Real house prices increased 0.5 percent between October and November 2017, and 5 percent year-over-year, according to First American Financial’s (FAF) latest Real House Price Index.
However, the index also found consumer house-buying power, how much one can buy based on changes in income and interest rates, was unchanged between October and November 2017, and grew 0.9 percent year-over-year.
According to the index, unadjusted house prices increased by 6 percent in November on a year-over-year basis and are 6.3 percent above the housing boom peak in 2007.
“That nominal house prices are growing faster than household incomes is often used as the basis for arguing that we are facing an affordability crisis. It is true that unadjusted house prices grew faster than income between November 2016 and November 2017,” First American Chief Economist Mark Fleming said in a release.
“Yet, overlooked in the comparison of income growth and unadjusted house price growth is that a change in household income is not the only factor that influences how much home one can afford to buy. A consumer’s house-buying power, how much one can afford to buy, is also based on changes in mortgage interest rates,” Fleming said. “Even if one’s income doesn’t change, but interest rates go down, house-buying power increases.”
Fleming said consumer house-buying power is 2.3 times higher than it was in 2000, almost two decades ago, and only 2.9 percent below the peak in July 2016.
“Home buyers today have historically high levels of house-purchasing power and that’s one important reason why, even as unadjusted house price growth exceeds household income growth, the talk of an affordability crisis is over-stated for now,” Fleming added.
The RHPI found the five states with the greatest year-over-year increases in prices were Delaware (+12.4 percent); Nevada (+10.7 percent); Missouri (+10.6 percent); New York (+8.6 percent); and Washington (+8.3 percent).
The states with the smallest year-over-year prices increases were Arkansas (-2.9 percent); Maryland (-1.5 percent); Washington, D.C. (-0.5 percent); Alabama (+0.5 percent); Oklahoma (+1.3 percent).
According to the RHPI, the cities with the greatest year-over-year price increases were San Jose, Calif. (+14.0 percent); Las Vegas (+13.6 percent); Seattle (+10.7 percent); Columbus, Ohio (+10.2 percent); and Jacksonville, Fla. (+10.1 percent).
The cities with the smallest increases were Pittsburgh (-2.5 percent); Austin, Texas (+1.3 percent); Riverside, Calif. (+1.5 percent); Memphis, Tenn. (+2.6 percent); and Cincinnati (+2.8 percent).