Real House Prices Surge in Under-Supplied Markets, According to First American Real House Price Index

Combined with unfaltering demand, the lack of supply continues to pressure unadjusted prices higher in one of the strongest spring sellers’ markets seen in recent memory, says Chief Economist Mark Fleming


April 24, 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 February 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.

February 2017 Real House Price Index

  • Real house prices increased 0.7 percent between January and February.
  • 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, decreased 0.2 percent between January and February, and fell 4.7 percent year-over-year.
  • Real house prices are 32.8 percent below their housing-boom peak in July 2006 and 9.7 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.7 percent in February on a year-over-year basis and are 3.1 percent above the housing boom peak in 2007.

Chief Economist Analysis: Main Story in Most Markets is Lack of Supply

“Real, purchasing-power adjusted house prices increased 11 percent in February compared to a year ago. The lack of homes listed for sale is causing unadjusted house price growth to remain strong. Additionally, increasing interest rates are reducing consumer purchasing power. The result is a substantial year-over-year increase in the real price of homes,” said Mark Fleming, chief economist at First American.

“Most of the markets we follow experienced double-digit real house price increases in February, compared with a year ago. The main story in most markets this spring is the lack of supply. Combined with unfaltering demand, the lack of supply continues to pressure unadjusted prices higher in one of the strongest spring sellers’ markets seen in recent memory. Even so, it’s important to note that wages continue to grow and the level of affordability in most markets remains high by historical standards,” said Fleming.

Additional Quotes from Chief Economist Mark Fleming

  • “The average rate for a 30-year, fixed-rate mortgage increased two basis points between January and February, and has held fairly steady after increasing almost 75 basis points between November and December 2016.”
  • “Wages continue to move higher, growing at an annual pace of 2.8 percent in February 2017, partially offsetting the impact of higher mortgage rates and increasing house prices on affordability.”
  • “Homes, on a real purchasing-power adjusted basis, are 11.0 percent more expensive than they were a year ago.”
  • “For the second consecutive month, real house prices increased on a year-over-year basis in all the metropolitan areas tracked by First American.”
  • “Jacksonville, Fla. continues to lead the nation in declining housing affordability, which fell 20.6 percent in the last 12 months. Like many others markets, Jacksonville has a very low supply of homes listed for sale.”  

February 2017 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: New York (+15.1 percent), Colorado (+14.9 percent), Wisconsin (+14.9 percent), Alabama (+14.3 percent) and Vermont (+14.1 percent).
  • The only state with a year-over-year decrease in the RHPI is: Mississippi (-2.7 percent).

    February 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. (+20.6 percent), Milwaukee (+17.3 percent), Charlotte, N.C. (+16.5 percent), Cincinnati (+16.3 percent), and Denver (+15.4 percent).
  • Among the CBSAs tracked by First American, the markets with the smallest year-over-year increase in the RHPI are: Virginia Beach, Va. (+5.3 percent), Hartford, Conn. (+5.5 percent), Pittsburgh (+6.3 percent), San Francisco (+6.6 percent), and Boston (+8.2 percent)

    Next Release

    The next release of the First American Real House Price Index will be the week of May 29, 2017 for March 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.

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