House prices fell at record pace in June, according to housing data agency

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A sign is posted for a home for sale on July 14, 2022 in San Francisco, California. The number of homes for sale 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 caused housing demand to fall sharply in June, causing house prices to cool.

Home prices are still higher than a year ago, but according to Black Knight, a mortgage software, data and analytics firm that began tracking this metric in the early 1970s, increases slowed at their fastest pace ever in June. The annual price increase decreased by two percentage points from 19.3% to 17.3%.

The price increases are still strong due to an imbalance between supply and demand. The housing market has been in acute shortage for years. Strong demand during the coronavirus pandemic exacerbated these.

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Even as house prices collapsed dramatically during the 2007-09 recession, the strongest one-month slowdown was 1.19 percentage points. Prices are not expected to fall nationwide given a stronger overall housing market, but higher mortgage rates are certainly taking their toll.

According to Mortgage News Daily, the average interest rate on the 30-year fixed mortgage exceeded 6% in June. Since then, it has fallen back into the lower 5% range, but that’s still significantly higher than the 3% range at the start of this year.

“The slowdown was broad across the top 50 metro-level markets, with some areas experiencing even more 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 slowdowns in that month alone.”

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While this was the strongest slowdown nationally, Graboske said the market would have to experience another six months of this kind of slowdown to return price growth to its long-term average. He calculates that it will take about five months for interest rate effects to be fully reflected in house prices.

Markets that see the sharpest declines are those that previously had the highest prices in the country. Average home values ​​in San Jose, California, have fallen 5.1% in the past two months, the largest drop of any top market. That cut $75,000 off the price.

In Seattle, prices are down 3.8% in the past two months, or a $30,000 cut. San Francisco, San Diego and Denver round out the top five markets with the largest price cuts.

The price drop has coincided with a sharp rise in the supply of homes for sale, up 22% in the past two months, Black Knight said. However, the stock is still 54% lower than the 2017-19 level.

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“With a national shortage of more than 700,000 offers, it would take more than a year of such record-breaking increases for inventory levels to fully normalize,” Graboske said.

Price drops won’t affect the average homeowner as much as they did during the Great Recession because homeowners today have significantly more equity. Tight underwriting and several years of strong price gains drove equity to record highs.

Despite this, the strong demand in the market lately may be a problem for some. About 10% of mortgaged properties were purchased in the past year, so price drops could cause some borrowers to find themselves much lower in their equity positions.

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