,000 are in FHA or VA loans .