—Without stronger household income growth, rising mortgage rates
will continue to impede consumer house-buying power, reducing
affordability, says Chief Economist Mark Fleming—
SANTA ANA, Calif.--(BUSINESS WIRE)--
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 September
2018First
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 at national, state and metropolitan area levels. Because
the RHPI adjusts for house-buying power, it also serves as a measure of
housing affordability.
September 2018 Real House Price Index
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Real house prices increased 2.0 percent between August 2018 and
September 2018.
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Real house prices increased 15.3 percent year over year.
-
Consumer house-buying power, how much one can buy based on changes in
income and interest rates, decreased 0.9 percent between August 2018
and September 2018, and declined 6.7 percent year over year.
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Average household income has increased 2.9 percent since September
2017 and 53 percent since January 2000.
-
Real house prices are 37.0 percent below their housing boom peak in
August 2006 and 11.0 percent below the level of prices in January 2000.
Chief Economist Analysis: Why is Real House Price Appreciation
Accelerating?
“In September, all three of the key drivers of the Real
House Price Index (RHPI), household income, mortgage rates, and an
unadjusted house price index, increased compared with a year ago,” said
Mark Fleming, chief economist at First American.
“When household income rises, consumer house-buying power increases.
When mortgage rates and house prices increase, consumer house-buying
power decreases. The 30-year, fixed-rate mortgage and the unadjusted
house price index increased by 0.8 and 7.5 percent, respectively,” said
Fleming. “Even though household income increased 2.9 percent since
September 2017 and boosted consumer house-buying power, the Real House
Price Index increased 15.3 percent compared to last September, the
highest yearly growth rate since 2014.
“Rising
mortgage rates impact both housing supply and demand, limiting
supply by reducing the propensity of sellers to sell and flattening
demand by reducing consumer house-buying power,” said Fleming. “For home
buyers, the only way to mitigate the loss of affordability caused by a
higher mortgage rate is with an equivalent, if not greater, increase in
household income.
“The jump in mortgage rates reduced house-buying power by $36,000 since
September 2017. Over the same period, household income growth increased
consumer house-buying power by $10,000,” said Fleming. “The net effect?
Overall consumer house-buying power fell by $26,000 in September
compared with a year ago. At the moment, rising mortgage rates are
winning the buying power tug of war with rising household incomes – the
pace of household income growth is not sufficient to fully offset the
change in mortgage rates.”
Where is Affordability Declining the Most?
“As the age-old adage goes, housing is all about ‘location, location,
location.’ Affordability is no different,” said Fleming. “The five
markets with the highest year-over-year growth in the RHPI are:
- Cleveland, OH (+28.2 percent)
- Las Vegas, NV (+26.6 percent)
- Cincinnati, OH (+23.8 percent)
- Atlanta, GA (+23.4 percent)
- Orlando, FL (+22.6 percent)
“At first glance, these markets don’t seem to have much in common. Upon
closer inspection, however, all five markets had household income growth
below the national average of 2.9 percent. Orlando uniquely experienced
a decline in household income of 0.4 percent compared with a year ago,”
said Fleming. “The importance of household income growth’s ability to
mitigate the loss of affordability from a rising mortgage rate is clear.
Without stronger household income growth, rising mortgage rates will
continue to impede consumer house-buying power, reducing affordability.
September 2018 Real House Price State Highlights
-
The five states with the greatest
year-over-year increase in the RHPI are:
Ohio (+21.1 percent), Nevada (+20.7 percent), Georgia (+19.9 percent),
New Jersey (+19.1 percent), and New Hampshire (+18.8 percent).
-
No state had a year-over-year decrease in
the RHPI in August.
September 2018 Real House Price Local Market Highlights
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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:
Cleveland (+28.2 percent), Las Vegas (+26.6 percent), Cincinnati
(+23.8 percent), Atlanta (+23.4 percent), and Orlando, Fla. (+22.6
percent).
No CBSA had a year-over-year decrease in
the RHPI in August.
Next Release
The next release of the First American Real House Price Index will take
place the week of December 17, 2018 for October 2018 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. © 2018 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; banking, trust and
wealth management services; and other related products and services.
With total revenue of $5.8 billion in 2017, the company offers its
products and services directly and through its agents throughout the
United States and abroad. In 2018, First American was named to the Fortune 100
Best Companies to Work For® list for the third consecutive
year. More information about the company can be found at www.firstam.com.
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Media Contact:
Marcus Ginnaty
Corporate Communications
First
American Financial Corporation
(714) 250-3298
Investor Contact:
Craig Barberio
Investor Relations
First
American Financial Corporation
(714) 250-5214
Source: First American Financial Corporation