Home prices are dropping like a rock. The most recent data from the Black Knight Home Price Index, a national measure of home prices, show the median home price declined in August for the second straight month.
But it’s the size of those price declines that’s worth noting. July and August's month-over-month declines mark the sharpest contractions seen in more than 13 years. Black Knight Data & Analytics President Ben Graboske says the market entered September with the median price down 2% just since the June peak.
"Only marginally better than July's revised 1.05% monthly decline, home prices were down an additional 0.98% in August,” Graboske said. “Either one of them would have been the largest single-month price decline since January 2009. Together they represent two straight months of significant pullbacks after more than two years of record-breaking growth.”
That is likely music to the ears of would-be home buyers who have been priced out of the housing market by high prices and mortgage rates that are approaching 7%. But celebrations may be premature.
Affordability is still falling
Even though home prices are falling from their all-time high, the experts at Black Knight say housing remains historically unaffordable, all because of rising mortgage rates.
After improving slightly in July and early August, surging 30-year mortgage rates have pushed home affordability to its worst point in 38 years.
With rates at 6.7% as of Sept. 29, 38.2% of the median household income is needed to make the principal and interest (P&I) payment on the median-priced home purchase, the largest share since December 1984, when mortgage rates were at 13.2%.
The monthly P&I payment on the median home is up $930 from the same time last year – a 73% increase. The situation is geographically widespread as well, with 84 of the 100 largest U.S. markets now at more than three-decade lows in terms of home affordability.
Black Knight also suggests there is a limit to how far home prices will fall, even in a rising interest rate environment. Analysts note inventory levels are still near historic lows as many sellers are now waiting for lower interest rates before listing their homes.
What about the huge inventory of unsold newly constructed homes? Won't those prices be slashed to the bone?
Yes and no. The Wall Street Journal reports some builders are offering entire subdivisions to investors at a discount. Those homes won’t be sold to owner occupants but will be maintained as single-family rentals.