Affordability Improves for the First Time since 2016, According to First American Real House Price Index
May 28 2019 - 7:15AM
Business Wire
—Nationally, affordability improved on a
year-over-year basis for the first time since 2016, 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
March 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.
March 2019 Real House Price Index
- Real house prices decreased 0.9 percent
between February 2019 and March 2019.
- Real house prices declined 0.04 percent
between March 2018 and March 2019.
- Consumer house-buying power, how much
one can buy based on changes in income and interest rates,
increased 1.5 percent between February 2019 and March 2019, and
increased 5.2 percent year over year.
- Average household income has increased
3.0 percent since March 2018 and 56.0 percent since January
2000.
- Real house prices are 15.0 percent less
expensive than in January 2000.
- While unadjusted house prices are now
2.6 percent above the housing boom peak in 2006, real, house-buying
power-adjusted house prices remain 40.0 percent below their 2006
housing boom peak.
Chief Economist Analysis: Market Forces Swing Toward
Improving Affordability
“What began as a modest shift toward a buyers’ market in six
cities last month has expanded into a national shift in
affordability,” said Mark Fleming, chief economist at First
American. “The shift is a departure from the long-term trend in the
Real House Price Index (RHPI), which had been steadily increasing
throughout the rising mortgage rate environment that began in 2017
and continued until late 2018. Rising mortgage rates caused
consumer house-buying power to decline at the same time as tight
supply pushed house prices up rapidly.
“In March, two main components of the RHPI swung in favor of
increased affordability – continued strong household income growth
and declining mortgage rates,” said Fleming. “Nationally,
affordability improved on a year-over-year basis for the first time
since 2016.”
House-Buying Power Soars to 2017 Levels
“In March, nominal house price appreciation increased to 5.2
percent compared with March 2018, after an 11-month slowdown. Yet,
despite nominal house price acceleration, real house prices fell,”
said Fleming. “The reason? Declining mortgage rates and rising
household income worked together to boost consumer house-buying
power sufficiently to overcome the drag on affordability from
rising nominal house prices.
“Consumer house-buying power climbed to $383,700 in March, 1.5
percent higher than last month and 5.2 percent higher than one year
ago, reaching the highest level since December 2017,” said Fleming.
“Mortgage rates in March fell to 4.27 percent, or 0.17 percentage
points lower than one year ago. The decline in mortgage rates
increased house-buying power by $7,800 since March 2018. Over the
same period, household income grew by 3.0 percent, which boosted
consumer house-buying power by nearly $11,000. The net effect?
Overall, consumer house-buying power increased by nearly $19,000 in
March compared with one year ago.”
Falling Real House Prices in More Markets
“Given the trend nationally, it’s no surprise that more markets
experienced falling real house prices,” said Fleming. “In last
month’s report, we identified the six cities that saw
year-over-year declines in the RHPI, but this month 15 of the 44
markets we track experienced a year-over-year decline in the RHPI,
and 43 out of 44 markets experienced quarterly declines. The clear
trend is affordability levels are improving in more parts of the
country.
“Surging consumer house-buying power is increasing demand, as
can be seen in the continued increase in purchase applications.
But, unless supply can keep pace with demand, we should expect
nominal house price appreciation to pick up,” said Fleming. “The
housing market, while different in many respects, still reacts to
tight supply and rising demand the old-fashioned way – with faster
price appreciation.”
March Real House Price State Highlights
- The five states with the greatest year-over-year increase in the RHPI are: Wisconsin (+4.6
percent), New Hampshire (+3.9 percent), Ohio (+3.7 percent),
Missouri (+3.0 percent), and Alaska (+3.0 percent).
- The five states with the greatest year-over-year decrease in the RHPI are: Wyoming (-6.9 percent),
West Virginia (-4.1 percent), Louisiana (-4.1 percent), Alabama
(-4.0 percent), and Oklahoma (-3.7 percent).
March 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: Columbus, Ohio (+5.9
percent), Providence, R.I. (+5.5 percent), Salt Lake City (+5.1
percent), Atlanta (+3.7 percent), and Cincinnati (+3.6
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. (-7.6
percent), Seattle (-6.4 percent), San Francisco (-4.4 percent),
Portland, Ore. (-3.9 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 June 24, 2019 for April 2019 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. © 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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Media Contact:Marcus GinnatyCorporate CommunicationsFirst
American Financial Corporation(714) 250-3298
Investor Contact:Craig BarberioInvestor RelationsFirst
American Financial Corporation(714) 250-5214
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