Real House Prices Decrease Despite ‘Monetary Tightening Policies’

According to the April 2017 First American Real House Price Index (RHPI), real house prices decreased 1.6% between March and April and increased by 11% year over year.

The RHPI also indicates that real house prices are 33.6% below their housing-boom peak in July 2006 and 10.8% below the level of prices in January 2000. Unadjusted house prices increased by 5.7% in April on a year-over-year basis and are 2.6% above the housing-boom peak in 2007.

April 2017 real house price state highlights are as follows:

  • The five states with the greatest year-over-year increases in the RHPI include Vermont (+15.9%), New York (+14.9%), Wisconsin (+14.6%), Michigan (+14.5%) and Alabama (+14.3%).
  • The five states with the smallest year-over-year increases in the RHPI include Wyoming (+2.7%), Massachusetts (+3.8%), Oklahoma (+5.4%), Montana (+5.6%) and Tennessee (+5.9%).

Local market highlights from the RHPI are as follows:

  • Among the core based statistical areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increases in the RHPI are Milwaukee (+17.9%); Charlotte, N.C. (+17.4%); Seattle (+15.9%); Denver (+15.6%); and San Jose, Calif. (+15.6%).
  • Among the CBSAs tracked by the company, the markets with the smallest year-over-year increases in the RHPI are Hartford, Conn. (+3.7%); Pittsburgh (+4.0%); Virginia Beach, Va. (+4.8%); Cincinnati (+6.0%); and San Francisco (+6.2%).

RHPI data also suggest that consumer house-buying power – how much one can buy based on changes in income and the interest rate – increased 0.4% between March and April and fell 4.5% year over year.

“Despite the monetary tightening policies of the Federal Reserve, a dip in the average rate for a 30-year, fixed-rate mortgage and wage gains increased consumer house-buying power sufficiently to offset the gain in unadjusted house prices,” says Mark Fleming, chief economist at First American. “The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016.

“While this is welcome news for home buyers, the number of homes listed for sale is not meeting consumer demand, and markets are getting tighter,” Fleming continues. “As a result, affordability declined 11 percent on a year-over-year basis. That’s a bigger drop in affordability than the 5.7 percent caused by unadjusted house-price appreciation alone and reflects the impact of rising interest rates and tightening supply.”


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