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How much do housing prices rise a year?

Learn how much home prices have increased over time

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Housing prices rose by 18.2% from January 2021 to January 2022, according to the Federal Housing Finance Agency (FHFA). This is good news for homeowners because it means that they may have more home equity than they did a year ago. For homeowners interested in selling their houses, it means they could get more money too!

Today’s price increases are higher than in the past. An FHFA study found that the average compound growth rate in home prices between January 2012 and November 2021 was 7.5%.

What will house prices do in 2022? Predicting anything, let alone future home prices isn’t easy. There are several factors that affect how much prices change. Read on to learn more.

What factors affect home prices?

The price of homes depends on factors like the housing supply, economic conditions, mortgage rates, and government policies. These factors can affect housing prices nationwide.

  • Supply and demand. Just like the price of other goods and services, home prices rise and fall depending on supply and demand. When there are a lot of homes for sale in a market, prices often fall. When there are fewer homes for sale, prices tend to increase. Real estate professionals frequently call these conditions buyers’ markets and sellers’ markets.
  • The economy. When the economy is growing, housing prices can increase because more people can afford homes and have more money to pay for them. When incomes shrink, housing prices can fall because fewer people can afford homes. Sometimes economic trends can have a major impact on home prices. After the historic 2008 bursting of the housing bubble, it took years for home prices to recover.
  • New home building. The number of new homes being built (often called “housing starts”) has a significant effect on housing supply and prices. After 2008, many homebuilders struggled to stay in business which reduced the number of companies building new homes. In 2022, supply chain issues and a tight labor market have made building new homes more challenging. The result is that there is more demand for new homes than there are homes to buy, which drives up prices.
  • Government policies. Many neighborhoods are zoned for single family homes which limits the number of new houses that can be built. Neighborhoods that allow for townhouses, duplexes and condo buildings can build more new homes on the same amount of land, which helps moderate prices. Permits and regulations also affect the number of new homes that are built. In places where it is more time-consuming and expensive to build a new home, often fewer homes are built and the prices of these homes are often higher than the average buyer can afford.
  • Interest rates. Mortgage rates have an indirect effect on house prices. When rates are low, houses become more affordable and more people enter the market. Increasing demand can drive up the prices sellers get for the houses. The opposite is also true. When rates are high, buying a house becomes less affordable and more people leave the market. Decreasing demand can drive down prices as a result.

Home prices are heavily influenced by the local housing market. Depending on where you want to buy, home prices could be rising quickly, rising slowly, staying about the same, or even falling. The FHFA numbers we stated at the beginning of this article are national averages and prices in your community may be very different.

How does location affect a home’s price?

The short answer is a lot. A house built on a quiet street is probably going to cost more than the same house on a busy corner. Houses in good public school districts generally sell for more money than similar houses in districts where the schools are not as highly rated. Houses near cities where there are many jobs or are close to reliable public transportation are generally more expensive than equivalent houses in communities where there are fewer jobs.

What do rising housing prices mean for you?

When you own a home, rising prices are generally a good thing. Higher prices mean you can sell your home for more money. Higher prices can also increase the value of your home’s equity, which you can use to borrow money to pay for home renovations, college educations, and more. At Freedom Mortgage, we can help you borrow money from your equity with a cash out refinance.

Rising prices might help you save money if you are paying for private mortgage insurance (PMI). That’s because you are generally able to cancel your PMI payments once your home equity reaches 20%. Since rising home prices increase your equity, you may be able to cancel this insurance and save on your monthly payment.

Rising home values can have downsides when you own a home. For example, when the value of your home increases, the amount of money you pay in property taxes can increase too.

Rising prices also make buying a home more expensive, but don’t let that stop you from thinking about buying a house! Our experienced Loan Advisors can help you understand your home financing choices and decide if now is the right time for you. Call us at 877-220-5533 or visit our Get Started page.

Last reviewed and updated April 2022 by Freedom Mortgage Corporation

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