After two years of runaway price growth, the U.S. housing market has hit a tipping point.
Home price growth has been decelerating for months now as the U.S. market cools from the pandemic frenzy. But in July, that shifted to an actual decline as the median home price fell 0.77% from June — the largest single-month decline in over 11 years.
That’s according to Black Knight’s July Mortgage Monitor report released Wednesday, which also showed home prices have declined from their peaks in more than 85% of the 50 largest U.S. housing markets. Home prices are down by more than 1% in a third of those markets, and more than one in 10 are seeing prices fall by 4% or more.
The big picture: July’s month-over-month decline, though slight, is the first price contraction in almost three years. But keep in mind, it’s preceded by over two years of wild, record-setting price growth.
Black Knight tracked the annual home price growth rate at 14.5% in July, which is still more than three times a long-term average, “but most of that growth took place in the first five months of 2022, before rising interest rates slammed the brakes” on price appreciation, the report states.
“Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today’s, such backward-looking metrics can be misleading as they can mask more current, pressing realities,” said Ben Graboske, president of Black Knight Data & Analytics.
“Case in point — this cooling has been indicated in our home price data for several months now, and at an increasing pace. In January, prices rose at 28 times their normal monthly rate before slowing to five times average in February as interest rates began to tick up. Even May was still about two times normal, before June growth came in 70% below the long-run average,” Graboske continued.
“And all the while, annual appreciation continued to appear historically strong, showing double-digit growth month after month. Without timely, granular data, market-moving trends don’t become apparent until they’re right in front of you — like a sudden shift to the largest single-month decline in home prices in more than a decade,” Graboske said.
What’s the impact? A tapering off of price growth may be a sliver of good news if you’re hoping to buy a home — even though prices are still at historic, painful highs. But on the other hand, the U.S. price dip is impacting homeowner wealth.
Mortgage-holders’ tappable equity grew 25% last year to hit yet another record high — but that equity growth peaked in May and began to pull back in June.
That means homeowners are starting to lose wealth, with tappable equity now down 5% in the last two months, according to Black Knight. The third quarter of this year is likely to “see the first quarterly decline in tappable equity since 2019,” Graboske said.
“Some of the nation’s most equity-rich markets have seen significant pullbacks, most notably among key West Coast metros,” Graboske said, noting San Jose lost 20% of its tappable equity from April to July, and Seattle lost 18% in that same time period.
Three other major California metros saw double-digit declines since April: San Diego (-14%), San Francisco (-14%), and Los Angeles (-10%).
“Keep in mind that of the roughly 275,000 borrowers who would fall underwater from a 5% price decline, more than 80% purchased their homes in the first six months of 2022 — right at what appears to have been the top of the market,” Graboske said.
As prices continue to “correct” and refinance data showing home equity lending “at its highest level in 12 years,” he added, “we will keep a very close eye on equity positions in the coming months.”