Some Homeowners Losing Equity Wealth (at Least on Paper)

 JACKSONVILLE, Fla.–Home homeowners are losing wealth as high mortgage rates weigh on home values, at least on paper, as the once red-hot housing market cools quickly, according to a new report.

The report, from Black Knight Data & Analytics, comes as sales have been slowing down for several months and as mortgage rates have increased and are now double what they were at the start of this year.

Home prices, likewise, dropped 0.77% from June to July, Black Knight reported.

“While that may not sound like a lot, it was the largest monthly decline since January 2011 and the first monthly drop of any size in 32 months,” CNBC reported.

‘Misleading’ Metrics

Ben Graboske, president of Black Knight, wrote in its report, "Annual home price appreciation still came in at over 14%, but 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," CNBC reported.

The report shows that approximately 85% of major markets have seen prices come off peaks through July, with one-third coming down more than 1% and about one-in-10 falling by 4% or more.

Some ‘Losing Equity’

“As a result, after gaining trillions of dollars in home equity collectively during the first two years of the Covid pandemic, some homeowners are now losing equity,” CNBC stated. “So-called tappable equity, which Black Knight defines as the amount a homeowner can borrow against while keeping a 20% equity stake in the property, hit its 10th consecutive quarterly record high in the second quarter of this year at $11.5 trillion. But data suggests it may have peaked in May.”
According to Graboske, some of the nation's most equity-rich markets have seen significant pullbacks, most notably along the West Coast.

From April through July, San Jose, Calif., lost 20% of its tappable equity, followed by Seattle (-18%), San Diego (-14%), San Francisco (-14%) and Los Angeles (-10%), CNBC reported.

Some Good News

But there is some good news, the report added, noting homeowners are still far more flush than they were the last time the housing market went through a major correction beginning in 2007. Current borrowers, on average, owe just 42% of their home's value on both first and second mortgages. It is the lowest leverage on record, the report stated.

CUToday