Home prices increased 2.9 percent in February 2018 according to the latest data from First American’s Real Home Price Index (RHPI) that was released on Monday. The data revealed that homes became 5.1 percent more expensive compared to the same period last year, even as consumer house-buying power, how much one can buy based on changes in income and interest rates, declined 2.6 percent in February.
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 and across the U.S. at the national, state, and metropolitan area level. Because the RHPI adjusts for house-buying power, it is also a measure of housing affordability.
The report revealed that two powerful factors affected affordability in February—the shortage of housing supply and rising mortgage rates—even as homeowners gained equity and the economy remained strong.
“Two dynamics are restricting housing supply this spring, namely an increasing number of homeowners are rate-locked, and the prisoner’s dilemma facing homeowners. The supply squeeze is already impacting the market,” said Mark Fleming, Chief Economist at First American. “Existing-home sales, which account for roughly 90 percent of U.S. home sales, declined 1.3 percent in February compared with a year ago. The market is underperforming its potential by an estimated 300,000 seasonally adjusted annualized rate of sales.”
The report indicated that while the conditions that were driving the supply squeeze and the rise in home prices were likely to continue throughout the year, the bright spots remained the increasing demand for homeownership among millennials as well as builder confidence that was demonstrated by the number of homes under construction reaching their highest point in over a decade in February.
Regionally, Nevada showed the greatest year-over-year increase in RHPI, followed by New York, Kentucky, New Hampshire, and Missouri. Washington, D.C. led the States showing the greatest year-over-year decrease in RHPI, followed by Maryland, New Jersey, Vermont, and Arkansas.