First American Real House Price Index

Real house prices changed


since the pre-recession peak

The First American Real House Price Index (RHPI) measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time and across the United States at the national, state and metropolitan area level. Because the RHPI adjusts for house-buying power, it is also a measure of housing affordability.

Mark Explains the Real House Price Index


"The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016 and a respite from the 8-month-long trend of increasing real house prices," says Chief Economist Mark Fleming.

What makes it a Real House Price Index?

House prices are typically reported nominally. In other words, without adjusting for any inflation. Just like other goods and services, the price of a house today is not directly comparable to the price of that same house 30 years ago because of the long-run influence of inflation in the economy. The RHPI helps provide an alternative view of the change over time of house prices in different markets across the country.

Why does the RHPI tell a different story than other house price measures?

Changing incomes and interest rates either increase or decrease consumer house-buying power or affordability. When incomes rise and/or mortgage rates fall, consumer house-buying power increases. Traditional measures of house price affordability are dependent on the assumption of specific loan terms (down payment, LTV, DTI) and the choice of income level (i.e. median or average household income). The RHPI is not dependent on any of these assumptions and so it more broadly reflects the real price experienced by consumers regardless of their income level or the loan terms specific to their situation.

3 Key Drivers

The three key drivers of the First American Real House Price Index (RHPI) are incomes, mortgage rates and an unadjusted house price index. Incomes and mortgage rates are used to inflate or deflate unadjusted house prices in order to better reflect consumers' purchasing power and capture the true cost of housing.

What do the RHPI number values mean?

The RHPI is set to equal 100 in January 2000. So, a state with an RHPI value of 110 in 2016 has seen real house prices increase 10 percent since 2000.

What does the RHPI reveal at a market level?

Let's consider San Francisco and Detroit and look at the RHPI for each.

Since the peak of the housing crisis in 2006, many metropolitan areas have experienced large drops in unadjusted house price levels followed by, in some cases, impressive gains. However, when measuring metropolitan house price appreciation using our consumer house-buying power adjusted Real House Price Indices, the story looks very different. For example, San Francisco and Detroit both experienced similar real price declines, about 60 percent over the course of three years, and very little "recovery" has occurred in real prices. The common perception is that San Francisco, the shining example of the new economy, and Detroit, the tarnished example of the old economy, couldn't be more different cities when it comes to housing costs. Yet, after adjusting for income growth and mortgage rates and their influence on house-buying power, real house prices in both cities remain well below the pre-recession peak. So, really how different are these two markets?

Real Prices - Peak to Current - San Francisco and Detroit

April 2017 Real House Price Index

Affordability Increases Despite Tightening Domestic Monetary Policy

The First American Real House Price Index (RHPI) showed that in April 2017:

  • Real house prices decreased -1.6 percent between March and April.
  • Real house prices increased by 11.0 percent year-over-year
  • Consumer house-buying power, how much one can buy based on changes in income and the interest rate, increased 0.4 percent between March and April, and fell 4.5 percent year-over-year.
  • Real house prices are 33.6 percent below their housing-boom peak in July 2006 and 10.8 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.7 percent in April on a year-over-year basis and are 2.6 percent above the housing boom peak in 2007.

The RHPI is available below as an interactive tool that can be used to look up and compare real house prices at the state and metropolitan area levels, and also offers additional perspective on income and interest rate changes.

Decline in Real House Prices Driven by Dip in Rates, Wage Growth

  • The average rate for a 30-year, fixed-rate mortgage fell 15 basis points between March and April, to 4.05 percent, the lowest since November 2016.
  • Wages grew 0.3 percent between March and April 2017, which, combined with the fall in interest rates, resulted in the largest month-over-month drop in real house prices since July 2016.
  • Even though unadjusted house prices are rising quickly due to the shortage of homes for sale, the gain in purchasing-power was more than sufficient to offset the upward price pressure.
  • Unadjusted and real house prices rose 5.7 percent and 11.0 percent year-over-year, respectively.
  • For the fifth consecutive month, real house prices increased on a year-over-year basis in all the metropolitan areas tracked by First American, with two-thirds increasing by 10 percent or more.
  • Milwaukee leads the nation in declining affordability, which fell 17.9 percent in the last 12 months. Like many others markets, Milwaukee has a very low supply of homes listed for sale.
Chart: Declining Mortgage Rates Slow the Pace of Real House Price Growth

"Despite the monetary tightening policies of the Federal Reserve, a dip in the average rate for a 30-year, fixed-rate mortgage and wage gains increased consumer house-buying power sufficiently to offset the gain in unadjusted house prices," said Mark Fleming, chief economist at First American. "The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016. While this is welcome news for home buyers, the number of homes listed for sale is not meeting consumer demand and markets are getting tighter. As a result, affordability declined 11 percent on a year-over-year basis. That's a bigger drop in affordability than the 5.7 percent caused by unadjusted house-price appreciation alone and reflects the impact of rising interest rates and tightening supply."

Chart: Change in RHPI for Major Metropolitan Markets

"Global uncertainty brought down the yield on the 10-year Treasury bill between March and April, which countered the Federal Reserve's domestic monetary policy. The beneficial impact on consumer house-buying power brought widespread relief to the housing market, as all but two of the markets we track experienced an improvement in affordability over the same period. However, the prisoner's dilemma that prevents existing homeowners from selling will continue drive up unadjusted house prices and reduce affordability," said Fleming.

About the First American
Real House Price Index

The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what really matters to potential buyers - their purchasing power, or how much they can afford to buy. First American's proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow.

The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the unadjusted house price level. For example, if the unadjusted house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same time period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power.


Opinions, estimates, forecasts and other views contained in this page are those of First American's Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American's business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2017 by First American. Information from this page may be used with proper attribution.