Home-Buying Power ‘Still Near Historic Highs,’ Says First American
First American Financial Corp., Santa Ana, Calif., said despite rising home prices, home-buying power remains near historic highs, suggesting “real” home prices are not near their potential peaks.
The company’s monthly Real House Price Index reported house prices increased by 0.5 percent between March and April, and by 8.8 percent year over year. It said consumer house-buying power–how much one can buy based on changes in income and interest rates–declined by 0.1 percent between March and April, and declined by 2.1 percent year over year.
The report said real house prices are 32.1 percent below their housing boom peak in July 2006 and 8.7 percent below the level of prices in January 2000. Unadjusted house prices increased by 6.6 percent in April on a year-over-year basis and are 9.2 percent above the housing boom peak in 2007.
Though unadjusted house prices have risen to record highs, consumer house-buying power stands at near-historic levels, as well, signaling that real house prices are not even close to their historical peak, said First American Chief Economist Mark Fleming.
“When incomes rise, consumer house-buying power increases. When mortgage rates or house prices rise, consumer house-buying power declines,” Fleming said. “It is not surprising that unadjusted house prices have increased so much. Demand for residential real estate, along with a nationwide shortage of supply, has led to a historically tight inventory of homes for sale, which leads to quickly rising house prices. However, trends show that the increase in consumer house-buying power has outpaced the rise in unadjusted house prices.”
Fleming noted though unadjusted house prices are 9.2 percent above the housing boom peak in 2007, consumer house-buying power has increased by more than five times as much (51 percent) since the housing boom peak in 2007 and is up 16 percent since the end of 2011.
“House-buying power, how much one can buy based on changes in income and interest rates, has benefited in recent years from a decline in mortgage rates and the more recent slow, but steady, growth of household income,” Fleming said.
The report said states with the greatest year-over-year increase in the RHPI in April were Nevada (+15.4 percent), New Hampshire (+14.4 percent), Delaware (+13.9 percent), New York (+13.8 percent) and Massachusetts (+12.8 percent). No state posted a year-over-year decrease.
Among metros tracked by First American, markets with the greatest year-over-year increase in the RHPI in April were San Jose, Calif. (+23.9 percent), Las Vegas (+18.2 percent), Jacksonville, Fla. (+14.3 percent), Charlotte, N.C. (+14.1 percent) and Seattle (+13.9 percent). No metro saw a year-over-year decrease.
