House prices cooled at a record pace in June, according to the housing data firm

A sign is posted in front of a home for sale on July 14, 2022 in San Francisco, California. The number of homes for sale in the United States increased by 2 percent in June for the first time since 2019.

Justin Sullivan | Getty Images

Rising mortgage rates and inflation in the wider economy saw housing demand fall sharply in June, forcing house prices to cool.

Home prices are still higher than they were a year ago, but gains slowed at the fastest pace on record in June, according to Black Knight, a mortgage software, data and analytics firm that began tracking this metric in the early 1[ads1]970s the number. The annual rate of price increase fell two percentage points from 19.3% to 17.3%.

The price gain is still strong due to an imbalance between supply and demand. The housing market has had a major shortage for years. Strong demand during the coronavirus pandemic exacerbated it.

Even when house prices fell dramatically during the 2007-09 recession, the sharpest one-month decline was 1.19 percentage points. Prices are not expected to fall nationally, given a stronger overall housing market, but higher mortgage rates are certainly taking their toll.

The average interest rate on the 30-year fixed mortgage crossed over 6% in June, according to Mortgage News Daily. It has since fallen back into the lower 5% range, but it is still significantly higher than the 3% range at the start of this year.

“The decline was broad-based among the top 50 metro-level markets, with some areas experiencing even more pronounced 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, with four slowing by four or more points in that month alone.”

Still, even if this was the sharpest cooling recorded nationally, the market would have to see another six months of this type of slowdown for price growth to return to long-term averages, according to Graboske. He calculates that it takes approximately five months before the interest rate impact is fully reflected in house prices.

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

In Seattle, prices have decreased 3.8% in the past two months, or a reduction of $30,000. San Francisco, San Diego and Denver round out the top five markets with the biggest price reductions.

The cooling in prices coincides with a sharp jump in the supply of homes for sale, up 22% in the past two months, according to Black Knight. However, the stock is still 54% lower than the levels in 2017-19.

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

Price drops will not 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 increases led to home stock levels reaching record highs.

Despite that, the strong demand in the market recently may present a problem for some. About 10% of mortgaged properties were purchased in the past year, so falling prices could cause some borrowers to fall much lower in their equity positions.

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