Record-high home price growth in the US has finally turned a corner, giving the housing market a much-needed cooldown.

Home price appreciation logged its largest single-month slowdown on record since at least the early 1970s, with the annual growth rate plunging nearly two percentage points in June, according to Black Knight’s latest Mortgage Monitor report.

“For context, during the 2006 downturn, the strongest single-month slowing was 1.19% – about what we saw last month – and June topped that by 66%,” said Ben Graboske, president of Black Knight Data & Analytics. “The slowdown was broad-based among the top 50 markets at the metro level, with some areas experiencing even more pronounced cooling. In fact, 25% of major US markets saw growth slow by three percentage points in June, with four decelerating by four or more points in that month alone.”

While the pullback in June was record-breaking, Graboske noted that home price growth would need to decelerate at this pace for six more months for annual appreciation to return to the long-run average of about 5%.

“Given it takes about five months for interest rate impacts to be fully reflected in traditional home price indexes, we’re likely not yet seeing the full effect of recent rate spikes, with the potential for even stronger slowing in coming months,” he said.

The report also revealed significant changes in the demand-supply equation. Over the past two months, the number of homes listed for sale rose 22% at a seasonally adjusted rate. However, the market still has a long way to go before normalization – 54% below the number of listings from 2017 to 2019.

“With a national shortage of more than 700,000 listings, it would take more than a year of such record increases for inventory levels to fully normalize,” Graboske said. “Of course, some metro areas are seeing inventory return to the market more quickly than others.

“San Francisco officially returned to pre-pandemic levels in June, becoming the first major market to do so, with San Jose close behind, where the number of homes listed for sale is just 1% off the June 2017-2019 average. It’s therefore of little surprise to find both metros among the markets where prices are pulling back from recent highs, along with Seattle, San Diego, Denver and others.”

According to Black Knight, this could affect many borrowers who bought into the market at or near recent highs, as roughly 10% of mortgaged properties were purchased over the past year.

Additionally, sales activity has continued its downward trend over recent months due to rising rates and home affordability issues. Seasonally adjusted home sales have declined by more than 21% since the start of the year and are expected to continue going down in the coming months. The slowdown in sales has helped inventory to recover from record lows.

“Factoring in both active listings and sales volumes, the market has ticked up from a low of 1.7 months of inventory at the start of the year to 2.6 months as of June,” Black Knight wrote in the report. “If current trends continue to hold, months of inventory could continue to trend sharply upward in coming months. Black Knight will continue to monitor the situation and report its findings moving forward.”