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Despite Mortgage Rate Hikes, Home Prices Continue Climbing

According to the latest S&P Dow Jones Indices (S&P DJI) for January 2022, home prices continue to increase nationwide, as the U.S. National Home Price NSA Index—covering all nine U.S. census divisions—reported a 19.2% annual gain in January, up from 18.9% in the previous month.

“Last fall we observed that home prices, although continuing to rise quite sharply, had begun to decelerate. Even that modest deceleration was on pause in January,” said Craig J. Lazzara, Managing Director at S&P DJI. “The 19.2% year-over-year change for January was the fourth-largest reading in 35 years of history.”

The 10-City Composite annual increase came in at 17.5%, up from 17.1% the previous month. The 20-City Composite posted a 19.1% year-over-year gain, up from 18.6% in the previous month.

Phoenix, Tampa, and Miami reported the highest year-over-year gains among the 20 cities gauged in January, with Phoenix leading the way with a 32.6% year-over-year price increase, followed by Tampa with a 30.8% increase, and Miami with a 28.1% increase. Sixteen of the 20 cities reported higher price increases in the year ending January 2022 versus the year ending December 2021.

“The strength in home prices continues to be very broadly based,” noted Lazzara. “All 20 cities saw price increases in January 2022, with prices in 16 cities accelerating relative to December’s report. January’s price increase ranked in the top quintile of historical experience for 19 cities, and in the top decile for 17 of them.”

The U.S. National Index posted an 1.1% month-over-month increase in January, while the 10-City and 20-City Composites both posted increases of 1.4%. After seasonal adjustment, the U.S. National Index posted a month-over-month increase of 1.6%, and the 10-City and 20-City Composites both posted increases of 1.8%. In January, all 20 cities reported increases before and after seasonal adjustments.

“The world has changed considerably since the start of the year, with a host of events shuffling the economic and real estate landscape,” said George Ratiu, Senior Economist & Manager of Economic Research at Realtor.com. “Globally, Russia’s invasion in Ukraine destroyed human lives, cities and roads, along with a long stretch of relative stability in Europe. The continuing war is impacting global trade and leading to renewed disruptions in supply chains. Domestically, inflation surged at levels not seen since the 1980s, prompting the Federal Reserve to take decisive action to increase the funds rate and signal a much more aggressive monetary tightening, which may include higher rate changes and balance sheet reductions in the months ahead.”

Higher mortgage rates are just one of the effects of the increase in Fed funds rates, as Freddie Mac reported fixed-rate mortgages averaging 4.42% for the week ending March 24, 2022, up from the previous week when they averaged 4.16%.

“The 2022 housing markets continue to show resiliency despite the surge in mortgage rates and persistently challenging inventories,” said CoreLogic Deputy Chief Economist Selma Hepp. “Home price acceleration regained steam after pointing to buyer fatigue during last year’s winter months. Looking forward, the home buying environment will likely remain very competitive, with home price growth also remaining concerningly high, as inventories show little-to-no sign of respite and buyers attempt to lock in a lower rate in anticipation of further increases.”

Lazzara added, “The macroeconomic environment is evolving rapidly. Declining COVID cases and a resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response. We may soon begin to see the impact of increasing mortgage rates on home prices.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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