Home prices rise at fastest pace in 34 years in December, but rising mortgage rates remain a threat

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Numbers: The S&P CoreLogic Case-Shiller price index for 20 cities posted an 18.6% year-over-year gain in December, up slightly from 18.3% the previous month. On a monthly basis, the index increased by 1.5% between November and December.

Meanwhile, the Case-Shiller National House Price Index posted 18.8% growth between 2020 and 2021 in December, in line with the November reading.

“This is the largest single calendar year increase in 34 years of data, and
significantly ahead of 2020’s 10.4% gain,” S&P DJI chief executive Craig J. Lazzara said in the Case-Shiller report.

The Federal Housing Finance Agency’s house price index showed prices rose 17.5% between the fourth quarters of 2020 and 2021. Prices rose 1.2% between November and December, according to the FHFA report.

What happened: Phoenix had the highest home price growth rate in the nation in December, according to the Case-Shiller report, with a 32.5% year-over-year increase. Like the previous month, two Florida cities followed closely: Tampa with a gain of 29.4% and Miami with a rise of 27.3%.

The FHFA report showed home price growth during the fourth quarter of 2021 was strongest in Arizona, Utah and Idaho, and weakest in the District of Columbia, Louisiana and North Dakota. North. This report recorded the highest pace of home price appreciation in Cape Coral-Ft. Myers, Fla., where prices rose 34.6% year on year.

The big picture: Homebuyers may have seen an acceleration in the pace of home price growth in December, but that will likely be short-lived. Although house prices should not fall over the next few months, rising mortgage rates will cause them to lose some of their wings.

As interest rates rise, this reduces the amount buyers can afford. And housing was unaffordable for many even before rates began their steady climb. As a result, some buyers may find themselves out of the market entirely this spring.

Look forward: “Home prices continued to beat expectations in December, but a marked change could be ahead for growth as rising mortgage rates eat away at buyers’ purchasing power,” said Danielle Hale, chief economist. at Realtor.com. “While typical asking prices continue to accelerate, the pace of median selling price growth has slowed, signaling a potential gap between what buyers are willing and able to pay and what sellers are hoping to get.”

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