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Home Prices Just Hit Another All-Time High Here's Why

The 2021 housing market came in with a bang and out with a bigger bang. Here's why the year is ending with home prices at an all-time high.

December 30, 2021
December 30, 2021
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Record home price growth has been a hallmark of the 2021 housing market. As such, it's only fitting that the calendar year ends with yet another new all-time home price record.

Despite a slowdown in overall homebuying activity during the holidays, the national median home sales price climbed to an all time-high $361,171 during the four-week period ending December 26, according to Redfin, a national real estate brokerage. This broke the previous record set in prior four-week period.

Razor-thin inventory continues to be the main culprit of price growth. There were an all-time low 508,969 active listings of homes for sale during the four-week period ending on December 26. That's down -26.1% from last year and -44.8% from 2019.

It also appears that home price data is reacting to who bought homes this month.

According to the Mortgage Bankers Association (MBA), purchase applications declined by 3% from December 10 to December 17 as many homebuyers suspended their searches for the holidays. However, those that stayed in the market tended to buy more expensive homes.

"Both conventional and government purchase applications were down, while the average purchase loan increased for the second straight week to $416,200 - the second highest amount ever. The elevated loan size is an indication that activity is more on the higher end of the market," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Home-price appreciation growth remains faster than historical averages and inventory, particularly for starter homes, continues to trail strong demand."

"The elevated loan size is an indication that activity is more on the higher end of the market."

 Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting

Regardless of who is buying their homes, sellers are squarely in the driver seat to end the year. Nearly 3 in 10 homes that went under contract in December had an offer accepted within a week. More than 42% sold above list price.

The average home sold for 0.4% above list price in December. For reference, the average home did not sell above list price at any point in 2020 or 2019.

Homebuying in 2022

The lack of inventory, sustained homebuying demand, and uncertain course of the omicron variant may make for a rough start to 2022 for home shoppers. Previously, COVID waves have been met with low mortgage rates and reluctant sellers, which only exacerbate home price growth.

However, the Federal Reserve's new hawkish approach to inflation should put upward pressure on mortgage rates and downward pressure on demand. Inventory is also expected to increase in coming months due to seasonality (spring is peak listing season) and increased output of new-build homes as supply chain and labor issues continue to untangle.

Most housing authorities are forecasting another busy year with rising home prices, but not nearly to the extent we saw in 2021. That leaves homebuyers with the difficult choice of either jumping in early in 2022 to turn price gains into home equity or holding out and hoping for more inventory and price relief later in the year.

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