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Gauging Housing Affordability and Inflation

Home prices rose 1.1% in Q1 2019 from Q4 2018, and 5.1 % from Q1 2018 to the Q1 2019, according to the latest Home Price index from the Federal Housing Finance Agency (FHFA).

“House prices have risen consistently over the last 31 quarters," said Dr. William Doerner, FHFA Supervisory Economist. “Although price growth is still positive, the upward pace is softening across the country, especially among states with the largest supplies of housing."

Home prices rose in all 50 states, according to the FHFA, however, according to First American’s Real Home Price Index (RHPI), affordability also increased in this time, up for the first time since 2016 in March. Additionally, First American notes that real home prices, or home prices adjusted for inflation, have fallen despite nominal growth.

“In March, two main components of the RHPI swung in favor of increased affordability—continued strong household income growth and declining mortgage rates,” said First American Chief Economist Mark Fleming. “Nationally, affordability improved on a year-over-year basis for the first time since 2016.”

Home buying power has reached 2017 levels after an 11-month slowdown. Fleming states that the declining mortgage rates and rising income have led to boosted home buying power, overcoming the drag on affordability from rising nominal house prices.

Average household income 3.0% since March 2018 as of March 2019, and 56.0% since January 2000, while real house prices are 15.0% less expensive than in January 2000.

When not adjusted for inflation, house prices are now 2.6% above the housing boom peak in 2006, but real, house-buying power-adjusted house prices remain 40.0% below their 2006 housing boom peak.

Columbus, Ohio experienced the greatest increase in real home prices by metro area, up by 5.9% year-over-year. Behind Columbus are Providence, Rhode Island (+5.5%); Salt Lake City (+5.1%); Atlanta (+3.7%); and Cincinnati (+3.6%). On the other end of the scale, San Jose, California, experienced the largest decline in RHPI, falling by 7.6%, followed by Seattle (-6.4%); San Francisco (-4.4%); Portland, Oregon (-3.9%); and Los Angeles (-3.1%).

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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