Home prices cooled at record pace in June, according to housing data firm

A sign is displayed 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 rose 2% in June for the first time since 2019.

Justin Sullivan | Getty Images

Rising mortgage rates and economy-wide inflation led to a sharp drop in housing demand in June, forcing house prices to cool.

Home prices are still higher than a year ago, but gains slowed to the fastest pace on record in June, according to Black Knight, a mortgage software, data and analytics firm that started to track this measure in the early 1970s. The annual rate of price appreciation fell by two percentage points, from 19.3% to 17.3%.

Price increases are still strong due to an imbalance between supply and demand. The housing market has been in dire straits for years. High demand during the coronavirus pandemic has exacerbated it.

Even when house prices crashed dramatically during the 2007-09 recession, the sharpest one-month downturn was 1.19 percentage points. Prices are not expected to fall nationally given the overall strengthening of the housing market, but rising mortgage rates are certainly taking their toll.

The average rate for 30-year fixed-rate mortgages crossed the 6% mark in June, according to Mortgage News Daily. It has since fallen back into the lower 5% range, but this is still well above the 3% rates at the start of this year.

“The slowdown was widespread across the top 50 markets at the metro level, with some areas seeing 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 of them slowing by four points or more in that month alone.”

Still, despite being the sharpest nationwide cooling on record, the market would still need to experience six more months of this type of slowdown for price growth to return to long-term averages, according to Graboske. He calculates that it takes about five months for the impact of interest rates to be fully reflected in house prices.

The markets that are seeing the steepest declines are those that previously had the highest prices in the country. The average home value in San Jose, Calif., has fallen 5.1% over the past two months, the biggest drop of any major market. That cut $75,000 off the price.

In Seattle, prices are down 3.8% over the past two months, a reduction of $30,000. San Francisco, San Diego and Denver round out the top five markets with the biggest price drops.

The cooling in prices coincides with a sharp increase in the supply of homes for sale, up 22% in the past two months, according to Black Knight. Inventories, however, are still 54% below 2017-19 levels.

“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.

Price cuts won’t affect the average homeowner as much as they did during the Great Recession because homeowners today have much more equity. Tight underwriting and several years of strong price appreciation have caused home equity levels to reach record highs.

Despite this, the high demand in the market lately could be a problem for some. About 10% of mortgaged properties have been purchased in the past year, so price declines could cause some borrowers to drop their equity positions significantly.

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