An aerial image from a drone shows homes in a neighborhood on January 26, 2021 in Miramar, Florida. According to two separate indicators, existing home prices rose to a 6-year high.
Joe Riddell | Getty Images
Home prices fell 0.77% from June to July, the first monthly decline in nearly three years, according to Black Knight, a mortgage software, data and analytics company.
While the drop may seem small, it is the largest price drop in a single month since January 2011. It is also the second-worst performer in July dating back to 1991, after falling 0.9% in July 2010, during the Great Recession.
The sharp and rapid rise in mortgage rates this year has made the already expensive housing market even less expensive. Home prices rose sharply during the first years of covid pandemic Because demand has been incredibly strong, supply is historically weak, and mortgage rates have hit more than a dozen record lows.
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Now, housing affordability is at a 30-year low. It takes 32.7% of median household income to purchase 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 he entered the pandemic and much more than the years before and after the Great Recession. The 25-year average is 23.5%.
“We have advised for some time that the dynamic between interest rates, housing stock and home prices is untenable from an affordability perspective, and at some point something has to be introduced,” said Andy Walden, vice president of enterprise research. and strategy in the Black Knight.
“Now we see exactly that, as the July data provide clear evidence of an important inflection point in the market,” he added. “More price corrections are likely to loom as we move into the normally more neutral seasonal months for the housing market.”
Historically, prices rise on average 0.4% between June and July, because the market is heavily skewed towards families buying larger and more expensive homes. Families love to move during the summer, when school is out.
Even during the Great Recession, house prices rose slightly from March through May, due to market seasonality. All price drops during that era occurred in the months from July to February.
Some of the local markets are seeing a sharper decline over the past few months. San Jose, California, had 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%).
Home prices were still 14.3% higher in July compared to July 2021, which is more than three times the historical annual growth in prices, but most of that growth occurred during the first five months of 2022, before the surge in mortgage interest rates.
The average 30-year fixed-rate mortgage rate this year started around 3%, according to Daily Mortgage News. It rallied slowly from month to month, slipping a bit in May, but then rising dramatically to just over 6% in June. It is now hovering around 5.75%.
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