Housing More Affordable Than 2006 Peak, Says First American RHPI Data

The Real House Price Index (RHPI) published by First American has witnessed its sharpest growth since 2004, growing by almost 27%, as per the January 2022 data shared by First American Chief Economist Mark Fleming.

Nominal house prices increased 21.7% year-on-year while the 30-year, fixed mortgage rate increased 0.7% over the rate a year back.

At the same time, the corresponding increase in household income was 5% over January 2021. As can be seen, this was insufficient to negate the rise in nominal house prices rate and fixed mortgage rates.

Commenting on the changes, Fleming said, “In the near term, affordability is likely to wane further nationally as rising mortgage rates and increasing house prices continue to outpace gains in household income. However, it’s helpful to put affordability in historical context.

Nationally, real, house-buying power-adjusted house prices remain 29 percent below the peak in April 2006. While consumer house-buying power declined in January 2022, it remains near record levels and more than double the level of consumer house-buying power in April 2006 thanks to higher household income and significantly lower mortgage rates. Household incomes today are nearly 48 percent greater than April 2006 and the average mortgage rate is over 3 percentage points below its April 2006 level. In fact, real house prices nationally are at the same level they were in 2000.”

In fact, each of the 50 markets tracked by RHPI is more affordable today when compared with the peak of the last housing boom.

By way of explanation Fleming says, “For nominal house prices, all 50 markets we track in the RHPI have surpassed their previous housing price peaks. Yet, nominal house prices don’t tell the whole affordability story. While nominal house prices have increased, house-buying power has also increased because of a long-run decline in mortgage rates and the slow, but steady growth of household income. Mortgage rates are generally the same across the country, so the long-run decline in mortgage rates boosts affordability equally in each market. Household income growth and nominal house prices, on the other hand, differ from market to market, so affordability varies geographically as well.

According to our house-buying power-adjusted RHPI, homes are 34 percent more affordable on average across all 50 markets than their respective RHPI peaks. While the supply-demand imbalance in today’s housing market continues to fuel strong house price appreciation across the country, the dramatic increase in house-buying power relative to 2006 driven by lower mortgage rates and higher incomes has more than made up for it. In fact, in four cities homes are more than 50 percent more affordable today than at their prior RHPI peak.”

Top and bottom performers

The least improvement in affordability, when compared with their last peak, has been witnessed in:

  • Salt Lake City – 15%
  • Kansas City, Mo. – 12%
  • Denver – 9%
  • Buffalo, N.Y. – 3%
  • Nashville, Tenn. – 0.3%

On the other end of the spectrum are these 5 cities which had the most improvement in affordability since their last peak:

  • Washington, D.C. – 53%
  • Baltimore – 53%
  • Chicago – 52%
  • Miami – 50%
  • Riverside, Calif. – 48%

Fleming elaborates, “Homes are less affordable than they were a year ago, but nationally, and in most markets, they remain much more affordable than at the peak of the previous housing boom in 2006. House prices are widely expected to continue to increase, although at a slower pace, and mortgage rates are likely to rise, so it’s likely that affordability will decline further, but in most markets we’re still a long way from the mid-2000s boom.”

What is RHPI?

RHPI is used to measure changes in prices for single-family properties over a period of time. This is done at the metropolitan area, state and national level and adjusted for changes in interest rates and income over the same period and their impact on the consumer’s house-buying capacity. On account of the adjustments made for the house-buying capacity of consumers, it has also come to be relied upon also as a parameter of housing affordability.

Other data-points

From January 2021 to January 2022, real house prices increased 26.8%, of which 6.3% was in the one month from December 2021 to January 2022.

Median household income that grew by 69.9% since January 2000, has increased 5% in the last one year.

Compared to January 2000, real house prices are marginally more expensive by 0.5%.

The decrease of 4% in consumer house-buying power year-on-year came in the one month from December 2021 to January 2022.

While prices adjusted for house-buying power are 29.5% below the peak they touched in 2006 at the time of the housing boom, unadjusted house prices are 46.6% above the 2006 housing boom peak numbers.

The biggest increase in year-on-year RHPI has been witnessed in these five states:

  • Arizona +38.3%
  • Florida +37.4%
  • South Carolina +35.6%
  • Georgia +34.2%
  • Connecticut +33.5%

Not a single state witnessed a year-on-year decrease in the RHPI.

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