"Brexit" Decision Uncertainty Contributed to Consumer House-Buying Power, According to First American Real House Price Index

FOMC decisions matter less for the housing market than global uncertainty caused by events like ‘Brexit,’ says Chief Economist Mark Fleming

June 23, 2016, 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 April 2016 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.

April 2016 Real House Price Index

For the month of April, the RHPI declined 0.9 percent as compared with March 2016 and increased 2.4 percent as compared with April 2015.

“Unadjusted house prices are expected to increase by 5.1 percent in April on a year-over-year basis. After adjusting for increased consumer house-buying power, real house prices are significantly lower than they were prior to the housing boom,” said Mark Fleming, chief economist at First American. “Real house prices are 39.6 percent below their housing-boom peak in July 2006 and 19 percent below the level of prices in January 2000. Unadjusted, the national price level is 2.9 percent away from the housing-boom peak in 2007.”

“Brexit” Uncertainty Added to Continued Consumer House-Buying Power

“This month, the housing market continues to benefit from low, and even falling, mortgage rates driven by the ‘flight to safety’ and relative yield that is maintaining demand for U.S. 10-year Treasury bonds, which underpin fixed-rate mortgages,” said Fleming. “The 30-year fixed rate mortgage has been below 5 percent since May 2010 – six years for a variety of reasons, but ‘Brexit’ has played an influential role in the recent trend in rates. This era of low rates has fueled increases in consumer house-buying power, keeping real house prices low by historic standards.

“Last week, the yield on the 10-year Treasury-note fell to 1.59 percent after the June meeting of the Federal Open Market Committee (FOMC) and the committee’s decision not to raise the Federal Funds Rate. This leaves fewer opportunities this year for a rate hike, although, as I wrote in my blog post last week, this will have little impact on the health of the housing market and housing affordability,” said Fleming. “FOMC decisions matter less than global uncertainty caused by events like ‘Brexit.’”

April 2016 Real House Price State Highlights

  • The five states with the highest year-over-year increase in the RHPI are: Wyoming (+15.1 percent), North Dakota (+14.3 percent), Rhode Island (+10.0 percent), Louisiana (+9.9 percent) and Maine (+7.9 percent).
  • The five states with the highest year-over-year decrease in the RHPI are: Nebraska (-7.4 percent), the District of Columbia (-4.3 percent), New Hampshire (-3.6 percent), Illinois (-2.8 percent) and Maryland (-2.7 percent).

April 2016 Real House Price Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the highest year-over-year increase in the RHPI are: Providence, R.I. (+10.8 percent); Seattle (+9.2 percent); Jacksonville, Fla. (+8.6 percent); Tampa, Fla. (+7.3 percent); and Denver (+7.0 percent).
  • Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in the RHPI are: Milwaukee (-6.7 percent); Baltimore (-6.5 percent); Chicago (-2.9 percent); Virginia Beach, Va. (-2.2 percent); and Pittsburgh (-1.7 percent).

Affordability in Most Major Markets Improved in April

“Real house prices declined on a month-over-month basis in all but one metropolitan area, Cleveland, as increases in consumer house-buying power more than offset unadjusted price appreciation. In fact, Baltimore, Milwaukee and Chicago all experienced real house price declines of more than 3 percent from March to April,” said Fleming. “Counter to the conventional wisdom that housing is becoming less affordable, many consumers who were house hunting benefitted from an improvement in affordability.

“A lack of inventory and access to credit continue to hamper the market’s ability to achieve its potential for home sales, but the improvement in affordability is helpful for those who have found the home they want to buy and have secured their financing,” said Fleming. “Even nominally expensive markets like Washington, D.C. and San Francisco saw meaningful affordability improvements in real terms.

“Contrary to popular belief, most major metropolitan markets are experiencing improved affordability this spring. Falling mortgage rates are boosting consumer house-buying power and offsetting any nominal gains in price levels,” said Fleming. “Improving affordability for consumers is a direct result of increased demand for long-term U.S. Treasury bonds. Events like ‘Brexit’ are paradoxically beneficial for the house-buying consumer.”

Next Release

The next release of the First American Real House Price Index will be on July 25 for May 2016 data. 


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


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. © 2016 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 revenues of $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. More information about the company can be found at www.firstam.com.