Home prices soar as buyers flood the market before mortgage rates go higher

March 30, 2022, 11:47 PM UTC

The red-hot housing market continued to sizzle in January, as rising mortgage rates and a low inventory of homes for sale sent home prices soaring at a record rate.

The average nationwide home sale price in January was 19.2% more than in the same month a year earlier, according to financial services and analytics company CoreLogic. The gain is the highest ever recorded by the company and a slight acceleration from December, when prices rose 18.9%.

CoreLogic specified only percent gains in home sale prices, not the prices themselves.

For some cities in the most recent report, particularly ones experiencing population and job booms, the price growth was much higher than the national average. Phoenix and Tampa both recorded year-over-year home price gains above 30%, while other cities like Las Vegas and Dallas saw prices rise more than 25%.

Competition for new homes has been driving prices up during most of the pandemic, but the January data came down to two major factors.

First: 30-year fixed mortgage rates have been rising for months, hitting their highest point in nine years in January at 3.64%. Since then, rates have risen to 4.16%, largely because of the Federal Reserve’s interest rate hike aimed at  countering inflation.

The likelihood of higher interest rates through the rest of this year and into 2023 pushed more people to buy new homes in recent months in an effort to lock in lower mortgage rates, according to CoreLogic. That surge may be temporary, however.

Second: The inventory of new homes for sale still is at a record low.  And that will probably be relevant for the rest of 2022. Spring is usually when the number of new home listings pick up, but not this year. The number of new homes for sale this month is expected to be 25% lower than in March 2019 according to CoreLogic, before the pandemic scrambled the housing market, as people simply have less reason to sell than ever.

Higher mortgage rates will probably take even more prospective home sellers out of the market. Despite the likelihood of selling their homes for high prices, homeowners have little incentive to do so if it only means they’ll have to buy a new one at a much higher mortgage rate.

The inventory problems probably won’t be solved this year. New home listings for February were down 26% compared to 2021, according to online real estate marketplace Realtor.com. The number of new homes being built is showing some faint glimmers of life. But inventory is expected to rebound only 0.3% through the rest of 2022.

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