Wage Growth Contributes to Increased Housing Affordability According to First American Price Index

Wage Growth Contributes to Increased Housing Affordability According to First American Price Index

SANTA ANA, CA - First American Financial Corporation, a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, released the September 2016 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.

September 2016 Real House Price Index

Real house prices increased 1.0 percent between August 2016 and September 2016

Compared to September 2016, real house prices decreased by -2.0 percent.

Unadjusted house prices are expected to increase by 5.3 percent in September on a year-over-year basis.

Real house prices are 40.4 percent below their housing-boom peak in July 2006 and 19.9 percent below the level of prices in January 2000.

Unadjusted, the national price level is 0.9 percent away from the housing-boom peak in 2007.

Chief Economist Analysis: Wage Growth Offsets Impact of September Interest Rate Surge, Contributing to Increased Affordability in Most Major Markets

“While a small uptick in rates in September caused an increase in real house prices compared to August, it is important to remember that mortgage rates remain at historically low levels. The low rates, combined with recent meaningful income gains, fueled an increase in consumer house-buying power, meaning affordability is at a quarter-century best,” said Mark Fleming, chief economist at First American. “Even as interest rates increase above 4 percent post-election, housing, on a purchasing-power adjusted basis, will continue to be more affordable than it was in the early 1990s.

“The 2017 conforming loan-limit increase announced last week was prompted by the fact that house prices have surpassed the pre-decline level established in the third quarter of 2007, according to the FHFA index,” said Fleming. “Nominally, the price recovery is officially complete, but in real purchasing-power adjusted terms, house prices are still far below the pre-decline peak. The underlying story is consumer house-buying power is better than it has been in a generation.

“Affordability continues to increase in more markets than it is decreasing, including markets considered by many to be over-valued, like San Francisco, San Jose, New York, Washington and Boston. Conventional wisdom overlooks the impact that rising incomes can have on consumer house-buying power in a low-rate environment. Long-awaited increases in income levels are contributing to falling real house prices in many markets,” said Fleming.

Source: First American Financial Corporation / #Housing #Economy

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