According to Black Knight, a mortgage software, data, and analytics company, home prices fell by 0.77% from June to July, the first monthly dip in nearly three years. The price drop may not seem like much, but it is the most in a single month since January 2011.
The 0.9% drop in July 2010 during the Great Recession was the lowest July performance since 1991. This year’s rapid increase in mortgage rates has made the already expensive home market unaffordable for many people.
Rising home prices in the early years of the Covid epidemic were due to unprecedented levels of demand, historically low supply levels, and record-low interest rates for home mortgages. The cost of buying a home has dropped to a 30-year low.
According to Black Knight, a 20% down payment on a 30-year mortgage will need 32.7% of the median household income. That is much higher than it was in the years leading up to or following the Great Recession, and it is approximately 13 percentage points higher than it was at the start of the pandemic. As a 25-year average, it is at 23.5%.
“We have 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.
With July’s statistics showing apparent signs of a huge inflection point in the market, “we are now seeing exactly that,” he added. Further price adjustments are anticipated as we enter the housing market’s seasonal doldrums. Because the market is skewed toward families buying more significant, more costly homes, prices tend to rise by 0.4% on average between June and July.
When school is out for the summer, many families decide to relocate. Due to seasonality in the market, home values usually increased moderately from March through May, even during the Great Recession. In that time period, all price drops occurred between July and February. Declines in local markets have been significantly severe in recent months.
House prices have fallen by 10% in San Jose, CA, 7.7% in Seattle, 7.4% in San Francisco, 5.6% in San Diego, 4.3% in Los Angeles, and 4.2% in Denver. Though July’s price increase of 14.3% over July 2021 is more than three times the average yearly price growth, it should be noted that most of this increase occurred in the first five months of 2022, before the massive spike in mortgage interest rates.
According to Mortgage News Daily, the average rate on the most common 30-year fixed mortgage started the year near 3%. Month after month, it gradually increased, slowed in May, and then skyrocketed in June to a little over 6%. It has settled into a range between 5.75 and 5.75 percent.