A sign is posted in front of a home for sale on July 14, 2022 in San Francisco, California. The number of homes for sale in the US grew 2 percent in June for the first time since 2019.
Justin Sullivan | Getty Images
Housing demand fell sharply in June due to rising mortgage rates and inflation in the broader economy, easing home prices.
Home prices are still higher than a year ago, but gains slowed at the fastest pace on record in June, according to Black Knight, a mortgage software, data and analytics firm that developed this metric in the early 1970s. started tracking. The annual rate of price increase fell two percentage points from 19.3% to 17.3%.
The price advantage is still strong due to the imbalance between supply and demand. The housing market has been sorely lacking for years. Strong demand during the coronavirus pandemic added to this.
Even when home prices fell dramatically during the 2007-09 recession, the strongest one-month slump was 1.19 percentage points. Given a strong overall housing market, prices are not expected to drop nationally, but higher mortgage rates are certainly taking their toll.
According to Mortgage News Daily, the average rate on 30-year fixed mortgages rose to more than 6% in June. It has since returned to the low 5% range, but it is still significantly higher than the 3% range rates earlier this year.
“The slowdown was broad-based in the top 50 markets at the metro level, with some areas experiencing even more pronounced cooling,” said Ben Graboschke, president of Black Knight Data and Analytics. “In fact, 25% of the major US markets saw slow growth of three percentage points in June, with four falling four or more points in that month alone.”
Still, while it was the sharpest cooling on record nationally, according to Graboschke, the market will have to see six more months of such a slowdown for price growth to return to the longer-term average. He calculates that it takes about five months for home prices to fully reflect the effects of interest rates.
The markets that saw the sharpest fall are those whose prices were the highest in the country earlier. Average home values in San Jose, California, have fallen 5.1% over the past two months, the biggest drop of any top market. This took $75,000 off the price.
In Seattle, prices are down 3.8%, or $30,000, over the past two months. San Francisco, San Diego and Denver round out the top five markets with the biggest price cuts.
According to Black Knight, the cooling of prices coincides with a sharp 22% jump in the supply of homes for sale in the past two months. However, the inventory is still 54% lower than the 2017-18 level.
“With a national shortfall of more than 700,000 listings, it will take more than a year for such record growth to fully normalize inventory levels,” Graboschke said.
Drop in prices won’t affect the average homeowner as much as they did great recession, because today homeowners have a lot of equity. Tight underwriting, and several years of strong price appreciation pushed home equity levels to record highs.
Despite this, the recent strong demand in the market may present a problem for some. About 10% of mortgaged properties were purchased in the previous year, so some borrowers may see little gain in their equity position due to the fall in prices.