Annual home price growth fell from 14 percent in the second quarter to below 9 percent, according to the National Association of Realtors latest quarterly metro home price report, released Thursday.

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As home prices began to dip in the summer months, more homeowners saw their annual gains fall back into single-digit territory

Annual home price growth fell from 14 percent in the second quarter of the year to below 9 percent in the third quarter, according to a new report from the National Association of Realtors. The median existing single-family home price was $398,500, up 8.6 percent from the year before.

“Much lower buying capacity has slowed home price growth and the trend will continue until mortgage rates stop rising,” NAR Chief Economist Lawrence Yun said in the report. “The median income needed to buy a typical home has risen to $88,300 – that’s almost $40,000 more than it was prior to the start of the pandemic, back in 2019.”

NAR observed this pullback from the breakneck annual price increases of the early pandemic in most of the U.S. cities that it examined.

Fewer than half of metro areas saw double-digit growth in home prices from the third quarter of 2021 to the same period of 2022, the report found. That’s a significant change from the previous quarter, when homes posted double-digit price over the previous year in 80 percent of metro areas.

Despite this downward pressure on home prices, the overall cost of purchasing a home has skyrocketed over the past year alongside an increase in mortgage rates.

But the affordability of the typical home purchase appeared to steady during the summer. The mortgage payment on a typical existing single-family home rose to $1,840 in the third quarter, barely changed from $1,837 in the previous quarter. Still, compared to a year ago, the typical monthly payment was 50 percent higher.

In the third quarter of last year, families that purchased homes spent 17 percent of their monthly income on mortgage payments. A year later, that number had risen to 25 percent.

Mortgage rates are largely to blame. After spending most of the pandemic near record-low territory, they’ve since climbed from sub-3-percent levels to higher than 7 percent. 

There may be some reason to expect some relief in mortgage rates for buyers. Usually, 30-year mortgage rates stick somewhat close to the yields on 10-year U.S. bonds, Yun said in the report. That’s not the case right now, as mortgages have shot higher than bond yields might suggest.

“A return to a normal spread between the government borrowing rate and the home purchase borrowing rate will bring the 30-year mortgage rates down to around 6 percent,” Yun said in the report.

Of all U.S. regions, the South registered the largest annual price growth in the third quarter. Home prices there rose nearly 12 percent year over year.

But in other broad swaths of the country, annual price growth dipped back into the single digits. The Northeast saw 8 percent growth in prices, while Western and Midwestern states had closer to a 7 percent rise in home prices year over year. 

In some regions where price growth has fallen most in the past year, things are expected to continue slowing, Yun said. But in other places, real estate might remain more resilient.

“The more expensive markets on the West Coast will likely experience some price declines following this rapid price appreciation, which is the result of many years of limited home building,” Yun said in the report. “The Midwest, with relatively affordable home prices, will likely continue to see price gains as incomes and rents both rise.”

Email Daniel Houston

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