Falling house prices and rising interest rates push 275,000 borrowers into negative equity

Home prices in the United States take the BIGGEST drop in 11 years, up to 4% – leaving hundreds of thousands of owners at risk of going UNDERWATER – and the West Coasts are the most affected

  • Home values ​​fell for the first time in 31 months between June and July
  • Properties along the West Coast see prices fall by 4% or more
  • San Jose, Seattle, San Francisco, San Diego, Los Angeles and Denver experienced significant declines in value
  • The Fed looks set to raise interest rates another 0.75 percentage point this month in a bid to keep inflation under control
  • Another 5% drop in house prices would push 275,000 borrowers underwater
  • Those who bought along the West Coast in the first half of 2022 are at greatest risk of falling into negative equity

Advertising

U.S. home prices posted their biggest drop in 11 years, up to 4%, leaving hundreds of thousands of borrowers at risk of going underwater – and those who bought along the west coast are the hardest hit.

Mortgage analysis firm Black Knight checked in a national drop of 0.77% in median home values ​​between June and July, the largest month-over-month drop since January 2011 in its latest monthly mortgage report this week.

More than 85% of America’s biggest real estate markets are at least slightly off their highs, and more than one in ten — mostly along the West Coast — are seeing prices drop 4% or more.

Company chairman Ben Graboske said 31 consecutive months of rising prices ended in July. He warned that the real estate market was characterized by “volatility and rapid change”.

California’s tech hub of San Jose has seen the biggest drop in prices, with homes there losing 10% of their value in three months.

More than one in ten homes have seen their value drop by 4% or more since the market peak, mostly along the West Coast.

California's tech hub of San Jose has seen the biggest drop in prices, with homes there losing 10% of their value over three months

California’s tech hub of San Jose has seen the biggest drop in prices, with homes there losing 10% of their value over three months

Sharp declines were also seen in Seattle (7.7%), San Francisco (7.4%), San Diego (5.6%), Los Angeles (4.3%) and Denver (4.2%) during the same period.

Real estate prices along the west coast metropolitan areas are expected to decline due to a glut of properties on the market as people leave due to everything from high crime rates, taxes and problems environmental factors such as drought and forest fires.

Tech companies headquartered along the West Coast are also at the forefront of enabling employees to continue working from home even as the pandemic recedes, freeing many from the need to live close to home. their office.

The report offered a grim forecast for hundreds of thousands of borrowers who had bought at the peak of the market in the first half of 2022 and now saw prices fall as mortgage rates rose.

Prices have fallen amid a recent spike in mortgage rates. A 30-year fixed-rate mortgage is currently charging 5.66% interest, up nearly three points from the same time last year, according to federal government loan company Freddie Mac.

The Federal Reserve is set to raise interest rates another 0.75 percentage points this month in a bid to keep inflation under control.

A further 5% drop in home prices would push 275,000 borrowers and 0.9% of homes underwater – also known as negative equity – when the amount they owe is greater than fair market value of the property, the researchers said.

A 5% drop in home prices would push 275,000 borrowers and 0.9% of homes underwater – also known as negative equity – when the amount they owe is greater than the fair market value of the property

A 5% drop in home prices would push 275,000 borrowers and 0.9% of homes underwater – also known as negative equity – when the amount they owe is greater than the fair market value of the property

A 10% general drop in values ​​would push the negative equity rate to 1.9%, and a 15% drop would leave 3.7% of borrowers underwater, the report said.

Still, the researchers noted that the housing market had just reached long-standing highs and was “in a strong position to absorb such price declines.”

“Such price declines, as we have already seen, would not be felt universally across the country and would be concentrated in certain markets – see the West Coast of the United States,” the study said.

Still, worried owners have taken to social media to voice their fears of slipping underwater. One user warned that the interest rate hikes were “devastating for young families” who had only recently made it onto the property ladder.

Another asked how many borrowers would be ‘soon underwater’ due to falling prices and rising interest rates, while another warned of ‘2008 again’ and a market crash, defaults and evictions.

Goldman Sachs economists recently warned that home price growth is likely to come to a complete halt in the United States next year due to falling demand and too many properties up for grabs.

Mark Zandi, chief economist at Moody’s Analytics, warned last month that house prices could fall as much as 20% next year in the event of a recession, and that prices in some parts of the country were overvalued by up to at 72%.

Advertising

Comments are closed.