In the just released First American Real House Price Index (RHPI), real house prices decreased 0.4% between January and February. Year over year real house prices increased 2.9%.
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.
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Mark FLemming, Chief Economist for First American Financial Corp.[/caption]
“Throughout 2018, consistent growth among three driving forces – mortgage rates, household income and unadjusted house prices – defined the housing market. These three factors are also the core elements of the Real House Price Index” said Mark Fleming, chief economist at First American. “While household income rose steadily in 2018, rising mortgage rates offset any affordability benefit for home buyers, as illustrated by 11.1 percent year-over-year growth in the RHPI. However, the first quarter of 2019 has been friendly to potential home buyers, as declining mortgage rates, ongoing household income growth and moderating unadjusted home prices has boosted affordability.”
“In February, mortgage rates fell 0.9 percentage points compared with the previous month and were only 0.04 percentage points higher than one year ago. Flat mortgage rates are a welcome change for home buyers following 2018 and the 2.8 percent year-over-year growth in household income helped boost affordability,” said Fleming. “The result? House-buying power increased 2.4 percent in February compared with one year ago, and 1 percent compared with last month.
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“Additionally, while unadjusted house price appreciation in February persisted, the pace of appreciation slowed to 5.4 percent, compared with the 7.1 percent year-over-year growth in February 2018. As a result, real house price appreciation fell to 2.9 percent, the slowest year-over-year pace since December 2017,” said Fleming.
Six Cities Where Affordability Increased
“While we know that rising household income and a decline in mortgage rates caused real house price appreciation to slow nationally, real house prices declined in a few markets,” said Fleming. “Compared with a year ago, six cities saw year-over-year declines in the RHPI, signaling an improvement in affordability.”
- San Jose, Calif. (-5.5 percent)
- Seattle (-4.5 percent)
- San Francisco (-2.1 percent)
- Los Angeles (-1.6 percent)
- Portland, Ore. (-1.1 percent)
- San Diego (-0.3 percent)
Supply Surge
“These coastal markets all have something in common: they were the tightest and hottest markets of 2018. In the first half of 2018, rising millennial demand amid a backdrop of limited inventory and increasing mortgage rates put pressure on affordability, causing buyers to take a step back,” said Fleming. “But now, affordability is on the rise and the main reason is rising inventory.
“According to First American calculations of Realtor.com February 2019 data, the number of listings in San Jose, Seattle and San Francisco increased 124 percent, 89 percent and 52 percent respectively compared with one year ago,” said Fleming. “As inventory enters the market, buyers have more options, bidding wars are less likely, and sellers are more likely to reduce list prices. In fact, these three markets experienced the greatest yearly growth in the number of listings with price reductions.”
Softening Sellers’ Markets
“These six markets may signal a broader shift in the housing market. Across the nation, home buyers are benefiting from lower-than-anticipated mortgage rates, rising wages and a slowdown in unadjusted house price appreciation,” said Fleming. “Only the six markets above showed a year-over year decline in the RHPI, but 37 out the 44 top markets that we track showed month-over-month declines in the RHPI in February.
“However, while these trends help home buyers, it’s too soon to call it a buyers’ market. Unadjusted house prices are still rising and it’s clear that demand continues to outstrip supply in most markets,” said Fleming. “Data on the movement of unadjusted house prices during the early spring home-buying season won’t be available for a few more months, but it’s quite likely that price appreciation will accelerate again.”
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:
- Columbus, Ohio (+8.6 percent)
- Providence, R.I. (+8.4 percent)
- Milwaukee (+7.8 percent)
- Atlanta (+7.4 percent)
- Cincinnati (+7.1 percent).
