Era of Uncertainty Continues to Drive Consumer House-Buying Power, 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 May 2016 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 and across the United States at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.
May 2016 Real House Price Index
For the month of May, the RHPI was unchanged as compared with April 2016 and increased 0.4 percent as compared with May 2015.
"Unadjusted house prices are expected to increase by 5.0 percent in April on a year-over-year basis," said Mark Fleming, chief economist at First American. "Real house prices are 39.7 percent below their housing-boom peak in July 2006 and 19 percent below the level of prices in January 2000. Unadjusted, the national price level is 3.0 percent away from the housing-boom peak in 2007."
Era of Uncertainty Continues to Drive Consumer House-Buying Power
"Demand for U.S. Treasury bonds remains at a record high as both domestic and foreign investors, still reeling from the outcome of the Brexit vote and grappling with greater global economic uncertainty, search for safety. This is compounded by negative yields on government bonds in Germany, Japan, Switzerland, and elsewhere, which make even the record low yields on U.S. treasuries attractive by comparison," said Fleming. "The low yields on U.S. treasuries have kept mortgage rates marching downwards with the 30-year, fixed-rate mortgage remaining under 4.0 percent since July 2015. The housing market has benefited with the low rates fueling increases in consumer house-buying power and keeping real house prices low by historic standards.
"The yield on the 10-year Treasury note hit record lows on the back of the ‘Brexit' vote, uncertainty around the future of the European Union, and economic concerns in China," said Fleming. "In the short term, the global economic turmoil is paradoxically having a positive impact on housing affordability and the health of the housing market in the form of almost historically low mortgage rates."
May 2016 Real House Price State Highlights
- The five states with the highest year-over-year increase in the RHPI are: Wyoming (+10.6 percent), North Dakota (+10.3 percent), Nevada (+9.3 percent), Delaware (+5.4 percent) and Michigan (+4.6 percent).
- The five states with the highest year-over-year decrease in the RHPI are: New Jersey (-3.4 percent), Pennsylvania (-3.1 percent), Nebraska (-3.0 percent), Virginia (-2.8 percent) and Iowa (-2.7 percent).
May 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. (+11.9 percent), Tampa, Fla. (+8.7 percent), Seattle (+6.8 percent), Denver (+6.3 percent), and Sacramento, Calif. (+6.0 percent).
- Among the largest 50 CBSAs, the five markets with the highest year-over-year decrease in the RHPI are: Virginia Beach, Va. (-2.2 percent), Baltimore (-1.7 percent), Philadelphia (-1.7 percent), Richmond, Va. (-1.2 percent), and Oklahoma City (-1.1 percent).
Affordability in Many Major Markets Continues to Improve in May
"Real house prices declined on a month-over-month basis in 15 of the 43 metropolitan areas tracked by First American, as increases in consumer house-buying power were sufficient to more than offset unadjusted price appreciation. San Francisco, Washington, D.C., and Boston led the pack in terms of real house price declines and improved affordability, each experiencing month-over-month declines of roughly 1 percent," said Fleming. "Counter to the conventional wisdom that housing is becoming less affordable in these markets, many consumers that were house hunting benefited from an improvement in affordability in May.
"While a lack of inventory is still problematic, the improvements in affordability, caused by a combination of low mortgage rates and job growth are helping the market reach its potential for home sales. A rise in estimated median household incomes is also playing a large role in certain key markets that from a nominal standpoint seem expensive," said Fleming. "For example, the increases in estimated median household incomes in both Dallas and San Francisco were enough to offset unadjusted price gains and bring meaningful affordability improvements in real terms to both markets.
"Rising household incomes and falling mortgage rates are currently boosting consumer house-buying power in many major metropolitan markets, offsetting any nominal gains in price levels," said Fleming. "Improving affordability for consumers is a direct result of increased demand for long-term U.S. Treasury bonds due to overall uncertainty surrounding the future of global markets."
The next release of the First American Real House Price Index will be on August 22 for June 2016 data.
The methodology statement for the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.
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. © 2016 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; and banking, trust and investment advisory services. With revenues of $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was recognized by Fortune® magazine as one of the 100 best companies to work for in America. More information about the company can be found at www.firstam.com.
First American Financial Corporation
Marcus Ginnaty, 714-250-3298
Craig Barberio, 714-250-5214