US home prices drop at fastest pace since Great Recession

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U.S. home prices are falling to their most significant level since the housing market collapsed during the Great Recession, mortgage analytics firm Black Knight said in a report released Monday.

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According to an August report from the Black Knight Mortgage Monitor, median home prices fell 0.98% from July to August. The revised data showed an even sharper decline of 1.05% from June to July.

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“Together, they represent two consecutive months of significant pullbacks after more than two years of record growth,” said Ben Graboske, president of Black Knight Data & Analytics.

“The only months with substantially higher single-month price declines than we saw in July and August were during the winter of 2008, following the bankruptcy of Lehman Brothers and the subsequent financial crisis,” Graboske added.

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The fall in prices is the sharpest since January 2009, Black Knight said, citing mortgage, real estate and public data. Median home prices are down 2% from their peak in June.

Mortgage rates have risen sharply as the Fed raises interest rates.
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The U.S. housing market was at its peak during the COVID-19 pandemic as low inventories and low interest rates led to record buying activity. But demand has slowed significantly as mortgage rates skyrocket as the Federal Reserve raises interest rates in an attempt to tame inflation.

The average 30-year fixed-rate mortgage was 6.7% last week, more than doubling from January.

According to the report, even with the recent decline, prices in August were still 12.1% higher than a year earlier.

Soaring mortgage rate hikes, combined with home prices still much higher than usual, have led to an affordability crisis for potential buyers.

Based on median household income, buyers put 38.2% of their monthly income into mortgage payments, assuming an average-priced home with a 30-year mortgage and a 20% down payment.

That costly figure makes the current U.S. housing market the least affordable since 1984, according to Black Knight. As a result, many potential buyers have been pushed to the sidelines.

In many cases, sellers respond to falling demand by lowering listing prices.

“Right now, potential sellers are not only coping with falling demand and prices due to a sharp increase in interest rates, but even in this environment they have less and less incentive to abandon their mortgages with historically low interest rates,” Graboske said.

Graboske noted that many sellers are likely to take a wait-and-see attitude in the market and hope that the situation will improve by spring.

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