Home Prices Up 17.4% During 2021's Second Quarter

Home values have soared during the pandemic. Here's what buyers need to know.

If you've been in the market to buy a home, the fact that property values have soared may not come as big news. But you may be surprised to learn just how much they've risen.

U.S. home prices climbed 17.4% during the second quarter of 2021 compared to the second quarter of 2020, according to the Federal Housing Finance Agency House Price Index. The FHFA also reports that home prices rose 4.9% in 2021's second quarter compared to the first quarter. And prices increased in every market among the 100 largest metro areas.

Should higher home prices stop you from buying?

Right now, buyers are in a tough spot. On the one hand, mortgage rates are sitting at very competitive levels, and we don't know how long they'll stay that way. On the other hand, home prices are much more expensive now than they were even earlier this year. That means the savings buyers reap via a low mortgage rate could be wiped out by a higher purchase price.

In fact, in some markets, low mortgage rates may not be enough to compensate for inflated home prices. So buyers could end up losing out financially by purchasing a home today.

Another issue is that right now, housing inventory is very low. That's a big reason why home prices are so high. Buyers have been competing for today's limited properties and driving their prices up in bidding wars.

So where does that leave you as a buyer? Well, can you afford a home, given today's prices? And are you in a great position to snag a low mortgage rate (say, because you have a solid credit score)? If so, then you may want to move forward with your plans to purchase a place of your own. But if you can't comfortably afford a home in a neighborhood you want to live in, then you may want to put your search on hold.

Once more homes hit the market, we could see prices start to come down. That's because once there's more inventory to choose from, buyers won't need to compete as heavily for the same limited properties. So bidding wars should start to decline, and home prices should eventually follow suit, leaving you with less of a mortgage to take out.

Of course, waiting to buy means running the risk that mortgage rates will rise over time. But the good news there is that rates are likely to stay low not only for the rest of 2021, but most likely well into 2022 and possibly beyond. So if you give the housing market a little time, you may find that more homes get added and prices become more competitive.

That said, there's no way to predict whether more sellers will begin listing their homes during the tail end of 2021 or not. A big reason many have held off on selling to date has been uncertainty related to the pandemic. Given where the outbreak is today, that uncertainty isn't going away anytime soon. And while the economy has at least improved, it hasn't fully recovered from an unemployment standpoint.

Still, at the end of the day, it's really not a good idea to bust your budget in the course of buying a home. If moving forward with a purchase today requires you to do that, then you'd be wise to wait for that reason alone.