Home prices in the U.S. are sinking at the fastest monthly pace since the Great Recession, evidence that rising mortgage rates are rapidly slowing activity in the housing market.
Median home prices fell 0.98% in August from a month earlier, following a 1.05% drop in July, mortgage analytics firm Black Knight said in a report Monday.
"Together they represent two straight months of significant pullbacks after more than two years of record-breaking growth," said Black Knight Data & Analytics President Ben Graboske
The price declines are the sharpest since January 2009, when the economy was in the midst of the worst recession since the Great Depression, according to Black Knight. Median home prices are down 2% since their June peak.
"The only months with materially higher single-month price declines than we’ve seen in July and August were in the winter of 2008, following the Lehman Brothers bankruptcy and subsequent financial crisis," Graboske said.
The once red-hot housing sector is in the midst of a severe correction as the Federal Reserve raises interest rates at the fastest pace in decades.
The Federal Reserve raised its benchmark interest rate by 75 basis points for the third straight month in September, following similar rate hikes in June and July — the most aggressive series of increases since 1994. The move puts the key benchmark federal funds rate at a range of 3% to 3.25%, the highest since before the 2008 financial crisis. It also marks the fifth consecutive rate increase this year.
In addition to the large rate hike, Fed officials laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the two-day meeting show policymakers expect interest rates to hit 4.4% by the end of the year, suggesting that another three-quarter percentage point increase is on the table.
Mortgage rates have more than doubled to 6.29%, according to recent data from mortgage lender Freddie Mac, and could continue to climb higher. And while home price growth has cooled over the past month, prices remain well above where they were just one year ago, putting affordability out of reach for many prospective buyers.
New home sales unexpectedly surged in August, with new single-family home purchases jumping nearly 29%. However, economists largely think that the surprise upside is an anomaly and merely represents an effort by buyers to lock in a lower mortgage rate as the average 30-year fixed rate average dipped closer to 5% from earlier highs.
"New home sales were way above expectations in August as homebuilders cut prices and mortgage rates pulled back a bit from June and July levels," said Bill Adams, chief economist for Comerica Bank. "With mortgage rates up making new highs again after the September Fed decision, August’s upside surprise in home sales is unlikely to be repeated."