April Home Prices Rose 15.7% Year Over Year, Reports FHFA

Property prices are soaring on a national level. Here's what buyers need to know.

It's no secret that home prices have been inflated on a national level. But new data from the Federal Housing Finance Agency (FHFA) reveals just how substantially they've increased.

Home prices were up 1.8% in April compared to the previous month, as per the FHFA's House Price Index. But on a year-over-year basis, home prices rose a whopping 15.7% compared to April of 2020. And that explains why so many buyers may be more than frustrated with today's housing market.

Why are home prices so high?

Mortgage rates have been sitting at extremely competitive levels since last year, and that's prompted more prospective buyers to go out and try to purchase homes. At the same time, many sellers held off on listing their homes due to pandemic- and economic-related concerns.

The result? There's a lot of demand for homes but little inventory to choose from. And in situations where demand heavily exceeds supply, prices can soar.

That's precisely the challenge buyers today are grappling with. Though housing inventory rose slightly in May compared to where it sat in April, it was still down 31.2% from the previous May on a national level. And until more properties hit the market, buyers may continue to face record-high home prices -- and steep competition.

Should you pause your home search?

If you've been trying to buy a home for months but keep getting outbid by other buyers, or have struggled to even find a suitable property within your price range, then now may be the time to rethink your plans. Home prices are likely to remain high until inventory increases substantially. And while May's numbers marked an improvement over April's in that regard, we're still nowhere close to the level of inventory we had before the pandemic began.

As the economy continues its recovery, there's a good chance more sellers will start feeling ready to list their homes. And once that happens, prices could start to come down.

At the same time, mortgage rates are likely to stay low for quite some time. With the Federal Reserve keeping interest rates near zero through at least the end of 2022, there should be ample opportunity to buy a home next year and still reap savings from a mortgage perspective. (To be clear, the Fed doesn't set mortgage rates directly, but it does influence them.) As such, pausing your home search and picking up again later this year or even at some point in 2022 could work to your benefit.

Waiting to buy could also allow you to sock away more cash for a down payment. And that may, in turn, give you more purchasing power down the line, especially if home prices don't drop all that much.

The fact that home prices are up 15.7% from a year ago means a lot of people are apt to struggle in today's red-hot housing market. Accepting that fact and holding off may be a better move than spinning your wheels and putting yourself in a position where you may feel compelled to pay more for a home than you can actually afford.