Market Overview

Housing Affordability Takes December Dip Due to Rising Rates, According to First American Real House Price Index

Share:





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 December 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.

December 2016 Real House Price Index

  • Real house prices increased 6.2 percent between November and December
    2016.
  • Compared to December 2015, real house prices increased by 8.0 percent.
  • Real house prices are 33.1 percent below their housing-boom peak in
    July 2006 and 10.1 percent below the level of prices in January 2000.
  • Consumer house-buying power, how much one can buy based on changes in
    income and interest rates, declined 5.1 percent between November and
    December 2016, and fell 2.1 percent year-over-year.
  • Unadjusted house prices increased by 5.8 percent in December on a
    year-over-year basis and are 1.5 percent above the housing boom peak
    in 2007.

Chief Economist Analysis: Housing Affordability Declines in December
Because of the Post-Election Mortgage Rate Increase

"Real purchasing-power adjusted house prices surged more than 6
percent month-over-month in December, the first full month to see the
impact of the surge in mortgage rates after the election and the most
recent FOMC rate increase. This interest rate surge lead to the first
year-over-year decline in consumer house-buying power in two and a half
years," said Mark Fleming, chief economist at First American. "Rising
rates and nominal home price growth are outpacing the influence of
strong income growth, leading to declining affordability for first-time
home buyers. However, housing remains as affordable as it was in late
2009."

"The decrease in affordability seen in December was widespread,
impacting all but one of the markets we track. Low inventory of homes
for sale is creating increased competition in the market and pushing
nominal prices higher. Add declining purchasing power because of the
jump in mortgage rates, and affordability for first-time homebuyers
declines," said Fleming.

Additional Quotes from Chief Economist Mark Fleming

  • "The 30-year, fixed-rate mortgage increased 0.43 percent between
    November and December because of the December Federal Open Market
    Committee's (FOMC) decision to raise the Federal Funds Rate and, more
    importantly, the post-election spike in the 10-year Treasury bond
    yield."
  • "Wages grew at a brisk annual rate of 2.9 percent in December, the
    largest increase since 2009, which was beneficial for housing
    affordability, but not enough to offset the impact of rising rates."
  • "The combined result of wage growth and the change in mortgage rates
    reduced consumer house-buying power by 2.1 percent compared to a year
    ago – the first decline in the annualized growth rate for consumer
    house-buying power in 30 months."
  • "Homes, on a real purchasing power adjusted basis, are 8.0 percent
    more expensive than they were a year ago."
  • "Real house prices increased on a year-over-year basis in all but one
    of the metropolitan areas tracked by First American."
  • "San Jose, Calif. was the only metropolitan area to experience no loss
    of affordability."

December 2016 Real House Price State Highlights

  • The five states with the greatest year-over-year increase
    in the RHPI are: Wisconsin (+10.4 percent), Colorado (+10.4
    percent), New York (+10.3 percent), Maine (+10.1 percent) and Illinois
    (+10.0 percent).
  • The five states with the least year-over-year growth
    in the RHPI are: Mississippi (-4.8 percent), Montana (-0.7 percent),
    Iowa (+0.1 percent), North Dakota (+0.7 percent) and Wyoming (+0.8
    percent).

December 2016 Real House Price Local Market Highlights

  • Among the Core Based Statistical Areas (CBSAs) tracked by First
    American, the five markets with the greatest year-over-year increase
    in the RHPI are: Jacksonville, Fla. (+14.9 percent), Charlotte, N.C.
    (+13.4 percent), Tampa, Fla. (+13.0 percent), Milwaukee (+11.5
    percent), and Columbus, Ohio (+10.7 percent).
  • Among the CBSAs tracked by First American, the markets with the
    smallest year-over-year increase in the
    RHPI are: San Jose, Calif. (0.0 percent), San Francisco (+1.2
    percent), Virginia Beach, Va. (+1.9 percent), Portland, Ore. (+2.9
    percent) and Boston (+3.4 percent).

Next Release

The next release of the First American Real House Price Index will be
the week of March 27, 2017 for January 2017 data.

Methodology

The methodology statement for the First American Real House Price Index
is available at http://www.firstam.com/economics/real-house-price-index.

Disclaimer

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. © 2017 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 $5.6 billion in 2016,
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.

View Comments and Join the Discussion!