Rising rates drive US home prices to 15-year high

by Candyd Mendoza06 Apr 2021

Annual home price appreciation remained on fire in February, rising to its highest level in more than 15 years.

Nationwide, home prices grew at a record year-over-year rate of 11.6% in February, according to Black Knight. Moreover, daily home sales data by the company’s Collateral Analytics group showed an annual 15.9% jump in the median single-family sales price.

“Multiple years of constrained housing inventory and historically low-interest rates have helped fuel this fire to the point where nearly 75% of the 100 largest US markets have seen annual home price growth of 10% or higher,” said Black Knight data & analytics president Ben Graboske. “What’s more, Collateral Analytics’ Market Conditions Report shows the housing markets in 75% of ZIP codes rated either ‘Strong’ or ‘Hot’ based on underlying market metrics. Only 7% are characterized as ‘Normal.’

The sharp increases in both home prices and interest rates have pushed affordability to its lowest point since mid-2019. Graboske said that it now takes 20% of the median household income to make the monthly payment on an average-priced home – back to the five-year average after several years of low-interest rates mitigating the impact of rising prices on affordability.

Read more: Redfin: homebuying still a tight competition for 61% of Americans

“Housing is now the least affordable it’s been – factoring in interest rates, home prices and income – since mid-2019,” he said. “Any hopes of 2021 bringing an influx of homes to the market and lessening pressure on prices appear to be dashed for now, as new for-sale listings were down 16% and 21% year-over-year in January and February, respectively.”

There are now 125,000 fewer new listings than in the first two months of 2020, driving for-sale inventory 40% below last year’s level.

“With higher interest rates and a continuing shortage of inventory, it will be important to keep a careful eye on both home prices and affordability metrics in the coming months,” Graboske said.