The current state of the housing market, defined by rising prices and shrinking inventory, carries an interesting question: Are homes less affordable?
While the simple answer is yes, the real answer, according to the May data of the First American  Real House Price Index report , is a little more nuanced. According to the report, while affordability was down in May, compared to April and to a year earlier, buying power is way up over the past seven years.
In May, the report found, real house prices increased 1.5 percent from April and 11.4 percent year over year. Also, said First American Chief Economist Mark Fleming, the 30-year, fixed mortgage rate increased by 0.6 percent, and the unadjusted house price index rose by 7.3 percent.
But then there's this: “Household income, which contributes positively to housing affordability, also increased 3.2 percent since May 2017,” Fleming said.
Buying power—how much one can buy based on changes in income and interest rates—declined 1 percent from April and 3.6 percent from the same period last year. At the same time, real house prices in May were 37 percent below their housing boom peak in July 2006 and 11 percent below the level of rates in January 2000.
Unadjusted house prices increased by 7.3 percent in May on a year-over-year basis and are 0.8 percent above the housing boom peak in 2006, according to the report.
However, Fleming said, consumer house-buying power has increased by 55 percent since the housing boom peak in 2006.
“That’s 69 times the increase in unadjusted house prices,” he said. “House-buying power has benefited from a declining rate environment, and slow, but steady household income growth. Nationally, since the start of the nearly seven-year run of increasing unadjusted house prices in 2011, house-buying power has increased 23.6 percent.”
The five cities with the most buyer power in May were San Jose, Washington, D.C., San Francisco, Boston, and Seattle. According to First American, average house-buying power across these five cities has increased 74.7 percent since the housing market peak, “considerably outpacing” the 22.5 percent growth in unadjusted house prices.
“Unsurprisingly, the top five cities coincide with the five cities with the highest household income,” Fleming said. “These cities also boast higher than national average household income growth—4.9 percent from May 2017 to May 2018.”
Nevada led states in the highest year-over-year home price index growth, at almost 19 percent. New Hampshire and New York saw increase above 17 percent; Delaware and Ohio saw growth above 16 percent.