Homes became more affordable during September as real house prices decreased compared with August, according to First American Financial Corp.’s Real House Price Index (RHPI).
The index found that real house prices decreased 0.9 percent between August and September. However, real house prices increased 8 percent year-over-year, the RHPI indicated.
Consumer house-buying power — the amount one can buy based on changes in income and interest rates — increased 1.3 percent between August and September and fell 2.1 percent year-over-year.
“Consumer house-buying power improved in September due to a combination of slightly lower rates and rising wages compared with August. However, over the past 12 months, affordability has declined by 8 percent as nominal prices have increased faster than buying power,” First American Chief Economist Mark Fleming said in a release accompanying the index.
“Demand continues to outpace supply as existing homeowners remain reluctant to list their homes for sale for fear of not being able to find a home to buy, while home buyers, enticed by low mortgage rates, continue to enter the market,” Fleming added. “Mortgage rates are expected to increase next year as the Federal Reserve slowly begins to unwind its portfolio of bonds. Persistent supply constraints will also remain a challenge for those seeking to achieve homeownership. Nonetheless, while lower than a year ago, affordability remains high by historic standards.”
According to the RHPI, real house prices are 38.9 percent below their housing boom peak in July 2006 and 17.9 percent below the level of prices in January 2000. During September, the RHPI found that unadjusted house prices increased by 5.7 percent on a year-over-year basis and are 4.7 percent above the housing boom peak in 2007.
The five states with the largest year-over-year in the RHPI during September were Nevada (+13.2 percent); Delaware (+12.8 percent); Idaho (+12.2 percent); Michigan (+11.7 percent); and Missouri (+10.7 percent), the index found.
The five states with the smallest year-over-year increase in the RHPI during September were Alabama (+1.4 percent); New Mexico (+1.5 percent); Hawaii (+2 percent); Arkansas (+2 percent); and Washington D.C. (+2.5 percent), according to the index.
The metropolitan areas with the largest year-over-year increase in the RHPI during September were Las Vegas (+16.1 percent); San Jose, Calif. (+15.9 percent); Nashville (+14.2 percent); Seattle (+14.1 percent); and Charlotte, N.C. (+13.8 percent).
The metropolitan areas with smallest year-over-year increase in the RHPI during September were Pittsburgh (+1.3 percent); Memphis, Tenn. (+4.6 percent); Virginia Beach, Va. (+4.7 percent); San Francisco (+4.8 percent) and Portland, Ore. (+5.4 percent).
“We have yet to see the impact of the Federal Open Market Committee decision to reduce the Federal Reserve’s large portfolio of bonds, which will likely push mortgage rates higher in the coming months. This quantitative un-easing will further impact affordability.”