The latest Mortgage Monitor Report from Black Knight Inc.’s Data & Analytics division shows June marking the greatest deceleration in home price growth on record. There was a slowdown from 19.3% to 17.3% for annual home price growth, which coincided with the largest single-month gain in homes listed for sale in 12 years, says Ben Graboske, Black Knight Data & Analytics’ president.
“The pullback in home price growth in June marked the strongest single month of slowing on record, dating back to at least the early 1970s – and it wasn’t even close,” states Graboske. “According to the Black Knight HPI, the annual rate of appreciation dropped nearly two full points in June. For context, during the 2006 downturn the strongest single-month slowing was 1.19 percentage points – about what we saw last month – and June topped that by 66 percent.”
“The slowdown was broad-based among the top 50 markets at the metro level, with some areas experiencing even more pronounced cooling,” continues Graboske. “In fact, 25 percent of major U.S. markets saw growth slow by three percentage points in June, with four decelerating by four or more points in that month alone. Still, while this was the sharpest cooling on record nationally, we’d need six more months of this kind of deceleration for price growth to return to long-run averages. Given it takes about five months for interest rate impacts to be fully reflected in traditional home price indexes we’re likely not yet seeing the full effect of recent rate spikes, with the potential for even stronger slowing in coming months.”
“We’re also seeing significant shifts in the demand-supply equation, though that too has quite a way to go before normalization,” adds Graboske. “Even with our Collateral Analytics data showing a seasonally adjusted 22 percent increase in the number of homes listed for sale over the past two months, the market is still at a 54 percent listing deficit when compared to 2017-2019 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.”
“Of course, some metro areas are seeing inventory return to the market more quickly than others,” says Graboske. “San Francisco officially returned to pre-pandemic levels in June, becoming the first major market to do so, with San Jose close behind, where the number of homes listed for sale is just 1% off the June 2017-2019 average. It’s therefore of little surprise to find both metros among the markets where prices are pulling back from recent highs, along with Seattle, San Diego, Denver and others.”
Drilling further into June home price data, the report finds the average San Jose home value has fallen 5.1% (-$75,000) in the last two months alone, marking the sharpest pullback from recent highs among the top 50 U.S. markets. Seattle follows with a 3.8% decline in home prices over the same period, a reduction of more than $30,000. San Francisco (-2.8%, -$35,000), San Diego (-2%, -$19,500) and Denver (-1.4%, -$8,700) round out the top five. In total, prices have pulled back from recent peaks in 12 of the 50 largest markets, with seven pulling back by 1% or more. As nearly 10% of mortgaged properties were purchased over the past year, this could affect a meaningful number of borrowers who bought into the market at or near recent highs.
The Mortgage Monitor also found that the clear driver behind recent inventory increases is a decline in sales activity due to rising rates and the lowest levels of home affordability in nearly 40 years. Seasonally adjusted home sales are down by more than 21% since the start of the year, with Black Knight Optimal Blue rate lock data suggesting further slowing in the coming months. Factoring in both active listings and sales volumes, the market has ticked up from a low of 1.7 months of inventory at the start of the year to 2.6 months as of June. If current trends continue to hold, months of inventory could continue to trend sharply upward in coming months. Black Knight will continue to monitor the situation and report its findings moving forward.
Read the full report here.