—In a housing market with limited
supply, a surge in demand from home buyers trying to take advantage
of rising house-buying power can drive faster price appreciation,
making further affordability gains more difficult, 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
July 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.
July 2019 Real House Price Index
- Real house prices increased 0.5 percent between June 2019 and
July 2019.
- Real house prices declined 3.8 percent between July 2018 and
July 2019.
- Consumer house-buying power, how much one can buy based on
changes in income and interest rates, increased 0.5 percent between
June 2019 and July 2019, and increased 12.2 percent year over
year.
- Average household income has increased 2.4 percent since July
2018 and 56.6 percent since January 2000.
- Real house prices are 17.0 percent less expensive than in
January 2000.
- While unadjusted house prices are now 7.4 percent above the
housing boom peak in 2006, real, house-buying power-adjusted house
prices remain 41.1 percent below their 2006 housing boom peak.
Chief Economist Analysis: Affordability Continued to Improve
in July
“School bells ringing don’t just mark the beginning of a new
school year, but for those in housing, they also signal the end of
the typical home-buying season, which begins in March. As the
school year begins, the housing market is finishing the spring
home-buying season with strong marks for affordability,” said Mark
Fleming, chief economist at First American. “Indeed, two of the
three key drivers of the Real House Price Index (RHPI), household
income and mortgage rates, continued to trend toward increased
affordability in July. The 30-year, fixed-rate mortgage fell by 0.8
percentage points and household income increased 2.4 percent
compared with July 2018. When household income rises and mortgage
rates decline, consumer house-buying power increases.
“However, the third component of the RHPI, nominal house prices,
experienced a year-over-year increase of 8.0 percent in July,
decreasing affordability. Yet, even though nominal house prices
increased, the RHPI declined 3.8 percent compared with one year
ago,” said Fleming. “Affordability improved year-over-year as the
increase in house-buying power more than offset the impact of
higher nominal house prices. Given the home-buying season is coming
to a close for the year, let’s consider how affordability changed
during the 2019 home-buying season.”
Did Affordability Spring Forward?
“The home-buying season begins in the spring and then continues
into the mid-summer months. Family vacations and preparation for
the new school year typically bring the home-buying season to a
close,” said Fleming. “In fact, according to data from DataTree by
First American, 57 percent of all housing transactions annually
occurred between March and August in 2018.
“Between March and July 2019, overall affordability improved 2.7
percent. Consumer house-buying power fueled the affordability
growth, increasing to $410,271, a 6.7 percent gain since the start
of the home-buying season in March,” said Fleming. “Mortgage rates
continued their spring swoon in July, falling to 3.77 percent, 0.5
percentage points lower than March. The decline in mortgage rates
alone increased house-buying power by $23,900 since March 2019.
Over the same period, household income grew by 0.4 percent,
boosting consumer house-buying power by $1,600.
“Cumulatively, overall consumer house-buying power increased by
$25,500 in July compared with the beginning of the spring
home-buying season in March,” said Fleming. “Once again, the growth
in purchasing power was more than enough to offset the 3.8 percent
gain in nominal house prices over the same time. So, nationally,
affordability did spring forward during the 2019 home-buying
season.”
Affordability Improved Across All Cities in the RHPI
“While affordability improved nationally, real estate is all
about ‘location, location, location.’ Of the 44 markets tracked in
the RHPI, affordability improved in all of them compared with March
2019,” said Fleming. “The five markets with the greatest increase
in affordability during the 2019 spring home-buying season
were:
- San Jose, Calif. (-8.04 percent)
- Baltimore (-7.97 percent)
- St. Louis (-7.45 percent)
- Hartford, Conn. (-7.43 percent)
- Salt Lake City (-7.35 percent)
“The surge in affordability offered home buyers a window of
opportunity during the spring home-buying season. However,
increased affordability results in more demand for homes, which
puts upward pressure on nominal house prices. In fact, on a
month-over-month basis, 25 of the 44 markets we track experienced
declining affordability in July compared to June, indicating that
the housing market is adjusting to the added demand,” said Fleming.
“In a housing market with limited supply, a surge in demand from
home buyers trying to take advantage of rising house-buying power
can drive faster price appreciation, making further affordability
gains more difficult.”
July Real House Price State Highlights
- The only state with a year-over-year increase in the RHPI is: Rhode Island (+0.7
percent).
- The five states with the greatest
year-over-year decrease in the RHPI
are: North Dakota (-9.7 percent), California (-9.1 percent),
Wyoming (-9.0 percent), West Virginia (-8.7 percent), and New
Mexico (-8.4 percent).
July 2019 Real House Price Local Market Highlights
- Among the Core Based Statistical Areas (CBSAs) tracked by First
American, the only market with a year-over-year increase in the RHPI is: Providence, R.I. (+2.6
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. (-15.5
percent), Seattle (-10.4 percent), San Francisco (-10.1 percent),
Portland, Ore. (-9.5 percent), and Los Angeles (-9.1 percent).
Next Release
The next release of the First American Real House Price Index
will take place the week of October 28, 2019 for August 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 Ginnaty Corporate Communications
First American Financial Corporation (714) 250-3298
Investor Contact: Craig Barberio Investor Relations First
American Financial Corporation (714) 250-5214
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