{"id":517943,"date":"2021-07-27T07:03:36","date_gmt":"2021-07-27T11:03:36","guid":{"rendered":"https:\/\/www.marketnewsdesk.com\/index.php\/affordability-declined-for-third-month-in-a-row-according-to-first-american-real-house-price-index\/"},"modified":"2021-07-27T07:03:36","modified_gmt":"2021-07-27T11:03:36","slug":"affordability-declined-for-third-month-in-a-row-according-to-first-american-real-house-price-index","status":"publish","type":"post","link":"https:\/\/www.marketnewsdesk.com\/index.php\/affordability-declined-for-third-month-in-a-row-according-to-first-american-real-house-price-index\/","title":{"rendered":"Affordability Declined for Third Month in a Row, According to First American Real House Price Index"},"content":{"rendered":"

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Affordability Declined for Third Month in a Row, According to First American Real House Price Index <\/b><\/p>\n

\u2014Affordability trends in the coming months will hinge on the supply and demand dynamics behind nominal house price appreciation \u2013 dynamics which will play out differently in each market, says Chief Economist Mark Fleming\u2014<\/i><\/b><\/p>\n

SANTA ANA, Calif.–(BUSINESS WIRE<\/a>)–First American Financial Corporation<\/a> (NYSE: FAF), <\/b>a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the May 2021 First American Real House Price Index (RHPI)<\/a>. 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.\n<\/p>\n

Chief Economist Analysis: Record Nominal House Price Appreciation Outpaces House-Buying Power Growth in May<\/b><\/p>\n

\n\u201cHousing affordability declined on a year-over-year basis for the third month in a row in May, following a two-year streak of rising affordability,\u201d said Mark Fleming, chief economist at First American. \u201cThe decline in May occurred even as two of the three key drivers of the Real House Price Index (RHPI)<\/a>, household income and mortgage rates, swung in favor of greater affordability relative to one year ago.\n<\/p>\n

\n\u201cHouse-buying power increased by 8 percent in May compared with a year ago, propelled by lower mortgage rates and higher household income. The affordability gains from house-buying power, however, were offset by the third component of the RHPI, nominal house price appreciation, which reached a record 18 percent in May, surpassing the previous peak from 2005,\u201d said Fleming. \u201cAs always, real estate is local and national affordability trends are not necessarily reflected in local trends, as house-buying power and nominal house price gains vary greatly from city to city.\u201d\n<\/p>\n

Affordability Declined in 49 of the 50 Major Markets<\/b><\/p>\n

\n\u201cThe drop in affordability was broadly felt as affordability declined year over year in 49 of the 50 markets we track,\u201d said Fleming. \u201cThe five markets with the greatest year-over-year decline in affordability were:\n<\/p>\n

\n1.) Phoenix (-22.7 percent)\n<\/p>\n

\n2.) Seattle (-20.1 percent)\n<\/p>\n

\n3.) Kansas City, Mo. (-19.6 percent)\n<\/p>\n

\n4.) Tampa, Fla. (-17.8 percent)\n<\/p>\n

\n5.) Las Vegas (-17.2 percent)\n<\/p>\n

\n\u201cMortgage rates are generally the same across the country, so a decline in mortgage rates boosts affordability equally in each market,\u201d said Fleming. \u201cHousehold income growth and nominal house prices, on the other hand, differ from market to market, so the affordability dynamic varies as well.\n<\/p>\n

\n\u201cIn May, Phoenix had the greatest year-over-year decrease in affordability. While annual income growth was steady at 1.9 percent, Phoenix experienced the biggest annual increase in nominal house prices of any major market \u2013 29.3 percent. The steep increase in nominal house prices overshadowed any affordability gains from increased house-buying power,\u201d said Fleming. \u201cA similar dynamic played out in Tampa as year-over-year nominal house price appreciation of 25.6 percent outpaced house-buying power.\n<\/p>\n

\n\u201cIn Seattle and Las Vegas, house-buying power ticked up as the positive impact of falling mortgage rates offset a decline in household incomes. However, like Phoenix and Tampa, nominal house price growth in Seattle (20.7 percent) and Las Vegas (19.9 percent) overshadowed the house-buying power gains,\u201d said Fleming. \u201cKansas City was the only one of the five markets where house-buying power declined, combining with faster house price appreciation to drive a decline in affordability.\u201d\n<\/p>\n

Where Are Nominal House Prices Headed?<\/b><\/p>\n

\n\u201cDeclining affordability may cause potential home buyers on the margin to be priced out, prompting fewer or less intense bidding wars and causing house price appreciation to moderate. The increase in housing inventory<\/a> may likewise ease pressure on nominal house price growth, though the increase remains small relative to historic levels and the broader housing supply shortage is likely to take years to reverse<\/a>,\u201d said Fleming. \u201cAffordability trends in the coming months will depend on the supply and demand dynamics behind nominal house price appreciation \u2013 dynamics which will play out differently in each market.\u201d\n<\/p>\n

May 2021 Real House Price Index Highlights<\/b><\/p>\n