The two-year explosion in home prices appears to be cooling a bit. May was the second month straight that annual appreciation was down. Annual price growth retreated from 20.4 percent in April to 19.3 percent in May, making this the largest negative correction in a single month since 2006. This still left prices up 1.5 percent from April to May - nearly twice the average historic acceleration for that month - and a gain of 10.8 percent during the first five months of the year. Typically, home growth is 3 to 4 percent over an entire year. Only three of the 100 largest markets, Miami, Omaha, and Grand Rapids, have not braked a bit over the last six months. Gains in Austin and Boise have decelerated by 12 percentage points, while Stockton, Phoenix, and Seattle have dropped back by 5 to 6 points each. The appreciation in some areas is still mind-blowing with areas like Tampa, Nashville and Miami seeing annual gains in excess of 30 percent.
According to Black Knight Data & Analytics President Ben Graboske, “…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. That said, the pace of deceleration could very well increase in the coming months, as we’ve already begun to see in select markets such as Austin, Boise and Phoenix.”
Home affordability is the worst since the mid-1980s with interest rates reaching 6%. In the 80s, the FED hiked interest rates into the double-digits to combat inflation causing the mortgage payment to income ratio to rise more than 50 percent. We are not quite at that level yet, but in May the monthly payment on the average home rose above $2,100 for the first time ever, consuming almost 37% of the median household income.
