Adobe Stock / Damir Khabirov

According to Black Knight Data & Analytics division’s Mortgage Monitor report, of all homes purchased with a mortgage in 2022, 8% are at least marginally underwater. Additionally, nearly 40% have less than 10% equity stakes in their home, while equity risk for those who bought 12 or more months ago remains minimal.

“Of the 450,000 underwater borrowers at the end of Q3, the mortgages of nearly 60% had been originated in the first nine months of 2022—and these were overwhelmingly purchase loans. All in, 8% of purchase mortgages originated thus far in 2022 are now marginally underwater, with another 20% in low equity positions,” explains Black Knight Data & Analytics president Ben Graboske.

“Among FHA purchase mortgage holders specifically, more than 25% have slipped underwater and more than three-quarters have less than 10% equity. This is an illustrative and, unfortunately, potentially vulnerable cohort that we will continue to keep a close eye on in the months ahead.” Early-payment defaults have risen among FHA borrowers this year to reach the highest level since 2009, excluding the months in the immediate beginning of the pandemic.

Negative equity rates sit at just 0.84% among all mortgaged properties, which remain extremely low by historical standards. Annualized appreciation slowed to 9.3% from 10.7% in September, marking the seventh consecutive month of cooling, but the smallest decline since May, the report says.

Black Knight’s HPI revealed that home prices have continued to pull back in October, but the month’s 0.43% decline (seasonally adjusted at 0.13%) was the smallest since prices peaked in June. Graboske says, “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.”

The pace of price decline has slowed due to the stagnant levels of for-sale inventory, Graboske notes. The new for-sale listings volume in October was 19% below 2017-2019 levels, which is the largest deficit in six years, outside of March and April 2020. The report shares that the overall market is still more than 500,000 listings short of what Black Knight considers “normal” by historical measures.