First American: Home Prices Surging in Under-Supplied Markets

A combination of “unfaltering” demand and lack of supply continues to pressure unadjusted prices higher in one of the strongest spring sellers’ markets seen in recent memory, said First American Financial Corp., Santa Ana, Calif.

The company’s monthly Real House Price Index said “real” home prices increased by 0.7 percent between January and February and surged by 11 percent from a year ago. The index measures 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.

The report said consumer house-buying power–how much one can buy based on changes in income and the interest rate–decreased by 0.2 percent between January and February, and fell by 4.7 percent year-over-year. Unadjusted house prices increased by 5.7 percent in February on a year-over-year basis and are 3.1 percent above the housing boom peak in 2007.

First American Chief Economist Mark Fleming said based on index criteria, real house prices remain nearly 33 percent below their housing-boom peak in July 2006 and 9.7 percent below the level of prices in January 2000.

“The lack of homes listed for sale is causing unadjusted house price growth to remain strong.” Fleming said. “Additionally, increasing interest rates are reducing consumer purchasing power. The result is a substantial year-over-year increase in the real price of homes.”

Fleming noted, however, that wages continue to grow “and the level of affordability in most markets remains high by historical standards.”

Other report highlights:
–States with the greatest year-over-year increase in the index were New York (15.1 percent), Colorado (14.9 percent), Wisconsin (14.9 percent), Alabama (14.3 percent) and Vermont (14.1 percent). The only state with a year-over-year decrease in the RHPI was Mississippi (-2.7 percent).

–Among metro areas tracked by First American, markets with the greatest year-over-year increase in the index were Jacksonville, Fla. (20.6 percent), Milwaukee (17.3 percent), Charlotte, N.C. (16.5 percent), Cincinnati (16.3 percent) and Denver (15.4 percent).

–Markets with the smallest year-over-year increase in the index were Virginia Beach, Va. (5.3 percent), Hartford, Conn. (5.5 percent), Pittsburgh (6.3 percent), San Francisco (6.6 percent) and Boston (8.2 percent).