New data points to a significant increase in the price of single-family properties throughout the U.S. as consumer buying power falls.
According to First American’s September 2022 Real House Price Index (RHPI), home prices jumped by 10.5 percent during August and September. Year-to-date increases amount to 60.6 percent when compared with September 2021.
Consumer house-buying power, or how much one can buy based on changes in income and interest rates, decreased 8.9 percent between August and September and fell 29.3 percent year-over-year, RHPI states.
Experts say this rapid annual decline in affordability was driven by two factors; a 13.5-percent annual increase in nominal house prices and a 3.2 percentage point increase in the average 30-year, fixed mortgage rate compared with 2021.
“As affordability wanes and prompts buyers to pull back from the market, nominal house price appreciation has slowed,” Mark Fleming, chief economist at First American, said in a release. “Nationally, annual nominal house price growth peaked in March at nearly 21 percent but has since decelerated by approximately 7 percentage points to 13.5 percent in September.”
Gains in income not enough to keep up
Median household income increased 3.1 percent since September 2021 and 77 percent since January 2000, Fleming said. However, any gains there generally lag behind cost-of-living jumps seen in recent decades, now exacerbated by ongoing supply chain difficulties.
Real house prices are 38.1 percent more expensive than in January 2000, according to data.
While unadjusted house prices are now 55.4 percent above the housing boom peak in 2006, real house-buying power-adjusted house prices remain 2.5 percent below their 2006 housing boom peak.
“There are markets where annual price growth isn’t just slowing, but prices are falling from recent peaks,” said Fleming. “Nominal house prices in many markets are poised to fall further as the hot sellers’ market of the pandemic turns in favor of buyers, but not all that was gained in the pandemic will necessarily be lost.”
In addition to in-house data, First American’s reporting also takes in information from the U.S. Census Bureau and Freddie Mac.
As work-from-home became widespread, a house was no longer just a dwelling or a vehicle for wealth creation, but also an office, a classroom, a daycare and even a gym. The broadening role of the home in American life, coupled with record-low mortgage rates and limited housing supply, created a perfect storm for record market highs and lows, according to Fleming.
He says a scorching hot sellers’ market largely brought on by COVID-19 should never have been viewed as a new normal.
“(We saw) the fastest annual house price appreciation, the lowest days on market in the history of record-keeping and a near-record annualized pace of sales,” Fleming said. “Yet, the pandemic housing market was the exception, not the norm. Double-digit house price growth was not sustainable in the long run. As the saying goes, what goes up, must ‘eventually’ come down. Sellers may be anchored to yesterday’s prices, but buyers won’t buy unless sellers adjust prices down to meet the affordability-constraining reality of higher mortgages rates. Sellers are beginning to recognize this and price cuts are becoming more common.”
Fleming adds that house prices adjusting to higher mortgage rates will help bring more balance to the market heading into 2023.
“Potential homesellers gained significant amounts of equity over the pandemic, so even as affordability-constrained buyer demand spurs price declines in some markets, potential sellers are unlikely to lose all that they have gained,” he said.
No RHPI decreases to be found
Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are Miami (82.5 percent), Tampa, Fla. (73.4 percent), Indianapolis (70.4 percent), Nashville, Tenn. (69.6 percent) and Orlando, Fla. (69.3 percent).
There were no CBSAs with a year-over-year decrease in the RHPI, First American states.
Findings also show the five states with the greatest year-over-year increase in RHPI as Florida (78.3 percent), Georgia (66.9 percent), Arkansas (65.8 percent), South Carolina (64.9 percent) and Alabama (64.7 percent).
No states recorded a year-over-year RHPI decrease.
“While prices are declining from the peak in these markets, much of the equity homeowners gained during the pandemic remains,” said Fleming. “For example, in both San Francisco and San Jose, house prices increased 29 percent from February 2020 to their respective peaks in 2022. House price declines would have to be substantial to eat away all of the equity that many homeowners have accumulated over the last few years.”