Two Forces Re-shaped Housing Affordability in 2019, According to First American Real House Price Index

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 August 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.

August 2019 Real House Price Index

• Real house prices decreased 1.3 percent between July 2019 and August 2019.
• Real house prices declined 5.9 percent between August 2018 and August 2019.
• Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 2.5 percent between July 2019 and August 2019, and increased 14.8 percent year over year.
• Median household income has increased 2.6 percent since August 2018 and 57.6 percent since January 2000.
• Real house prices are 18.6 percent less expensive than in January 2000.
• While unadjusted house prices are now 8.3 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 42.0 percent below their 2006 housing boom peak.

Chief Economist Analysis: Real House Prices Fall 6 Percent Year Over Year

“Understanding the dynamics that influence consumer house-buying power, how much home one can buy based on changes in income and interest rates, provides a helpful perspective on the housing market. When incomes rise, consumer house-buying power increases. When mortgage rates or nominal house prices rise, consumer house-buying power declines,” said Mark Fleming. “Our Real House Price Index (RHPI) uses consumer house-buying power to adjust nominal house prices, offering insight into affordability.

“For example, according to our RHPI, real house prices decreased nearly 6 percent year over year in August, marking a significant gain in affordability. Since August 2018, mortgage rates decreased 0.93-percentage points and household income grew by 2.6 percent – both improving house-buying power and affordability,” said Fleming. “However, rising nominal house prices reduce affordability, and nominal house price appreciation grew by 8.0 percent compared with one year ago. Ultimately, this continual “tug-of-war” between house-buying power and nominal house prices determines the fate of real house prices.”