Last week we discussed how the majority of people believe we’re in a recession and the effects that has on the real estate market. But despite the overarching consensus that our country is in economic turmoil, home prices saw their biggest decline since 2011 in July. So what does this mean for the current state of the real estate market? Find out more in this week’s article. We will be referencing this article from CNCB.
According to the mortgage software and analytics firm Black Knight, home prices declined by 0.77% from June to July, representing the first monthly decline in nearly three years.
While 0.77% may seem small, it’s significant because it represents the largest single-month decline in prices in over a decade. It also represents the second-worst July performance dating back to 1991, second to the 0.9% decline we saw in July during the Great Recession.
The immense rise in mortgage rates this year made an already pricey housing market even more unaffordable for the average consumer.
Due to an incredibly strong demand during the first years of the COVID-19 pandemic, demand was incredibly strong while supply was historically weak in addition to mortgage rates setting record lows more than a dozen times.
Now, affordable housing is at its lowest rate in over three decades. According to Black Knight, it requires 32.7% of median household income to purchase the average home using a 20% down payment on a 30-year mortgage. That’s more than a 13 point increase entering the pandemic and significantly more than both the years before and after the Great Recession. The 25-year average is 23.5%.
Because the June-July market weighted towards families buying larger, more expensive homes, the average price increase historically has been 0.4%.
During the Great Recession, home prices rose marginally from March through May, due to the seasonality of the market.
Some local markets are seeing even steeper declines over the last few months. San Jose, California, saw the largest, 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 with July 2021, which is more than three times the historical annual price growth, but the majority of that growth took place over the first five months of 2022, before the big spike in mortgage interest rates.
The average rate on the popular 30-year fixed mortgage began this year right around 3%, according to Mortgage News Daily. It climbed slowly month to month, pulling back slightly in May but then shot more dramatically to just over 6% in June. It is now hovering around 5.75%.
