Home prices were notably high from the start of 2021 through the end of it. But given how attractive mortgage rates were for all of last year, that's not surprising.

Housing inventory has declined substantially in the course of the pandemic. But lower mortgage rates came into the mix in 2020, and those competitive rates held steady throughout 2021. That, in turn, drove many buyers to purchase homes. And since the demand for homes exceeded supply in a very big way, home prices managed to soar.

In January of 2022, home prices were up 19.2% compared to a year prior, per the S&P CoreLogic Case-Shiller Index. That represents an uptick from December, when home prices were up 18.9% on an annual basis.

A house with a for sale sign in front of it.

Image source: Getty Images.

But that uptick, though modest, is actually pretty surprising. The reason? Mortgage rates rose significantly in January, making it more expensive to purchase a home. And given that borrowing rates have actually soared since then, you have to ask: Will home prices continue to skyrocket in 2022? Or will they finally start to come down?

Buyers need a reprieve

Mortgage rates have risen sharply since January, due in part to the Federal Reserve's plans to raise its federal funds rate. As of this writing, we don't have data from the S&P CoreLogic Case-Shiller Index beyond January. But so far, there are no indications that home prices have begun to drop in the wake of higher mortgage rates.

That could change, however, as 2022 moves along. Buyer demand may have held steady early on in the year, but if mortgage rates continue to climb, which is likely to happen, there's apt to be some level of pullback. Once that happens, home prices should start to come down due to diminished demand.

There's also housing inventory to consider. Right now it's at a low. But we haven't yet reached the peak listing season -- spring.

Last year, there was no spring housing boom. But to be fair, last spring, the economy was in much worse shape and there was still a lot of pandemic-related uncertainty. For context, the last round of stimulus checks was approved in March of 2021, which means things were bad enough at that point to warrant that third round. So it's easy to see why sellers may have been hesitant to list their homes last spring.

This year, things could be different. And if housing inventory picks up, supply could catch up to demand in a manner that sends home prices on a downward trend.

Buyers and investors will need to be patient

Although there's reason to believe home price growth will start to slow in the course of 2022, we may not see a drastic drop in property values. That's something everyday buyers and real estate investors alike will need to prepare for.

Today's ultrahigh home prices aren't sustainable for the long term. But housing inventory is so low that sellers, at least right now, still have a clear upper hand. The combination of rising mortgage rates and more listings could change things in buyers' favor -- but it may take a fair amount of time to get to that point.