Home prices fell at a record pace in June, according to the housing data company

Rising mortgage rates and inflation in the broader economy sharply lowered housing demand in June, forcing home prices to cool.

Home prices are still higher than they were a year ago, but gains slowed at the fastest pace ever in June, according to Black Knight, a mortgage software, data and analytics company that began tracking that metric in the early 1970s. The annual rate of price increases decreased by two percentage points from 19.3% to 17.3%.

Price gains remain strong due to the imbalance between supply and demand. The housing market has been suffering from severe shortages for years. Strong demand during the coronavirus pandemic has exacerbated it.

Even when home prices collapsed dramatically during the 2007-2009 recession, the strongest slowdown in one month was 1.19 percentage points. Prices are not expected to come down nationally, given the strength of the housing market in general, but higher mortgage rates certainly do.

The average 30-year fixed-rate mortgage rate topped more than 6% in June, according to Daily Mortgage News. It has since fallen back to the lower 5% rangebut that’s still well above the 3% band rates at the start of this year.

“The slowdown was widespread among the metro-wide top 50 markets, with some areas seeing more pronounced cooling,” said Ben Grabowski, president of Black Knight Data & Analytics. “In fact, 25% of major US markets saw a three percentage point slowdown in growth in June, with a four point slowdown of four percentage points or more in that month alone.”

However, while this was the steepest cooling on record nationally, the market would have had to see another six months of this kind of slowdown for price growth to return to long-term averages, according to Graboske. He estimates that it takes about five months for the effects of interest rates to be fully reflected on home prices.

The markets with the biggest drops are those that previously had the highest prices in the country. Median home prices in San Jose, California have fallen 5.1% in the past two months, the largest drop of any major market. That cut $75,000 off the price.

In Seattle, prices are down 3.8% in the past two months, or down $30,000. San Francisco, San Diego, and Denver are close to the top five markets with the biggest price cuts.

The price drop coincides with a sharp jump in the supply of homes for sale, up 22% over the past two months, according to Black Knight. However, the stock is still 54% below 2017-2019 levels.

“With a national shortage of more than 700,000 listed, it will take more than a year of these record increases for stock levels to fully return to normal,” Grabowski said.

Falling prices won’t affect the average homeowner as much as they do during it The Great RecessionBecause today’s homeowners have much greater equity. Tight IPOs, and several years of aggressive price hikes have pushed real estate equity levels to record levels.

Despite this, the strong market demand lately may be a problem for some. About 10% of mortgaged properties were purchased in the past year, so lower prices may cause some borrowers to drop a lot in their equity positions.