A deceleration in home price growth combined with rising incomes gave home affordability a boost in June – and it may only be the beginning, according to First American’s Real House Price Index report.
The report shows that home prices nationwide decreased 0.1% in June compared with May and were down 3.1% compared with June 2024. Meanwhile, incomes continued to rise. As a result, home purchases became generally more affordable (though there are considerable differences when comparing markets).
June marked the fifth straight month of improving affordability, the firm says.
“Housing affordability across the nation improved by 3.1 percent year over year in June, marking the fifth consecutive annual gain,” says Mark Fleming, chief economist for First American, in the report. “Falling mortgage rates, slowing nominal house price growth, and rising household incomes drove the improvement.”
“Preliminary data from July and August suggests the trend likely has continued, pushing affordability to levels last seen in September 2024 — a nearly 12 percent improvement from the low point in October 2023,” Fleming says. “While affordability, as measured by the Real House Price Index (RHPI), remains more than 70 percent higher (worse) than the pre-pandemic five-year average, the recent rebound is an encouraging sign for potential buyers.”
For the past year, affordability has been improving only gradually – and it is unlikely there will be dramatic improvement anytime soon.
“Affordability is beginning to shift — gradually and unevenly — but the momentum is turning,” Fleming says. “The most likely path forward is a slow rebalancing, driven by income growth outpacing home price appreciation, some moderation in prices as inventory improves, and eventual downward pressure on mortgage rates, if economic conditions soften. While this process will take time, likely years, the balance of power is no longer as one-sided as it was during the pandemic frenzy. For those prospective buyers who have been waiting on the sidelines, the housing market is finally starting to listen.”
A key driver of improving affordability is the slowdown in house price growth. In June, annual home prices were flat to up in 27 of the 50 markets tracked in the report, while income growth outpaced home price appreciation in 35.
San Francisco led in price declines with a nearly 6% year-over-year drop, while Louisville, Ky., posted a 7% annual increase. In both markets, household incomes rose on annual basis, further boosting affordability in San Francisco and helping to offset the impact of rising prices in Louisville.
While sellers may feel the pinch of waning pricing power, slower price growth — paired with rising incomes — is finally giving buyers a much-needed edge.
Photo: Scott Webb