National Home Prices Rising Faster Than Ever

New data from the S&P CoreLogic Case-Shiller U.S. National Home Price Index shows that home prices across the country have skyrocketed in the last year. Prices are reflecting the largest year-over-year increase seen in the last 34 years, with an average increase of 18.8%, almost double the 10.4% gain seen in 2020.

We’re seeing price gains across all regions of the U.S., with the highest being in the South and the Southeast, both rising by more than 25% on average. Dramatic growth in the nation’s big cities continues, with all 20 cities listed in the index demonstrating record-breaking prices. The city topping the charts for annual gains is Phoenix, Arizona with an average increase of 32.5%. The two runners-up are Tampa and Miami, with a 29.4% and 27.3% gain, respectively.

Looking month-to-month, annual home price gains peaked in August of 2021 at 19.8% and the rate of increase declined through November to 18.8%. Gains remained steady from November to December, and while prices will continue to rise, gains are expected to decelerate as we continue into 2022. So, what’s causing these groundbreaking price increases?

Craig J. Lazzara, managing director at S&P Dow Jones Indices, says that these market changes are partly driven by demand and the number of Americans moving during the pandemic. The available housing inventory dropped to an all time low in December. Coupled with a steady strong demand for housing, prices will rise. The pandemic’s interference with new home construction has made it difficult to reduce the shortage, and it could be many years before demand is met.

One factor that may contribute to diminishing the housing demand is mortgage rates. Rising mortgage rates have lagged behind the home price increases seen across the country, but are now beginning to show more abrupt increases as well, rising almost to 4% for a 30-year-fixed-rate mortgage as of late December.

The majority of mortgage increases seen have occurred in the last 2 months, but have added a significant amount to the monthly cost of a home sale. This is expected to challenge the affordability of the housing market for many buyers, in addition to the trend of under-building we’ve seen over the last decade. Reports estimate that the current housing market is at least 5.8 million homes below household growth.

However, competitive labor market conditions and changes brought by the pandemic such as workplace flexibility may continue to give Americans the resources and opportunity to navigate an ever-competitive housing market. Overall, economists and housing experts expect this housing trend to slow in 2022, as the data has predicted for the last six months.

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