Home prices surged by 20% over last year in Q1: Fannie Mae

In the first quarter, housing prices shot up by a record-high 20% compared to the same period a year before, with concerns about rising interest rates driving demand, according to Fannie Mae.

Fannie Mae’s Home Price Index, a quarterly measure of cost fluctuations in single-family housing, excluding condo dwellings, rose 20% on an unadjusted basis in the first three months this year compared to the same time frame in 2021. The pace of price growth headed upward after a slight dip at the end of last year. The rate of growth climbed from 19.1% year-over-year in the fourth quarter and 19.3% from the preceding three months. On a quarterly basis, Q1 2022 home prices increased by a seasonally adjusted 4.8% compared to the final three months of 2021.

While economists largely anticipate price growth to slow in 2022, the expectation of rising interest rates helped fuel the recent surge. Escalating rates added to ongoing pressure from the lack of inventory that could meet high consumer demand, according to Doug Duncan, Fannie Mae’s chief economist.

“We believe recent home-buying demand was augmented by many home buyers pulling forward their home-purchase plans in anticipation of rising mortgage rates,” Duncan said in a press statement.

While rate developments may have spurred some with the means to act, it appears to have compounded challenges for many other consumers. A new affordability index recently released by the Mortgage Bankers Association, which factors in criteria including interest rates, determined February was the least affordable month for homeownership since 2009.

Last week, Freddie Mac’s benchmark 30-year fixed-term rate average hit the 5% mark for the first time in over a decade and is now up by 189 basis points from the final week of 2021. Other recent surveys of lenders, including the MBA’s, have also found average interest rates similarly coming in above 5%.

Fannie Mae made its Home Price Index available externally for the first time with the release of first-quarter numbers. Its value is produced through the aggregation of county-level data to produce representative indexes of the entire U.S. on both a seasonally adjusted and an unadjusted basis.

“We have long used this index within the company, including as part of our quarterly financial disclosures, and we believe it will be a highly accurate, timely indicator for measuring home price growth for both economists and housing industry stakeholders alike,” Duncan said.

While the index reached a historical high, the first-quarter spike in buyer interest and resurgent home prices was more likely a late-stage reaction in response to recent news rather than a resurrection of prior trends, according to Duncan. “Now, with rates having sharply risen since the start of the year — and some of that home-buying demand now met — we expect price growth to begin cooling as the year progresses.”

The shortage of available housing inventory, with homeowners seemingly reluctant to leave their homes during the pandemic, has also continued to contribute to affordability challenges across the country. An industry survey last fall, though, found approximately 65% of prospective home sellers saying they hoped to list their properties by the spring. With existing sales limited, new constructions are also making up a higher percentage of homes for sale as well.