Mortgage Rate Decline Cools Real House Price Growth in May, According to First American Real House Price Index

The improvement in buying power offset the gains in unadjusted house prices, so affordability improved, albeit just barely, says Chief Economist Mark Fleming


July 24, 2017, Santa Ana, Calif.

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the May 2017 First American Real House Price Index (RHPI). The 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 national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

May 2017 Real House Price Index

  • Real house prices decreased 0.5 percent between April and May.
  • Real house prices increased by 10.2 percent year-over-year
  • Consumer house-buying power, how much one can buy based on changes in income and the interest rate, increased 0.5 percent between April and May, and fell 4.5 percent year-over-year.
  • Real house prices are 34.2 percent below their housing-boom peak in July 2006 and 11.5 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.3 percent in May on a year-over-year basis and are 3.1 percent above the housing boom peak in 2007.

Chief Economist Analysis: Dip in Rates and Growth in Wages Benefit Home Buyers in May

“Consumer house-buying power improved this month because of the small decline in the 30-year, fixed-rate mortgage and modest wage gains. The improvement in buying power offset the gains in unadjusted house prices, so affordability improved, albeit just barely,” said Mark Fleming, chief economist at First American. “Contrary to popular opinion, when considering real, consumer buying-power adjusted prices, prospective homebuyers benefited in May as homes became more affordable. Despite the tight supply and strong demand, real home prices remain well below housing boom peak levels.

“While the lack of homes for sale is creating very competitive sellers’ markets throughout the country, home buyers got some relief this month. While it may be hard to find a home to buy, in May buyers were able to afford a little more home than last month,” said Fleming.

Additional Quotes from Chief Economist Mark Fleming

  • “The average rate for a 30-year, fixed-rate mortgage continued its decline, falling 5 basis points between April and May to 4.0 percent.”
  • “The lower rates, combined with a modest 0.1 month-over-month increase in wages in May, offset upward price pressure resulting in a 0.5 percent increase in affordability.”
  • “Compared to a year ago, affordability is declining as the low supply of existing homes listed for sale and the slow pace of new home construction relative to demand is resulting in higher unadjusted house prices.”
  • “In May, unadjusted house prices grew by 5.3 percent compared to a year ago.”
  • “Real house prices increased in all but one of the metropolitan areas tracked by First American on an annual basis: Houston, where RHPI fell -0.7 percent.”
  • “Half of the metropolitan areas tracked by First American had double digit declines in affordability. Affordability in Charlotte, N.C. declined the most, dropping 16.5 percent in the last 12 months.”

May 2017 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: New York (+17.9 percent), Nevada (+15.5 percent), Michigan (+12.9 percent), Colorado (+12.8 percent) and Vermont (+12.8 percent).
  • The five states with the smallest year-over-year increase in the RHPI are: Arkansas (+3.3 percent), Kansas (+4.3 percent), Montana (+4.4 percent), Nebraska (+5.1 percent), and Oklahoma (+5.2 percent).   

    May 2017 Real House Price Local Market Highlights

  • Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Charlotte, N.C. (+16.5 percent), Nashville, Tenn. (+14.8 percent), Seattle (+14.6 percent), Tampa, Fla. (+14.2 percent), and Denver (+13.9 percent).
  • Among the CBSAs tracked by First American, the only market with a year-over-year decrease in the RHPI is: Houston (-0.7 percent)

    Next Release

    The next release of the First American Real House Price Index will be the week of August 21, 2017 for June 2017 data.

    Methodology

    The methodology statement for the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.

    Disclaimer

    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.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With total revenue of $5.6 billion in 2016, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016 and again in 2017, First American was named to the Fortune 100 Best Companies to Work For® list. More information about the company can be found at www.firstam.com.

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