—Rising house-buying power has been strong
enough to overcome the pace of nominal house price
appreciation, says Chief Economist Mark Fleming—
First American Financial Corporation (NYSE: FAF), a
leading global provider of title insurance, settlement services and
risk solutions for real estate transactions, today released the
November 2019 First American Real House Price Index (RHPI). 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 at national,
state and metropolitan area levels. Because the RHPI adjusts for
house-buying power, it also serves as a measure of housing
affordability.
November 2019 Real House Price Index
- Real house prices increased 1.2 percent between October 2019
and November 2019.
- Real house prices declined 8.1 percent between November 2018
and November 2019.
- Consumer house-buying power, how much one can buy based on
changes in income and interest rates, increased 0.2 percent between
October 2019 and November 2019, and increased 17.9 percent year
over year.
- Median household income has increased 2.6 percent since
November 2018 and 58.1 percent since January 2000.
- Real house prices are 16.7 percent less expensive than in
January 2000.
- While unadjusted house prices are now 10.0 percent above the
housing boom peak in 2006, real, house-buying power-adjusted house
prices remain 40.7 percent below their 2006 housing boom peak.
Chief Economist Analysis: Consumer House-Buying Power Up 17.9
Percent Year Over Year
“Once again, home buyers benefitted from a year-over-year
affordability boost as two of the three key drivers of the Real
House Price Index (RHPI), household income and mortgage rates,
swung in favor of increased affordability in November,” said Mark
Fleming, chief economist at First American. “Compared with November
2018, the 30-year, fixed-rate mortgage fell by 1.2 percentage
points and household income increased 2.6 percent. Both trends,
rising household income and declining mortgage rates, boost
consumer house-buying power.
“However, increased house-buying power also drives demand, and
rising demand in a supply constrained market results in faster
nominal house price appreciation,” said Fleming. “This is exactly
what occurred in November, as the final component of the RHPI,
nominal house prices, continued to accelerate, offsetting some of
the affordability tailwind from rising house-buying power.
“Even as nominal house prices have gained momentum because of
the supply and demand imbalance, real house prices actually
declined by 8.1 percent thanks to the benefit of increased buying
power,” said Fleming. “Since we know real estate is local,
house-buying power and nominal house price gains vary by city,
begging the question, where did affordability increase the
most?”
The Five Cities Where Affordability Increased the
Most
“Affordability improved year over year in each of the 44 markets
we track,” said Fleming. “Below are the five markets with the
greatest year-over-year growth in affordability.”
- San Jose, Calif.
- Baltimore
- Riverside, Calif.
- San Francisco
- Denver
“Declining mortgage rates increase affordability equally in each
market, as mortgage rates are generally the same across the
country. However, household income growth and nominal house prices
vary by market, so the affordability dynamic varies as well,” said
Fleming. “In November, San Jose had the greatest year-over-year
increase in affordability, mostly due to slower nominal house price
appreciation compared with the other markets. Baltimore had
slightly higher nominal house price appreciation compared with
Riverside, 5.2 percent and 5.8 percent respectively, but outpaced
Riverside when it came to house-buying power, growing by 22 percent
versus Riverside’s 21 percent.
“Finally, the intricate dance between house-buying power and
nominal house price appreciation becomes clear when comparing the
cities taking the final top spots: San Francisco and Denver,” said
Fleming. “The improvement in affordability in San Francisco was
slightly greater than Denver due to slower nominal house price
appreciation (3.0 percent versus Denver’s 4.2 percent), even though
house-buying power in Denver outpaced San Francisco by 0.6
percentage points.”
Increased Affordability Drives Demand
“Nominal house price indices overlook what matters most to
potential buyers – their purchasing power, or how much they can
afford to buy. Rising house-buying power due to lower mortgage
rates and strong income growth boosts affordability and drives
demand,” said Fleming. “However, when demand increases for a scarce
good, such as housing, prices will rise faster.
“The net effect of these dynamics will determine the trend in
affordability in 2020, and thereby impact home-buyer demand,” said
Fleming. “So far, rising house-buying power has been strong enough
to overcome the pace of nominal house price appreciation nationally
and in all top markets relative to last year, but that could
change.”
November Real House Price State Highlights
- There are no states with a year-over-year increase in the RHPI.
- The five states with the greatest
year-over-year decrease in the RHPI
are: New Mexico (-12.9 percent), California (-12.2 percent), Utah
(-11.9 percent), Nebraska (-11.5 percent), and Mississippi (-11.4
percent).
November 2019 Real House Price Local Market
Highlights
- Among the Core Based Statistical Areas (CBSAs) tracked by First
American, there are no markets with a year-over-year increase in the RHPI.
- Among the Core Based Statistical Areas (CBSAs) tracked by First
American, the five markets with the greatest year-over-year decrease in the RHPI are: San Jose, Calif. (-14.7
percent), Baltimore (-13.7 percent), Riverside, Calif. (-12.7
percent), San Francisco (-12.6 percent), and Denver (-12.0
percent).
Next Release
The next release of the First American Real House Price Index
will take place the week of February 24, 2020 for December 2019
data.
Sources:
- DataTree by First American
- Freddie Mac
- Census Bureau
Methodology
The methodology statement for the First American Real House
Price Index is available at
http://www.firstam.com/economics/real-house-price-index.
Disclaimer
Opinions, estimates, forecasts and other views contained in this
page are those of First American’s Chief Economist, do not
necessarily represent the views of First American or its
management, should not be construed as indicating First American’s
business prospects or expected results, and are subject to change
without notice. Although the First American Economics team attempts
to provide reliable, useful information, it does not guarantee that
the information is accurate, current or suitable for any particular
purpose. © 2020 by First American. Information from this page may
be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a
leading provider of title insurance, settlement services and risk
solutions for real estate transactions that traces its heritage
back to 1889. First American also provides title plant management
services; title and other real property records and images;
valuation products and services; home warranty products; property
and casualty insurance; banking, trust and wealth management
services; and other related products and services. With total
revenue of $5.7 billion in 2018, the company offers its products
and services directly and through its agents throughout the United
States and abroad. In 2019, First American was named to the Fortune
100 Best Companies to Work For® list for the fourth consecutive
year. More information about the company can be found at
www.firstam.com.
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Media Contact: Marcus Ginnaty Corporate Communications
First American Financial Corporation (714) 250-3298
Investor Contact: Craig Barberio Investor Relations First
American Financial Corporation (714) 250-5214
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