Home Prices Suddenly Jump After 7 Months Of Declines

A "for sale" sign hangs in front of a home in Miami, Fla., on June 21, 2022. Joe Raedle/Getty Images

U.S. home prices have suddenly jumped after seven months of declines, according to a recent report.

Home prices rose 0.16 percent nationally in February compared to January, when adjusted for seasonality, according to Black Knight’s latest Mortgage Monitor Report from April 3.

This was the first monthly increase after seven months of declining housing costs.

A fall in mortgage rates could have made housing more affordable for buyers in February, but it instead sparked a rise in demand that, combined with low inventory levels, added more pressure on U.S. home prices nationwide.

Meanwhile, the U.S. annual home price growth rate fell to 1.94 percent in February, the first time it fell below 2 percent since 2012. 

Analysts at Black Knight still expect the annual home price growth rate to fall to zero by April, but that would only be a “temporary milestone,” if continued low inventory persists and mortgage rates ease.

However, the scarce supply of inventory, which is causing the bulk of the “market gridlock” is, unfortunately, failing to improve, said Walden.

A view of houses in a neighborhood in Los Angeles, Calif., on July 5, 2022. Frederic J. Brown/AFP via Getty Images

Inventory levels continue to drop, as the seasonally adjusted number of homes available for sale fell for the fifth consecutive month to their lowest level since May 2022, while new listings fell 27 percent below pre-pandemic levels.

“Without a significant shift in interest rates, home prices or household income, this is a self-fulfilling dynamic that is quite likely to continue for some time,” Walden said.

Furthermore, 47 of 50 housing markets have seen their active listing numbers decline that month.

Sales Rise, Despite Price Gains

Sales had risen for the month as interest rates eased, but remained 18 percent below 2019 pre-pandemic averages, as skyrocketing prices continued to weigh on demand, according to Black Knight’s Collateral Analytics data.

Home prices were -2.6 percent off their 2022 seasonally adjusted peak in February, slightly improving from the -2.7 percent in January.

At least 39 out of the 50 largest markets saw home prices increase on an adjusted basis that month, compared to a fall in prices last November, in 48 of 50 markets.

“The purchase market increased when rates declined in the early part of the month, and borrowers were quick to take advantage of limited inventory,” said Andy Walden, Black Knight’s Vice President of Enterprise Research.

“In many areas of the country, that dynamic—low inventory and a modest rise in demand—led to an uptick in home prices.”

The improvement in pricing also helped shore up available homeowner equity levels, which are now $1.6 trillion off-peak or-15 percent.

An 'open house' flag outside a single-family home in Los Angeles, Calif., on Sept. 22, 2022. Allison Dinner/Getty Images

Altogether, homeowners with mortgages still held $9.3 trillion in tappable equity available in February amid rising home prices, said the analysts.

The average mortgage holder still has $178,000 in tappable equity, despite a decline from $210,000 in early 2022, which can be used to borrow against while retaining a healthy 20 percent equity stake in their properties.

Purchases Remain Depressed

The report said as of the week ending on March 18, purchase lock counts were 21 percent lower compared to the same week in 2019 and 30 percent below the levels for the same week in 2018.

Black Knight’s Optimal Blue‘s 30-year conforming rates fell to 6.54 percent on March 13, after the recent bank failures, after falling 6.73 percent earlier in the month.

Purchase lock volumes also spiked to levels not seen since July 2022.

Refinance volumes remained low at 12.5 percent of rate locks, with cash-outs only taking up 7.1 percent of the total.

Approximately 33.2 percent of a median household income was required to make the monthly principal and interest payments on the average home purchase in February, according to Black Knight.

That was roughly equivalent to the market’s historical peak in 2006 and well above the long-run average of about 25 percent.

The researchers estimate that affordability would eventually return to the long-run average with a 10 percent drop in home prices, with 5.25 percent interest rates on a 30-year mortgage and  5 percent income growth, or another combination of the above.

The national delinquency rate also rose 0.70 percentage points to 3.45 percent in February, a year-over-year drop of 13 percent.

March historically witnesses the most significant monthly improvement in mortgage delinquency rates, according to Black Knight, as borrowers use tax refunds to catch up on their mortgage payments.

However, smaller refunds from the IRS this year and increased economic pressures on households may dampen serious improvements in the market.