—Faster nominal house price appreciation can
erode, or even eliminate, the boost in affordability from lower
mortgage rates, especially if household income growth doesn’t keep
up, says Chief Economist Mark Fleming—
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
September 2020 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.
Chief Economist Analysis: Affordability Declines Nationally
for Second Straight Month
“Affordability declined month over month in September for the
second month in a row, even as two of the three key drivers of the
Real House Price Index (RHPI), household income and mortgage rates,
swung in favor of increased affordability,” said Mark Fleming,
chief economist at First American. “The 30-year, fixed-rate
mortgage fell by 0.05 percentage points and household income
increased 0.2 percent compared with August 2020. Rising household
income and declining mortgage rates each boost consumer
house-buying power.
“However, rising house-buying power drives greater demand, and
surging demand in a supply-constrained market fuels faster nominal
house price appreciation. This is exactly what occurred in
September, as nominal house prices, the third component of the
RHPI, appreciated at its fastest monthly pace since 2013,” said
Fleming. “The rapid house price appreciation was enough to overcome
the benefit of increased house-buying power. But, real estate is
local and house-buying power and nominal house price gains vary by
city, so the national perspective may not tell us much about what’s
happening to affordability where you live.”
The Five Cities Where Affordability Declined the Most
“Declining mortgage rates increase affordability equally in each
market as mortgage rates are generally the same across the country.
However, household income levels and nominal house prices vary by
market, so the affordability dynamic varies as well,” said Fleming.
“Of the 50 markets we track, affordability declined in 41 of them
month over month. The five markets with the highest
month-over-month decline in affordability were:
- Kansas City, Mo. (-2.3 percent)
- Las Vegas (-1.9 percent)
- Philadelphia (-1.7 percent)
- Pittsburgh (-1.6 percent)
- Portland, Ore. (-1.6 percent)
Affordability Story Differs Based on Local Dynamics
“In September, Kansas City, Mo. had the greatest
month-over-month decrease in affordability, mostly due to of the
1.7 percent monthly decline in household income, the largest
household income decline relative to the other four markets,” said
Fleming. “Las Vegas and Philadelphia both had faster nominal house
price appreciation than Kansas City, but their household incomes
did not decline by nearly as much.
“Finally, the remaining cities on the list, Pittsburgh and
Portland, demonstrate the intricate dance between house-buying
power and nominal house price appreciation. Pittsburgh and Portland
both experienced a 1.6 percent decline in affordability in
September, but for different reasons,” said Fleming. “Pittsburgh’s
decline in household income was marginal and not enough to offset
the affordability boost from lower mortgage rates, so house-buying
power improved in the steel city. Yet, Pittsburgh’s nominal house
price appreciation was the fastest of the five cities, outpacing
house-buying power, so affordability waned. While Portland’s
nominal house price appreciation was slower than Pittsburgh,
house-buying power declined significantly more due to falling
household income, resulting in the same decline in affordability as
Pittsburgh.”
What Will Drive Housing Affordability in 2021?
“The good news is that on a year-over-year basis affordability
declined in only 13 of the top 50 markets, and housing remains 5
percent more affordable nationally than a year ago. However, the
list of markets with declining affordability on an annual and
monthly basis has swelled in recent months,” said Fleming. “The
growing number of markets where affordability is declining
demonstrates the dynamic we expected to see – the strong growth in
house-buying power in 2020 has boosted demand in a historically
supply-constrained market, putting tremendous upward pressure on
nominal house price appreciation.
“Faster nominal house price appreciation can erode, or even
eliminate, the boost in affordability from lower mortgage rates,
especially if household income growth doesn’t keep up,” said
Fleming. “With mortgage rates expected to remain low in 2021 and
supply expected to remain constrained, affordability trends will be
closely tied to shifts in household income in the months
ahead.”
September 2020 Real House Price Index
- Real house prices increased 0.78 percent between August 2020
and September 2020.
- Real house prices declined 5.0 percent between September 2019
and September 2020.
- Consumer house-buying power, how much one can buy based on
changes in income and interest rates, increased 0.79 percent
between August 2020 and September 2020, and increased 15.9 percent
year over year.
- Median household income has increased 5.9 percent since
September 2019 and 71.8 percent since January 2000.
- Real house prices are 26.3 percent less expensive than in
January 2000.
- While unadjusted house prices are now 16.8 percent above the
housing boom peak in 2006, real, house-buying power-adjusted house
prices remain 48.2 percent below their 2006 housing boom peak.
September 2020 Real House Price State Highlights
- The five states with the greatest year-over-year increase in the RHPI are: Wyoming (+3.2 percent),
Oklahoma (+1.6 percent), Ohio (+1.0 percent), Tennessee (+0.9
percent), and Arizona (+0.5 percent).
- The five states with the greatest
year-over-year decrease in the RHPI
are: California (-8.2 percent), New Hampshire (-7.6 percent),
Massachusetts (-7.4 percent), Hawaii (-7.3 percent), and Maryland
(-6.7 percent).
September 2020 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: Pittsburgh (+6.7
percent), Cleveland (+4.6 percent), Kansas City, Mo. (+3.7
percent), Houston (+3.1 percent), and New Orleans (+2.8
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 Francisco (-15.0
percent), San Jose, Calif. (-12.9 percent), Boston (-10.4 percent),
San Diego (-9.2 percent), and Miami (-8.8 percent).
Next Release
The next release of the First American Real House Price Index
will take place the week of December 28, 2020 for October 2020
data.
Sources
- DataTree by First American
- Freddie Mac
- Census Bureau
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. © 2020 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 $6.2 billion in 2019, the company offers its products
and services directly and through its agents throughout the United
States and abroad. In 2020, First American was named to the Fortune
100 Best Companies to Work For® list for the fifth consecutive
year. More information about the company can be found at
www.firstam.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201123005423/en/
Media Contact: Marcus Ginnaty Corporate Communications
First American Financial Corporation (714) 250-3298
Investor Contact: Craig Barberio Investor Relations First
American Financial Corporation (714) 250-5214
First American (NYSE:FAF)
Historical Stock Chart
From Aug 2024 to Sep 2024
First American (NYSE:FAF)
Historical Stock Chart
From Sep 2023 to Sep 2024