Largest House-Buying Power Increase in Five Years, According to First American Real House Price Index

December delivered a significant holiday housing affordability boost to prospective home buyers, says Chief Economist Mark Fleming

February 25, 2019, 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 2018 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 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 2018 Real House Price Index

  • Real house prices decreased 2.4 percent between November 2018 and December 2018.

  • Real house prices increased 11.8 percent year over year.

  • Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 3.1 percent between November 2018 and December 2018, and declined 5.0 percent year over year.

  • Average household income has increased 3.1 percent since December 2017 and 55.0 percent since January 2000.

  • Real house prices are 12.0 percent less expensive than in January 2000.

  • While unadjusted house prices are now 2.0 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 37.2 percent below their 2006 housing boom peak. 

Chief Economist Analysis: December Delivers Affordability Boost for Home Buyers

“Housing affordability is a function of three economic drivers: nominal house prices, household income and mortgage rates. When incomes rise, consumer house-buying power increases. Declining mortgage rates or declining nominal house prices also increase consumer house-buying power,” said Mark Fleming, chief economist at First American. “Our Real House Price Index (RHPI) uses consumer house-buying power to adjust nominal house prices, offering insight into shifts in affordability.

“While housing affordability in 2018 fared poorly in comparison to 2017, decreasing 11.8 percent in December compared with a year earlier, the year finished strong in December thanks to declining mortgage rates. Mortgage rates in December fell 0.23 percentage points compared with the previous month and household income increased 0.4 percent,” said Fleming. “The effect? A 3.1 percent increase in house-buying power, the largest monthly gain in more than five years. As a result, real house prices experienced the largest monthly decline (2.4 percent) since 2016. December delivered a significant holiday housing affordability boost to prospective home buyers.” 

Rising Wage Growth and Lower Mortgage Rates Drive Affordability

“In December, the labor market remained impressive. Annual hourly wage growth increased by 3.5 percent compared with a year earlier, and the labor market’s record streak of job gains continued. The labor market has increased average household income by 55 percent since January 2000,” said Fleming. “In 2018, the increase in household income helped mitigate the impact of rising mortgage rates and the fast pace of unadjusted house price growth on affordability. Rising mortgage rates, which increased from 4.0 to 4.6 percent in 2018, reduced consumer house-buying power by nearly $31,000. The growth in household income, however, increased consumer house-buying power by $11,000. The overall net effect in 2018 of the affordability tug-of-war between increasing mortgage rates and income growth was a $19,000 decline in house-buying power, compared with December 2017.

“However, the affordability trend shifted toward buyers in December, as mortgage rates fell and household income continued to grow. The December decline in mortgage rates from 4.87 to 4.64 percent boosted house-buying power by an impressive $10,000,” said Fleming. “That means a home buyer with a 5 percent down payment and a mortgage rate of 4.6 percent saw their house-buying power increase from $354,500 to $364,500. The monthly increase in household income further increased house-buying power to $365,600. Overall, house-buying power increased by $11,100 in December compared with the previous month, the second largest monthly increase in house-buying power since the beginning of the millennium.” 

December 2018 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: District of Columbia (+19.1 percent), Ohio (+17.0 percent), Montana (+16.7 percent), Nevada (+16.6 percent), and New Jersey (+16.4 percent).

  • No state had a year-over-year decrease in the RHPI in December. 

    December 2018 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: Cleveland (+20.1 percent), Las Vegas (+19.9 percent), Orlando, Fla. (+19.8 percent), Charlotte, N.C. (+19.5 percent), and Columbus, Ohio (+18.2 percent).

  • No CBSA had a year-over-year decrease in the RHPI in December. 

    Next Release

    The next release of the First American Real House Price Index will take place the week of March 25, 2019 for January 2019 data. 


    The methodology statement for the First American Real House Price Index is available at


    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. © 2019 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; banking, trust and wealth management services; and other related products and services. With total revenue of $5.7 billion in 2018, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2019, First American was named to the Fortune 100 Best Companies to Work For® list for the fourth consecutive year. More information about the company can be found at