Wage Growth, Falling Rates Keep Lid on ‘Real’ House Prices
Despite low housing inventories and inflated home prices in some areas, “real” home prices remain well below their peak levels, said First American Financial Corp., Santa Ana, Calif.
“The underlying fundamental issue is an overwhelming lack of supply,” said First American Chief Economist Mark Fleming. “Existing homeowners face a prisoner’s dilemma and over the last eight years new construction has not kept pace with new demand.”
The report said real house prices decreased by 1.3 percent between May and June, but increased by 9.3 percent from a year ago. Consumer house-buying power–how much one can buy based on changes in income and the interest rate–increased by 1.3 percent between May and June but fell by 3.5 percent from a year ago.
The report said real house prices are 34.8 percent below their housing-boom peak in July 2006 and 12.3 percent below the level of prices in January 2000.
The index measures price changes of single-family properties 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. It also serves as a measure of housing affordability.
“On a month-over-month basis, affordability improved slightly thanks to the seventh straight month of falling rates for 30-year, fixed-rate mortgages and modest wage gains,” Fleming said. “Over the last eight years, housing demand has increased by 5.9 million, but the net new number of housing units has only increased by 3.5 million. This supply shortage will continue to put pressure on affordability and strain first-time home buyers entering the market.”
Fleming cautioned on an annual basis, affordability is declining as the supply of existing homes listed for sale dwindles and new home construction continues to slide. “Since 2009, the number of new households has increased by 5.9 million, while the net new number of housing units has increased by 3.5 million, meaning there is a shortage of 2.4 million housing units in the United States,” he said.
The report said Seattle, with one of the lowest supplies of homes listed for sale, had the largest drop in affordability, declining by16.1 percent year-over-year.
The report said states with the greatest year-over-year increase in real prices were Washington (+12.5 percent), Michigan (+12.4 percent), Colorado (+10.4 percent), Oregon (+10.2 percent) and Illinois (+9.8 percent). States with the smallest year-over-year increase were Texas (+1.8 percent), New Jersey (+2.1 percent), Arkansas (+2.5 percent), Missouri (+3.2 percent),and Oklahoma (+3.6 percent).
Among metro areas tracked by First American, markets with the greatest year-over-year increase were Seattle (+16.1 percent), Nashville, TN. (+15.1 percent), Charlotte, N.C. (+14.0 percent), Tampa, Fla. (+12.1 percent) and Sacramento (+11.9 percent). Markets with the greatest year-over-year decrease were Houston (-9.5 percent), San Antonio (-5.8 percent) and Dallas (-3.9 percent).
