Rising Mortgage Rates and Home Prices Could Push Buyers Out of the Market


Housing data released this week confirmed what many industry watchers already knew: U.S. home prices have risen at their fastest pace in decades, and there’s every reason to believe that prices will continue to rise in the coming months.

See: How will the Fed’s interest rate hike affect you?

Find: Mortgage rates could rise in 2022, should you buy now or wait?

That trend, combined with an expected rise in mortgage rates for 2022, could shut some buyers out of the market altogether, experts say.

Average U.S. home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. This is the largest increase in 34 years of data and well above the 10.4% gain recorded in 2020. Every region of the country saw a rise in prices last year, South and South – Is recording the highest gains at over 25% each.

Many housing experts expect prices to rise in double digits this year. Zillow recently forecast that average U.S. home prices will rise 14.3% in 2022, with cities in the South eyeing much higher gains.

Meanwhile, the Federal Reserve’s plan to raise interest rates in 2022 likely means mortgage rates will also rise. In fact, it is already happening.

The average 30-year fixed rate in the United States was 4.12% as of Feb. 22, according to a rate survey by Mortgage News Daily, Freddie Mac, the Mortgage Bankers Association and the Federal Housing Finance Agency. This is up from 3.78% at the start of February and 3.27% at the end of 2021. Rates have remained mostly stable and historically low in 2021 and have only recently started to rise.

The result is that buyers will find it very expensive to buy a home in many US markets this year as demand continues to outstrip supply. If you need an idea of ​​the price, consider this: the number of “million dollar towns” in the United States – those where the typical value of a home is at least $1 million – grew by a record 146 cities in 2021, according to Zillow. This brought the total to 481 cities nationwide.

These cities – mostly concentrated in coastal urban areas like New York, San Francisco and Los Angeles – are already out of reach for most home buyers in the United States, where the typical home value is closer to 325,000. $.

As interest rates rise, that further reduces the amount buyers can afford, MSN reported. Housing was unaffordable for many consumers even before rates started to climb. With rates and prices continuing to rise, some buyers could find themselves completely shut out of the market this year.

The good news is that not all markets are the same. If you’re looking for affordable housing, check out this GOBankingRates list of the 50 best places in every state to live on a fixed income.

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This article originally appeared on GOBankingRates.com: As house prices hit a 34-year high, mortgage rates could be the final nail in the coffin for some homebuyers

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