Home prices rise in July, but may be about to cool off

A “Home for Sale” sign is displayed on August 30, 2023 in Los Angeles, California.

Mario Tama | Getty Images

After rising steadily since January, housing prices may now be falling again.

The latest reading on home prices shows they reached an all-time high in July, rising 2.3% from the same month last year, according to Black Knight. This is a larger annual gain than the roughly 1% recorded in June, and the year-over-year comparison to August is likely to be larger because prices began falling sharply last August.

But prices declined from month to month, according to Black Knight. While they are still making gains, which they typically do at this time of year, gains have fallen to below their 25-year average. This is after significantly exceeding its historical averages from February to June. It’s a sign that a price slowdown may be underway again.

“In addition to monthly gains slowing below long-term averages, Black Knight’s interest rate lock and sales transaction data also indicate lower average purchase prices and seasonally adjusted price per square foot among recent sales,” said Andy Walden, vice president of institutional research at Black Knight. Black knight. “All these factors combined underscore the need to focus on seasonally adjusted monthly movements rather than simply relying on the traditional annual house price growth rate.”

Beyond the cooldown: Mortgage rates. They rose sharply last summer and fall, sending prices down. Then prices fell through most of the winter and a bit of the spring, sending home prices rising again. Now interest rates are back above 7% again, hitting 20-year highs in August.

Additionally, new listings spiked from July to August, which is unusual for that time of year. Some sellers may try to take advantage of these historically high prices. However, active inventory is about 48% below levels seen from 2017 to 2019.

“While the rise in new listings is good news for home shoppers, inventory remains persistently low, even with record-high mortgage rates holding back demand,” said Danielle Hale, chief economist at Realtor.com.

Lower prices may come as some relief to buyers, but it is not likely enough.

The jump in home prices since the start of the pandemic, coupled with much higher mortgage rates, has crushed affordability.

It now takes approximately 38% of the median household income to make the monthly payment on a median-priced home, according to Black Knight. This has made homeownership less expensive since 1984.