Housing demand fell significantly in June as a result of higher mortgage rates and general economic inflation, which led to a slowdown in home prices.
According to Black Knight, a company that provides mortgage software, data, and analytics, home prices are still higher than they were a year ago, but the increases decreased in June at the fastest rate ever recorded. Black Knight started keeping track of this statistic in the early 1970s. From 19.3 percent to 17.3 percent, the yearly pace of price appreciation decreased by two percentage points.
Supply and demand are still out of balance, which is why price increases are still significant. Since years, there has been a serious shortage on the property market. It was made worse by the coronavirus pandemic's high demand.
Even with the severe decline in housing values that occurred during the recession of 2007–2009, the biggest monthly slowdown was 1.19 percentage points. Given a healthier housing market overall, it is not anticipated that prices will decline countrywide, but rising mortgage rates are undoubtedly having an impact.
According to Mortgage News Daily, the 30-year fixed mortgage's average rate went over 6% in June. Although it has subsequently reverted to the lower 5% range, it is still much higher than the 3% range rates that prevailed at the beginning of this year.
According to Ben Graboske, president of Black Knight Data & Analytics, "the downturn was broadly based among the top 50 markets at the metro level, with some locations suffering even more significant cooling." In reality, growth slowed by three percentage points in 25% of the country's largest markets in June, and by four points or more in four other cities in that month alone.
Even though this was the nation's steepest cooling on record, Graboske estimated that it would still take six more months for price increases to return to long-term averages. According to his estimation, it takes around five months for the effects of interest rates to fully appear in housing values.
The markets with the steepest price declines were formerly those with the highest prices in the country. The largest decline of any of the top areas occurred in San Jose, California, where average property values dropped by 5.1 percent during the past two months. That reduced the cost by $75,000
Prices in Seattle have decreased by $30,000, or 3.8 percent, during the last two months. Denver, San Diego, and San Francisco make up the final three markets with the largest price reductions.
According to Black Knight, the dramatic increase in the supply of properties for sale, up 22% over the last two months, is occurring at the same time that prices are falling. However, inventory is still 54% lower than it was in 2017–19.
"It would take more than a year of such record increases for inventory levels to fully normalize with a national shortfall of over 700,000 listings," said Graboske.
Because homeowners currently have significantly more equity than they had during the Great Recession, price declines will not have as great of an impact on the average homeowner. Home equity levels reached historic highs as a result of stringent lending standards and several years of rapid price growth.
Despite this, some may have issues because of the recent increase in market demand. Price decreases could cause some borrowers to edge significantly lower in their equity positions since about 10% of mortgaged properties were acquired in the previous year.
This article was contributed on Aug 02, 2022
