Home affordability falls to near 37-year low: Black Knight

It's no surprise it's a bad time to buy a home, but June was close to the worst month for affordability in 37 years, a Black Knight analysis found.

Homebuyers last month had to contribute 35.7% of the median household income to afford the monthly payment and interest for an average-priced home, according to Black Knight's May Mortgage Monitor. Alongside high mortgage rates, home prices are showing signs of reheating despite mild inventory gains. 

"As it stands, housing affordability remains dangerously close to the 37-year lows reached late last year, despite the Federal Reserve's attempts to cool the market," said Andy Walden, president of enterprise research at Black Knight, in a press release.

Under Black Knight's scenario, a 30-year fixed rate mortgage with a 20% downpayment and a 6.67% rate as of June 22, homebuyers had to pay $2,258 per month in P&I. That's higher than the $2,234 figure from last October, before income levels grew this year.

Mortgage rates meanwhile continue to hover over 6.7% as the spread between 10-year Treasurys and 30-year fixed-rate mortgages remains just under 300 basis points. Lenders are also tightening credit while loan-to-values ratios fell across all product types, Black Knight said. 

Borrowers are putting more money toward their home loans, sending the prepayment rate up 23.1% month-over-month to 0.54% overall, the highest rate since last September. They're also paying on-time more often, sending the delinquency rate down 11 basis points month-over-month to near record lows at 3.10%, Black Knight found. 

Homeowners with government-insured loans however are showing signs of distress. Federal Housing Administration loans account for 43% of all delinquencies, the largest share on record since 2000, according to Black Knight. Department of Veterans Affairs mortgages also accounted for 9% of delinquent mortgages in recent months, its highest share in 21 years. Foreclosures were also up 2.2% from April to May, with 25,400 starts, but are down 41% from pre-pandemic levels.

Over two dozen of the nation's largest metros, mostly in the Midwest and Northeast, are seeing home prices reach previous peaks or reach new heights, as values continue to inch up. The seasonally adjusted price rose 0.7% in May, according to Black Knight. 

Much-needed inventory is on the way, although single-family residential units only make up 40% of the pipeline alongside multifamily properties of 5 units or greater. Inventory has also decreased in 95% of major markets so far this year, according to Black Knight. Overall for-sale inventory is still over 50% down from pre-pandemic pipelines. 

Rising rates have kept potential home sellers at bay, further exacerbating the home price problem, Walden said. 

"At this point, even if rates come down, but not so sharply as to entice potential sellers out of their sub-3.5% mortgages, it could risk a widespread reheating of home prices across the U.S.," he said.