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Affordability Receives a Jolt

Consumers’ homebuyer power increased in June by 3.3% from the prior month and has risen 12.2% year-over-year, according to First American Financial Corporation’s Real House Price Index (RHPI). 

The report found that the average household income has grown annually 2.4% and 56.4% since January 2000. First American states house prices at 18% less expensive than in January 2000.

“Two of the three key drivers of the [RHPI] household income and mortgage rates, swung in favor of increased affordability in June. The 30-year, fixed-rate mortgage fell by 0.8-percentage points and household income increased 2.4% compared with June 2018,” said Mark Fleming, Chief Economist at First American. “When household income rises, consumer house-buying power increases. 

“Declining mortgage rates have a similar impact on affordability, so in June home buyers received a double shot of house-buying power to jolt affordability in their favor nationally.”

The report states that the earnings increases of 3.3% over the past year translates into a 2.4% increase in household income. Fleming said since June 2018,  income growth has the consumer’s homebuying power by $8,600.

Dropping mortgage rates, Fleming said, have aided prospective homebuyers, as falling mortgage rates have increased homebuying power by $35,000 over the past year. 

“The net effect of these dynamics? Consumer house-buying increased by $44,000 (12.2%) in June compared with one year ago, more than enough to overcome the 7% increase of nominal house price appreciation,” Fleming said. In fact, house-buying power is the highest it’s been since we began tracking it in 1991.” 

First American states that no states reported an annual increase in the RHPI. Wyoming’s 9.8% year-over-year decrease in RHPI was the largest in the nation, and was followed by North Dakota (-9.3%), California (-9.3%), West Virginia (-8.5%), and New Mexico (-8.3%). 

Providence, Rhode Island, was the only Core Based Statistical Area to report an increase in the RHPI at 1.3%. 

The National Association of Home Builders (NAHB), though, released a report that found 12% of adults in Q2 2019 are prospective buyers, and of those, 80% believe they can afford fewer than half of the homes currently available. 

While, that share is higher than it was a year prior (76%), only 20% of buyers can afford most of the homes for sale in their markets—a year-over-year decline from 24%.

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.
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