Two Forces Re-shaped Housing Affordability in 2019, According to First American Real House Price Index
October 28 2019 - 1:00PM
Business Wire
—You buy what you can afford to pay per
month, 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
August 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.
August 2019 Real House Price Index
- Real house prices decreased 1.3 percent between July 2019 and
August 2019.
- Real house prices declined 5.9 percent between August 2018 and
August 2019.
- Consumer house-buying power, how much one can buy based on
changes in income and interest rates, increased 2.5 percent between
July 2019 and August 2019, and increased 14.8 percent year over
year.
- Median household income has increased 2.6 percent since August
2018 and 57.6 percent since January 2000.
- Real house prices are 18.6 percent less expensive than in
January 2000.
- While unadjusted house prices are now 8.3 percent above the
housing boom peak in 2006, real, house-buying power-adjusted house
prices remain 42.0 percent below their 2006 housing boom peak.
Chief Economist Analysis: Real House Prices Fall 6 Percent
Year Over Year
“Understanding the dynamics that influence consumer house-buying
power, how much home one can buy based on changes in income and
interest rates, provides a helpful perspective on the housing
market. When incomes rise, consumer house-buying power increases.
When mortgage rates or nominal house prices rise, consumer
house-buying power declines,” said Mark Fleming. “Our Real House
Price Index (RHPI) uses consumer house-buying power to adjust
nominal house prices, offering insight into affordability.
“For example, according to our RHPI, real house prices decreased
nearly 6 percent year over year in August, marking a significant
gain in affordability. Since August 2018, mortgage rates decreased
0.93-percentage points and household income grew by 2.6 percent –
both improving house-buying power and affordability,” said Fleming.
“However, rising nominal house prices reduce affordability, and
nominal house price appreciation grew by 8.0 percent compared with
one year ago. Ultimately, this continual “tug-of-war” between
house-buying power and nominal house prices determines the fate of
real house prices.”
Housing Affordability in 2019 Transformed by Dynamic Duo –
Mortgage Rates and Income Growth
“In 2019, falling mortgage rates helped create a housing market
that behaved very different than the housing market in the second
half of 2018. Mortgage rates began their descent in December 2018
and have continued to fall through August, significantly
influencing affordability,” said Fleming. “According to our RHPI,
the 0.85 percentage point drop in mortgage rates from January 2019
through August 2019 increased affordability by 9.7 percent. That
translates to a $40,200 improvement in house-buying power in just
eight months.
“As rates have fallen in 2019, the economy has continued to
perform well also, resulting in a tight labor market and wage
growth. Wage growth pushes household incomes upward, which were 1.5
percent higher in August compared with January,” said Fleming. “The
growth in household income increased consumer house-buying power by
1.5 percent, pushing house-buying power up an additional
$5,600.
“During this same time, nominal house prices increased by 5.7
percent, reducing affordability. In January 2019, a family with the
median household income in the U.S. could afford to buy a $373,900
house. By August, that home had appreciated to $395,000, an
increase of $21,100. But, house-buying power increased by $45,800
over the same eight-month time period,” said Fleming. “The
improvement in house-buying power was more than double the $21,100
increase in house prices. This year, through August, home buyers’
purchasing power has far outpaced the appreciation of the homes
they are buying, so home buyers were in a better position in
August, despite the increase in nominal house prices.
The Future of Affordability
“In 2019, the dynamic duo of lower mortgage rates and rising
incomes overcame the negative impact of rising house price
appreciation on affordability. Indeed, affordability reached its
highest point since January 2018,” said Fleming. “Focusing on
nominal house price changes alone as an indication of changing
affordability, or even the relationship between nominal house price
growth and income growth, overlooks what matters more to potential
buyers – surging house-buying power driven by the dynamic duo of
mortgage rates and income growth. And, we all know from experience,
you buy what you can afford to pay per month.”
August Real House Price State Highlights
- There are no states with a year-over-year increase in the RHPI.
- The five states with the greatest
year-over-year decrease in the RHPI
are: New Mexico (-11.1 percent), California (-10.5 percent), North
Dakota (-10.1 percent), Wyoming (-9.8 percent), and Colorado (-9.1
percent).
August 2019 Real House Price Local Market Highlights
- Among the Core Based Statistical Areas (CBSAs) tracked by First
American, there are no markets with a year-over-year increase in the RHPI.
- 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. (-15.8
percent), San Francisco (-12.4 percent), Portland, Ore. (-11.3
percent), Seattle (-10.7 percent), and Los Angeles (-10.4
percent).
Next Release
The next release of the First American Real House Price Index
will take place the week of November 25, 2019 for September 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191028005597/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 Mar 2024 to Apr 2024
First American (NYSE:FAF)
Historical Stock Chart
From Apr 2023 to Apr 2024