Home affordability got a bit better in July – but not enough to improve homebuyer sentiment, according to the latest Real House Price Index report from First American.
On an annual basis, affordability remains nearly 2% lower than one year ago, the firm says.
Helping to drive the month-over-month improvement in affordability was lower mortgage rates and positive income growth.
But pulling affordability down was a 5.3% annual increase in nominal home prices, according to the report.
“Although affordability on a national level remains lower than it was a year ago, there are 12 markets now more affordable than they were a year ago – a first since 2021,” says Mark Fleming, chief economist for First American, in a statement.
“According to Fannie Mae’s Home Purchase Sentiment Index (HPSI) sentiment decreased 1.1 percentage points in July to 71.5 and only 17 percent of consumers indicated that it’s a good time to buy a home, down from 19 percent in June and 18 percent from one year ago,” Fleming explains. “However, mortgage rates have fallen further in August, which may help stretch the streak of improving affordability into a third month and slowly start to lift buyers’ views on the housing market.”
Even though household income increased 3.6% since July 2023 and boosted consumer house-buying power, it was not enough to offset the affordability loss from rising nominal prices.
Affordability may be improving in more markets, but potential home buyers have long memories and homes everywhere are significantly less affordable than before the pandemic.
Modest improvements may not be enough to significantly boost demand, as household incomes remain stretched relative to mortgage payments, First American says.
Tampa, Fla., offers a telling example of the dynamic playing out in the housing market. In July, affordability improved the most on an annual basis in Tampa. Yet, despite the progress, affordability in Tampa is down more than 100% compared with February 2020 due to a 3.4 percentage point increase in mortgage rates and a nearly 65% increase in nominal house prices.
The monthly principal and interest on the median-priced existing home in Tampa has increased by nearly 160% from $875 to $2,272.
Meanwhile, the median household income has only increased by approximately 19% since 2020.
Photo: Blake Wheeler