A sign is posted outside a home for sale on July 14, 2022 in San Francisco, California. The number of homes sold in the US rose 2 percent in June for the first time since 2019.
Justin Sullivan | Getty Images
Rising mortgage rates and inflation in the broader economy led to a sharp drop in demand for housing in June, forcing home prices to cool.
Home prices are still higher than a year ago, but gains fell at a record pace in June, according to Black Knight, a mortgage software, data and analytics firm that began tracking the metric in the early 1970s. The annual rate of price increase decreased by two percentage points from 19.3% to 17.3%.
Price increases are still strong due to the imbalance between supply and demand. There has been a serious shortage in the housing market for years. It was fueled by strong demand during the coronavirus pandemic.
Even when home prices fell sharply during the 2007-09 recession, the strongest one-month slowdown was 1.19 percentage points. Prices aren’t expected to drop nationally given the stronger overall housing market, but higher mortgage rates are certainly taking their toll.
According to Mortgage News Daily, the average rate on a 30-year fixed mortgage topped 6% in June. It has since fallen back into the low 5% rangehowever, this is still well above the 3% range rates that existed earlier this year.
“The slowdown was broad-based among the top 50 metro-level markets, with some areas experiencing an even sharper cooling,” said Ben Graboske, president of Black Knight Data & Analytics. “In fact, 25% of major US markets saw growth slow by three percentage points in June, and four saw growth slow by four or more points in that month alone.”
Still, while this is the sharpest cooling on record nationally, the market will need to see another six months of this kind of slowdown for price growth to return to long-term averages, according to Graboske. He estimates that it will take about five months for interest rate effects to be fully reflected in home prices.
The markets that have seen the sharpest declines are those that previously had the highest prices in the country. Median home prices in San Jose, Calif., fell 5.1% over the past two months, the largest decline of any of the top markets. That’s $75,000 off the price.
Prices in Seattle are down 3.8% or $30,000 in the last 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 jump in the supply of homes for sale, which has increased by 22% in the past two months. However, inventory is still 54% below 2017-19 levels.
“With a national shortage of more than 700,000 listings, it will take more than a year for inventory levels like these to fully normalize,” Graboske said.
Falling prices will not affect the average homeowner as much as it did at that time The Great Recession, because homeowners today have more equity. Tight underwriting and several years of strong price growth have driven home equity levels to record highs.
However, the recent strong demand in the market may pose a problem for some. About 10% of mortgaged properties were purchased last year, so the fall in prices could cause some borrowers to see their equity positions significantly reduced.
