Home Price Gains Dropped at a Record Pace in June. Will Buyers Benefit Right Away?

Buyers could enjoy homes that are more moderately priced… but when?

It's the news home buyers have long been waiting for. After months of continuous home price gains, things are finally starting to slow down.

In June, annual home price gains slowed by 2% compared to May, marking the fastest drop on record, as per mortgage data firm Black Knight. Even back during the recession of 2007 to 2009, when home prices plunged, the steepest single-month slowdown came to 1.19%, making June's number far more significant.

But should buyers expect immediate relief on the home price front? Not necessarily. While a notable decline in home price gains is a good thing for buyers, it may take time for those drops to translate into meaningful savings for hopeful buyers.

Homes are still expensive

It's important not to confuse the concept of slowing home price gains with home price drops. To be clear, what happened in June was that home price gains slowed down. But home prices themselves aren't down -- they're still considerably higher than they were a year ago. And buyers should expect home prices to remain relatively high for at least the next number of months.

This doesn't mean that home prices won't start to drop gradually. There's reason to expect a slow, steady decline that, if all goes well, leads to more moderate home prices by the tail end of 2022 or early 2023. But in the coming weeks, home buyers should by no means gear up to land a bargain.

Of course, even if home prices do come down, buyers will have to contend with rising mortgage rates. Borrowing rates are up considerably since the start of the year. And since the Federal Reserve just raised interest rates again, it's fair to assume that we'll see mortgage rates climb a bit more before leveling off.

To be clear, today's mortgage borrowing rates aren't unheard of. In fact, they're a bargain compared to the rates borrowers faced years back. But from mid-2020 through the end of 2021, mortgage rates were almost unbelievably low. So today's rates seem like a rip-off by comparison.

Should buyers wait until 2023 to purchase a home?

Although home price gains have slowed, so far, home prices are still very high in most markets. That alone is reason enough to put home buying plans on hold.

Waiting six months or so does mean running the risk of facing higher borrowing costs. But at the same time, it could mean spending 10% less on a home than what it would cost to buy one today. So it's important to crunch those numbers and see what makes the most financial sense.

Granted, some buyers may not want to put their plans on hold because they've been trying to navigate the housing market and get an offer accepted since the latter part of 2020. But those in stable housing situations may want to wait a bit longer, or at least sit tight a couple more months and see if real estate inventory picks up substantially.

A lot of financial experts are sounding warnings about a potential recession. That's something sellers may want to get ahead of by listing their homes sooner rather than later.

If more homes start to flood the market, it could lead to a more rapid cooldown of the housing market. We're clearly not at that point yet. But we could get there in the not-so-distant future.