The steep decline in housing demand that occurred in June was brought on by rising mortgage rates and inflation in the economy as a whole, both of which contributed to overall economic inflation.
The annual rate of price appreciation is now at 17.3 percent, which is a drop of two percentage points from its previous level of 19.3 percent.
As a result of a precipitous reduction in housing demand brought on by higher mortgage rates and general inflation in the economy as a whole in June, home prices were forced to experience a significant downward trend.
According to Black Knight, a company that specialises in mortgage software, data, and analytics and has been tracking the value of this metric since the early 1970s, home prices are still higher than they were one year ago, but the rate at which they are increasing slowed to the fastest pace on record in June.
Because there is a mismatch between supply and demand, prices have continued to rise at a rapid pace. For many years, the market for homes has been plagued by a chronic lack of inventory. It was made worse by the high demand that occurred during the coronavirus pandemic.
Even during the worst of the recession, which lasted from 2007 to 2009, single-month declines in housing values never exceeded 1.19 percentage points, even when they were extremely high.
Because of the improved state of the housing market as a whole, it is not anticipated that prices will decline on a national scale; yet, the impact of rising mortgage rates is undeniable.
According to Mortgage News Daily, the standard rate for a mortgage with a term of thirty years and a fixed rate surpassed six percent in the month of June. Since then, it has returned to the range of lower 5 percent, but even though this is a substantial improvement from the range of 3 percent where rates were when the year started, it is still significantly higher than that range.
According to Ben Graboske, president of Black Knight Data & Analytics, “The downturn was broad-based among the top 50 markets at the metro level, with some locations suffering even more extreme cooling.” In point of fact, growth in 25% of the major U.S. markets slowed by three percentage points in June, and in four of those markets, growth slowed by four percentage points or more in just that one month alone.
According to Graboske, even though this was the greatest cooling on record at the national level, the market would still need to see this kind of deceleration for a total of six more months in order for price rise to revert to its long-run averages. According to his calculations, it takes approximately five months for the effects of changes in interest rates to be completely reflected in property prices.
The markets that formerly had the highest costs in the country are the ones that are currently experiencing the steepest price reductions. The median price of a property in San Jose, California, has decreased by 5.1 percent over the past two months, making this market’s decline the most significant of all the top markets. This resulted in a $75,000 reduction in cost.
In the past two months, prices have decreased by 3.8 percent in Seattle, which is equivalent to a $30,000 decrease.The remaining three of the top five markets with the largest price decreases are as follows: San Francisco, San Diego, and Denver.
According to Black Knight, the increase in the supply of homes available for purchase has increased by 22 percent over the course of the previous two months. This coincides with the decrease in property prices. Despite this, the inventory is currently 54 percent smaller than it was throughout 2017–2019.
Graboske stated that in order to fully normalise inventory levels, it would need more than a year of such record gains. This is due to the fact that there is a national shortfall of more than 700,000 listings.
Because homeowners have significantly more equity in their homes than they did during the Great Recession, price declines will have less of an impact on the typical homeowner than they did back then. Home equity levels have reached record highs due to stringent underwriting standards as well as several years’ worth of robust price appreciation.
Despite this, the tremendous demand that has been seen in the market as of late can make things difficult for some. Price declines could cause some borrowers to edge significantly lower in their equity positions because approximately 10 percent of mortgaged properties were purchased in the previous year.