Wage Growth Contributes to Increased Affordability in Most Major Markets, According to First American Real House Price Index
Even with the recent uptick in mortgage rates, mortgage rates remain at historically low levels. The low rates, combined with recent meaningful income gains, fueled an increase in consumer house-buying power, keeping affordability at a quarter-century best, says Chief Economist Mark Fleming
November 28, 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 September 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.
September 2016 Real House Price Index
- Real house prices increased 1.0 percent between August 2016 and September 2016
- Compared to September 2016, real house prices decreased by -2.0 percent.
- Unadjusted house prices are expected to increase by 5.3 percent in September on a year-over-year basis.
- Real house prices are 40.4 percent below their housing-boom peak in July 2006 and 19.9 percent below the level of prices in January 2000.
- Unadjusted, the national price level is 0.9 percent away from the housing-boom peak in 2007.
Chief Economist Analysis: Wage Growth Offsets Impact of September Interest Rate Surge, Contributing to Increased Affordability in Most Major Markets
“While a small uptick in rates in September caused an increase in real house prices compared to August, it is important to remember that mortgage rates remain at historically low levels. The low rates, combined with recent meaningful income gains, fueled an increase in consumer house-buying power, meaning affordability is at a quarter-century best,” said Mark Fleming, chief economist at First American. “Even as interest rates increase above 4 percent post-election, housing, on a purchasing-power adjusted basis, will continue to be more affordable than it was in the early 1990s.
“The 2017 conforming loan-limit increase announced last week was prompted by the fact that house prices have surpassed the pre-decline level established in the third quarter of 2007, according to the FHFA index,” said Fleming. “Nominally, the price recovery is officially complete, but in real purchasing-power adjusted terms, houses prices are still far below the pre-decline peak. The underlying story is consumer house-buying power is better than it has been in a generation.
“Affordability continues to increase in more markets than it is decreasing, including markets considered by many to be over-valued, like San Francisco, San Jose, New York, Washington and Boston. Conventional wisdom overlooks the impact that rising incomes can have on consumer house-buying power in a low-rate environment. Long-awaited increases in income levels are contributing to falling real house prices in many markets,” said Fleming.
Additional Quotes from Chief Economist Mark Fleming
- “Real house prices increased on a month-over-month basis in the month of September as income growth was strong enough to nearly offset the rise in both mortgage rates and unadjusted house price appreciation.”
- “While rates rose from 3.4 percent to 3.6 percent between August 2016 and September 2016, they are still at near historic lows. When combined with an estimated 2.0 percent year-over-year increase in median household income in September, consumer buying power remains historically strong.”
- “Real house prices declined on a year-over-year basis in 23 of the 43 metropolitan areas tracked by First American, as increases in wages more than offset growth in mortgage rates and unadjusted price appreciation.”
- “San Francisco, Virginia Beach, Va., Oklahoma City, and San Jose, Calif. are at the top of the list for improved affordability, each experiencing year-over-year declines of 3.0 percent or more.”
- “Widespread growth in consumer house-buying power continues, despite price increases driven by the low number of homes for sale.”
September 2016 Real House Price State Highlights
- The five states with the highest year-over-year increase in the RHPI are: Wyoming (+5.8 percent), Maine (+5.1 percent), Vermont (+4.2 percent), Colorado (+3.9 percent) and Michigan (+3.5 percent).
- The five states with the highest year-over-year decrease in the RHPI are: New Jersey (-6.2 percent), District of Columbia (-5.2 percent), Alaska (-4.7 percent), Arkansas (-4.6 percent) and Iowa (-4.4 percent).
September 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. (+6.7 percent), Tampa, Fla. (+6.1 percent), Charlotte, N.C. (+5.8 percent), Seattle (+5.2 percent), and Sacramento, Calif. (+5.2 percent).
- Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in the RHPI are: San Francisco (-6.3 percent), Virginia Beach, Va. (-5.3 percent), Oklahoma City (-3.4 percent), San Jose, Calif. (-3.1 percent), and Dallas (-3.0 percent).
The next release of the First American Real House Price Index will be the week of December 26, 2016 for October 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.