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). [1]
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), [2] 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%.