Top Five Cities Where Affordability Declined the Most, 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 September 2020 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.

Chief Economist Analysis: Affordability Declines Nationally for Second Straight Month

“Affordability declined month over month in September for the second month in a row, even 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,” said Mark Fleming, chief economist at First American. “The 30-year, fixed-rate mortgage fell by 0.05 percentage points and household income increased 0.2 percent compared with August 2020. Rising household income and declining mortgage rates each boost consumer house-buying power.

“However, rising house-buying power drives greater demand, and surging demand in a supply-constrained market fuels faster nominal house price appreciation. This is exactly what occurred in September, as nominal house prices, the third component of the RHPI, appreciated at its fastest monthly pace since 2013,” said Fleming. “The rapid house price appreciation was enough to overcome the benefit of increased house-buying power. But, real estate is local and house-buying power and nominal house price gains vary by city, so the national perspective may not tell us much about what’s happening to affordability where you live.”

The Five Cities Where Affordability Declined the Most

“Declining mortgage rates increase affordability equally in each market as mortgage rates are generally the same across the country. However, household income levels and nominal house prices vary by market, so the affordability dynamic varies as well,” said Fleming. “Of the 50 markets we track, affordability declined in 41 of them month over month. The five markets with the highest month-over-month decline in affordability were: