Real House Prices Remain 39 Percent Below the Housing Boom Peak, According to Inaugural First American Real House Price Index

Simply looking at house price changes without considering the changes in consumer house-buying power misrepresents the real change in prices, says Chief Economist Mark Fleming

May 24, 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 inaugural First American Real House Price Index (RHPI), which 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.

March 2016 Real House Price Index

For the month of March, the RHPI was unchanged as compared with February and increased 2.1 percent as compared with March 2015.

“After adjusting for increased consumer house-buying power, real house prices are significantly lower than they were prior to the housing boom. Real house prices are 39.1 percent below their housing-boom peak in July 2006 and 18 percent below the level of prices in January 2000,” said Mark Fleming, chief economist at First American. “Unadjusted house prices are expected to increase by 5.1 percent in March on a year-over-year basis, but real house prices increased by a more modest 2.1 percent over the same period. Unadjusted, the national price level is less than 2.9 percent away from the housing-boom peak in 2007.

“While median household income growth since the end of the recession has barely kept pace with inflation, mortgage rates, particularly for the popular 30-year, fixed-rate mortgage, have declined significantly. At the end of the recession in 2009, the 30-year, fixed-rate mortgage was over 5 percent,” said Fleming. “It has subsequently declined to below 4 percent today. Low rates have fueled increases in consumer house-buying power, keeping real house prices low by historic standards.

“Many potential homebuyers this spring may experience sticker shock when house hunting, as unadjusted prices are consistently outpacing income growth,” said Fleming. “Yet, the real price level is much lower than even in the years before the housing boom, largely because consumer house-buying power is significantly higher today due to the current environment of historically low mortgage rates.”

March 2016 Real House Price State Highlights

  • The five states with the highest year-over-year increase in the RHPI are: North Dakota (+16.0 percent), Wyoming (+14.7 percent), Rhode Island (+12.2 percent), Delaware (+6.0 percent) and Missouri (+5.6 percent).
  • The five states with the highest year-over-year decrease in the RHPI are: the District of Columbia (-5.5 percent), Alaska (-5.2 percent), Maryland (-5.0 percent), Pennsylvania (-4.4 percent) and West Virginia (-4.2 percent).

March 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. (+11.6 percent); Tampa, Fla. (+8.8 percent); Denver (+7.8 percent); Jacksonville, Fla. (+7.2 percent); and Seattle (+6.9 percent).
  • Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in the RHPI are: Baltimore (-9.3 percent); Virginia Beach, Va. (-3.8 percent); Pittsburgh (-3.5 percent); Milwaukee (-2.5 percent); and Memphis, Tenn. (-2.0 percent).

Comparing San Francisco and Detroit

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,” said Fleming. “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,” said Fleming. “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?”

Has High House Price Appreciation Hurt Affordability?

“Falling affordability in the housing market has been a favorite topic of discussion among housing experts, as unadjusted house prices have increased strongly and consistently over the last two years. For example, one of the most widely watched house price indices, the Standard & Poor Case-Shiller house price index, most recently reported a year-over-year increase of 5.3 percent in February,” said Fleming. “Price growth of this magnitude is certainly outpacing income growth. According to the latest Census data available, the median household income increased only 0.1 percent between 2013 and 2014. Based on these two facts, it is easy to conclude that affordability has declined.

“However, this conclusion fails to account for the fact that a consumer’s ability to afford a house is not just a function of their income. Most often, it is a function of the amount they can sustainably afford to borrow, which is determined by their income and the prevailing interest rate – their buying power,” said Fleming. “While household income growth has barely outpaced or broken even with inflation in recent years, mortgage interest rates have declined and remained low. In fact, in 2000, the 30-year, fixed-rate mortgage interest rate was above 8 percent. By contrast, today that same interest rate is less than half that amount. Low interest rates have significantly increased the amount of house a consumer can afford.

“The RHPI, which adjusts house prices for changes in consumer house-buying power, reveals a very different interpretation of how affordable housing is today. Today, the national RHPI is 18 percent lower than it was in January 2000. This indicates that houses, after adjusting for the substantial increase in consumer house-buying power due to the large decline in mortgage rates, are 18 percent more affordable than they were 15 years ago,” said Fleming. “In fact, on a consumer house-buying power adjusted basis, house prices are as affordable as they were in 1997, even though the unadjusted price level is 110 percent higher today than it was then. Even expensive markets like San Francisco are only just passing their 2000 consumer house-buying power adjusted price levels, illustrating the impact of rising incomes in San Francisco and falling rates nationally.

“Location matters in real estate, but incomes and interest rates matter more when considering house price changes. Simply looking at house price changes without considering the changes in consumer house-buying power misrepresents the real change in prices,” said Fleming. “Taking the real, consumer house-buying power adjusted perspective on measuring house prices yields a very different perspective on affordability.”

Next Release

The next release of the First American Real House Price Index will be on June 9 for April 2016 data.


The methodology statement for the First American Real House Price Index is available at


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