—What happens when increasing demand for homes meets a market with
tight supply? A rebound in house price appreciation appears likely, so
the home buyer power play may be short lived, 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 January 2019 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 at national, state and metropolitan area levels.Because
the RHPI adjusts for house-buying power, it also serves as a measure of
housing affordability.
January 2019 Real House Price Index
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Real house prices decreased 1.9 percent between December 2018 and
January 2019.
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Real house prices increased 7.0 percent year over year.
-
Consumer house-buying power, how much one can buy based on changes in
income and interest rates, increased 2.3 percent between December 2018
and January 2019, and declined 1.6 percent year over year.
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Average household income has increased 3.6 percent since January 2018
and 55.0 percent since January 2000.
-
Real house prices are 14.0 percent less expensive than in January 2000.
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While unadjusted house prices are now 1.6 percent above the housing
boom peak in 2006, real, house-buying power-adjusted house prices
remain 38.8 percent below their 2006 housing boom peak.
Chief Economist Analysis: Market Trends Shift Toward Home Buyers in
Early 2019
“While 2018 was largely characterized by declining affordability, ending
the year with a five percent yearly decline in house-buying power, this
trend reversed sharply in early 2019,” said Fleming. “Moderating home
prices, in conjunction with gains in household income and declining
mortgage rates, boosted affordability for potential home buyers.”
“Mortgage rates in January fell 0.18 percentage points compared with the
previous month and household income increased 0.3 percent. The result?
House-buying power increased 2.3 percent in January,” said Fleming.
“Additionally, nominal house price appreciation in January sank to the
slowest pace of growth since February 2015, according to the DataTree
by First American’s House Price Index. As a result, real house
prices fell 1.9 percent, the second largest monthly decline since April
2017.”
Home Buyer Power Play: Rising Income, Lower Mortgage Rates, Slower
House Price Appreciation
“In January, three forces swung toward home buyers, boosting their power
in the housing market,” said Fleming.
-
Income on the rise: The labor market continued to impress, as
rising wages narrowed the gap between household income growth and
house price appreciation. Annual hourly wage growth increased
by 3.3 percent compared with a year earlier, and the labor
market’s record streak of job gains continued. The rise in wage growth
contributed to the 3.6 percent year-over-year growth in average
household income. Compared with January 2018, the increase in
household income helped mitigate the impact of rising mortgage rates,
which increased from 4.03 to 4.46 percent since January 2018, and
reduced consumer house-buying power by $19,000. The growth in
household income, however, increased consumer house-buying power by
$13,000.
-
Rate Drop Continues: “The year-over-year decline in
house-buying power could have been worse. The decline in mortgage
rates from 4.64 to 4.46 percent in January boosted house-buying power
by an impressive $7,500,” said Fleming. “That means a home buyer with
a 5 percent down payment and a mortgage rate of 4.46 percent saw their
house-buying power increase from $365,600 to $373,100 in January just
from the lower rates. The net effect of the affordability tug-of-war
between increasing mortgage rates and income growth was a $6,000
decline in house-buying power, compared with January 2018.”
-
Real House Prices Fall: “According to our RHPI, 42 of the 44
major markets we track experienced a monthly decline in their RHPI
levels in January,” said Fleming. “The geographically widespread
affordability benefits of lower mortgage rates and higher wages more
than offset the affordability cost of nominal house price appreciation
in January.”
“Overall, house-buying power increased to $374,200, an impressive $8,600
gain in January compared with the previous month,” said Fleming.
A Short-Lived Power Play?
“The decline in mortgage rates over the last two months and the positive
impact from the strong job market and the demographic tailwind from the
millennial generation aging into homeownership should translate into
higher demand,” said Fleming. “According to the Mortgage Bankers
Association, new
home mortgage applications surged 43 percent in January compared
with the previous month. As wages continue to grow and mortgage rates
remain low going into spring, we except demand to rise further. What
happens when increasing demand for homes meets a market with tight
supply? A rebound in house price appreciation appears likely, so the
home buyer power play may be short lived.”
January 2019 Real House Price State Highlights
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The five states with the greatest
year-over-year increase in the RHPI are:
Rhode Island (+15.2 percent), New Hampshire (+12.0 percent), Wisconsin
(+11.8 percent), Georgia (+11.0 percent), and Alaska (+10.8 percent).
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The only state with year-over-year decline in the RHPI is: Wyoming
(-1.9 percent).
January 2019 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:
Providence, R.I. (+17.3 percent), Columbus, Ohio (+14.3 percent), Salt
Lake City (+13.6 percent), Orlando, Fla. (+13.5 percent), and Atlanta
(+12.5 percent).
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No CBSA had a year-over-year decrease in
the RHPI in January.
Next Release
The next release of the First American Real House Price Index will take
place the week of April 29, 2019 for February 2019 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. © 2019 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 $5.7 billion in 2018, the company offers its
products and services directly and through its agents throughout the
United States and abroad. In 2019, First American was named to the Fortune 100
Best Companies to Work For® list for the fourth 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:
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Investor Relations
First
American Financial Corporation
(714) 250-5214
Source: First American Financial Corporation