First American: Wage Growth Drives Increased Housing Affordability

 

First American Financial Corp., Santa Ana, Calif., said strong wage growth contributed to increased housing affordability in most major housing markets, with low interest rates adding to an increase in home-buying power.

The company’s Real House Price Index said real house prices increased 1.0 percent between August and September. It said house prices are 40.4 percent below their housing-boom peak in July 2006 and 19.9 percent below the level of prices in January 2000.

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 United States at national, state and metropolitan area levels.

“While a small uptick in rates in September caused an increase in real house prices compared to August, it is important to remember that mortgage rates remain at historically low levels,” said First American Chief Economist Mark Fleming. “The low rates, combined with recent meaningful income gains, fueled an increase in consumer house-buying power, meaning affordability is at a quarter-century best. Even as interest rates increase above 4 percent post-election, housing, on a purchasing-power adjusted basis, will continue to be more affordable than it was in the early 1990s.”

Other report metrics:
–States with the highest year-over-year increase in the RHPI are Wyoming (5.8 percent), Maine (5.1 percent), Vermont (4.2 percent), Colorado (3.9 percent) and Michigan (3.5 percent).
–States with the highest year-over-year decrease in the RHPI are New Jersey (-6.2 percent), District of Columbia (-5.2 percent), Alaska (-4.7 percent), Arkansas (-4.6 percent) and Iowa (-4.4 percent).
–Among the largest 50 metro areas, markets with the highest year-over-year increase in the RHPI are Jacksonville, Fla. (6.7 percent), Tampa, Fla. (6.1 percent), Charlotte, N.C. (5.8 percent), Seattle (5.2 percent), and Sacramento, Calif. (5.2 percent).
–Markets with the highest year-over-year decrease in the RHPI are San Francisco (-6.3 percent), Virginia Beach, Va. (-5.3 percent), Oklahoma City (-3.4 percent), San Jose, Calif. (-3.1 percent), and Dallas (-3.0 percent).

“Affordability continues to increase in more markets than it is decreasing, including markets considered by many to be over-valued, like San Francisco, San Jose, New York, Washington and Boston,” Fleming said. “Conventional wisdom overlooks the impact that rising incomes can have on consumer house-buying power in a low-rate environment. Long-awaited increases in income levels are contributing to falling real house prices in many markets.”

The report said real house prices declined on a year-over-year basis in 23 of the 43 metropolitan areas tracked by First American, as increases in wages more than offset growth in mortgage rates and unadjusted price appreciation. San Francisco, Virginia Beach, Va., Oklahoma City, and San Jose, Calif. Ranked highest for improved affordability, each experiencing year-over-year declines of 3.0 percent or more.