Housing Affordability in Almost All Major Markets Continues to Improve

September 27, 2016

Income gains and lower mortgage rates contributed to an uptick in affordability in July across most major markets in the country, according to a survey from First American Financial Corp.

First American's Real House Price Index, which measures the change in the price of single-family homes against the impact of income and interest rate changes that affect consumers' buying power, fell 2.1 percent from June and 4.8 percent year-over-year.

Real house prices declined on a year-over-year basis in 37 of the 43 metropolitan areas, according to the survey.

“Rising household incomes and low mortgage rates continue to foster meaningful growth in consumer house-buying power across of the majority of major metropolitan markets in July,” said Mark Fleming, chief economist at First American. “Market price levels cannot be considered in isolation. The real price level must consider how income levels and interest rates influence the amount one can borrow.”

“Unadjusted house prices are expected to increase by 5 percent in July on a year-over-year basis,” said Mark Fleming, chief economist at First American. “After adjusting for increased consumer house-buying power, real house prices are significantly lower than they were prior to the housing boom. Real house prices are 39.7 percent below their housing-boom peak in July 2006 and 21.5 percent below the level of prices in January 2000. Unadjusted, the national price level is 2.3 percent away from the housing-boom peak in 2007.


“The shortage of inventory listed for sale continues to be problematic, however, the gains in affordability are helping the market reach its potential for home sales,” Fleming said. “A rise in estimated median household incomes is also playing a large role in certain key markets that otherwise seem expensive when just considering nominal house prices, and not factoring in the boost in buying power provided by increased income levels in those markets.”

July 2016 Real House Price State Highlights

The four states with the highest year-over-year increase in the RHPI are:

  • Wyoming (+2.5 percent)
  • Michigan (+1.4 percent)
  • Oregon (+0.3 percent)
  • Nevada (+0.1 percent)

The five states with the highest year-over-year decrease in the RHPI are:

  • New Jersey (-9.3 percent)
  • Iowa (-9.1 percent)
  • Arkansas (-8.6 percent)
  • Virginia (-8.5 percent)
  • Nebraska (-8.5 percent)

July 2016 Real House Price Local Market Highlights

Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the highest year-over-year increase in the RHPI are:

  • Jacksonville, Fla. (+5.7 percent)
  • Tampa, Fla. (+3.3 percent)
  • Charlotte, N.C. (+0.8 percent)
  • Sacramento, Calif. (+0.8 percent)
  • Detroit (+0.3 percent)

Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in the RHPI are:

  • Virginia Beach, Va. (-8.6 percent)
  • Washington D.C. (-7.2 percent)
  • Cleveland (-6.8 percent)
  • Oklahoma City (-6.7 percent)
  • San Francisco (-6.2 percent)

Low Rates and Increased Wages a Plus for U.S. Home Buyers

“Real house prices fell in the month of July due to a drop in the average rate for the 30-year, fixed-rate mortgage from 3.57 percent to 3.44 percent between June 2016 and July 2016, alongside an estimated 0.7 percent increase in household income for the same period,” said Fleming. “This comes as the Federal Open Market Committee (FOMC) decided to hold the federal funds rate steady for the time being, despite an increasing labor force participation rate and rising wages.”

Fleming continued saying “International economic instability and lower than target core inflation gave the FOMC pause this week as they decided to hold the federal funds rate steady in their September meeting. The continued low rates will only be a positive to U.S. home buyers. Low rates combined with meaningful gains in wages brings greater buying power and housing affordability.”

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