Annual home price growth saw ‘the greatest single-month slowdown’ since at least the early 1970s. Does this mean homebuyers are finally getting a break?

Is this the news home buyers have finally been looking for? In June, the annual home price growth rate saw the “the greatest single-month slowdown on record since at least the early 1970s,” according to mortgage data and analytics company Black Knight. What’s more, this was coupled with the “largest single-month influx of for-sale inventory in 12 years,” the firm noted in a release about its latest Mortgage Monitor report on August 1. 

The report reveals that June was the third straight month of cooling, with annual home price appreciation dropping from 19.3% in May to 17.3% in June; this is an even more pronounced drop even than in 2006. (For its part, the US CoreLogic S&P Case-Shiller Index also marked a decrease, with June “appearing to be a tipping point with a more significant pullback in buyer interest,” according to a report released at the end of July.) In fact, all 50 top metro markets saw growth slow in June with one in four major US markets seeing growth slow by 3 percentage points or more.

But why are we seeing this cool down? Holden Lewis, home and mortgage expert at NerdWallet, says mortgage rates are much higher than they were at the beginning of the year, forcing buyers to shop for homes in lower price ranges so they could afford the monthly payments. “As people buy less expensive properties, they drag down the rate of house price growth. This summer’s main lesson is the importance of setting a reasonable asking price,” says Lewis.

What’s more, Zillow economist Nicole Bachaud says the housing market is in the midst of a major transition. “Buyers have hit an affordability ceiling and demand is pulling back, causing homes to pool on the market as sales slow. Home sellers are being forced to adjust their expectations and many are opting to stay out of the market and keep their favorable interest rate,” says Bachaud. 

To the delight of homebuyers and the chagrin of home sellers, Greg McBride, chief financial analyst at Bankrate, says this is not the housing market of a few months ago. “Sellers won’t get the moonshot asking price they thought, it will take longer to sell and there won’t be a bidding war. While buyers have more negotiating power now, mortgage rates remain above 5% and home prices are still lofty,” says McBride.

While headline-generating movements are to be expected during this period of transition, Bachaud says it’s important to remember just how far prices have risen not only during the pandemic, but over the past decade. “We are talking about small dips from record highs. A fall back near pre-pandemic levels is very unlikely as overall housing supply will remain a barrier and demand will still exist on the sidelines,” says Bachaud. Ultimately, she says, this a much-needed market rebalancing could help some first-time buyers catch up while homeowners will retain much of the equity they’ve built over the years.

Nationally, the housing market hit the reset button in June, as 30-year mortgage rates briefly rose to 6%. “Some buyers withdrew from the market to reassess their price ranges. If rates stabilize between 5% and 6%, we might see an unseasonal surge in home buying in the fall as summertime’s thwarted buyers return to the market,” says Wood.