Home prices are not just decelerating but declining, according to Black Knight’s latest Mortgage Monitor Report. July’s month-over-month decline represents the first such contraction in nearly three years.
“After 31 consecutive months of growth, home prices pulled back by 0.77% in July,” Black Knight Data & Analytics President Ben Graboske said. “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. 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, Graboske explained. May was still about two times the normal average before June came in 70% below the long-run average. Meanwhile, 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.
Mortgage holders' tappable equity had grown 25% from last year to hit yet another record high in the second quarter, but that equity actually peaked in May, with the pullback beginning in June before escalating in July. Tappable equity is now down 5% in the last two months, likely setting up the third quarter to see the first quarterly decline in tappable equity since 2019.
Some of the nation’s most equitable markets have seen significant pull backs, most notably in the West Coast metros. From April until July, San Jose lost 20% of its tappable equity. Seattle followed, losing 18% of tappable equity over the same three month span. San Diego (-14%), San Francisco (-14%), and Los Angeles (-10%) have all seen double-digit declines since April.
“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. “With prices continuing to correct and our McDash HELOC data showing home equity lending at its highest level in 12 years, we will keep a very close eye on equity positions in the coming months.”
Black Knight’s report also looks at the inventory side of the housing supply and demand equation.
The fall in housing demand continues to allow inventory levels to build for the fifth month in a row, with July making the third consecutive record-breaking increase. Although a 128,000 increase in active listings are a positive sign, inventories remain 622,000 (45%) below 2017-19 levels.
Collateral Analytics data shows 3.1-months worth of inventory as of the end of July, up from 1.7 months at the beginning of the year. If sales continue to fall at the rate they have the past four months and listings continue to build at their current pace, inventory would cross the six-month threshold by December — typically the point at which the landscape shifts from a seller’s to a buyer’s market.
Additional Findings
- The median home price fell 0.77% from June — the largest single-month decline since January 2011.
- More than 85% of the 50 largest U.S. markets are at least marginally off their peaks through July, with home prices down by more than 1% in a third, and more than one in 10 seeing prices fall by 4% or more.
- The impact of home price declines is twice as pronounced on tappable equity levels; a 5% decline in home values nationally would equate to a 10% decline in tappable equity, and so on.
