As Home Prices Reach 34-Year Record, Mortgage Rates Could Be Final Nail in Coffin for Some Homebuyers

Back view of hugging couple standing with real estate agent in front of house for sale.
KatarzynaBialasiewicz /

Housing data released this week confirmed what many industry watchers already knew: Home prices in the U.S. have been rising at their fastest rate in decades, and there’s every reason to believe prices will continue pushing higher in the months to come.

See: How Much Will the Fed Raising Interest Rates Affect You?
Find: Mortgage Rates May Rise in 2022, Should You Buy Now or Wait?

That trend, combined with an expected rise in mortgage rates for 2022, could price some homebuyers completely out of the market, experts say.

Average home prices in the United States rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. That was the biggest increase in 34 years of data and well above the 10.4% gain recorded in 2020. Every region of the country witnessed higher prices last year, with the South and Southeast notching the highest gains at more than 25% each.

Many housing experts expect prices to rise in double digits this year. Zillow recently projected that average U.S. home prices will increase 14.3% in 2022, with cities in the South eyeing much higher gains.

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Meanwhile, the Federal Reserve’s plan to hike interest rates in 2022 likely means mortgage rates will move higher as well. In fact, that’s already happening.

The average 30-year fixed rate in the U.S. was 4.12% as of Feb. 22, according to a survey of rates from Mortgage News Daily, Freddie Mac, the Mortgage Bankers Association and the Federal Housing Finance Agency. That’s up from 3.78% at the beginning of February and 3.27% at the end of 2021. Rates remained mostly flat and historically low in 2021 and have only recently begun to push higher.

The upshot is that buyers will find it very expensive to purchase a home in many U.S. markets this year as demand continues to outpace supply. If you need an idea of how expensive, consider this: The number of “million-dollar cities” in the U.S. — those where the typical home value is at least $1 million — rose by a record 146 cities in 2021, according to Zillow. That brought the total to 481 cities nationwide.

Those cities — mainly concentrated in coastal urban areas like New York, San Francisco and Los Angeles — are already out of reach for most home buyers in the U.S., where the typical home value is closer to $325,000.

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As interest rates move higher, it reduces the amount buyers can afford even further, MSN reported. Housing was unaffordable for many consumers even before rates began to climb. With rates and prices continuing to rise, some buyers could find themselves priced out of the market altogether this year.

The good news is, not all markets are the same. If you’re looking for an affordable place to live, check out this GOBankingRates list of the 50 best places in every state to live on a fixed income.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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