First American: House Price Appreciation Likely to Accelerate Through Summer

First American Financial Corp., Santa Ana, Calif., said its Real House Price Index shows the supply and demand imbalance that existed entering the coronavirus pandemic has persisted, and even worsened, meaning house price growth will likely remain strong this summer.

The index reported real house prices decreased by 0.3 percent between April and May; real house prices declined by 7.3 percent year over year. However, consumer house-buying power increased by 1.3 percent between April and May and increased by 15.9 percent year over year.

The report said median household income has increased 4.5 percent since May 2019 and 62.8 percent since January 2000. First American said “real” house prices are 21.8 percent less expensive than in January 2000.

“As the coronavirus pandemic continues to wreak havoc on global and domestic economies, housing has thus far proven resilient, managing a V-shaped recovery from the low point reached in April,” said Mark Fleming, chief economist with First American. “The strong rebound is largely a result of two dynamics that existed before the pandemic and have continued or even gained strength in the last few months.

Fleming noted mortgage rates were falling before the pandemic, and just last week they fell below 3 percent for the first time ever. “Demographic demand from millennials aging into their prime homeownership years continues to benefit housing as well. Both of these dynamics help boost demand,” he said. “However, another key trend has also strengthened amid the pandemic – an already tight inventory of homes has now reached record low levels and continues to move lower. The housing market amid the pandemic faces a significant supply and demand imbalance, and the result is accelerating price appreciation. In fact, based on current trends, we expect house price appreciation nationally to remain strong, and even accelerate in many markets this summer.”

As a result, Fleming said, house-buying power continues to outpace nominal house price appreciation nationally. “Fast forward to July, and mortgage rates are now below three percent, and it’s possible that they could fall further, he said. “It’s been said that mortgage rates could fall to as low as 2.7 percent. If that happens, house-buying power nationally would increase to $488,000, a $32,000 boost to affordability compared with May.”

The report said states with the greatest year-over-year increase in the RHPI were Vermont (+6.7 percent), Oklahoma (+3.7 percent), Montana (+3.5 percent), Texas (+3.2 percent) and Georgia (+2.8 percent). States with the greatest year-over-year decrease were Louisiana (-11.5 percent), New Hampshire (-9.5 percent), West Virginia (-9.3 percent), South Dakota (-7.7 percent) and New Jersey (-7.5 percent).

Among metros tracked by First American, markets with the greatest year-over-year increase in the RHPI were New York (+14.8 percent), San Diego (+10.1 percent), Pittsburgh (+8.8 percent), Orlando (+6.3 percent) and St. Louis (+5.4 percent). Markets with the greatest year-over-year decrease in the RHPI were Las Vegas (-24.5 percent), Providence, R.I. (-14.1 percent), Boston (-7.5 percent), Chicago (-7.4 percent) and Cleveland (-7.3 percent).