Housing Affordability Takes December Dip Due to Rising Rates, According to First American Real House Price Index
Post-election interest rate surge lead to the first year-over-year decline in consumer house-buying power in two and a half years, but real house prices remain 10.1 percent below the level from January 2000, says Chief Economist Mark Fleming
February 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 December 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.
December 2016 Real House Price Index
- Real house prices increased 6.2 percent between November and December 2016.
- Compared to December 2015, real house prices increased by 8.0 percent.
- Real house prices are 33.1 percent below their housing-boom peak in July 2006 and 10.1 percent below the level of prices in January 2000.
- Consumer house-buying power, how much one can buy based on changes in income and interest rates, declined 5.1 percent between November and December 2016, and fell 2.1 percent year-over-year.
- Unadjusted house prices increased by 5.8 percent in December on a year-over-year basis and are 1.5 percent above the housing boom peak in 2007.
Chief Economist Analysis: Housing Affordability Declines in December Because of the Post-Election Mortgage Rate Increase
“Real purchasing-power adjusted house prices surged more than 6 percent month-over-month in December, the first full month to see the impact of the surge in mortgage rates after the election and the most recent FOMC rate increase. This interest rate surge lead to the first year-over-year decline in consumer house-buying power in two and a half years,” said Mark Fleming, chief economist at First American. “Rising rates and nominal home price growth are outpacing the influence of strong income growth, leading to declining affordability for first-time home buyers. However, housing remains as affordable as it was in late 2009.”
“The decrease in affordability seen in December was widespread, impacting all but one of the markets we track. Low inventory of homes for sale is creating increased competition in the market and pushing nominal prices higher. Add declining purchasing power because of the jump in mortgage rates, and affordability for first-time homebuyers declines,” said Fleming.
Additional Quotes from Chief Economist Mark Fleming
- “The 30-year, fixed-rate mortgage increased 0.43 percent between November and December because of the December Federal Open Market Committee’s (FOMC) decision to raise the Federal Funds Rate and, more importantly, the post-election spike in the 10-year Treasury bond yield.”
- “Wages grew at a brisk annual rate of 2.9 percent in December, the largest increase since 2009, which was beneficial for housing affordability, but not enough to offset the impact of rising rates.”
- “The combined result of wage growth and the change in mortgage rates reduced consumer house-buying power by 2.1 percent compared to a year ago – the first decline in the annualized growth rate for consumer house-buying power in 30 months.”
- “Homes, on a real purchasing power adjusted basis, are 8.0 percent more expensive than they were a year ago.”
- “Real house prices increased on a year-over-year basis in all but one of the metropolitan areas tracked by First American.”
- “San Jose, Calif. was the only metropolitan area to experience no loss of affordability.”
December 2016 Real House Price State Highlights
- The five states with the greatest year-over-year increase in the RHPI are: Wisconsin (+10.4 percent), Colorado (+10.4 percent), New York (+10.3 percent), Maine (+10.1 percent) and Illinois (+10.0 percent).
- The five states with the least year-over-year growth in the RHPI are: Mississippi (-4.8 percent), Montana (-0.7 percent), Iowa (+0.1 percent), North Dakota (+0.7 percent) and Wyoming (+0.8 percent).
December 2016 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. (+14.9 percent), Charlotte, N.C. (+13.4 percent), Tampa, Fla. (+13.0 percent), Milwaukee (+11.5 percent), and Columbus, Ohio (+10.7 percent).
- Among the CBSAs tracked by First American, the markets with the smallest year-over-year increase in the RHPI are: San Jose, Calif. (0.0 percent), San Francisco (+1.2 percent), Virginia Beach, Va. (+1.9 percent), Portland, Ore. (+2.9 percent) and Boston (+3.4 percent).
The next release of the First American Real House Price Index will be the week of March 27, 2017 for January 2017 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. © 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 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.