Home prices are still on a tear, but there’s no doubt growth is slowing

Home prices were up 17.5 percent in the fourth quarter of 2021 compared to the same time last year, but there were signs that this period of frenzied growth in housing prices has been gradually running out of steam.

Home prices rose 3.3 percent in the final three months of the year alone, according to the latest House Price Index report from the Federal Housing Finance Agency. 

The rise, while staggeringly high by normal standards, signaled the second consecutive quarter where the pace of price growth declined. It was also the smallest rate of price increases recorded since the second quarter of 2020, when the effects of pandemic-era lockdowns were first fully felt.

 “House prices continued to climb but not as rapidly during the final quarter of 2021 as in earlier quarters,” FHFA supervisory economist William Doerner said in a statement accompanying the report.

The housing market kicked off 2021 with 3.9 percent quarterly price growth in the first three months before ramping up to nearly 5.1 percent in the second quarter. 

Since then, prices have continued to rise quickly, but the pace of growth slowed to 4.2 percent in the third quarter and settled at 3.3 percent in the fourth quarter.

Still, even after the slowdown, this level of price growth remains roughly double that of a typical quarter in the years preceding the pandemic. And it’s adding on top of more than a year of high-octane price inflation that has pushed more homes out of reach for many Americans.

“Housing trends over the past year have created challenges,” Doerner said. “The quick house price gains may be counterbalanced as mortgage rates increase. However, more expensive housing has elevated affordability to become a broader concern as available supply remains limited.”

Over the past year, home prices grew most rapidly in Arizona, Utah and Idaho, states where year-over-year growth exceeded 27 percent in the fourth quarter of the year. Florida and Tennessee weren’t far behind, each notching at least 24 percent increases in the same period.

But the report also showed several states and districts with housing markets that were slowing to something at least in the neighborhood of “normal” annual price growth. In Washington, D.C., prices rose by only 6.6 percent year over year. Annual price growth was a bit over 10 percent in Louisiana, North Dakota, Maryland and Alaska.

The region with the hottest home price appreciation in the fourth quarter of 2021 was the census’s Mountain division, where prices rose 3.5 percent from the third quarter to the fourth, and 23.1 percent year over year. This region includes the red-hot markets in Idaho and Arizona, but stretches as far east as Colorado.

The nation’s slowest price growth occurred in the census’s West North Central division, which comprises both Dakotas, Minnesota, Kansas, Iowa, Missouri and Nebraska. Still, it remained an undeniably hot home market. Prices were up 13.6 percent year over year in these states.

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