Home price growth hits another record, but slows overall

The annual pace of home price growth is still coming in at record levels, but the latest monthly trends point to gradual moderation over the coming year.

Home price appreciation grew on an annual basis by 18% in October, the fastest pace ever for the month, according to the CoreLogic Home Price Index. The latest spike surpasses the 7.3% year-over-year surge from the same period in 2020. The index also showed a 1.3% rate of price growth on a monthly basis. While still increasing, the monthly numbers showed a further slowdown from an April peak of 2.3%.

Price gains remain on the horizon, but buyers might see slight relief from the double-digit growth over the coming year. With affordability and economic concerns expected to lead some to withdraw from the market, home price increases should slow to 2.5% annually by October 2022, according to CoreLogic. Additional inventory will also become available and ease pressure on the market. Seasonal trends are likely to have an effect on prices in the near future as well. CoreLogic projects monthly price gains to rise only 0.2% for November.

“New household formation, investor purchases and pandemic-related factors driving demand for the limited supply of available for-sale homes continues to propel the upward spiral of U.S. home prices,” said Frank Martell, president and CEO of CoreLogic, in a press release. “However, we expect home price growth to moderate over the near term as many buyers take a break for the holidays.”

The Mountain West states had the largest increases, taking four out of the top five positions in price growth in the report. Arizona led the country with a 28.8% annual rate of increase, followed closely by Idaho at 28.7%. Utah, Florida and Nevada followed at 24.5%, 24.4% and 24.2% respectively.

Extreme home price growth over the past year has damaged consumer optimism about the market, according to data from Fannie Mae’s Home Purchase Sentiment Index. November’s index showed 64% of consumers thought that current market and economic conditions made it a bad time to buy a new home, slightly below the previous month’s 65%. But the number was well above the level from November 2020, when only 35% of consumers thought it was a bad time. Those considering it a good environment for purchase also fell by one percentage point month over month from 30% to 29%, leading to the same -35% net negative response from October. A year ago, the net difference was -22%.

The share of consumers who said home prices will go up in the next year grew from 39% in October to 45% in November, while those believing they would head downward dropped from 22% to 21%, leading to a net share of 24% more who anticipate price hikes in Fannie Mae’s index. That share is up from 17% month over month, but in November 2020, the differential was 28%, as more consumers foresaw prices falling or at least staying the same.

Overall, the Home Purchase Sentiment Index, which is determined from responses to six questions in Fannie Mae's National Housing Survey concerning home buying, selling, prices, interest rates, jobs and income, dipped by 0.8 points from 75.5 in October to 74.7. The November level dropped 5.3 points from its level of 80.0 in November 2020.

However, decreased optimism has not led to a steep dropoff in purchase demand, according to Fannie Mae, something the Mortgage Bankers Association has also noted. While affordability continues to be an obstacle, homeownership remains a goal for a majority of people across all age groups as well, based on a recent CoreLogic survey.

"Even though consumers are reporting broader macroeconomic concerns — with much of it likely tied to inflation — so far any negative sentiment tied to the economy has not translated into a meaningful decrease in actual purchase mortgage demand,” said Mark Palim, Fannie Mae vice president and deputy chief economist.

The greatest demand during the COVID-19 pandemic has been on single-family detached structures, said Dr. Frank Nothaft, chief economist at CoreLogic. “This is reflected in the 19.5% annual price rise for detached houses, which marks another record-high for the CoreLogic Home Price Index.”