Near-term home price growth slows at the start of 2021

While home values surged to record highs over the past year, the latest month-to-month movements indicate price growth could start returning to a pre-pandemic pace.

Housing prices shot up 12% in January from the year before, more than doubling the 5.9% rate from January 2020, according to the Federal Housing Finance Agency. However, the near-term pace of growth continued a gradual decline. It fell to 1% — the lowest monthly appreciation since June — from 1.2% in December 2020 .

The monthly gains appear to be moderating according to the FHFA’s deputy director of the division of research and statistics, Lynn Fisher. Part of that is due to lessening COVID restrictions providing sellers comfort in listing their homes compared to the compounded demand of summer 2020 when monthly growth rates averaged 1.6%.

As the housing shortage puts upward pressure on prices heading into prime homebuying season, jumps in Treasury yields and subsequent mortgage rate growth could temper demand.

“The affordability crunch resulting from strong home price growth and higher mortgage rates will discourage some potential homebuyers from entering the market and take some wind out of its sails, slowing the home price growth rate by about a half by the end of 2021,” CoreLogic deputy chief economist Selma Hepp said in a statement.

Broken down by the nine geographical census divisions, the HPI in the Mountain region — Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming — led the country with a 14.8% annual growth rate in January. The West South Central division — Arkansas, Louisiana, Oklahoma, Texas — had the lowest at 10.2%. The Mountain region also led on a monthly basis with a rate of 1.5%. Meanwhile, East South Central — Alabama, Kentucky, Mississippi, Tennessee — actually fell 0.2% from December.