Housing affordability dropped in March year-over-year, the first decline since January 2019, according to First American’s Real House Price Index (RHPI).
“The long run of increasing affordability snapped, even as two of the three key drivers of the RHPI, household income and mortgage rates, swung in favor of greater affordability relative to one year ago,” First American Chief Economist Mark Fleming said in a release.
“Lower mortgage rates and higher household income compared with one year ago propelled an 11 percent increase in house-buying power. However, surging house-buying power drives demand, and rising demand in a supply constrained market accelerates nominal house price appreciation,” Fleming said.
Nominal house prices appreciated in March at 14.8 percent, its fastest annual pace since 2005, according to Fleming, nullifying any affordability boost from rising house-buying power.
“The drop in affordability was broadly felt as affordability declined year-over-year in 45 of the 50 markets we track,” he said.
The markets with the greatest year-over-year decline in affordability were Kansas City, Mo.; Phoenix; Tampa, Fla.; Seattle, and Austin, Texas.
“In March, Kansas City had the greatest year-over-year decrease in affordability, mostly due to the 4.3 percent annual decline in household income and a 16.5 percent increase in nominal house prices compared with a year ago. Phoenix and Tampa both had even faster nominal house price appreciation than Kansas City, but household incomes held steady in both markets, so the relative affordability loss was less than in Kansas City,” Fleming said. “Seattle and Austin faced both faster nominal house price growth and lower household income, fueling declines in affordability in both cities.”
If house prices continue rising at the same pace, some prospective homebuyers will pull back, he said, lessening bidding wars and causing house price appreciation to moderate.
“House-buying power is likely to remain robust in the months to come, but affordability trends will likely hinge on changes in nominal house price appreciation,” Fleming said.