If you’re trying to decide whether to buy a home in 2022, you are likely looking at the home pricing market with close attention. So far, this year has been interesting for what hasn’t happened. What do I mean?
Many analysts actually projected that 2021 would see home price appreciation slowing dramatically, followed by a softening throughout 2022. The surprise?
That prediction hasn’t come true. Major price indices reveal an on-going trend of double-digit price appreciation. Below you’ll see the year-over-year reports for price appreciation for December:
- Federal Housing Finance Agency (FHFA): 17.6%
- S&P Case-Shiller: 18.8%
- CoreLogic: 18.5%
To give you a better idea of how the home pricing market responded as a whole last year, please see the graph below. It shows the marked increase throughout 2021, as well as the progression of all three indices on a monthly basis for 2021. What we instead of a softening of price acceleration is a leveling off.
What we see in the first six-to-seven months of last year likely corresponds with the news you were reading and the anecdotes you heard. According to all three indices, home price appreciation increased dramatically through July. That acceleration slowed into August, but rather than decline, it leveled off.
Despite what analysts predicted as the start of a slowdown, the data reveals a different story. From the leveling off, the three indices show that home pricing appreciation stayed more or less level through the fall before experiencing another uptick in December.
When looking at graphs like these, it’s often helpful to define the terms and concepts. In this context, deceleration of home pricing appreciation is not the same as the depreciation of home values. Here is a quick summary:
- Acceleration – this refers to home prices rising at a greater year-over-rear pace than the previous month
- Deceleration – this refers to home values continuing to rise, but the pace of that rise is slower than year-over-year appreciation.
- Depreciation – this refers to home values dropping below their current values.
To be clear, no one is forecasting depreciation to happen. What we see with prices level off are conversations about home prices decelerating.
Still, that December uptick is worth paying attention to. That accelerated price appreciation was seen in six of the nine reginos the FHFA tracks. It was also seen in 15 of the 20 metros that Case Shiller reports on. As Selma Hepp, Deputy Chief Economist at CoreLogic, explains:
“After some signs of slowing home price growth . . . monthly price growth re-accelerated again, indicating home buyers have not yet thrown in the towel.”
What These Current Trends Mean For Timing Your Next Home Purchase
These trends are often used to answer the question “Should I wait to buy my home?” The worry is often that with deceleration or depreciation that could be buying a home on the downswing and that it will lose value after you buy it.
What this trend reveals is that waiting to decide about your next home will cost you. Whether you’re a first time purchaser or you’re selling your home and finding one that better fits your needs, there are two factors to consider:
- Mortgage rates, which are the highest they’ve been since 2019, are forecast to rise this year
- Home prices may continue to appreciate at double-digit levels for the foreseeable future
The cost of waiting is seen in both these examples. More expensive homes and higher mortgage rates will have a significant impact on both the amount you’ll need to save for a down payment – and your monthly mortgage payment.
If you wait, rising mortgage rates and high home price appreciation will have a dramatic impact on your monthly mortgage payment.
If you’re looking for one piece of actionable advice to use from this article, the best thing to do might be listening to the advice of Len Kiefer, Deputy Chief Economist at Freddie Mac:
“If you’re thinking about waiting until next year and that maybe rates are higher, but you’ll get a deal on prices – well that’s risky. It may be more advantageous to purchase this year relative to waiting until 2023 at this time.”