First American: Affordability Up Despite Tightening

Potential homeowners got a break between March in April, said First American Financial Corp., Santa Ana, Calif., as consumer buying power on homes increased for the first time in eight months.

The company’s April Real House Price Index said real house prices decreased by 1.6 percent between March and April, but increased by 11 percent year over year. Consumer house-buying power–how much one can buy based on changes in income and the interest rate–increased by 0.4 percent between March and April and fell by 4.5 percent year over year.

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.

The report said real house prices are 33.6 percent below their housing-boom peak in July 2006 and 10.8 percent below the level of prices in January 2000.

“Despite the monetary tightening policies of the Federal Reserve, a dip in the average rate for a 30-year, fixed-rate mortgage and wage gains increased consumer house-buying power sufficiently to offset the gain in unadjusted house prices,” said First American Chief Economist Mark Fleming. “The decline in real, purchasing-power adjusted house prices between March and April was the largest month-over-month decline since July 2016.”

Fleming said while the report’s improvement is welcome news for home buyers, the number of homes listed for sale is not meeting consumer demand and markets are getting tighter. As a result, affordability declined 11 percent on a year-over-year basis. “That’s a bigger drop in affordability than the 5.7 percent caused by unadjusted house-price appreciation alone and reflects the impact of rising interest rates and tightening supply,” he said.

Other report highlights:
–States with the greatest year-over-year increase in the RHPI were Vermont (+15.9 percent), New York (+14.9 percent), Wisconsin (+14.6 percent), Michigan (+14.5 percent) and Alabama (+14.3 percent). States with the smallest year-over-year increase were Wyoming (+2.7 percent), Massachusetts (+3.8 percent), Oklahoma (+5.4 percent), Montana (+5.6 percent) and Tennessee (+5.9 percent).

–Among metro areas tracked by First American, markets with the greatest year-over-year increase in the RHPI were Milwaukee (+17.9 percent), Charlotte, N.C. (+17.4 percent), Seattle (+15.9 percent), Denver (+15.6 percent) and San Jose, Calif. (+15.6 percent). Markets with the smallest year-over-year increase were Hartford, Conn. (+3.7 percent), Pittsburgh (+4.0 percent), Virginia Beach, Va. (+4.8 percent), Cincinnati (+6.0 percent), and San Francisco (+6.2 percent).

“Global uncertainty brought down the yield on the 10-year Treasury bill between March and April, which countered the Federal Reserve’s domestic monetary policy,” Fleming said. “The beneficial impact on consumer house-buying power brought widespread relief to the housing market, as all but two of the markets we track experienced an improvement in affordability over the same period. However, the prisoner’s dilemma that prevents existing homeowners from selling will continue drive up unadjusted house prices and reduce affordability.”