The U.S. is seeing its home prices fall at an unprecedented pace since the Great Recession. This shows that rising mortgage rates are slowing down activity in the housing sector.
The August median home price fell by 0.98% compared to July’s, according to Black Knight Mortgage Analytics, in a Monday report. This follows a July drop of 1.05%, the mortgage analytics firm Black Knight stated.
Black Knight Data & Analytics President Ben Graboske said that the two months represent significant pullbacks, after two years of record-breaking gains.
According to Black Knight the price declines have been the greatest since January 2009 when the economy was going through the worst recession since 1930. Median home prices are down by 2% since June’s peak.
A house for sale sign is seen in front Westwood, Massachusetts, on October 6, 2020. (AP Photo/Steven Senne, File / AP Newsroom)
Graboske stated, “The only months that saw materially higher single month price declines than those seen in July and august were the winter 2008, which was following the Lehman Brothers bankruptcy.
The Federal Reserve is raising interest rates at the fastest pace since decades to correct the housing market that was once hot.
For the third month straight, the Federal Reserve increased the benchmark interest rate by $75. This is after similar rate hikes in July and June — the most aggressive increase series since 1994. The key benchmark federal funds rates now range from 3% to 3.25%. This is the highest rate since the 2008 financial crises. It is also the fifth consecutive rate hike this year.
US HOME PRICE GROWTH COOLED IN JULY AT FASTEST PACE SINCE 1980S
Fed officials laid out a path of aggressive rate increases for the rest of the year in addition to the substantial rate hike. The Fed released new economic projections after the meeting that show that policymakers anticipate interest rates reaching 4.4% by year’s end. This indicates that another three quarter percentage point increase could be on the horizon.
Recent data from Freddie Mac shows that mortgage rates have increased more than twice to 6.29% and could rise even further. Even though home price growth has slowed over the past month but is still high compared to a year ago, affordability remains a major concern for many potential buyers.
August saw unexpectedly high sales of new homes, with single-family home purchases increasing by nearly 29%. Economists think the surprise upside is an anomaly. Buyers are trying to lock in a lower interest rate by locking in a 30-year mortgage rate. This average average fell closer to 5% from previous highs.
“New home sales in August were far above expectations as homebuilders cut their prices and mortgage rates fell a bit from the June and July levels,” stated Bill Adams, Comerica Bank chief economist. “August’s unexpected upside in home sales after September Fed’s decision has unlikely to be repeated, as mortgage rates have risen to new levels.