U.S. home prices grew at record rate in 2021, will slow as interest rates rise

Home-price growth surged to new records in 2021’s tight housing market, according to a key index, but are expected to slow later this year, say experts. 

The S&P CoreLogic Case-Schiller National Home Price Index, which measures average home prices in major American metropolitan areas, rose 18.8% in the 12-month period ending in December 2021 – the highest increase since the index began in 1987.

The Wall Street Journal reports several factors that come to a head to make 2021 a record-setting year for home sales. The COVID-19 pandemic held down already-low interest rates, enticing households looking for more space to work from home. Home sales hit a 15-year high in 2021.

This coincided with a shortage of homes for sale that has persisted due to the demand, leading to bidding wars that pushed home prices and home-price growth to new heights.

Analysts say home-price growth will slow as mortgage rates continue to rise.

“The surge in mortgage rates is likely to take a bite out of the demand for housing, mostly among first-time buyers and those with limited budgets,” said Selma Hepp, deputy chief economist at CoreLogic.

First-time homebuyers have struggled in the hot housing market against cash buyers and investors. The National Association of Realtors reported that the percentage of home sales that went to investors rose to 22% in January, up from 15% the same time last year. Meanwhile, sales to first-time homebuyers fell from 33% to 27% in the same period.

A annual poll by Realtor.com found that 30% of homebuyers would willing to live in a haunted house on an otherwise ideal home.

“In today’s ultra-competitive housing market, buyers are looking for a break,” said Deputy News Editor of Realtor.com Clare Trapasso. “The majority are willing to consider homes that are rumored to be haunted, especially if they can get these properties at a discount. Nearly half of those surveyed would live in a haunted house if they can get a good discount, which to many buyers is more than half off of the market price.”