Housing demand dropped significantly in June amid rising mortgage rates and inflation, which led to home prices cooling at a record pace.  That's according to mortgage software, data and analytics firm, Black Knight.  A new report from the company found that although home prices continued to rise in June, the rate at which they rose slowed at the fastest pace on record.  Andy Walden, VP of Enterprise Research & Strategy at Black Knight, joins Cheddar News' Closing Bell to discuss.

Closing Bell

Report: Home Prices Cool at Record Pace in June Amid High Inflation & Mortgage Rates

Welcome back to closing bell on cheddar news. Everyone housing demand dropping quite a bit in june amid rising mortgage rates and inflation, which did lead to home prices cooling at a record pace. That's according to mortgage software data and analytics firm, Black Knight and a new report from the company finding that all the so home prices continue to rise in june, the rate at which they rose slowed at the fastest pace on record. So joining me now is Andy Walden VP of Enterprise Research and Strategy at Black Night. Andy thanks so much for coming on the show. How historically significant was the slowdown that we saw in price games in june Yeah, I mean if you look at the numbers, it was the sharpest deceleration or sharpest slowing that we've seen in home price gains on record dating all the way back to the early seventies and it wasn't even close, it was 60% higher than the the sharpest single month slowing we saw in the in the 2006 era crisis is about 50% sharper than we saw in the 19 eighties when the Fed was was bumping up against inflation and fighting inflation through rising interest rates. So a very noticeable slowdown that we're seeing in the housing market right now, which cities are seeing the biggest drop Andy and why and really it's the the cross sections of lack of affordability and folks that are getting closer to normal levels of inventory. So really when you think about it, look across the West coast, your Seattle's or SAn Francisco, your san Jose's and on down the line to SAn Diego. And some of those markets that are cooling off but haven't quite seen declines yet. Are those phoenix and austin markets that have really seen a lot of in flowed through the pandemic. Right, I saw a lot of migratory inflow there. They're really starting to cool off Boise, starting to cool off as well. What is the signal to buyers? Do you think that this might be a good time to buy or with rates still elevated? Do you think it still creates a bit of a tricky environment for potential buyers? It's definitely tricky for a couple different reasons. I think on the bright side of things, you'll see less competition and more inventory out there in the market, especially in some of these west coast markets. The downside is it's going to remain very una four By historic standards. Right. So even with the transitions that we've seen in the market over the last couple of months, even with our optimal blue data showing that interest rates are down a quarter of a percent late last week, you're still bumping up against some of the least affordable environments that you've seen in the last three decades. And the only real comparative times are the last few months in the peak of the market in 2006. So still very unaffordable out there, but inventory is improving the number of buyers out there that you compete it is down. So there is some positive but but still some rough sledding for buyers out there in the market? How closely does this correlate with the pace of rate rises? I mean, pretty quickly, obviously we've seen mortgage rates jump dramatically at the start of the year, continuing to rise, expected to rise obviously with the Fed continuing to raise rates Andy but perhaps slowing that pace as we get toward the end of the year. Does it have an immediate impact on prices or is there a bit of a lag effect? So it has an immediate impact on shoppers out there in the market. When you look at traditional home price indexes, it can take up to five months for that shopping behavior to make its way into close transactions. To make its way into some of that data that you pick up out there in the market, especially when you look at traditional home price indexes. So I think you're already seeing that behavior take place. I think it could be late summer, early fall before we see maybe even some of the strongest levels of of cooling. When you look Some of those traditional indicators out there in the market, we were showing them at full screen. Let's pull it back up. I just want to run through the numbers that we're currently looking at when it comes to mortgage rates, a 30 year, fixed rate 5.3% in January. It was 3.2%. So jumping by two full percentage points. Andy based on what we know from the Fed. Is there any modeling that you have as to where prices and rates will be by the end of this year? Yeah, it's a good question rates for a little bit tough because the markets trying to factor in a number of different components there, whether it's inflation or whether it's the Fed or or on down the line, right. The Fed is also running off their balance sheet right now, that affects 30 year mortgage rates along with 10 year Treasury rates as well. So a lot of different components there. What you typically see in cycles like this when the Fed starts to tighten up, is that the bond market in the mortgage market price in a lot of those moves very early on. And so we may have already seen 30 year rates peak. They were you just showed a graphic that showed 5.3% a few weeks ago, they were at 58. Right? So they're already a half a percent off peaks. If you again look at our optimal blue data late last week, it showed they were down in another quarter of a point that Freddy reading may come in lower this week as well. And so you, You're starting to see a little bit of easing in terms of of 30 year interest rates out there in the market. That being said the market is still significantly out of balance when you look at affordability and you look at prices and you look at underlying incomes and interest rates. It's still putting a lot of pressure on there. Maybe not as much as it wasn't in June when those 30 year rates peaked. But you're still seeing a lot of pressure on affordability out there in the market. I'm I'm glad that you use that term affordability. Andy because for many people the option is paying very high prices to rent or taking on what is higher mortgage rate. And the affordability of a home. Obviously tricky as we've been discussing here as well. So I know it. Realtor dot com survey actually showing that it is cheaper to rent than own in three quarters of U. S. Cities. Do you think renting versus owning given where rates are even as prices come down makes sense. And it's really tough. And and as to some of that research I think you really have to look at it at a granular level. I think you have to look at it from a shelter basis and not so much an investment basis. I think there's a lot of somewhat speculative investment that takes place in the real estate market as well when you start to look at folks going out there and seeing hey prices are growing by 10% 20% per year right now. We need to get in before it's too late. And so I think you saw a lot of that pressure hit the market as well. But that's certainly a dynamic at play, right? And that's part of what's putting upward pressure on prices is absolutely, it's unaffordable, but rents have been going up significantly over the last couple of months as well, so really making that rent by decision are being pinched from both ends of the market right now. Yeah, it is a tough market out there to say the least. Andy thanks so much for joining the show. That's Andy Walden VP of Enterprise Research and Strategy of Black Knight.