Hundreds of thousands of borrowers are at danger of slipping into default as a result of the largest decrease in home values in the United States in 11 years, with those who purchased along the West Coast being the hardest affected.
In its most recent monthly mortgage report, released this week, mortgage analytics company Black Knight noted a statewide decline in median house prices of 0.77 percent between June and July, the worst month-over-month decline since January 2011.
More than 85% of the largest housing markets in America are at least marginally off their peaks, and more than 10% — largely along the West Coast — are seeing price declines of at least 4%.
According to the company’s president Ben Graboske, the 31 straight months of price increases ended in July. He issued a warning about the market’s “volatility and quick shift” as well as concerning developments.
The largest price decline was in San Jose, a centre of technology in California, where houses lost 10% of their value in only three months.
During the same time span, Seattle (7.7%), San Francisco (7.4%), San Diego (5.6%), Los Angeles (4.3%), and Denver (4.2%) also had severe drops.
For the thousands of buyers who made their purchases at the market’s apex in the first half of 2022 and are now seeing price declines due to rising mortgage rates, the research had bleak predictions.
Despite a recent rise in mortgage rates, prices have decreased. According to the federal government’s lending firm, Freddie Mac, the interest rate on a 30-year fixed-rate mortgage presently stands at 5.66 percent, an increase of over three percentage points from the same time last year.
In an effort to control inflation, the Federal Reserve plans to increase interest rates this month by an additional 0.75 percentage point.
Researchers found that a 5 percent decline in house values would cause 275,000 borrowers and 0.9 percent of homeowners to go into negative equity, or when the amount owed exceeds the property’s fair market worth.
According to the analysis, a 10 percent general drop in prices would raise the negative equity percentage to 1.9 percent, and a 15 percent plunge would leave 3.7 percent of borrowers underwater.
However, the housing market was coming off long-term highs and was “in a great position to sustain such price falls,” according to academics.
Such price cuts, as we’ve previously seen, would only be noticed in a few places, particularly those around the western coast of the United States. the research claimed.
Even so, concerned property owners have expressed their worries about sinking on social media. One user worried that interest rate rises were ‘devastating to young families’ who had just recently managed to climb on the housing ladder.
Another asked how many borrowers would “be underwater soon” as a result of declining home values and increasing interest rates, while another expressed concern that things would “be like 2008 all over again” with a market crash, defaults, and evictions.
Goldman Sachs economists recently issued a warning that weakening demand and an abundance of available homes were projected to cause house price rise in the United States to totally stop next year.
The head economist for Moody’s Analytics, Mark Zandi, issued a warning last month, stating that certain areas of the country’s values were up to 72 percent overpriced and that if there is a recession, home prices may fall by as much as 20 percent the next year.