Home affordability improved from May to June but remained down 4% compared with June 2023, as per First American’s latest Real House Price Index.
“Nationally, affordability improved modestly on a monthly basis in June, driven by slightly lower mortgage rates and positive income growth,” says Mark Fleming, chief economist for First American, in a statement. “However, on an annual basis, affordability nationally remains approximately 4 percent lower than one year ago.
“While inventory nationally and in most markets is higher than one year ago, it remains low from a historical perspective,” Fleming adds. “Nationally, housing supply is nearly 34 percent lower compared with June 2019, the summer before the pandemic hit. Nevertheless, as this analysis shows, the faster housing supply increases, the more affordability improves and the strength of a seller’s market wanes.”
Two factors drove the annualized drop in affordability – a 5.6% annual increase in nominal house prices, according to the First American Data & Analytics House Price Index, and a 0.2 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago.
For home buyers, holding prices constant, the only way to mitigate the loss of affordability caused by higher mortgage rates is with an equivalent, if not greater, increase in household income.
Even though household income increased 3.8% since June 2023 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and rising nominal prices, First American says.
While affordability on a national level is lower than one year ago, real estate dynamics play out differently from market-to-market and there are markets that are trending more affordable.
Photo: Blake Wheeler