With affordability becoming a major concern in many housing markets in the United States due to increasing price appreciation and low supply, house-buying power in the U.S. is receiving a boost from an unlikely source: the foreign monetary stimulus, according to analysis from First American Financial Corporation.
“The monetary stimulus and negative interest rate policies of several central banks outside the U.S. continue to drive demand for U.S. Treasury bonds as investors search for positive yields, despite abating concerns over the fallout from Brexit. As a result, the yields on U.S. Treasuries remain at depressed levels and are keeping U.S. mortgage rates at record low levels,” said First American Chief Economist Mark Fleming. “The 30-year, fixed-rate mortgage averaged 3.57 percent in June 2016. These historically low mortgage rates and surging house-buying power are contributing to gains in affordability that many people overlook.”
The foreign monetary stimulus is not the only thing helping affordability, however.
“Rising household incomes and falling mortgage rates strengthened consumer house-buying power and affordability in many major metropolitan markets in June,” said Fleming. “Improving affordability for consumers often occurred in markets traditionally depicted as expensive or overpriced. Consumer buying-power-adjusted prices actually fell in these markets, thanks to rising incomes and low mortgage rates.”
Real house prices (measures of price changes for single-family properties adjusted for impact of income and interest rate changes on consumer house-buying power) fell year-over-year in June in 27 of the 43 metros tracked by First American; house-buying power in many markets was sufficient to offset unadjusted home price appreciation, according to First American. Virginia Beach, Oklahoma City, Washington, and San Francisco all experienced year-over-year declines of 3 percent or more in June.
“Counter to the conventional wisdom that housing is becoming less affordable in these markets, many house-hunters reaped the benefit of improving affordability in June,” Fleming said, adding that wage growth has contributed to greater affordability in markets where unadjusted home prices
“Many markets that are often listed as the most expensive for housing are not as expensive as many believe when one accounts for the strong growth in household income within these markets,” Fleming said.
Click here to view the complete First American Real House Price Index for June 2016.