Not All Markets ‘Boomed’ and Not All Markets Are ‘Busting,’ According to First American Real House Price Index

First American Financial Corporation (NYSE: FAF), a premier provider of title, settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, today released the January 2023 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: Real House Prices Decreased 1 Percent Month Over Month

“Affordability has now improved for three straight months, yet remains down 39 percent since January 2022, according to the RHPI. Nominal house price appreciation has slowed dramatically in response to dampened demand. Nationally, annual nominal house price growth peaked in March 2022 at 21 percent, but has since decelerated by nearly 17 percentage points to 4.4 percent in January,” said Mark Fleming, chief economist at First American. “The pandemic-era boom in house prices was broad-based, with house prices increasing by an average of approximately 42 percent from pre-pandemic to peak in the 10 markets now experiencing the lowest annual price growth. Now, as house prices adjust to the reality of higher mortgage rates, it’s becoming clear that the pace of adjustment will vary significantly by market.”

What Factors Determine Boom and Bust Markets?

“The ongoing adjustment in house prices is broad-based as well, with nominal house prices declining in January from their recent peaks in 35 of the top 50 markets we track, but also varies significantly by market. In some markets, house prices have declined from recent peaks by double-digits, while house prices in other markets have yet to decline,” said Fleming. “Of course, repeat-sales price indices, such as the one used in this analysis are based on closed sales prices, which are a lagging indicator of price changes in the housing market because the contracts for these closed sales were set months earlier. Even so, a pattern emerges that allows us to separate markets into four categories¹: boom-bust; boom-no bust; no boom-bust; and no boom-no bust.”