Home Price Appreciation Slows to Single-Digits in October

Home price appreciation continued to slow in October as year-over-year appreciation fell into single -digits for the first time since 2020, according to the Black Knight Mortgage Monitor Report.

• Y-O-Y: The Home Price Index slowed to 9.3% in October, this was lower than the 10.6% reported in September and the first time in two years that appreciation fell into single digits.

• M-O-M: Home prices fell 0.43% from September, this was the fourth straight month of declines.

Silver Lining. The month-over-month annualized slowdown (-1.3%) was the slowest pace since May and the monthly drop was the smallest since June.

Affordability. Home affordability improved slightly, but is still “uncomfortably close” to the nearly 40-year high. As of November 17th, the monthly principal and interest payment (P&I) on the median-priced home purchased with 20% down was $2,171.

• This is down $65 from September but is up $838 (65%) from the same time one year ago. This represents 37.4% of the median monthly household income, down slightly from October’s 38.5%.

• The least affordable market by far remains Los Angeles where Payment-to-income is 73.6%! This is down from the 76.6% peak but that’s still 38.1 percentage points higher than its long-run market average

Inventory. Those hoping for a significant uptick in inventory were disappointed once again. In October, new listings remained 19% below pre-pandemic levels. While the inventory deficit of 40% (511k) was a marginal improvement over the 43% shortage in September, inventory levels continue to run well below the long-run average.

Under Water. The median home price nationally is now down 3.2% which has put 8% of 2022 purchase loans now marginally underwater. This equates to about 250K borrowers who purchased in 2022 while another million borrowers have less than 10% equity.

• REMINDER: With about 50 million outstanding mortgage loans in the US, 250k underwater borrowers equates to 0.5% of total loans outstanding.

Analysis. Brian Graboske, President of Black Knight, had an interesting point about the relationship between rates and inventory. “Though seemingly counterintuitive, the much higher rate environment may be limiting the pace of price corrections due to its dampening effect on inventory inflow and subsequent gridlock in home sale activity. While the median home price is now 3.2% off its June peak – down 1.5% on a seasonally adjusted basis – in a world of interest rates 6.5% and higher, 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.”