Despite Prices Increasing 27 Percent, Homes More Affordable Than 2006 Peak


The January 2022 First American Real House Price Index (RHPI) increased by nearly 27%, representing the fastest growth in the RHPI since 2004, says Mark Fleming, chief economist at First American.

There was a 21.7% annual increase in nominal house prices and a 0.7 percentage point increase in the 30-year, fixed mortgage rate compared to the same time frame one year ago.

Household income increased 5% since January 2021, but the increase was not enough to offset the negative impacts from higher rates and nominal prices.

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.

In the near term, affordability is likely to wane further nationally as rising mortgage rates and increasing house prices continue to outpace gains in household income,” adds Fleming. “However, it’s helpful to put affordability in historical context.”

“Nationally, real, house-buying power-adjusted house prices remain 29 percent below the peak in April 2006,” continues Fleming. “While consumer house-buying power declined in January 2022, it remains near record levels and more than double the level of consumer house-buying power in April 2006 thanks to higher household income and significantly lower mortgage rates. Household incomes today are nearly 48 percent greater than April 2006 and the average mortgage rate is over 3 percentage points below its April 2006 level. In fact, real house prices nationally are at the same level they were in 2000.”

All 50 markets in the RHPI are more affordable than previous housing boom peak.

“For nominal house prices, all 50 markets we track in the RHPI have surpassed their previous housing price peaks. Yet, nominal house prices don’t tell the whole affordability story. While nominal house prices have increased, house-buying power has also increased because of a long-run decline in mortgage rates and the slow, but steady growth of household income,” states Fleming. “Mortgage rates are generally the same across the country, so the long-run decline in mortgage rates boosts affordability equally in each market. Household income growth and nominal house prices, on the other hand, differ from market to market, so affordability varies geographically as well.

“According to our house-buying power-adjusted RHPI, homes are 34 percent more affordable on average across all 50 markets than their respective RHPI peaks,” says Fleming. “While the supply-demand imbalance in today’s housing market continues to fuel strong house price appreciation across the country, the dramatic increase in house-buying power relative to 2006 driven by lower mortgage rates and higher incomes has more than made up for it. In fact, in four cities homes are more than 50 percent more affordable today than at their prior RHPI peak.”

The top five cities where affordability has improved the most since their prior peak are Washington, D.C. (53%); Baltimore (53%); Chicago (52%); Miami (50%); and Riverside, Calif. (48%). The top five cities where affordability has improved the least since their prior peak are Nashville, Tenn. (0.3%); Buffalo, N.Y. (3%); Denver (9%); Kansas City, Mo. (12%); and Salt Lake City (15%).

“Homes are less affordable than they were a year ago, but nationally, and in most markets, they remain much more affordable than at the peak of the previous housing boom in 2006,” says Fleming. “House prices are widely expected to continue to increase, although at a slower pace, and mortgage rates are likely to rise, so it’s likely that affordability will decline further, but in most markets we’re still a long way from the mid-2000s boom.”

Real house prices increased 6.3% between December 2021 and January 2022, and 26.8% between January 2021 and January 2022. Real house prices are 0.5% more expensive than in January 2000.Consumer house-buying power decreased 4% between December 2021 and January 2022, and decreased 4% year over year. Median household income has increased 5% since January 2021 and 69.9% since January 2000.

While unadjusted house prices are now 46.6% above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 29.5% below their 2006 housing boom peak.

The five states with the greatest year-over-year increase in the RHPI are Arizona (+38.3%), Florida (+37.4%), South Carolina (+35.6%), Georgia (+34.2%) and Connecticut (+33.5%). There were no states with a year-over-year decrease in the RHPI.

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 Charlotte, N.C. (+40.9%); Phoenix (+40.4%); Raleigh, N.C. (+36.9%); Atlanta (+36.7%); and Jacksonville, Fla. (+36.5%). There were no markets with a year-over-year decrease in the RHPI.

Read the full report here.

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