Housing Affordability Improves Slightly in January as Mortgage Rates Hold Steady, According to First American Real House Price Index

While affordability is lower compared to a year ago, the level of affordability in most markets is still high by historical standards, which is why demand is expected to remain strong this spring, says Chief Economist Mark Fleming

March 27, 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 January 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.

January 2017 Real House Price Index

  • Real house prices decreased 0.1 percent between December 2016 and January 2017.
  • Real house prices increased by 8.2 percent year-over-year
  • Consumer house-buying power, how much one can buy based on changes in income and the interest rate, increased 0.6 percent between December 2016 and January 2017, while falling 2.3 percent year-over-year.
  • Real house prices are 33.3 percent below their housing-boom peak in July 2006 and 10.3 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.7 percent in January on a year-over-year basis and are 1.9 percent above the housing boom peak in 2007.

Chief Economist Analysis: Did Homes Become More Affordable for First-Time Home Buyers in January?

“Real purchasing-power adjusted house prices declined 0.1 percent in January, as mortgage rates did not meaningfully change and income growth continued. Despite the monthly increase in affordability and continued strong wage growth, homes are less affordable across the country compared to a year ago,” said Mark Fleming, chief economist at First American.

“Almost half of the markets we track saw double-digit affordability declines in January, compared with a year ago. The low inventory of homes for sale across much of the country is creating increased competition and setting the stage for a very robust sellers’ market this spring,” said Fleming. “While affordability is lower compared to a year ago, the level of affordability in most markets is still high by historical standards, which is why demand is expected to remain strong this spring.”

Additional Quotes from Chief Economist Mark Fleming

  • “The 30-year, fixed-rate mortgage decreased 5 basis points between December and January.”
  • “Mortgage rates increased almost 75 basis points in November and December in response to the decision by the Federal Open Market Committee (FOMC) in December to raise the Federal Funds Rate and expectations for policy changes favoring economic growth following the election.”
  • “Wage growth cooled slightly, growing at an annual rate of 2.5 percent, after posting the fastest growth rate since 2009 in December 2016.”
  • “Homes, on a real purchasing-power adjusted basis, are 8.2 percent more expensive than they were a year ago.”
  • “On a year-over-year basis, real house prices increased in all the metropolitan areas tracked by First American.”
  • “Yet, the level of affordability remains high. Even as rates are increasing, there are many markets where a median income can purchase more than the median priced house.”
  • “Housing affordability declined 19.3 percent in Jacksonville, Fla. over the last 12 months, the largest decline in the nation in that time frame, as Jacksonville, like many other markets, has experienced very low inventories of homes listed for sale.”  

January 2017 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: New York (+13.4 percent), Colorado (+13.2 percent), Vermont (+12.7 percent), Illinois (+11.8 percent) and Maine (+11.6 percent).

  • The only two states with a year-over-year decrease in the RHPI are: Mississippi (-4.8 percent) and Connecticut (-3.0 percent).

    January 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: Jacksonville, Fla. (+19.3 percent), Charlotte, N.C. (+14.0 percent), Milwaukee (+14.0 percent), Denver (+12.6 percent), and Tampa, Fla. (+12.4 percent).

  • Among the CBSAs tracked by First American, the markets with the smallest year-over-year increase in the RHPI are: Baltimore (+4.1 percent), Virginia Beach, Va. (+4.4 percent), San Francisco (+4.5 percent), San Jose, Calif. (+5.3 percent) and Hartford, Conn. (+5.4 percent).

    Next Release

    The next release of the First American Real House Price Index will be the week of April 24, 2017 for February 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 revenues 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 both 2016 and 2017, 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.