Rising Real Home Prices Impacted by Inventory

First American’s Real House Price Index (RHPI) for February 2017 showed home prices remaining strong. The low inventory has meant that home prices have remained high.

“Real, purchasing-power adjusted house prices increased 11 percent in February compared to a year ago. The lack of homes listed for sale is causing unadjusted house price growth to remain strong. Additionally, increasing interest rates are reducing consumer purchasing power. The result is a substantial year-over-year increase in the real price of homes,” said Mark Fleming, Chief Economist at First American.

The RHPI revealed that home prices have dropped by 32.8 percent since the pre-recession peak, but are still at a relative high. Real house prices rose 0.7 percent between January and February

"The main story in most markets this spring is the lack of supply. Combined with unfaltering demand, the lack of supply continues to pressure unadjusted prices higher in one of the strongest spring sellers' markets seen in recent memory," says Fleming.

The average rate for a 30-year, fixed-rate mortgage increased two basis points between January and February, and has held fairly steady after increasing almost 75 basis points between November and December 2016.

Additionally, the RHPI noted that rising wages have offset the impact of rising home prices and mortgage rates on affordability. Wages have grown by 2.8 percent in February.

First American lists Jacksonville, Florida as the least affordable major city, as affordability fell 20.6 percent year-over-year. Affordability is affected in this area by the low inventory, and states like New York and Colorado have seen similar declines in affordability, with home prices jumping by around 15 percent year-over-year in February.

Mississippi was the only state to see a decline in the RHPI year-over-year, by 2.7 percent.

To see the complete First America Real Home Price Index, click here. The next RHPI will be released on May 29.