Analysis of the March 2021 Real House Price Index (RHPI) from First American reveals that home affordability declined in 90% of the major markets the company tracks, representing the first time year-over-year affordability declined in more than two years.
“Housing affordability on a year-over-year basis declined in March for the first time since January 2019, ending a more than two-year streak of rising affordability,” says Mark Fleming, chief economist at First American. “The long run of increasing affordability snapped, even as two of the three key drivers of the Real House Price Index, household income and mortgage rates, swung in favor of greater affordability relative to one year ago.”
According to the company, the third component of the RHPI – nominal house prices – appreciated at its fastest annual pace since 2005 (14.8 percent), wiping out any affordability boost from rising house-buying power.
“The drop in affordability was broadly felt, as affordability declined year over year in 45 of the 50 markets we track,” Fleming says.
The five markets with the greatest year-over-year decline in affordability were Kansas City, Mo.; Phoenix; Tampa, Fla.; Seattle; and Austin, Texas.
The five states with the greatest year-over-year increase in the RHPI are Arizona (+13.9 percent), Vermont (+12.7 percent), Wyoming (+12.6 percent), Washington (+10.9 percent) and Mississippi (+9.8 percent).
Meanwhile, only two states showed a year-over-year decrease in the RHPI: New York (-0.2 percent) and Illinois (-0.04 percent).
“If house prices continue to escalate near their current pace, some prospective home buyers that are on the margin will pull back, prompting fewer or less intense bidding wars and causing house price appreciation to moderate, which may help affordability,” he notes.
“At the same time, mortgage rates edged down slightly in April and even dipped below 3 percent in May,” Fleming adds. “House-buying power is likely to remain robust in the months to come, but affordability trends will likely hinge on changes in nominal house price appreciation.”
A few more highlights from March 2021 data include the following
- Real house prices increased 4.2 percent between February 2021 and March 2021
- Real house prices increased 3.5 percent between March 2020 and March 2021
- Median household income has increased 5.9 percent since March 2020 and 77.8 percent since January 2000
- Real house prices are 21.6 percent less expensive than in January 2000.