Home Prices Inch Toward Affordability
Consumer house-buying power improved in the third quarter, with low interest rates and higher wages helping out, said First American Financial Services, Santa Ana, Calif.
But the company’s Real House Price Index data also noted affordability has deteriorated over the past year, as nominal prices increased faster than buying power.
“Demand continues to outpace supply as existing homeowners remain reluctant to list their homes for sale for fear of not being able to find a home to buy, while home buyers, enticed by low mortgage rates, continue to enter the market,” said Mark Fleming, chief economist at First American.
The report said while real house prices decreased by 0.9 percent between August and September, they increased by 8.0 percent year over year. Consumer house-buying power–how much one can buy based on changes in income and interest rates–increased by 1.3 percent between August and September and fell by 2.1 percent year over year.
The report said real house prices are 38.9 percent below their housing boom peak in July 2006 and 17.9 percent below the level of prices in January 2000. Unadjusted house prices increased by 5.7 percent in September on a year-over-year basis and are 4.7 percent above the housing boom peak in 2007.
“Mortgage rates are expected to increase next year as the Federal Reserve slowly begins to unwind its portfolio of bonds,” Fleming said. “Persistent supply constraints will also remain a challenge for those seeking to achieve homeownership. Nonetheless, while lower than a year ago, affordability remains high by historic standards. Only four states and the District of Columbia are less affordable today than they were in January 2000.”
The report said states with the greatest year-over-year increase in the Index were Nevada (+13.2 percent), Delaware (+12.8 percent), Idaho (+12.2 percent), Michigan (+11.7 percent) and Missouri (+10.7 percent). States with the smallest year-over-year increase were Alabama (+1.4 percent), New Mexico (+1.5 percent), Hawaii (+2.0 percent), Arkansas (+2.0 percent) and Washington D.C. (+2.5 percent).
Among metro areas tracked by First American, markets with the greatest year-over-year increase in the index were Las Vegas (+16.1 percent), San Jose, Calif. (+15.9 percent), Nashville, Tenn. (+14.2 percent), Seattle (+14.1 percent) and Charlotte, N.C. (+13.8 percent). Markets with the smallest year-over-year increase were Pittsburgh (+1.3 percent), Memphis, Tenn. (+4.6 percent), Virginia Beach, Va. (+4.7 percent), San Francisco (+4.8 percent) and Portland, Ore. (+5.4 percent).
