June's pullback in home price growth was the largest in decades

U.S. home prices continued to soar in June, but their 12-month growth rate slowed more than it has since at least the early 1970s, according to a new Black Knight analysis.

The year-over-year appreciation rate fell to 2 percentage points to 17.3% from 19.3% during the month, Black Knight found in its Mortgage Monitor report, which follows up an earlier, preliminary release of monthly housing finance statistics with a deeper dive. During the one-month period prices rose more gradually as well. Prices appreciated by 0.45% in June, which is 30% below the long-run average for the month. The appreciation rate was last this slow in May 2020, when pandemic-related uncertainty was still roiling the market and federal monetary authorities were dropping rates to stabilize the economy. Appreciation rates over the last 24 months have more typically been running above long-term averages.

June's home-price declines still leave most housing market indicators well above their historic norms. Long-run averages for home price growth tend to be closer to 4% or 5% and any depreciation is primarily occurring in equity-rich areas.

"Prices still hit yet another high in June for the 31st consecutive month, so it's not price declines at the national level, but there are some price pullbacks," said Andy Walden, vice president of research and strategy at Black Knight, in an interview.

At its most extreme, local price growth was down by nearly 22 percentage points from its peak during the last 12 months, numbers for Austin, Texas, show. Parts of Arizona, California, and Washington state have experienced double-digit percentage-point declines in that period too.

Depreciation has begun in certain once-hot areas like San Jose. The average San Jose home fell in value by $75,000 or 5.1% in the past two months. Seattle, Washington, experienced a drop of 3.8% or more than $30,000, followed by San Francisco, (-2.8%, -$35,000); San Diego, California, (-2%, -$19,500); and Denver, Colorado, (-1.4%, -$8,700).

Another relative upside for buyers in June's housing statistics was that the number of homes listed for sale experienced its largest one-month gain in 12 years. This leaves inventory improved, but still historically tight with 2.6 months worth of supply, compared to 1.7 at the beginning of the year.

"With a national shortage of more than 700,000 listings, it would take more than a year of such record increases for inventory levels to fully normalize," Ben Graboske, president of Black Knight's data and analytics division, said in a press release.

Inventory has crept up primarily in equity-rich regions where prices have fallen. That's already brought the San Francisco, California, metro area back to pre-pandemic inventory levels and the availability of homes in San Jose, California, is just shy of where it was between 2017 and 2019.

Given that the impact of higher rates generally isn't fully reflected in traditional home price indices for about five months, more deceleration is likely on the way.

That could eventually have implications for home equity levels and loan performance but likely not for some time, according to Walden.

"It's minuscule numbers of negative equity that you are seeing across the country, but you are seeing equity pullback," Walden said.

This could add to pressure on loan performance from inflation and higher rates, and in the long-term it could potentially contribute to distressed inventory, which has seen relative growth as it has emerged from pandemic-related constraints.

"I think we'll likely see an inflection in mortgage performance. We were at all-time lows in terms of past-due mortgages two months ago, they struggled last month and I think we'll see them trickle up again when we get to July, just because of the way the calendar fell," said Walden. "So you could start to see those numbers come up, especially with some of the macroeconomic pressures."