More than 250,000 homebuyers will be in foreclosure by 2022

(NewsNation) — More than 250,000 borrowers who bought a home this year now owe more than their home is worth today, according to a new analysis.

Reportmortgage data firm Black Knight found that 1 million other homebuyers in the first nine months of the year had “limited equity,” owning less than 10% of their home.

The findings reflect a real estate market that has seen home prices cool in recent months at a time when mortgage rates have risen rapidly.

“There has been a clear division of risk between mortgaged homes purchased relatively recently and homes purchased at or before the start of the pandemic,” said Ben Graboske, president of Black Knight Data & Analytics.

Graboske noted that negative equity rates are still well below historical averages and the pace of cooling has slowed recently.

Homebuyers at the peak of the market between May and July will face equity challenges today. Black Knight found that nearly one in three July homebuyers now face negative equity or limited equity (owning less than 10% of their home).

That doesn’t mean it’s time to panic. Most recent buyers will simply wait and hope that their home’s value will rebound by the time they are ready to sell.

“For most people, these changes don’t have an immediate economic impact,” said Laurence Kotlikoff, an economics professor at Boston University.

Others in the industry have pointed out that even limited capital provides an advantage that the alternative does not.

“Housing is not a short-term investment, and renting does not create any equity,” said James Martin, who will serve as chairman of the National Association of Realtors’ Federal Finance and Housing Policy Committee in 2023.

Black Knight found that borrowers supported by the Federal Housing Administration (FHA) or Veterans Affairs (VA), which are popular with first-time and low-income buyers, are more likely to go under. More than 20% of these loans originating in 2022 are “marginally underwater.”

Martin noted that veterans and buyers with FHA mortgages have a slight advantage in a higher interest rate environment because of the likely loans that allow them to sell their homes at their purchase prices.

Martin said the recent drop in mortgage rateswhich has fallen since hitting a 10-year high in early November, suggesting that house prices will rise and that equity fears will be “less of a concern” going forward.

There’s another thing working in homeowners’ favor: a lack of inventory.

Graboske noted that the overall market is about half a million listings behind what is considered normal. This reality has counterbalanced other factors that could further depress home prices.

Today, the median home price is 3.2% below its June peak, but interest rates are higher than they have been for most of the year.

“Affordability remains near 35-year lows,” Black Knight found.