Home prices rose nearly 19 percent in 2021

Home prices soared almost 19 percent higher in 2021 as a severe lack of supply and low borrowing costs poured fuel on housing costs, according to data released Tuesday.

The S&P CoreLogic Case Shiller housing price index, a closely watched gauge of home prices, rose 18.8 percent annually in December 2021, tracking the highest calendar-year increase in 34 years. The index rose 1.3 percent in December after seasonal adjustments, with prices rising in all 20 metro areas covered by S&P.

“Home price growth showed no signs of easing in December. Scarce inventory, which was at a record low in December, will prevent a sharp deceleration in home price inflation despite eroding affordability,” wrote Nancy Vanden Houten, lead economist at Oxford Economics, in a Tuesday analysis.

Home prices have risen rapidly since spring 2020, when pandemic-driven stimulus, lockdowns and interest rate cuts spurred a sharp increase in home sales. The intense demand drove prices higher as buyers competed for a limited supply of houses and builders were unable to keep up amid pandemic restrictions.

While home sales fell off in 2021, housing prices steamed ahead with buyers competing for dwindling inventory. Supply chain disruptions, shipping delays and other pandemic-related snarls have also hindered builders from filling the shortfall.

“More data will be required to understand whether this demand surge simply represents an acceleration of purchases that would have occurred over the next several years rather than a more permanent secular change. In the short term, meanwhile, we should soon begin to see the impact of increasing mortgage rates on home prices,” said Craig Lazzara, managing director at S&P.

Prices may begin to cool off this spring with the Federal Reserve on track to raise its baseline interest range several times starting in March. Even so, the deep lack of affordable housing is likely to keep pressure on prices and prevent many would-be buyers from entering the market.