Rising House-Buying Power Accelerating House Price Appreciation, According to First American Real House Price Index
November 26 2019 - 7:00AM
Business Wire
—Faster nominal house price appreciation can
erode, or even completely eliminate, the boost in affordability
from increasing house-buying power, 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 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.
September 2019 Real House Price Index
- Real house prices increased 0.9 percent between August 2019 and
September 2019.
- Real house prices declined 7.6 percent between September 2018
and September 2019.
- Consumer house-buying power, how much one can buy based on
changes in income and interest rates, increased 0.2 percent between
August 2019 and September 2019, and increased 15.8 percent year
over year.
- Median household income has increased 2.5 percent since
September 2018 and 57.7 percent since January 2000.
- Real house prices are 18.8 percent less expensive than in
January 2000.
- While unadjusted house prices are now 8.1 percent above the
housing boom peak in 2006, real, house-buying power-adjusted house
prices remain 42.2 percent below their 2006 housing boom peak.
Chief Economist Analysis: Affordability Declined in September
Month Over Month
“Two of the three key drivers of the Real House Price Index
(RHPI), household income and mortgage rates, modestly swung in
favor of increased affordability in September, yet affordability
declined month over month,” said Mark Fleming, chief economist at
First American. “The 30-year, fixed-rate mortgage fell by 0.01
percentage points and household income increased 0.03 percent
compared with August 2019. When household income rises, consumer
house-buying power increases. Declining mortgage rates have a
similar impact on consumer house-buying power.
“However, nominal house price appreciation jumped 1.1 percent in
September, outpacing the benefits of rising house-buying power on
affordability. Accordingly, the RHPI increased 0.9 percent month
over month. Increases in the RHPI indicate a decline in
affordability, and September’s decline in affordability was the
largest month-over-month affordability decline since November
2018,” said Fleming. “In 2019, declining mortgage rates have
increased house-buying power, fueling greater demand. However, when
demand increases for a scarce (limited or low supply) good, prices
will rise faster. While year-over-year, the RHPI shows an
improvement in affordability, the increase in house-buying power in
September was not enough to offset nominal house price gains
compared with August.”
The Five Cities Where Affordability Decreased the
Most
“As the old adage goes, real estate is all about ‘location,
location, location.’ Of the 44 markets we track, the RHPI increased
in 41 of them month over month, meaning affordability declined in
each. The rise in the RHPI is a break from the long-term trend in
2019, as all of these markets are significantly more affordable
than they were one year ago,” said Fleming. “Nevertheless, the five
markets with the greatest month-over-month increases in the RHPI
and thus the greatest declines in affordability were:
Monthly Changes
City
House-Buying Power
Nominal House Price
Index
RHPI
1.) New York, NY
-0.31%
1.29%
1.61%
2.) Jacksonville, FL
-0.45%
1.59%
1.59%
3.) Providence, RI
0.84%
2.24%
1.39%
4.) Atlanta, GA
0.16%
1.50%
1.34%
5.) Philadelphia, PA
0.69%
1.98%
1.28%
“Affordability declined the most month-over-month in New York
City, where the RHPI increased by 1.61 percent. Nominal house
prices increased by 1.29 percent, and house-buying power declined
by 0.31 percent. Notice that nominal house price appreciation in
New York City was less than in some other cities, but the
combination with the decline in house-buying power led New York
City to top the list in the loss of affordability,” said Fleming.
“Nominal house price appreciation grew fastest in Providence, yet
the city was third on the list for monthly increase in RHPI and
thus decreased affordability. The month-over-month increase in
house-buying power in Providence helped mitigate the negative
impact from faster house price appreciation on affordability.
“One month does not make a trend, yet these markets demonstrate
the dynamic we expected to see – the consistent growth in
house-buying power over 2019 has boosted demand in a supply
constrained market, putting upward pressure on house price
appreciation. Faster nominal house price appreciation can erode, or
even completely eliminate, the boost in affordability from
increasing house-buying power,” said Fleming. “Affordability trends
are influenced by shifts in house-buying power and nominal home
price appreciation. A shift in one or the other is not sufficient
to know whether affordability has increased or decreased. The
question for 2020 is, where does house-buying power go from
here?”
September 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 (-12.1 percent), California (-10.4 percent),
Colorado (-9.6 percent), Wyoming (-9.4 percent), and Utah (-9.3
percent).
September 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. (-15.0
percent), San Francisco (-12.4 percent), Portland, Ore. (-11.3
percent), Los Angeles (-10.4 percent), and Denver (-10.3
percent).
Next Release
The next release of the First American Real House Price Index
will take place the week of December 30, 2019 for October 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/20191126005219/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