Housing affordability in six metropolitan areas continued to heat up in favor of buyers, according to the February 2019 First American Real Price House Price Index (RHPI).
The RHPI measures housing affordability and price changes of single-family properties nationwide at national, state, and metropolitan area levels.
The index revealed that real house prices dropped 0.4% between January and February, while consumer house-buying power rose 1% during the same period.
“While household income rose steadily in 2018, rising mortgage rates offset any affordability benefit for home buyers, as illustrated by 11.1% year-over-year growth in the RHPI. However, the first quarter of 2019 has been friendly to potential home buyers, as declining mortgage rates, ongoing household income growth and moderating unadjusted home prices has boosted affordability,” said Mark Fleming, chief economist at First American.
Real house prices declined in a few markets, including:
- San Jose, Calif. (-5.5%)
- Seattle (-4.5%)
- San Francisco (-2.1%)
- Los Angeles (-1.6%)
- Portland, Ore. (-1.1%)
- San Diego (-0.3)
These coastal cities all share two things in common, according to Fleming.
“They were the tightest and hottest markets of 2018,” said Fleming. “In the first half of 2018, rising millennial demand amid a backdrop of limited inventory and increasing mortgage rates put pressure on affordability, causing buyers to take a step back. But now, affordability is on the rise, and the main reason is rising inventory.
In fact, the number of listings in San Jose, Seattle, and San Francisco grew 124%, 89%, and 52% respectively compared to 2018, according to data from First American calculations of Realtor.com in February 2019.
“These six markets may signal a broader shift in the housing market,” Fleming said. “Across the nation, homebuyers are benefiting from lower-than-anticipated mortgage rates, rising wages and a slowdown in unadjusted house price appreciation. Only the six markets above showed a year-over-year decline in the RHPI, but 37 out the 44 top markets that we track showed month-over-month declines in the RHPI in February.
But he warned that while these trends look promising for buyers, it’s still too early to call it a buyer’s market.
“Unadjusted house prices are still rising, and it’s clear that demand continues to outstrip supply in most markets,” said Fleming. “Data on the movement of unadjusted house prices during the early spring home-buying season won’t be available for a few more months, but it’s quite likely that price appreciation will accelerate again.”