U.S. home price gains continued to slow at the end of 2022, falling to a non-seasonally adjusted yearly rate of 9.2% in the fourth quarter, according to Fannie Mae’s newest Home Price Index (HPI) report.
The fourth quarter’s growth pace was down from the revised annual rate of 13.1% growth in the third quarter. From Q3 to Q4, home prices grew 0.2% on a seasonally adjusted basis. Taking seasonality out of the equation, prices fell by 1% in the fourth quarter.
“The rise in mortgage rates over the past year and record inflation have constrained the purchasing power of prospective homebuyers,” said Mark Palim, Fannie Mae’s vice president and deputy chief economist. “The resulting affordability pressures are evident in the home price declines of the past two quarters, along with the downturn in home sales.”
Rising rates also have intensified what Palim described as “the lock-in effect,” where homeowners are choosing to stay in their current homes because there’s no incentive to give up their current mortgage and buy a house at the presently elevated interest rates. Subsequently, inventory suffers because the supply of homes available for sale is further constrained.
“We believe that a key factor that will impact home prices in 2023 is how the tension between a reduced supply of homes available for sale and lower mortgage demand is resolved,” Palim said.