Five Cities Where Affordability Improved the Most, According to First American Real House Price Index

The intricate dance between house-buying power and nominal house price appreciation determines the direction and pace of affordability trends, says Chief Economist Mark Fleming


June 24, 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 April 2019 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. 

April 2019 Real House Price Index

  • Real house prices decreased 0.9 percent between March 2019 and April 2019.

  • Real house prices declined 0.72 percent between April 2018 and April 2019.

  • Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 1.5 percent between March 2019 and April 2019, and increased 6.7 percent year over year.

  • Average household income has increased 2.7 percent since April 2018 and 56.2 percent since January 2000.

  • Real house prices are 15.0 percent less expensive than in January 2000.

  • While unadjusted house prices are now 2.8 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 40.7 percent below their 2006 housing boom peak. 

Chief Economist Analysis: Lower Rates and Rising Wages Propel Affordability Gains

“Two of the three key drivers of the Real House Price Index (RHPI), household income and mortgage rates, swung in favor of increased affordability in April. The 30-year, fixed-rate mortgage fell by 0.33 percentage points and household income increased 2.7 percent compared to April 2018,” said Mark Fleming, chief economist at First American. “When household income rises, consumer house-buying power increases. Declining mortgage rates have a similar impact on affordability, so in April home buyers received a double shot of house-buying power to jolt affordability in their favor nationally.

“Only nominal house price appreciation, which began to pick up the pace in April, dampened affordability,” said Fleming. “Declining mortgage rates have encouraged demand by increasing house-buying power, however, when demand increases for a scarce (limited or low supply) good, prices will rise faster. In April, the rate of year-over-year nominal house price appreciation increased to 5.9 percent, compared with 5.8 percent in March.

“Despite the increasing rate of nominal house price appreciation, which makes homes less affordable, the consumer house-buying power gains were strong enough to win the affordability tug-of-war,” said Fleming. “Indeed, the RHPI, which adjusts nominal house prices based on changes in income and interest rates, decreased 0.72 percent compared with one year ago. The last time real house prices declined was in October 2016.” 

The Five Cities Where Affordability Increased the Most

“While affordability improved nationally, real estate is all about ‘location, location, location.’ Of the 44 markets we track, affordability improved in 43 of them month-over-month, and affordability improved in 18 markets on a year-over-year basis,” said Fleming.

The five markets with the highest year-over-year growth in affordability are:

  1. San Jose, Calif.

  2. Seattle

  3. Portland, Ore.

  4. San Francisco

  5. Los Angeles

 

“Declining mortgage rates increase affordability equally in each market as mortgage rates are generally the same across the country. However, household income growth and nominal house prices vary by market, so the affordability dynamic varies as well,” said Fleming. “In fact, one reason why these markets have seen such strong gains in affordability is because household income growth was so strong. In the top four markets, household income growth exceeded house price growth. That’s an affordability boost even without the help of falling rates.

“San Jose saw the greatest increase in affordability as house-buying power jumped by 6.9 percent due to the decline in mortgage rates and a 2.9 percent increase in household income compared with a year ago,” said Fleming. “Nominal house prices in San Jose also declined by 2.3 percent year-over-year, which further contributed to the 8.6 percent decline in real house prices. In Seattle, house-buying power increased by 8.8 percent due to a 4.7 percent increase in household income, which was more than enough to counter the 2 percent increase in nominal house prices compared with a year ago. 

“The intricate dance between house-buying power and nominal house price appreciation determines the direction and pace of affordability trends. Faster nominal house price appreciation could erode or even eliminate the affordability boosting benefits of lower mortgage rates and rising income,” said Fleming. “In April, home buyers were grateful that faster nominal house price appreciation was not enough to overpower the increase in house-buying power. Yet, more house-buying power brings more demand and possibly even faster house price appreciation. The dance continues.” 

April Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: Wisconsin (+4.7 percent), Rhode Island (+4.3 percent), New Hampshire (+3.5 percent), Georgia (+2.8 percent), and Ohio (+2.4 percent).

  • The five states with the greatest year-over-year decrease in the RHPI are: North Dakota (-7.4 percent), Wyoming (-6.6 percent), Louisiana (-4.3 percent), Vermont (-3.9 percent), and Oklahoma (-3.6 percent). 

    April 2019 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: Providence, R.I. (+5.9 percent), Las Vegas (+5.2 percent), Salt Lake City (+4.4 percent), Orlando, Fla. (+3.9 percent), and Atlanta (+3.7 percent).

  • Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year decrease in the RHPI are: San Jose, Calif. (-8.6 percent), Seattle (-6.3 percent), Portland, Ore. (-4.5 percent), San Francisco (-4.3 percent), and Los Angeles (-3.1 percent). 

Next Release

The next release of the First American Real House Price Index will take place the week of July 29, 2019 for May 2019 data. 

Sources:

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. © 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 www.firstam.com.

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