Tight inventory levels have spurred unprecedented home-price growth rates, resulting in profound home affordability concerns, according to the newest Mortgage Monitor Report from Black Knight Inc.’s Data & Analytics division.
“Home prices grew at 14.8 percent on an annual basis in April,” says Ben Graboske, Black Knight Data & Analytics’ president. “That’s the highest annual home price growth rate we’ve ever seen – and Black Knight’s been tracking the metric for almost 30 years now.”
Single-family homes prices are up 15.6% from last April, while condo prices are up 10%. The total number of active listings was down 60% from the 2017 to 2019 average for April, while there were two months’ worth of single-family inventory nationwide in March – the lowest share on record. Moreover, there were 26% fewer newly listed properties in April as compared to pre-pandemic seasonal levels.
“Such aggressive home price growth has had an impact on affordability levels, even with interest rates back under 3 percent and within roughly a quarter point of historic lows,” Graboske adds. “While still more affordable than the 25-year average of 23.6 percent, housing has surpassed its five-year average of 20.1 percent.
“In recent years, 20.5 percent has roughly been the tipping point at which appreciation begins to decelerate, but given the severity of inventory shortages, home prices have – at least for now – continued to sharply accelerate even in the face of tightening affordability.”
Should home price appreciation continue at its current rate and 30-year rates slowly rise to 3.5% by the end of 2022, the national payment-to-income ratio would hit 21.6% by the end of this year and 25% by 2022. This suggests that even if rates remain low over the next 18 months, the current rate of home price growth isn’t sustainable.
At 4% by the end of 2022, affordability would hit 22% by the end of this year and 26.7% by the end of 2022.
If home values continued to rise at their current rate and 30-year rates rose to 4.5% by the end of next year – still historically low – the payment-to-income ratio would rise to 22.5% by the end of this year and climb above 28% by the end of 2022.
However, this may not represent actual market behavior, as rising rates and tightening affordability may ultimately result in deceleration of home price growth below today’s levels, according to Black Knight.
More details can be found in the full report.