Subscribe eNews Send Us Files Login

eNews Subscribe to eNews

Adobe Stock/Sean Locke Photography

Real House Prices Declined in May

Thursday, August 1, 2019

First American Financial Corporation's (NYSE: FAF) May 2019 First American Real House Price Index (RHPI) reports that real house prices, that is, adjusted for the impact of income and interest rate changes on consumer house-buying power over time, declined.

Among its findings:

  • Real house prices decreased 0.7% between April 2019 and May 2019.
  • Real house prices declined 3.7% between May 2018 and May 2019.
  • Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 1.3% between April 2019 and May 2019, and increased 9.3% year over year.
  • Average household income has increased 2.8% since May 2018 and 56.4% since January 2000.
  • Real house prices are 17.0% less expensive than in January 2000.
  • While unadjusted house prices are now 3.2% above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 41.1% below their 2006 housing boom peak.

“Later this week, the Federal Open Market Committee (FOMC) will convene and likely announce a rate cut, according to experts. The first Fed rate cut since December 2008 will trigger industry and media speculation about mortgage rates declining further,” said Mark Fleming, chief economist at First American. “While changes to the federal funds rate don't directly influence mortgage rates, a rate cut will indicate concern about possible economic weakness, and that may increase demand for long-term Treasury bonds, which mortgage rates follow closely."

“The consensus among economists is that the 30-year, fixed-rate mortgage will decline from its first quarter 2019 rate of 4.4% to an average of 3.9% in 2019,” said Fleming. “Additionally, the expectation of lower rates comes during the longest economic boom in history and a continued healthy labor market, prompting the question: What do low mortgage rates and a still booming economy mean for housing?”

“Fannie Mae forecasts that the 30-year, fixed-rate mortgage will fall from its July 2019 rate of 3.8% to 3.7% for the remainder of the year, boosting affordability for homebuyers,” said Fleming. “The First American Real House Price Index (RHPI) adjusts home prices based on changes to consumer house-buying power, how much one can buy based on household income and the 30-year, fixed-rate mortgage. Shifts in income and interest rates either increase or decrease consumer house-buying power or affordability. When incomes rise and/or mortgage rates fall, consumer house-buying power increases."

“If the mortgage rate declines from its current July 2019 level of 3.8% to the expected level of 3.7% in the third quarter of 2019, assuming a 5% down payment, and the July 2019 average household income of $65,800, house-buying power increases a modest 0.1%, from $410,000 to $414,000,” said Fleming. “In this hypothetical 3.7% mortgage rate environment, consumer-house buying power would be 13.3% higher than it was in July 2018, when the 30-year, fixed mortgage rate was 4.5%.

In fact, it would be the highest house-buying power in the history of the series, which dates to the year 2000. “It’s no secret that declining mortgage rates increase affordability. However, mortgage rates have been below 3.7% before. Indeed, in 2012, the 30-year, fixed-rate mortgage hit a low of 3.3%,” said Fleming.

“Yet, house-buying power was lower than it is today. The reason? The other half of the house-buying power equation: income. “Our estimate of average household income, based on Census and Bureau of Labor Statistics data, is at the highest level since 2000. Average nominal household incomes are nearly 57% higher today than in January 2000,” said Fleming. “Record income levels combined with mortgage rates near historic lows mean consumer house-buying power is more than 150% greater today than it was in January 2000. While rates are expected to remain low, the fate of the labor market will determine the direction of the other half of the house-buying power equation and, ultimately, affordability.”

Other findings:

  • The four states with the greatest year-over-year increase in the RHPI are: Wisconsin (+1.5%), Maryland (+0.2%), New Hampshire (+0.2%), and Rhode Island (+0.1%).
  • The five states with the greatest year-over-year decrease in the RHPI are: North Dakota (-8.5%), Wyoming (-8.0%), California (-7.1%), Arkansas (-5.8%), and New Mexico (-5.7%).
  • 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: Providence, R.I. (+2.2%), Milwaukee (+1.1%), Columbus, Ohio (+0.7%), Detroit (+0.7%), and Las Vegas (+0.1%).
  • Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year decrease in the RHPI are: San Jose, Calif. (-13.9%), Seattle (-9.4%), San Francisco (-7.8%), Portland, Ore. (-7.7%), and Riverside, Calif. (-7.0%).

More eNews

Glen Raven Custom Fabrics Names Chief Marketing Officer

Friday, August 16, 2019

Glen Raven Custom Fabrics, best known as the makers of Sunbrella fabrics, is excited to announce the hiring of Steve Pawl, a seasoned marketing strategist with more than 20 years of experience building international consumer brands, as its first...

» Continue

Retail Store Numbers Continue to Grow

Friday, August 16, 2019

With the bankruptcy of Barney’s in the news, we’re bound to see another round of handwringing in the media over the “retail apocalypse.” The actual data paints a very different picture, though....

» Continue

IG Charcoal BBQ

Friday, August 16, 2019

The IG Charcoal BBQ is a Santa Maria style stainless-steel grill. It eliminates the need of having an additional table for storing food, utensils, and/or condiments....

» Continue