House prices cooled at a record pace in June, according to a 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 US rose 2 percent in June for the first time since 2019.

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Rising mortgage rates and inflation in the broader economy caused demand for homes to fall sharply in June, forcing home 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 began tracking this metric earlier this week. 1970s. The annual rate of price appreciation fell two percentage points from 19.3% to 17.3%.

Price gains remain strong due to an imbalance between supply and demand. The housing market has had a severe shortage for years. Strong demand during the coronavirus pandemic exacerbated it.

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

The average 30-year fixed mortgage rate topped 6% in June, according to Mortgage News Daily. Since then, it has fallen back into the lower 5% range, but is still significantly higher than the 3% range that rates were in earlier this year.

“The slowdown was widespread among the top 50 metro markets, 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 slowing by four or more points in that month alone.”

Still, while this was the sharpest cooling on record nationally, the market would need to see six more months of this type of slowdown for price growth to return to long-term averages, according to Graboske. She estimates that it takes about five months for interest rate shocks to be fully reflected in home prices.

The markets experiencing the steepest declines are those that previously had the highest prices in the nation. Median home values ​​in San Jose, California have fallen 5.1% in the past two months, the biggest drop of any major market. That shaved $75,000 off the price.

In Seattle, prices are down 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 cuts.

The cooling in prices coincides with a sharp increase in the supply of homes for sale, up 22% in the last two months, according to Black Knight. However, inventory is still 54% lower than 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 drops won’t affect the average homeowner as much as they did during the Great Recession, because homeowners today have so much more equity. Strict underwriting and several years of strong price appreciation pushed home equity levels to record highs.

Despite that, the strong demand in the market recently could present a problem for some. About 10% of mortgaged properties were purchased last year, so price declines could cause some borrowers to lower their equity positions a lot.

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