Affordability Increases Despite Tightening Domestic Monetary Policy, According to First American Real House Price Index

The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016 and a respite from the 8-month-long trend of increasing real house prices, says Chief Economist Mark Fleming

June 26, 2017, 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 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.

April 2017 Real House Price Index

  • Real house prices decreased -1.6 percent between March and April.
  • Real house prices increased by 11.0 percent year-over-year
  • Consumer house-buying power, how much one can buy based on changes in income and the interest rate, increased 0.4 percent between March and April, and fell 4.5 percent year-over-year.
  • Real house prices are 33.6 percent below their housing-boom peak in July 2006 and 10.8 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.7 percent in April on a year-over-year basis and are 2.6 percent above the housing boom peak in 2007.

Chief Economist Analysis: Decline in Real House Prices Driven by Dip in Rates, Wage Growth

“Despite the monetary tightening policies of the Federal Reserve, a dip in the average rate for a 30-year, fixed-rate mortgage and wage gains increased consumer house-buying power sufficiently to offset the gain in unadjusted house prices. The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016,” said Mark Fleming, chief economist at First American.

“While this is welcome news for home buyers, the number of homes listed for sale is not meeting consumer demand and markets are getting tighter. As a result, affordability declined 11 percent on a year-over-year basis. That’s a bigger drop in affordability than the 5.7 percent caused by unadjusted house-price appreciation alone and reflects the impact of rising interest rates and tightening supply,” said Fleming.

“Global uncertainty brought down the yield on the 10-year Treasury bill between March and April, which countered the Federal Reserve’s domestic monetary policy. The beneficial impact on consumer house-buying power brought widespread relief to the housing market, as all but two of the markets we track experienced an improvement in affordability over the same period,” said Fleming. “However, the prisoner’s dilemma that prevents existing homeowners from selling will continue drive up unadjusted house prices and reduce affordability.”

Additional Quotes from Chief Economist Mark Fleming

  • “The average rate for a 30-year, fixed-rate mortgage fell 15 basis points between March and April, to 4.05 percent, the lowest since November 2016.”
  • “Wages grew 0.3 percent between March and April 2017, which, combined with the fall in interest rates, resulted in the largest month-over-month drop in real house prices since July 2016.”
  • “Even though unadjusted house prices are rising quickly due to the shortage of homes for sale, the gain in purchasing-power was more than sufficient to offset the upward price pressure.”
  • “Unadjusted and real house prices rose 5.7 percent and 11.0 percent year-over-year, respectively.”
  • “For the fifth consecutive month, real house prices increased on a year-over-year basis in all the metropolitan areas tracked by First American, with two-thirds increasing by 10 percent or more.”
  • “Milwaukee leads the nation in declining affordability, which fell 17.9 percent in the last 12 months. Like many others markets, Milwaukee has a very low supply of homes listed for sale.”  

April 2017 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: Vermont (+15.9 percent), New York (+14.9 percent), Wisconsin (+14.6 percent), Michigan (+14.5 percent) and Alabama (+14.3 percent).

  • The five states with the smallest year-over-year increase in the RHPI are: Wyoming (+2.7 percent), Massachusetts (+3.8 percent), Oklahoma (+5.4 percent), Montana (+5.6 percent), and Tennessee (+5.9 percent).   

    April 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: Milwaukee (+17.9 percent), Charlotte, N.C. (+17.4 percent), Seattle (+15.9 percent), Denver (+15.6 percent), and San Jose, Calif. (+15.6 percent).

  • Among the CBSAs tracked by First American, the markets with the smallest year-over-year increase in the RHPI are: Hartford, Conn. (+3.7 percent), Pittsburgh (+4.0 percent), Virginia Beach, Va. (+4.8 percent), Cincinnati (+6.0 percent), and San Francisco (+6.2 percent).

    Next Release

    The next release of the First American Real House Price Index will be the week of July 24, 2017 for May 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.