For the first time in nearly three years, home prices declined 0.77% from June to July according to Black Knight’s Home Price Index. Black Knight is a mortgage software, data and analytics firm. While the drop may be small at less than 1%, it is the largest single-month decline in prices since the beginning of 2011. This is also the second-worst July performance dating back over 30 years, behind the 0.9% decline in July 2010, during the Great Recession.
The sudden rise in mortgage rates this year aided an already expensive housing market in becoming even less affordable. The price of homes rose abruptly during the first year of the pandemic because demand was strong while supply was historically weak with record low mortgage rates.
Currently, housing affordability is at its lowest level in 30 years. According to Black Knight, buying a house requires 32.7% of the median household income to purchase the average home using a 20% down payment with a 30-year mortgage. This is about 13% more than the median income required entering the pandemic in 2020 and much more than both of the years before and after the Great Recession. 23.5% is the 25-year average.
“We’ve been advising for quite some time that the dynamic between interest rates, housing inventory and home prices was untenable from an affordability perspective, and at some point, something would have to give,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.
He went on to say: “We’re now seeing exactly that, with July’s data providing clear evidence of a significant inflection point in the market. Further price corrections are likely on the horizon as we move into what are typically more neutral seasonal months for the housing market.”
Historically, prices rise on average 0.4% between June and July due to the market being heavily weighted by families buying larger homes. Most families prefer moving during the summer when the kids are on summer break.
Home prices were still 14.3% higher in July than they were a year prior. This is more than three times the historical annual price growth. However majority of that growth took place in the beginning of 2022 before interest rates increased. The average rate on a 30-year fixed mortgage began this year around 3%. Each month it slowly climbed before sharply rising to over 6% in June. Right now interest rates are around 5.75%
More than 85% of major markets have seen prices come off their peaks through July. The top 5 cities seeing the steep decline in pricing over the last few months were San Jose, CA at 10%. Seattle, WA was down by 7.7%. San Francisco, San Diego, and Los Angeles saw price drops by 7.4%, 5.6% and 4.3% respectively.
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