First American: ‘Real’ Home Prices Boost Affordability


The November 2019 First American Real House Price Index (RHPI) points to a meaningful decline – 8.1% – in real house prices year over year, but the change from October to November was a small increase (1.2%).

The RHPI measures the price changes of single-family properties adjusted for the impact of income and interest rate changes on consumer house-buying power over time.

Consumer house-buying power – the measurement of how much one can buy based on changes in income and interest rates – increased 0.2% between October 2019 and November 2019, and increased 17.9% year over year.

“Once again, home buyers benefitted from a year-over-year affordability boost, as two of the three key drivers of the Real House Price Index – household income and mortgage rates – swung in favor of increased affordability in November,” says Mark Fleming, chief economist at First American.

Median household income had increased 2.6% since November 2018 and 58.1 percent since January 2000, while real house prices were 16.7% less expensive than in January 2000.

While unadjusted house prices are now 10% above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 40.7% below their 2006 housing boom peak.

“However, increased house-buying power also drives demand, and rising demand in a supply-constrained market results in faster nominal house price appreciation,” says Fleming. “This is exactly what occurred in November, as the final component of the RHPI, nominal house prices, continued to accelerate, offsetting some of the affordability tailwind from rising house-buying power.”

According to the index, affordability improved year over year in all of the 44 markets tracked. The markets with the greatest year-over-year growth in affordability were San Jose, Calif.; Baltimore; Riverside, Calif.; San Francisco; and Denver.

“Declining mortgage rates increase affordability equally in each market, as mortgage rates are generally the same across the country,” Fleming explains. “However, household income growth and nominal house prices vary by market, so the affordability dynamic varies as well.”

There were no states with a year-over-year increase in the RHPI. The five states with the greatest year-over-year decrease in the RHPI were New Mexico (-12.9 percent), California (-12.2 percent), Utah (-11.9 percent), Nebraska (-11.5 percent) and Mississippi (-11.4 percent).

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