House Prices Keep Rising Despite Fears of Market Crash

The price of homes in the United States rose 1.6 percent in April compared to the previous month, new data published on Tuesday showed.

The average house price for April was also 18.8 percent higher this year than it was in the same month in 2021, according to the Federal Housing Finance Agency, whose index likely reflects a slowdown of the housing market amid a limited supply of new homes.

Rising mortgage interest rates have sparked fears among analysts of a looming crash in the housing market.

"House price appreciation continues to remain elevated in April," said Will Doerner, supervisory economist in FHFA's Division of Research and Statistics. "The inventory of homes on the market remains low, which has continued to keep upward pressure on sales prices. Increasing mortgage rates have yet to offset demand enough to deter the strong price gains happening across the country."

The month-on-month house price change has been higher among the West South Central, West North Central and South Atlantic states, with respective price increases of 2.5, 2.3 and 1.9 percent, according to the assessment by FHFA—all above the U.S.'s average increase.

Least affected by the house price increase were the East South Central states, with a 0.3 percent increase from March to April, FHFA said.

Although the market is beginning to cool as homes become out of reach for many buyers, house prices are not expected to decline any time soon.

"Prices are determined by two factors, obviously the market demand and supply, but also how much it costs to build," Ran Eliasaf, founder and managing partner at Northwind Group, a real estate private equity firm in Manhattan, New York, told Newsweek.

"Currently, we're seeing still a lot of commodities—lumber, concrete, steel—at very high prices relatively to two or three years ago. Yes, some prices went down; timber and wood price went down a bit. But still we're seeing an average cost to build a house that's much higher than it was two or three years ago pre-pandemic."

"Builders will only build now if they're sure they're going to be able to get their price. So I don't see prices going down that fast because of that reason. Affordability is going to remain a big issue—mortgage is more expensive; furnishing the home is more expensive."

"So a lot of issues in the supply chain are still causing delays, and housing will not be affordable in the near future unless we're going to see a huge new supply coming in of new houses. I don't see that happening any time soon because of prices," Eliasaf said.

These record-high house prices—over 34 percent higher now than two years ago—combined with rising inflation, higher mortgage interest rates and limited availability of new homes are squeezing first-time home buyers out of the market.

This, in turn, is slowing down the housing market, with the number of new home sales reaching its lowest level in two years in April.

"I think we're going to see a cooldown," Eliasaf said. "It's going to turn into a buyer's market after it's been a seller's market for the last year, year and a half."

"But again you need to look at the United States…you can't look at it as a whole. There's going to be certain markets that are very sought after in high demand and have limited supply. In those markets, you'll see prices go up—South Florida, Austin, New York."

"I think for the most part we'll still see increases, or these prices stabilized or increased. But then you'll have markets where you have negative population growth areas, in California for example, where people are leaving because of taxation and political reasons, and they're moving to low tax states. So there you'll probably see potential decrease in pricing."

Update 6/28/22, 10:45 a.m. ET: This article has been updated with more information.

Correction 6/29/22, 12:15 p.m. ET: This article was updated to correct Ran Eliasaf's name.