Potential homebuyers have seen prices rise but affordability has still improved as lower mortgage rates give buyers extra power.
According to First American’s Real House Price Index (RHPI) real house prices have decreased by 4.6% in the year to June 2019 and by 2.2% in between May and June 2019.
The RHPI tracks price changes in single-family properties nationwide adjusted for the impact of changes in income and interest rates.
“Two of the three key drivers of the RHPI, household income and mortgage rates, swung in favor of increased affordability in June. The 30-year, fixed-rate mortgage fell by 0.8 percentage points and household income increased 2.4% compared with June 2018,” said Mark Fleming, chief economist at First American. “When household income rises, consumer house-buying power increases. Declining mortgage rates have a similar impact on affordability, so in June home buyers received a double shot of house-buying power to jolt affordability in their favor nationally.”
$44K boost to affordability
Interest rate changes boosted homebuying power by $35,000 while income increases added a further $8,600.
“The net effect of these dynamics? Consumer house-buying increased by $44,000 (12.2%) in June compared with one year ago, more than enough to overcome the 7% increase of nominal house price appreciation,” said Fleming. In fact, house-buying power is the highest it’s been since we began tracking it in 1991.”
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