First American: Housing Affordability Takes Dip
First American Financial Corp., Santa Ana, Calif., said home prices increased sharply in December, while consumer home-buying power fell.
The company’s Real House Price Index, which measures price changes of single-family properties adjusted for the impact of income and interest rate changes on consumer house-buying power, said real house prices increased by 6.2 percent between November and December. From a year ago, real house prices increased by 8.0 percent. The report said real house prices are 33.1 percent below their housing-boom peak in July 2006 and 10.1 percent below the level of prices in January 2000.
At the same time, the report said consumer house-buying power–how much one can buy based on changes in income and interest rates–declined by 5.1 percent and fell by 2.1 percent year-over-year.
First American Chief Economist Mark Fleming noted December marked the first full month to see the impact of the surge in mortgage rates after the election and the most recent Federal Open Market Committee rate increase.
“This interest rate surge lead to the first year-over-year decline in consumer house-buying power in two and a half years,” Fleming said. “Rising rates and nominal home price growth are outpacing the influence of strong income growth, leading to declining affordability for first-time home buyers. However, housing remains as affordable as it was in late 2009.”
Fleming said the decrease in affordability seen in December was widespread, impacting all but one market tracked (San Jose, Calif.). “Low inventory of homes for sale is creating increased competition in the market and pushing nominal prices higher,” he said. “Add declining purchasing power because of the jump in mortgage rates, and affordability for first-time homebuyers declines.”
Other report highlights:
–States with the greatest year-over-year increase in the price index were Wisconsin (+10.4 percent), Colorado (+10.4 percent), New York (+10.3 percent), Maine (+10.1 percent) and Illinois (+10.0 percent).
–States with the least year-over-year growth were Mississippi (-4.8 percent), Montana (-0.7 percent), Iowa (+0.1 percent), North Dakota (+0.7 percent) and Wyoming (+0.8 percent).
–Among the Core Based Statistical Areas (tracked by First American, markets with the greatest year-over-year increase were Jacksonville, Fla. (+14.9 percent), Charlotte, N.C. (+13.4 percent), Tampa, Fla. (+13.0 percent), Milwaukee (+11.5 percent) and Columbus, Ohio (+10.7 percent).
–Markets with the smallest year-over-year increase were San Jose, Calif. (0.0 percent), San Francisco (+1.2 percent), Virginia Beach, Va. (+1.9 percent), Portland, Ore. (+2.9 percent) and Boston (+3.4 percent).
