Home prices fall for the first time in three years, the biggest drop since 2011

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An aerial view from a drone shows homes in a neighborhood on January 26, 2021 in Miramar, Florida. According to two separate indexes, prices for existing homes have reached their highest level in 6 years.

Joe Raedle | 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 firm.

Although the decline may seem small, it is the largest one-month price decline since January 2011. It is also the second-worst July performance dating back to 1991, behind the 0.9% decline in July 2010, during the Great Recession.

The sharp and rapid rise in mortgage rates this year has made an already expensive housing market even less affordable. House prices rose sharply in the early years of the Covid pandemic as demand was incredibly strong, supply historically low and mortgage rates hit more than a dozen record lows.

Today, housing affordability is at its lowest level in 30 years. According to Black Knight, it takes 32.7% of median household income to buy an average home using a 20% down payment on a 30-year mortgage. That’s about 13 percentage points higher than at the start of the pandemic and significantly higher than the years before and after the Great Recession. The 25-year average is 23.5%.

“We’ve been advising for some time that the dynamic between interest rates, housing inventory, and home prices was unsustainable from an affordability perspective, and at some point something would have to give,” said Andy Walden, vice president of enterprise research. and strategy at Black Knight.

“We are now seeing exactly that, with the July data providing clear evidence of a significant inflection point in the market,” he added. “Further price corrections are likely on the horizon as we enter generally more neutral seasonal months for the housing market.”

Prices historically rise by an average of 0.4% between June and July, as the market is heavily skewed toward families buying larger, more expensive homes. Families like to move in the summer, when school is out.

Even during the Great Recession, house prices generally rose slightly from March to May, due to market seasonality. All of the price declines at this time occurred during the months of July through February.

Some local markets are experiencing even steeper declines in recent months. San Jose has seen the biggest increase, with home prices 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%).

House prices were still 14.3% higher in July compared to July 2021, more than three times historic annual price growth, but the majority of that growth took place in the first five months of 2022. before the sharp rise in mortgage interest rates.

The average rate for the popular 30-year fixed rate mortgage started this year at around 3%, according to Mortgage News Daily. It climbed slowly month-over-month, retreating slightly in May, but then rose more dramatically to just over 6% in June. It now hovers around 5.75%.

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