August Homes Prices Rose 18.5% Year Over Year, Reports Key Index
by Maurie Backman | Published on Oct. 27, 2021
Home values soared this summer. Here's what buyers should know.
It's fair to say that the summer of 2021 was a tough time to buy a home. Not only was inventory extremely limited, but home prices reached astronomical levels on a national scale.
In fact, the Federal Housing Finance Agency (FHFA) just released its Home Price Index for the month of August, and it found that home prices rose 1% compared to July. But what's more significant is that home prices shot up 18.5% from August of 2020 to August of 2021.
Why are home prices so high?
A big reason home prices rose so much this summer is that demand was high and supply was low. Many sellers have held off on listing their homes due to pandemic-related uncertainty. So buyers have had limited inventory to choose from.
Now, when there aren't enough homes to go around, buyers don't necessarily back off. Sometimes, they battle it out over those limited homes in the form of bidding wars.
That's what's been happening this year. Bidding wars have been prevalent in the real estate market, and they've helped to drive home prices up.
Will home prices start to decline soon?
Whether home prices hold steady or start to come down will depend on whether more inventory hits the market. There's still a world of uncertainty with regard to the pandemic, especially with colder weather coming up and its potential to impact COVID-19 transmission rates. So it's fair to assume that sellers won't exactly be rushing to list their homes in the near term.
Plus, generally speaking, winter tends to be a slower period for home listings. So that, too, could mean that today's inflated home prices will hold steady well into 2022.
Should you buy a home today?
If you can afford to buy a home at today's prices, then it could pay for you to make an offer on one. That's because mortgage rates are sitting at very competitive levels. If you pay more for a home, the savings you reap with a low mortgage rate could help offset that higher price.
But if you are going to buy today, make sure you can swing the mortgage payment that will come with your new home -- and that you won't end up uncomfortably stretching your budget to cover it. Remember, too, that because home values are up, property taxes may be up as well. And that's an unavoidable homeownership cost you'll need to account for.
It's not shocking to see the FHFA Home Price Index register such a high number for August home prices. If you've been struggling to buy a home in today's market, you're in good company. And if so, it could pay to wait. Once more inventory hits the market, home prices should start to come down, and you may have an easier time finding a place to buy that checks off all the right boxes.
Remember, low inventory isn't just driving up home prices. It's also forcing more buyers to compromise in a big way. And that's something you may not want to do.
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