Spring buying season saw a surge in affordability says First Am

Homebuyers saw their buying power increase in July, capping a surge in affordability during the spring buying season.

First American’s Real Home Price Index shows that real home prices (based on price changes of single-family properties throughout the US adjusted for the impact of income and interest rate changes on consumer house-buying power) increased 0.5% from June and were 3.8% lower than July 2018.

Consumer house-buying power (how much one can buy based on changes in income and interest rates) increased 0.5% between June 2019 and July 2019 and increased 12.2% year over year.

“The housing market is finishing the spring home-buying season with strong marks for affordability,” said Mark Fleming, chief economist at First American. “Indeed, two of the three key drivers of the Real House Price Index (RHPI), household income and mortgage rates, continued to trend toward increased affordability in July. The 30-year, fixed-rate mortgage fell by 0.8 percentage points and household income increased 2.4% compared with July 2018. When household income rises and mortgage rates decline, consumer house-buying power increases.”

The third component, nominal house prices, increased 8% year-over-year but this was more than offset by the improvements in the other components.

Spring surge
Overall, the spring buying season saw affordability improve.

“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 percent, boosting consumer house-buying power by $1,600.”

Fleming added that overall consumer house-buying power increased by a cumulative $25,500 in July compared with the beginning of the spring home-buying season in March.