Market Overview

Supply Squeeze Tightens Grip on Affordability in July, According to First American Real House Price Index

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—Supply continues to tighten, leading to affordability declines in
all of the markets tracked by First American, says Chief Economist Mark
Fleming—

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 July 2017 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.

July 2017 Real House Price Index

  • Real house prices increased 0.6 percent between June and July.
  • Real house prices increased by 10.4 percent year-over-year.
  • Consumer house-buying power, how much one can buy based on changes in
    income and interest rates, decreased 0.4 percent between June and
    July, and fell 4.2 percent year-over-year.
  • Real house prices are 38.4 percent below their housing-boom peak in
    July 2006 and 17.2 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.8 percent in June on a
    year-over-year basis and are 3.4 percent above the housing boom peak
    in 2007.

Chief Economist Analysis: Affordability Sags in July Due to Rising
Rates and Increasing Nominal Prices

"Rising rates and rapid price appreciation driven by the lack of supply
caused affordability to decline in July. Based on our RHPI,
affordability has declined by more than 10 percent over the last year.
But, the loss in affordability is only significant to potential
first-time buyers," said Mark Fleming, chief economist at First
American. "Existing homeowners with fixed-rate mortgages benefited from
the rising prices with increased equity. Your perspective on rising home
prices and affordability largely depends on whether you are a homeowner
or not.

"As mortgage rates rise and supply remains constrained, affordability
will continue to decline for those seeking to achieve the goal of
homeownership. Yet, while affordability is lower than a year ago, it
remains high by historic standards. Only three states and the District
of Columbia are less affordable today than they were in January 2000,"
said Fleming.

Additional Quotes from Chief Economist Mark Fleming

  • "According to the National
    Association of Realtors
    , the number of existing homes listed for
    sale declined to a 4.2-month supply, which marked the 27th consecutive
    month of falling inventory levels. The lack of supply is driving
    unadjusted house prices higher."
  • "According to our latest Real
    Estate Sentiment Index (RESI)
    , one critical reason for the supply
    constraint is that existing homeowners are unwilling to list their
    homes for sale for fear of not being able to find something to buy."
  • "Higher interest rates, which increased slightly to 3.97 percent,
    combined with rising unadjusted house prices, reduced affordability by
    0.6 percent in July compared to June."
  • "Last week, the FOMC announced that it will begin to reduce its large
    portfolio of bonds, which is likely to push mortgage rates higher in
    the coming months. This quantitative
    un-easing will further impact affordability
    ."

July 2017 Real House Price State Highlights

  • The five states with the greatest
    year-over-year increase in the RHPI are:
    Delaware (+19.9 percent), Washington (+16.3 percent), Nevada (+15.5
    percent), Alaska (+15.4 percent), and Michigan (+15.0 percent).
  • The five states with the smallest
    year-over-year increase in the RHPI are:
    Missouri (-3.5 percent), Arkansas (+6.3 percent), Alabama (+6.5
    percent), North Dakota (+6.7 percent), and Oklahoma (+7.1 percent).

July 2017 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:
    Seattle (+20.4 percent), Nashville, Tenn. (+20.1 percent), Charlotte,
    N.C. (+17.9 percent), Las Vegas (+17.7 percent), and San Jose, Calif.
    (+16.9 percent).
  • Among the CBSAs tracked by First American, the five markets with the smallest
    year-over-year increase in the RHPI are:
    Pittsburgh (+4.1 percent), Virginia Beach, Va. (+6.6 percent), St.
    Louis (+7.3 percent), Hartford, Conn. (+8.5 percent), and Riverside,
    Calif. (+9.0 percent).

Next Release

The next release of the First American Real House Price Index will be
the week of October 23, 2017 for August 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 total revenue 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 and again in
2017, First American was named to the Fortune 100 Best Companies
to Work For® list. More information about the company can be
found at www.firstam.com.

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