November Home Price Gains Were Massive, Reports FHFA

It's not exactly shocking news given the number of buyers who have struggled.

The latter part of 2021 was a difficult time to buy a home. New data from the Federal Housing Finance Agency (FHFA) shows why.

In November 2021, home prices rose 17.5% from a year earlier, according to the most recent FHFA House Price Index. And between October and November, home prices climbed 1.1%.

Higher home prices and mortgage rates are a bad combination

Higher home prices are challenging enough for buyers. But the rising mortgage rates we've seen over the past six weeks are only exacerbating the problem.

As of this writing, the average 30-year mortgage rate is close to 4%. And while that's still pretty competitive on a historical basis, it's much higher than the rates we saw throughout 2021.

Of course, higher rates could lead to a pullback on the part of buyers. Once the demand for home purchases wanes, prices could start to come down. But right now, buyers are facing some tough times as they navigate the current real estate market.

Should you try to buy a home today?

Not only are home prices quite high, but inventory is extremely limited these days. If you seek to buy a home, you might struggle to find one within your price range that offers the features you want. But if you can afford today's prices, you may want to get your house hunting done sooner rather than later -- before mortgage rates climb further.

We don't know for sure that mortgage rates will continue to rise in 2022. But there's a good chance they will since the Federal Reserve is raising its federal funds rate. While the Fed doesn't set mortgage rates (or any consumer borrowing rates), it can influence them, and so rates may creep well above 4% as 2022 moves along.

In fact, if you're serious about purchasing a home this year, it pays to do whatever you can to snag the lowest mortgage rate available at the time of your home loan application. That means making sure your credit score is in good shape and reducing your debt-to-income ratio. You can accomplish both goals by paying off a chunk of credit card debt you're carrying.

You may also want to work on boosting your income to ensure you have enough money for a down payment on a home given today's prices. Picking up a side job could not only make it easier to come up with an adequate down payment, but also, make it easier to qualify for a mortgage in the first place.

Will home price gains slow down?

If buyer demand wanes in 2022, we should see lower numbers out of the FHFA House Price Index in future months. But it's hard to predict to what extent we'll see a buyer pullback.

The level of inventory to hit the market will influence home prices, too. Sellers have held off on listing their homes since the pandemic began. But at this point, more may be willing to take that leap. And if inventory picks up, that should also drive home prices toward more reasonable levels.