A ‘perfect storm’ is driving up home prices, expert says

A confluence of factors have come together to supercharge home prices, according to one expert.

“We've got that perfect storm right now,” Debbie Boyd, DLB Financial Services CEO, recently told Yahoo Live (video above). “We've got COVID that did the supply chain problems … COVID that drove people to work from home. They're moving to states where their families are or they're just moving to states that are prettier and they want to be in. Now that you can work anywhere, it really has changed the game of employment.”

At the same time, record low inventory levels have continued to push home prices and competition in the housing market higher. Homebuilders like Lennar and Toll Brothers have lagged behind amid supply chain crunches. Together, these factors have led to the worst affordability conditions for entry level buyers this year, according to Bank of America analysts.

The national home price index escalated by 19.2% year-over-year in January, up from 18.9% in December, according to the latest Standard & Poor’s CoreLogic Case-Shiller report. The sharp increase in home prices across the U.S. counters the modest deceleration seen in previous months.

Now, rising mortgage prices are now adding to the headwinds.

“The prices going up are one thing, another thing is those interest rates,” Boyd said. “So when the interest rates go up, it's not going to deter you from buying. If you're going to move, you're going to move.”

Many Americans are flocking to sunshine states, reaping the savings of work-from-home flexibility. According to the S&P/Case Shiller home index report, the three hottest markets in January included Phoenix, Tampa, and Miami, which registered home price growth of 32%, 30%, and 28%, respectively.

“I'm here in Dallas, and we have a lot of people moving from everywhere — everywhere else but here … Chicago, Atlanta, New York, Boston, and then we've got the West Coast,” Boyd said. “We've got people from Washington that are cashing in those expensive homes and buying twice what they can buy up in Washington or in California, pocketing the money and investing it or buying rental properties.”

Entering the year, many buyers rushed to take advantage of 3.1% December mortgage rates ahead of further rises. Since then, the average 30-year fixed rate mortgage has increased more than a full point at 4.42%, for the week ending March 25 according to Freddie Mac.

Redfin data showed that homebuyers were paying up to six figures above asking price in an effort to beat other bidders as homes on the market remained scarce. January was the most competitive month on record, with 70% of home offers written by company agents up against bidding wars. At the time, the median home-sale price was $376,200, up 14% from the previous year.

According to Boyd, rising home prices coupled with rising rates will impact how much house you can afford.

“You're going to get less house now than you could last year by quite a bit of percentage. So yes, can you move to Miami proper? Maybe not. Maybe you can't afford to be in the city now. The prices are 30% more than they were last year. So you're going to be in the suburbs of Miami,” said Boyd. “It's going to change the way that we live.”

The sharp increase in home prices may calm down, but it will take time. The Federal Reserve indicated it would raise its benchmark interest rate up to six more times this year to tamp down inflation. These actions eventually can help push home prices to self-regulate if rates get high enough.

“I think it will cool off in a little while, but not any time soon,” said Boyd. “I think this year, we're going to see close to 6%.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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