First American: Housing Affordability Improves Slightly in January as Mortgage Rates Hold Steady

First American Financial Corp., Santa Ana, Calif., said while home affordability is lower compared to a year ago, the level of affordability in most markets is still high by historical standards, which is why demand is expected to remain strong this spring.

The company’s monthly Real House Price Index said “real” house prices decreased by 0.1 percent between December and January. Year over year, real house prices increased by 8.2 percent.

The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time and across the U.S. at national, state and metropolitan area levels.

As a result, First American said consumer house-buying power–how much one can buy based on changes in income and the interest rate–increased by 0.6 percent between December and January, while falling 2.3 percent year-over-year.

The report said real house prices are 33.3 percent below their housing-boom peak in July 2006 and 10.3 percent below the level of prices in January 2000. Unadjusted house prices increased by 5.7 percent in January on a year-over-year basis and are 1.9 percent above the housing boom peak in 2007.

First American Chief Economist Mark Fleming noted mortgage rates did not meaningfully change and income growth continued in January. “Despite the monthly increase in affordability and continued strong wage growth, homes are less affordable across the country compared to a year ago,” he said.

The report said nearly half of the markets tracked saw double-digit affordability declines in January, compared to a year ago. “The low inventory of homes for sale across much of the country is creating increased competition and setting the stage for a very robust sellers’ market this spring,” Fleming said. “While affordability is lower compared to a year ago, the level of affordability in most markets is still high by historical standards, which is why demand is expected to remain strong this spring.”

The report said states with the greatest year-over-year increase in the RHPI were New York (+13.4 percent), Colorado (+13.2 percent), Vermont (+12.7 percent), Illinois (+11.8 percent) and Maine (+11.6 percent). The only two states with a year-over-year decrease in the RHPI were Mississippi (-4.8 percent) and Connecticut (-3.0 percent).

Among metro areas tracked by First American, markets with the greatest year-over-year increase in the RHPI were Jacksonville, Fla. (+19.3 percent), Charlotte, N.C. (+14.0 percent), Milwaukee (+14.0 percent), Denver (+12.6 percent) and Tampa, Fla. (+12.4 percent). Markets with the smallest year-over-year increase were Baltimore (+4.1 percent), Virginia Beach, Va. (+4.4 percent), San Francisco (+4.5 percent), San Jose, Calif. (+5.3 percent) and Hartford, Conn. (+5.4 percent).