Home price growth decelerates at the fastest pace since 2006

The annualized price gain for homes in May fell more than a percentage point, marking the largest drop of this type since 2006, according to Black Knight’s latest Mortgage Monitor report.

The 19.3% growth in home price appreciation from May 2021 to May 2022, from a revised 20.4% increase in home prices from April 2021 to April 2022 coincided with affordability plumbing lows not seen since the mid-1980s.

About 36.2% of the annual median household income was needed to purchase an average home in mid-June, topping the share of annual wages required when the housing market last peaked in July 2006. At that time, 34.1% of yearly income was needed to buy an average home.

Although mentioning 2006 brings to mind the housing crash that followed that year, experts foresee the current market to generally have far more room to run than that one did. Previously hot markets like Austin, Boise and Phoenix are seeing price deceleration intensify and nearly all of the top 100 markets experienced slower appreciation rates in May, but the consecutive-month gain for the market as a whole was still 1.5%, according to Black Knight.

“While any talk of home values and 2006 might set off alarm bells for some, the truth is that price gains would need to see deceleration at this rate for more than 12 months just to get us back to a ‘normal’ 3-5% annual growth rate,” said Ben Graboske, president of Black Knight Data and Analytics, in a press release. 

The number of available listings remains 60% below what would be considered normal, but the slowdown in the near term relieves some inventory shortages for those who still have the means to buy homes.

Second-home buyers in the Sunshine state, for example, are finding more of a selection, said Kim Adams, an agent at Remax Elite Realty.

“I have definitely been seeing an increase in inventory across the board in Florida,” she said.

Six months ago, a search for single-family pool homes in Palm Harbor turned up just four active listings, Adams said. In comparison, a similar search turned up 40 active listings last month, and 57 in July. In another one of her markets, Tarpon Springs, active listings have increased from 40 a few months ago to 103 in June, and 124 in July.

Although rising rates and insurance costs have been slowing a vacation property market that is coming down from pandemic highs, it is one of the specialty niches that may offset what could be an intensified seasonal dropoff in primary-market sales this year, she said. Florida’s second home market typically experiences a counter-cyclical surge in the fall, Adams noted.

“I fully expect this fall to pick up as snowbirds are back and as the temperatures drop up north regardless of interest rates,” she said.

While the second-home market in Florida is a little cooler than it was, the demand for rentals is still falling far short of supply, said Adams.

“I still have buyers looking and I am telling them all to buy now. Many are cash buyers and some are looking for vacation or rental properties. The rental market is crazy,” said Adams.