First American says homebuying power got a $40K boost
The first eight months of 2019 has given home affordability a sizeable boost.
First American’s Real Home Price Index shows that the 0.85 percentage point drop in mortgage rates during that period boosted affordability by 9.7%, translating to a $40,200 improvement in homebuying power.
“As rates have fallen in 2019, the economy has continued to perform well also, resulting in a tight labor market and wage growth. Wage growth pushes household incomes upward, which were 1.5% higher in August compared with January,” said First American’s chief economist Mark Fleming. “The growth in household income increased consumer house-buying power by 1.5%, pushing house-buying power up an additional $5,600.”
Meanwhile, the increase in nominal home prices (5.7%) reduced affordability by $21,100 but the effects of both lower mortgage rates and higher wages had a combined boost to affordability of more than double that amount.
August 2019 Real House Price Index
- Real house prices decreased 1.3% between July 2019 and August 2019.
- Real house prices declined 5.9% between August 2018 and August 2019.
- Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 2.5% between July 2019 and August 2019, and increased 14.8% year over year.
- Median household income has increased 2.6% since August 2018 and 57.6% since January 2000.
- Real house prices are 18.6% less expensive than in January 2000.
- While unadjusted house prices are now 8.3% above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 42.0% below their 2006 housing boom peak.
According to our RHPI, real house prices decreased nearly 6% year-over-year in August, marking a significant gain in affordability.
“Since August 2018, mortgage rates decreased 0.93-percentage points and household income grew by 2.6% – both improving house-buying power and affordability,” said Fleming. “However, rising nominal house prices reduce affordability, and nominal house price appreciation grew by 8.0% compared with one year ago. Ultimately, this continual “tug-of-war” between house-buying power and nominal house prices determines the fate of real house prices.”
