Home prices continued to increase in February, reaching the highest annual gain since April 2006, as demand continues to clash with historically low supply, the report showed. These factors have created increased affordability challenges, especially as mortgage rates also begin to rise.
Home prices increased 10.4 percent in February 2021 from the previous year, and increased 1.2 percent from January, the report showed.
But the market is expected to cool as the year progresses.
CoreLogic projects home prices will increase 3.2 percent by February 2022. Increased inventory as the pandemic wanes, coupled with affordability concerns that may discourage potential homebuyers, could lead to a slowdown in home price growth by the end of 2021.
“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” CoreLogic President and CEO Frank Martell said. “Rising mortgage rates and severe supply constraints are pushing already-overheated home prices out of reach for some prospective buyers, especially in more expensive metro areas. As affordability challenges persist, we may see more potential homebuyers priced out of the market and a possible slowing of price growth on the horizon.”
Many metros already struggling with affordability constraints saw higher home price appreciation rates from February 2020 than the U.S. average. Home prices increased 16.2 percent year over year in Phoenix, 12.5 percent in Seattle and 8.2 percent in Los Angeles.
First-time homebuyers are feeling the greatest strain of the rising home prices.
“The run-up in home prices is good news for current homeowners but sobering for prospective buyers,” CoreLogic Chief Economist Frank Nothaft said. “Those looking to buy need to save for a down payment, closing costs and cash reserves, all of which are much higher as home prices go up. Add to that a rise in mortgage rates and the affordability challenge for first-time buyers becomes even greater.”