Home Prices Soared Almost 19% in 2021, Marking Largest Increase in 34 Years

No wonder today's buyers are struggling to break into the housing market.

We're starting off 2022 with higher mortgage rates than prospective buyers are used to seeing. But rates aren't the only thing that are high -- so are home prices.

Home prices climbed 18.8% in 2021, according to recent data from the S&P CoreLogic Case-Shiller US National Home Price Index. That represents the largest gain on record in 34 years. It's also a far more substantial climb than what we saw in 2020, when home prices enjoyed a 10.4% gain.

Although home price gains were notable on a national level in 2021, certain regions -- namely, the South and Southeast -- saw the largest gains of over 25%. And at the city level, in December, Phoenix, Tampa, and Miami saw the highest annual price gains among the 20 cities in the index.

Affordability is a problem

Although inflated home prices aren't a new thing for buyers, these days, mortgage rates are no longer as low as they were during the latter part of 2020 and all of 2021. Today's buyers might struggle to find homes that fit into their budgets.

Compounding the problem is a glaring lack of housing inventory. Since buyers don't have many homes to choose from, they lose a lot of their bargaining power. In fact, a big contributor to record home price growth in 2021 was the prevalence of bidding wars -- something we could still see a lot of in 2022 if housing inventory doesn't pick up in a meaningful way.

When will home prices start to come down?

We could see home price gains start to slow in the course of 2022. But for that to be the case, a few things may need to happen.

First, more homes will need to hit the market. But that's a possibility we shouldn't rush to write off.

Many buyers have held off on listing their homes due to pandemic-related and economic uncertainty. But with things more settled in both regards (even in spite of inflation), we could see an uptick in property listings, especially as the spring season kicks off. That's commonly when home listings pick up in conjunction with nicer weather.

Plus, if mortgage rates keep climbing, it could cause buyer demand to wane. That could, in turn, lead to lower home prices -- especially if it puts an end to bidding wars, or largely reduces their presence in this year's market.

All told, we can't predict with certainty how home prices will trend this year. It's fair to assume they'll start to come down simply because they're so high right now they really can't go any higher (well, technically they can, but there is a breaking point eventually).

If you're eager to buy a home in 2022, keep socking funds away for a down payment and work on boosting your credit score to the greatest extent possible. Doing so could make you more likely to not only get approved for a mortgage, but snag a competitive interest rate that makes a home far more affordable.