First American Financial Corp’s Real Home Price Index (RHPI) rose by almost 27 percent in January, the fastest growth since 2004, according to First American Chief Economist Mark Fleming.
“This rapid annual decline in affordability was driven by a 21.7 percent annual increase in nominal house prices and a 0.7 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago,” he said in a release. “Even though household income increased 5 percent since January 2021, it was not enough to offset the negative impact on consumer house-buying power from higher rates and fast rising nominal prices.”
House-buying power-adjusted house prices were 29 percent under the peak in April 2006, Fleming said.
“While consumer house-buying power declined in January 2022, it remains near record levels and more than double the level of consumer house-buying power in April 2006 thanks to higher household income and significantly lower mortgage rates,” he said. “Household incomes today are nearly 48 percent greater than April 2006 and the average mortgage rate is over 3 percentage points below its April 2006 level. In fact, real house prices nationally are at the same level they were in 2000.”
All 50 markets in which First American tracks RHPI have reached new house-price peaks, he added.
“Yet, nominal house prices don’t tell the whole affordability story. While nominal house prices have increased, house-buying power has also increased because of a long-run decline in mortgage rates and the slow, but steady growth of household income,” Fleming said. “According to our house-buying power-adjusted RHPI, homes are 34 percent more affordable on average across all 50 markets than their respective RHPI peaks. In fact, in four cities, homes are more than 50 percent more affordable today than at their prior RHPI peak.”
The cities where affordability improved the most since their prior peak include Washington, D.C., (53 percent from peak); Baltimore (53 percent); Chicago (52 percent); Miami (50 percent), and Riverside, Calif. (48 percent). The cities where affordability improved the least are Nashville, Tenn. (0.3 percent);
Buffalo, N.Y. (3 percent); Denver (9 percent); Kansas City, Mo. (12 percent), and Salt Lake City (15 percent).
“House prices are widely expected to continue to increase, although at a slower pace, and mortgage rates are likely to rise, so it’s likely that affordability will decline further, but in most markets we’re still a long way from the mid-2000s boom,” Fleming said.
The five states with the greatest year-over-year increase in the RHPI are Arizona (38.3 percent), Florida (37.4), South Carolina (35.6 percent), Georgia (34.2 percent), and Connecticut (+33.5 percent). No states had a year-over-year decrease in the RHPI.