An aerial view from a drone shows homes in a neighborhood on January 26, 2021 in Miramar, Florida. According to two separate indices, existing house prices rose to the highest level in 6 years.
Joe Raedle | Getty Images
Home prices fell 0.77% from June to July, the first monthly drop in nearly three years, according to Black Knight, a mortgage software, data and research firm.
While the drop may seem small, it is the largest one-month decline in prices since January 201[ads1]1. It is also the second-worst July performance dating back to 1991, behind the 0.9% decline in July 2010, during the Great the recession.
The sharp and rapid increase in mortgage interest rates this year led to an already expensive housing market becoming even less affordable. Home prices soared during the early years of the Covid pandemic because demand was incredibly strong, supply historically weak and mortgage interest rates hit more than a dozen record lows.
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Housing affordability is now at its lowest level in 30 years. It takes 32.7% of the median household income to buy the average home using a 20% down payment on a 30-year mortgage, according to Black Knight. That’s about 13 percentage points more than it did entering the pandemic and significantly more than both the years before and after the Great Recession. The average for 25 years is 23.5%.
“We’ve been advising for quite some time that the dynamics between interest rates, home inventory and home prices were unsustainable from an affordability perspective, and at some point something was going to have to give,” said Andy Walden, vice president of enterprise research. and strategy at Black Knight.
“We are now seeing exactly that, with July’s data providing clear evidence of a significant turning point in the market,” he added. “Further price corrections are likely on the horizon as we move into what are typically more neutral seasonal months for the housing market.”
Prices historically rise by an average of 0.4% between June and July, because the market is heavily weighted towards families buying larger and more expensive homes. Families like to move in the summer, when school is out.
Even during the Great Recession, home prices typically rose marginally from March to May, due to the seasonality of the market. All of the price declines during that era occurred in the months from July to February.
Some local markets have seen even steeper declines in recent months. San Jose, California saw the biggest, with home prices now down 10% in recent months, followed by Seattle (-7.7%), San Francisco (-7.4%), San Diego (-5.6%), Los Angeles (-4.3%). %) and Denver (-4.2%).
House prices were still 14.3% higher in July compared to July 2021, which is more than three times the historical annual price increase, but most of this growth took place over the first five months of 2022, before the big rise in mortgage rates.
The average interest rate on the popular 30-year fixed mortgage began this year right around 3%, according to Mortgage News Daily. It slowly climbed month-on-month, pulled back a bit in May, but then shot more dramatically to just over 6% in June. It is now around 5.75%.