Home Prices Up 20 Percent From Last Year

Home prices rose 20.6 percent in March from the same time last year, but will rising interest rates take the punch bowl away from the party?

By Nate Griffin - May 31st, 2022

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S&P CoreLogic released the latest data for its Home Price Index on Tuesday. The numbers show that nationwide home prices rose by 2.6 percent in March from the previous month and by 20.6 percent from the previous year.

Phoenix and Miami reported gains of over 30 percent. Tampa, FL had the highest year over year growth at 34.8 percent. This was the first time in three years that Phoenix was not number one on this list.

Demand for single family housing has been strong across the country since the pandemic began. Many renters sought to leave urban life for a more suburban setting.

According to The PEW Charitable Trusts, about one third of states lost population in 2021. People were rapidly moving out of expensive states like New York and California, while states like Idaho, Montana and Texas grew rapidly.

Every region saw home prices rise, but growth was the highest in the South and Southeast, both growing at over 29 percent year over year.

Overall, home prices are nearly 300 percent higher than in the year 2000. And prices are 59.5 percent higher than the peak values before the 2008 financial crisis.

At the start of the pandemic, the Fed quickly lowered the Fed Funds Rate – the target benchmark rate that determines interest rates that consumers pay – to 0.25 percent. Low interest rates during the pandemic helped to fuel demand for housing, initially lowering monthly payments, but pushing up prices as a result.

In March, the Fed raised rates from 0.25 percent to 0.5 percent. Then, In April the target rate rose to 1 percent. Indicators show that home sales are slowing down, which may help to slow price growth.

Controlling inflation will continue to be a top priority for the Fed, and more rate hikes are likely to occur. Those hikes will likely help to slow the growth of housing prices, but will make mortgages more expensive for home buyers in the process.