money Home price growth slows at record pace in June
The pace of home price growth decelerated at a record amount in June, a new report found, as higher borrowing costs weakened demand from buyers.
Home prices grew 17.3% year over year in June, according to mortgage technology and data provider Black Knight, down from a 19.3% gain the month prior. That’s the third straight month that home prices have slowed and the 2 percentage point decline in growth from May to June marked the largest single-month drop on record since the early 1970s.
The slowdown in price appreciation cut across the top 50 metros, the report found, and underscored how many would-be buyers facing tough conditions have put their purchase plans on ice.
“While inflation and looming fears of a recession may be in the back of prospective homebuyers’ minds, the primary driver behind the slowing housing market is rising interest rates and tightening affordability,” Andy Walden, vice president of enterprise research and strategy at Black Knight, told Yahoo Money. “With home affordability now at its lowest level in nearly 40 years you’re seeing a noticeable pullback in demand, which is allowing inventory to resurface and prices to soften.”
But the market is still far from balanced with price growth returning to long-run averages only after six more months of the same pace of deceleration, according to Black Knight. More inventory is also still needed to normalize the market.
Home prices drop in some markets
The quickest-cooling market in June was San Jose, California, where home values dropped by 5.1% from its recent peak of $1.56 million in April, a price reduction of $75,300, according to Black Knight.
Seattle followed suit, registering a 3.8% drop in home prices over the same period, a price cut of more than $30,000. After that, San Francisco (down 2.8%, or $35,000), San Diego (down 2%, or $19,500), and Denver (down 1.4%, or $8,700) rounded out the top five largest metro areas with the largest price drops.
Overall, home prices edged down in 12 of the 50 largest markets, according to Black Knight, with seven pulling back by 1% or more.
Still, this is just the tip of the iceberg when it comes to a slowdown in home price growth. According to Ben Graboske, Black Knight’s data analytics president, the traditional home price indexes have yet to factor in recent interest rate hikes. It should take the housing market five months to digest the full blow of rising rates before the home price growth rate sinks further.
While this is good news for would-be buyers, it may be a bitter pill for those that purchased recently at top market value. Nearly 10% of mortgages were purchased over the last year, the report said, and recent price cuts may affect borrowers who bought at recent highs.
“Those who’ve purchased recently may feel the strongest effect from price softening, with impacts varying widely depending on location and the amount of leverage both in terms of price as well as income used to purchase the home,” Walden said. “It’s important to keep in mind that while the market is cooling, prices still hit yet another record high nationally in June, despite some markets beginning to pull back from recent peaks.”
Inventory levels improve, but remain far from balanced
While home inventory levels jumped 22% for an increase of 114,000 homes listed for sale within the last two months, those levels remain 54% below 2017-2019 averages, according to Black Knight.
San Francisco became the first metro area to see its inventory levels return to pre-pandemic levels after registering a 32% inventory shortage at the start of the year. San Jose came in second, just 1% shy of normal levels after kicking off the year with a 50% deficit.
Other metro areas that are restoring pre-pandemic inventory levels included Las Vegas – which started the year at a 40% shortage and is now 7%, as of June. Seattle’s housing shortage also dropped from 69% to 13% this year. Last, Phoenix and Austin saw its inventory levels deficit cut in half within the last two months.
Overall, inventory increased from 1.7 months worth of supply at the start of the year to 2.6 months as of June. At least 6 months of inventory are needed for a balanced market.
“With a national shortage of more than 700,000 listings, it would take more than a year of such record increases for inventory levels to fully normalize,” Graboske said in a press statement.
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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