A ‘House For Sale’ sign is proudly displayed in Los Angeles, California on August 30, 2023.
Mario Tama | Getty Images
After experiencing a steady ascent since January, the housing market may now be heading for a decline in home prices.
The most recent data on home prices reveals that they reached another all-time high in July, with a 2.3% increase compared to the same month last year, as reported by Black Knight. This annual gain is larger than the approximately 1% recorded in June, and it is expected that the annual comparison for August will be even greater due to the significant price drops observed last August.
However, there has been a weakening in prices on a month-to-month basis, according to Black Knight. Although prices are still increasing, which is typical for this time of year, the rate of growth has fallen below the 25-year average. This comes after a period from February to June when prices significantly exceeded their historical averages. This suggests that a price slowdown may be occurring once again.
“In addition to the monthly gains slowing down below long-term averages, Black Knight’s rate lock and sales transaction data also indicates lower average purchase prices and seasonally adjusted price per square foot for recent sales,” explained Andy Walden, Vice President of Enterprise Research at Black Knight. “All of these factors combined emphasize the importance of focusing on seasonally adjusted month-over-month trends rather than solely relying on the traditional annual home price growth rate.”
Mortgage rates play a significant role in this cooling off of the housing market. After experiencing a sharp increase last summer and fall, rates caused prices to drop. They then decreased during the winter and spring, leading to a resurgence in home prices. However, rates have once again risen above 7%, reaching their highest levels in over 20 years in August.
In addition, there has been an atypical increase in new listings from July to August. Some sellers may be taking advantage of these historically high prices. However, the active inventory is still about 48% below the levels observed from 2017 to 2019.
“While the rise in new listings is positive news for homebuyers, inventory remains persistently low, despite record-high mortgage rates impacting demand,” stated Danielle Hale, Chief Economist for Realtor.com.
A decrease in prices would bring some relief to potential buyers, but it may not be sufficient. The surge in home prices since the beginning of the pandemic, combined with significantly higher mortgage rates, has severely impacted affordability.
According to Black Knight, it currently takes approximately 38% of the median household income to make the monthly payment on a median-priced home purchase. This makes homeownership the least affordable it has been since 1984.
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