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Consumer Home Buying Power Receives a Boost


First American’s Real House Price Index (RHPI) [1]reported Monday that although real house prices increased 0.5% in July, consumer house-buying power increased 0.5% month-to-month and 12.2% annually. 

During that same period, real-house prices declined 3.8% between July 2018 and July 2019. The average household income increased 2.4% since last year and nearly 57% since January 2000.

Mark Fleming, Chief Economist at First American, said fall is not only the beginning of school, but also the end of the home-buying season. This year, Fleming said, the housing market received passing grades on affordability. 

According to DataTree by First American, 57% of all housing transactions occurred between March and August 2018

“Between March and July 2019, overall affordability improved 2.7%. Consumer house-buying power fueled the affordability growth, increasing to $410,271, a 6.7% gain since the start of the home-buying season in March,” said Fleming. “Mortgage rates continued their spring swoon in July, falling to 3.77%, 0.5-percentage points lower than March.

“The decline in mortgage rates alone increased house-buying power by $23,900 since March 2019. Over the same period, household income grew by 0.4%, boosting consumer house-buying power by $1,600.”

Overall, Fleming said, consumer house-buying power grew by $25,500 in July compared to March. 

“Once again, the growth in purchasing power was more than enough to offset the 3.8% gain in nominal house prices over the same time. So, nationally, affordability did spring forward during the 2019 home-buying season,” he said. 

Affordability increased in the 44 markets tracked by First AM. San Jose, California, saw the largest increase at 8.04%. St. Louis, Missouri, reported a 7.45% increase in affordability, followed by Hartford, Connecticut (7.43%); and Salt Lake City, Utah (7.35%). 

“In a housing market with limited supply, a surge in demand from home buyers trying to take advantage of rising house-buying power can drive faster price appreciation, making further affordability gains more difficult,” Fleming said. 

Rhode Island was the only stated to report a year-over-year increase in RHPI at 7%. The five states with the highest annual decreases in RHPI were North Dakota (-9.7%); California (-9.1%); Wyoming (-9%); West Virginia (-8.7%); and New Mexico (-8.4%).