Wage Growth and Falling Rates Keep a Lid on Real House Prices in June, According to First American Real House Price Index

The underlying fundamental issue is an overwhelming lack of supply. Existing homeowners face a prisoner’s dilemma and over the last eight years new construction has not kept pace with new demand, says Chief Economist Mark Fleming


August 28, 2017, Santa Ana, Calif.

SANTA ANA, Calif., August 28, 2017 – 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 June 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.

June 2017 Real House Price Index

  • Real house prices decreased 1.3 percent between May and June.
  • Real house prices increased by 9.3 percent year-over-year.
  • Consumer house-buying power, how much one can buy based on changes in income and the interest rate, increased 1.3 percent between May and June, and fell 3.5 percent year-over-year.
  • Real house prices are 34.8 percent below their housing-boom peak in July 2006 and 12.3 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.4 percent in June on a year-over-year basis and are 2.7 percent above the housing boom peak in 2007.

Chief Economist Analysis: Affordability Declines 9.3 Percent Year-over-Year as Supply Squeeze Pushes Nominal Prices Higher

“On a month-over-month basis, affordability improved slightly thanks to the seventh straight month of falling rates for 30-year, fixed-rate mortgages and modest wage gains. The increase in consumer purchasing power offset the gains in unadjusted house prices. However, on a year-over-year basis, with rates still higher than a year ago, affordability declined 9.3 percent,” said Mark Fleming, chief economist at First American.

“The underlying fundamental issue is an overwhelming lack of supply. With current homeowners facing a prisoner’s dilemma and unwilling to list their homes for sale, little relief is expected in the supply of existing homes. The supply of newly constructed homes is also sagging, adding to the supply challenges,” said Fleming. “Over the last eight years, housing demand has increased by 5.9 million, but the net new number of housing units has only increased by 3.5 million. This supply shortage will continue to put pressure on affordability and strain first-time home buyers entering the market.” 

Additional Quotes from Chief Economist Mark Fleming

  • “Real house prices rose 9.3 percent in June as the number of existing homes listed for sale declined to a 4.3-months’ supply. The decline marked the 25th consecutive month of falling inventory levels, according to the National Association of Realtors.”
  • “However, the lower interest rates in June compared with May, combined with a modest 0.6 percent month-over-month increase in wages, helped offset rising nominal house prices, producing a slight 1.3 increase in affordability in June.”
  • “On an annual basis, affordability is declining as the supply of existing homes listed for sale dwindles and new home construction continues to slide.”
  • “Since 2009, the number of new households has increased by 5.9 million, while the net new number of housing units has increased by 3.5 million, meaning there is a shortage of 2.4 million housing units in the United States.”
  • “Seattle, with one of the lowest supplies of homes listed for sale, had the largest drop in affordability, declining 16.1 percent year-over-year.”   

June 2017 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: Washington (+12.5 percent), Michigan (+12.4 percent), Colorado (+10.4 percent), Oregon (+10.2 percent), and Illinois (+9.8 percent).
  • The five states with the smallest year-over-year increase in the RHPI are: Texas (+1.8 percent), New Jersey (+2.1 percent), Arkansas (+2.5 percent), Missouri (+3.2 percent), and Oklahoma (+3.6 percent).   

    June 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: Seattle (+16.1 percent), Nashville, TN. (+15.1 percent), Charlotte, N.C. (+14.0 percent), Tampa, Fla. (+12.1 percent), and Sacramento (+11.9 percent).
  • Among the CBSAs tracked by First American, the three markets with the greatest year-over-year decrease in the RHPI are: Houston (-9.5 percent), San Antonio (-5.8 percent), and Dallas (-3.9 percent).

    Next Release

    The next release of the First American Real House Price Index will be the week of September 25, 2017 for July 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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