Home affordability improves in September

by Candyd Mendoza27 Nov 2019

Homes are now more affordable than they were a year ago as real house prices declined across the country, boosting house-buying power.

The First American Real House Price Index (RHPI) fell 7.6% year over year but inched up 0.9% between August and September. Real house prices are now 18.8% less expensive than 19 years ago.

“Two of the three key drivers of the RHPI, household income and mortgage rates, modestly swung in favor of increased affordability in September, yet affordability declined month over month,” said First American Chief Economist Mark Fleming. “When household income rises, consumer house-buying power increases. Declining mortgage rates have a similar impact on consumer house-buying power.”

With the significant drop in prices and a significant increase in median household income, consumer house-buying edged up 0.2% month over month and 15.8% year over year. Median household income rose 2.5% from September 2018 and 57.7% from January 2000.

However, Fleming pointed out that nominal house price appreciation climbed 1.1% in September, outpacing the benefits of growing house-buying power on affordability.

“Accordingly, the RHPI increased 0.9% month over month. Increases in the RHPI indicate a decline in affordability, and September’s decline in affordability was the largest month-over-month affordability decline since November 2018,” said Fleming. “In 2019, declining mortgage rates have increased house-buying power, fueling greater demand. However, when demand increases for a scarce (limited or low supply) good, prices will rise faster. While year-over-year, the RHPI shows an improvement in affordability, the increase in house-buying power in September was not enough to offset nominal house price gains compared with August.”

Of the 44 markets First American tracked, the five cities where affordability decreased the most included New York City (-0.31%), Jacksonville, Fla. (-0.45%), Providence, R.I. (0.84%), Atlanta (0.16%), and Philadelphia (0.69%).

“The RHPI increased in 41 of them month over month, meaning affordability declined in each,” Fleming said. “The rise in the RHPI is a break from the long-term trend in 2019, as all of these markets are significantly more affordable than they were one year ago.”