Home prices may level off as mortgage rates rise, but prices were still climbing in February. The S&P CoreLogic Case-Shiller U.S. National Home Price Index shows that the median home price jumped 19.8% year-over-year in February, up from 19.1% the previous month.
Phoenix, Tampa, and Miami reported the highest year-over-year gains among the 20 largest markets. The median home price in Phoenix was nearly 33% higher, with prices in Tampa rising nearly as much. The median price of a Miami home gained almost 30%.
All 20 cities reported higher price increases in the year ending February 2022, versus the year ending January 2022. Even when compared to January, February home prices were higher. Nationwide, home prices gained 1.7% from January to February.
"U.S. home prices continued to advance at a very rapid pace in February," said Craig Lazzara, managing director at S&P DJI. "The National Composite Index recorded a gain of 19.8% for the 12 months ended February 2022; the 10- and 20-City Composites rose 18.6% and 20.2%, respectively. All three composites reflect an acceleration of price growth relative to January's level.”
Is it sustainable?
The big question is whether the market can sustain that kind of increase in home values. Not only have prices reached record levels, but interest rates have also moved above 5%; that's 2% higher than they were at the end of 2021.
As we recently reported, the average monthly house payment in April was 20% higher than the average payment for homes purchased in December. Some buyers have moved toward adjustable-rate mortgages (ARMs) to make the monthly payment affordable, which some real estate experts have described as risky in uncertain economic times. In fact, the Mortgage Bankers Association reported Wednesday that applications for ARMs last week doubled the number seen three months ago.
“An ARM is harder to budget for in the long run because the monthly payments might go up when the loan reaches its adjustment period,” Holden Lewis, home and market insights expert at NerdWallet, told ConsumerAffairs.
An ARM might start out at a lower rate but will go up when interest rates rise. The Federal Reserve has strongly signaled that it will continue to raise interest rates through the end of this year.
Housing economists report signs that the housing market is already weakening as it begins what is ordinarily its busiest time of the year. They attribute softer sales to qualification issues, rising cancellations, and increased buyer hesitancy.