Real house prices increased year over year in January, according to the latest First American Real House Price Index (RHPI). The RHPI revealed that while between December 2018 and January 2019, real house prices declined by 1.9 percent, January 2019 saw a 7.0 percent year over year jump.
Additionally, the RHPI indicated that consumer house-buying power had increased that month, up 2.3 percent month over month, though buying power decreased year over year by around 1.6 percent.
“While 2018 was largely characterized by declining affordability, ending the year with a five percent yearly decline in house-buying power, this trend reversed sharply in early 2019,” said First American Chief Economist Mark Fleming. “Moderating home prices, in conjunction with gains in household income and declining mortgage rates, boosted affordability for potential home buyers.
Only one state, Wyoming, saw a decline in the RHPI year over year, down by 1.9 percent. The states with the highest year over year RHPI increase was Rhode Island (+15.2 percent), New Hampshire (+12.0 percent), Wisconsin (+11.8 percent), Georgia (+11.0 percent), and Alaska (+10.8 percent).
According to Fleming and report data, hourly wage growth increased by 3.3 percent compared with a year earlier, mitigating the impact of rising mortgage rates, which increased from 4.03 to 4.46 percent since January 2018. The growth in household income increased consumer house-buying power by $13,000.
“Overall, house-buying power increased to $374,200, an impressive $8,600 gain in January compared with the previous month,” said Fleming.
Falling mortgage rates along with the strong job market and the ever growing millennial market should increase demand, Fleming notes.
“According to the Mortgage Bankers Association, new home mortgage applications surged 43 percent in January compared with the previous month,” Fleming states. “As wages continue to grow and mortgage rates remain low going into spring, we expect demand to rise further. What happens when increasing demand for homes meets a market with tight supply? A rebound in house price appreciation appears likely, so the home buyer power play may be short lived.”
More on the First American Real House Price Index can be found here.