Real house prices increased 2 percent between August and September of this year and 15.3 percent year-over-year, according to the latest First American Real House Price Index (RHPI).
As a result of the increase, consumer homebuying power decreased 0.9 percent between August and September, and declined 6.7 percent year-over-year, the RHPI found.
“In September, all three of the key drivers of the Real House Price Index (household income, mortgage rates, and an unadjusted house price index) increased compared with a year ago,” First American Chief Economist Mark Fleming said in a release.
“When household income rises, consumer housebuying power increases. When mortgage rates and house prices increase, consumer housebuying power decreases,” Fleming added.
According to the RHPI, average household income has increased 2.9 percent since September 2017 and 53 percent since January 2000. Additionally, real house prices are 37 percent below their housing boom peak in August 2006 and 11 percent below the level of prices in January 2000.
“The jump in mortgage rates reduced housebuying power by $36,000 since September 2017. Over the same period, household income growth increased consumer housebuying power by $10,000,” Fleming said. “The net effect? Overall consumer housebuying power fell by $26,000 in September compared with a year ago.
“At the moment, rising mortgage rates are winning the buying power tug-of-war with rising household incomes – the pace of household income growth is not sufficient to fully offset the change in mortgage rates,” Fleming added.
The RHPI identified the markets with the highest year-over-year price growth as Cleveland (+28.2 percent); Las Vegas (+26.6 percent); Cincinnati (+23.8 percent); Atlanta (+23.4 percent); and Orlando (+22.6 percent).
“At first glance, these markets don’t seem to have much in common. Upon closer inspection, however, all five markets had household income growth below the national average of 2.9 percent,” Fleming said. “Orlando uniquely experienced a decline in household income of 0.4 percent compared with a year ago.
“The importance of household income growth’s ability to mitigate the loss of affordability from a rising mortgage rate is clear. Without stronger household income growth, rising mortgage rates will continue to impede consumer housebuying power, reducing affordability.”