Black Knight: Median House Prices Declined in July; First Decline in 32 Months

Important caveats: In normal times, median house prices flatten or decline seasonally in the 2nd half of the year. So, a decline in July isn’t unusual.

Also, the median price is distorted by the mix of homes sold. The repeat sales indexes - like Case-Shiller and FHFA - are better measures of house price movements, but median prices can be a leading indicator of price changes.

From Andy Walden at Black Knight: Something Had to Give: Home Prices Down for First Time In 32 Months

The latest data from the Black Knight Home Price Index shows clear signs of an inflection point. For the first time in 32 months, home prices saw a month-over-month dip in July, as growth tipped from deceleration to decline.

Annual home price growth still clocked in at 14.3% – more than three times the long-run average – but most of that appreciation occurred in the last months of 2021 and earlier this year. Such strong annual growth rates can hide underlying weakness. Month-over-month data gives us a much clearer picture of just how much – and how quickly – the housing market has shifted.

The median home price fell by 0.77% in July, the largest single-month drop since January 2011. On a seasonally adjusted basis, July’s dip ranked among the 10 largest monthly declines on record, dating back more than 30 years.

This graph from Black Knight shows the month-to-month change in the median price.

And here is a graph of the Black Knight HPI. The index is still up 14.3% year-over-year.

And on local markets:

While prices through July were only off peak by less than 1% nationally, some markets have seen much more significant pullbacks.

All in, more than 85% of major markets have seen prices come off their peaks through July, with a third dropping more than 1% and more than one in 10 falling by 4% or more.

San Jose, Calif., experienced the most significant pullback, with the average home price down 10% in recent months followed by Seattle (-7.7%), San Francisco (-7.4%), San Diego (-5.6%), Los Angeles (-4.3%) and Denver (-4.2%).

The velocity of this market correction is as noteworthy as the declines. There have been several examples over the past 30 years where markets have seen double-digit price drops. None, however, come close to what San Jose has experienced in the span of only three months.

In the early 1990s, for example, it took an average of 2.5 years for a number of West Coast markets to shed 10% of their value. Even during the Great Recession of the mid-2000s, it took two years, on average, for prices to drop 10%. Riverside, Calif., dropped the fastest, and it still took 13 months.

The fastest price drop on record, prior to this recent downturn, also belonged to San Jose, which saw prices drop 10% in eight months back in 2001, when the dot-com bubble burst.

Here is a graph comparing the YoY change in the NAR median prices (July) vs the Case-Shiller National Index (May). Note that the Case-Shiller Home Price Indices for “May” is a 3-month average of March, April and May closing prices. So “May” prices include some contracts signed in January, so there is a significant lag to this data.

In general, the median price leads the Case-Shiller index, and I expect the Case-Shiller to show significantly slower YoY growth over the next several months. But even the median price is lagged. For example, the recently released July report was mostly for contracts signed in May and June.

Much more on house prices on Tuesday!