Low Rates and Increased Wages Increase Affordability for U.S. Home Buyers in Almost All Major Markets, According to First American Real House Price Index
Contrary to popular opinion, housing isn’t getting more expensive. In fact, on a purchasing-power adjusted basis, housing is becoming more affordable, says Chief Economist Mark Fleming
October 25, 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 August 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.
August 2016 Real House Price Index
- Real house prices increased 0.8 percent between July 2016 and August 2016
- Compared to August 2015, real house price decreased by 2.6 percent.
- Unadjusted house prices are expected to increase by 5.7 percent in August on a year-over-year basis.
- Real house prices are 41.0 percent below their housing-boom peak in July 2006 and 20.7 percent below the level of prices in January 2000.
- Unadjusted, the national price level is 1.7 percent away from the housing-boom peak in 2007.
Chief Economist Analysis: Low Rates and Increased Wages Increase Affordability for U.S. Home Buyers in Almost All Major Markets
“Contrary to popular opinion, housing isn’t getting more expensive. In fact, on a purchasing-power adjusted basis, housing is becoming more affordable,” said Mark Fleming, chief economist at First American. “Interest rate declines, combined with meaningful gains in incomes, have provided the consumer with greater buying power, which increases housing affordability. The growth in consumer house-buying power is actually outpacing the increases in nominal prices driven by remarkably tight inventories.
“Until there is a meaningful increase in mortgage rates, likely starting later this year and continuing into 2017, real house price levels will remain low in most major markets. At the moment, affordability is actually increasing in more markets than it is decreasing, including San Francisco, San Jose, New York, Washington and Boston. The conventional wisdom that these markets are over-valued does not account for the meaningful growth in consumer house-buying power across the majority of major metropolitan markets,” said Fleming.
Additional Quotes from Chief Economist Mark Fleming
- “Real House Prices fell on a year-over-year basis in the month of August as the average rate for the 30-year fixed mortgage dropped from 3.91 percent in August 2015 to 3.44 in August 2016.”
- “Low rates combined with an estimated 2.0 percent year-over-year increase in median household income in August have brought a significant boost to consumer buying power.”
- “Real house prices declined on a year-over-year basis in 32 of the 43 metropolitan areas tracked by First American, as increases in wages and low mortgage rates offset unadjusted price appreciation.”
- “Virginia Beach, Va., Oklahoma City, San Francisco and Milwaukee continue to be at the top of the list for improved affordability, each experiencing year-over-year declines of -4.0 percent or more.”
- “Widespread growth in consumer house-buying power continues, despite the low number of homes for sale driving up prices.”
August 2016 Real House Price State Highlights
- The five states with the highest year-over-year increase in the RHPI are: Michigan (+5.9 percent), Wyoming (+4.8 percent), Maine (+3.1 percent), Vermont (+2.5 percent) and Colorado (+1.8 percent).
- The five states with the highest year-over-year decrease in the RHPI are: Iowa (-5.9 percent), Arkansas (-5.8 percent), District of Columbia (-5.6 percent), New Jersey (-5.1 percent) and Virginia (-5.1 percent).
August 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: Jacksonville, Fla. (+8.1 percent), Tampa, Fla. (+5.3 percent), Detroit (+3.9 percent), Seattle (+3.6 percent), and Kansas City, Mo. (+3.5 percent).
- Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in the RHPI are: Virginia Beach, Va. (-5.5 percent), Oklahoma City (-4.8 percent), San Francisco (-4.6 percent), Milwaukee (-4.5 percent), and Richmond, Va. (-3.6 percent).
The next release of the First American Real House Price Index will be the week of November 28, 2016 for August 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. In 2016, First American was recognized by Fortune® magazine as one of the 100 best companies to work for in America. More information about the company can be found at www.firstam.com.