Falling home prices and rising interest rates are pushing 275,000 borrowers into negative equity

Home prices in the US saw their biggest drop in 11 years, down as much as 4 percent, putting hundreds of thousands of borrowers at risk of going under water – and those buying on the West Coast were hit hardest.

Mortgage analysis firm Black Knight, in its latest monthly mortgage report this week, saw average home values ​​fall 0.77 percent nationwide between June and July, the largest monthly decline since January 2011.

More than 85 percent of America’s largest housing markets are at least slightly off their highs, and more than one in 10 — mostly along the West Coast — are seeing price declines of 4 percent or more.

The company’s president, Ben Graboske, said 31 consecutive months of rising prices ended in July. He warned that the real estate market is characterized by “volatility and rapid changes”.

California’s tech hub San Jose has seen the biggest price drop, with homes there losing 10 percent in value in three months.

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

Housing prices in West Coast metropolitan areas are expected to fall due to an abundance of properties on the market as people move away due to high crime rates, taxes and environmental issues such as drought and wildfires.

West Coast-headquartered tech companies are also pioneers in allowing employees to work from home even after the pandemic has subsided, freeing many there of the need to live close to their office.

The report offered grim forecasts for hundreds of thousands of borrowers who bought at the peak of the market in the first half of 2022 and are now seeing prices fall amid rising mortgage rates.

Prices have fallen amid a recent hike in mortgage rates. A 30-year fixed-rate mortgage currently costs 5.66 percent interest — nearly three points up from the same period last year, according to federal government lending company Freddie Mac.

The Federal Reserve is poised to hike interest rates another 0.75 percentage point this month to tame inflation.

Another 5 percent drop in home prices would leave 275,000 borrowers and 0.9 percent of homes under water — also known as negative equity — if the amount they owe is more than the property’s fair market value, researchers said.

A flat 10 percent drop in value would push the negative equity ratio down to 1.9 percent, and a 15 percent nosedive would drown 3.7 percent of borrowers, the report says.

Still, the researchers noted that the housing market has come off its long-time highs and was “in a strong position to absorb such price declines.”

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

Still, concerned property owners have taken to social media to express their fears of slipping underwater. One user warned that rate hikes are “devastating for young families” who have only recently managed to climb the property ladder.

Another asked how many borrowers “would soon be under water” due to falling prices and rising interest rates, while another warned of “2008 all over” and a market crash, defaults and evictions.

Goldman Sachs economists recently warned that US home price growth is likely to come to a complete halt next year due to slowing demand and too much property to buy.

Mark Zandi, chief economist at Moody’s Analytics, warned last month that house prices could fall by as much as 20 percent next year if there is a recession, and that prices in parts of the country are overvalued by as much as 72 percent.