When working with buyers, we tend to get many of the same questions. Most of the time, these questions are related to home prices. Buyers seem to be convinced that they will never be able to get into a home without settling. While home prices have been on the uptick for about two years now, home prices will more than likely continue to rise at slower rates. Here are some answers to the questions we get when showing houses to potential home buyers, especially first-time home buyers.
Home Prices Increased Historically
It is no secret that home prices have risen astronomically in the past twelve months. Home prices surpassed even some of the most bullish analyst expectations. Hopefully home prices will begin to slow, but continue to hold their current levels. With mortgage rates set to increase in 2022, slowing home prices might be on the horizon. Over the past twelve months, home values have increased by 18% year-over-year on average.
According to the information from the Home Price Index from CoreLogic, price increases have accelerated at a higher rate over each of the last eight months. Information that CoreLogic has gathered (see graph below) is in line with the main home price indexes that are FHFA Home Price Index, as well as the S&P Case Shiller Index (for finance nerds). Because of these drastic increases in price, home owners that have lived in their home for over 12 months have benefitted from increased net worth and equity.
The acceleration in home prices month-to-month in 2021
Home Prices Acceleration Will Slow
Will home prices continue to rise? Probably. Will they continue to rise this fast from month to month? Probably not. With the FHFA Home Price Index having signaled a slight decline in appreciation per month, it looks like price acceleration has peaked. According to CoreLogic and the S&P Case Shiller Index, they have signaled a plateau in this same metric. There are analysts that believe this metric will dip down to 15% by the end of the year. This doesn’t mean home prices will decrease, what it means is that they will have increased less from the same month a year ago.
Home Prices Have Began To Accelerate At Slower Rates
What’s Next For Real Estate
Now, the most common question we get is “What are prices going to do next year?” While no one can accurately predict this (as we saw with 2021), there are people who are paid to collect their best ideas. With home prices already rising the most since The Great Inflation, it is hard to say that they will continue at this rate. The surge we have seen in real estate is based on the basic economic principle of supply and demand. When demand is high, aka low interest rates and lots of qualified buyers, supply will quickly be absorbed. Once the supply reaches low inventories, such as the ones we have seen in Middletown and Jefferson County, prices begin to rise. The longer this imbalance lasts, the higher prices will go.
Most experts, including Fannie Mae, Freddie Mac, and NAR (National Association of Realtors), believe inventory will come back to market levels. Once this happens, home prices will stall and the plethora of qualified buyers will begin to find homes. The graph below shows a few expert predictions for next years price increases.
A list of the biggest analysts predictions for home prices increase in 2022
Conclusion On Home Prices
To conclude, home prices have gone up astronomically. Historically, actually. With a near 20% increase over the past 12 months, home prices exceeded even the biggest bull’s predictions. Are prices going to come down anytime soon? Probably not. However, they will increase at slower rates. This will allow more buyers to find homes, especially if the supply issue subsides to normal inventory levels. Prices will continue to rise because that is the nature of real estate. However, the acceleration in prices will slow by more than 50%, according to analysts (Keeping Current Matters).
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