March real house prices increased from both February and the year-ago period
While real house prices increased month over month and year over year in March, strong consumer house-buying power is keeping them below their historical peak, according to the Real House Price Index released by First American Financial.
The index revealed that real house prices increased 1.7% percent between February and March and jumped 6.4% year over year. Meanwhile, consumer house-buying power, or how much one can buy based on changes in income and interest rates, slipped 1.1% month over month. Consumer house-buying power was unchanged year over year. Because the index adjusts for house-buying power, it also serves as a measure of housing affordability.
Unadjusted house prices increased by 6.4% in March on a year-over-year basis and are 8.7% above the housing boom peak in 2007.
First American Chief Economist Mark Fleming said that the increase in unadjusted house prices does not tell the whole story. Although prices have been increasing since the end of 2011, consumers also saw their house-buying power increase 14.3% over the same period. Fleming said the increase in house-buying power has benefited from the drop in mortgage rates since 2011 as well as the steady growth of household income.
“When house prices are adjusted for consumer house-buying power, the real level of house prices becomes more apparent. Consumer house-buying power-adjusted house prices dropped just over 50% from the peak in July 2007 to the trough reached at the end of 2012,” Fleming said. “Real house prices have since increased, but today remain 32.5% percent below the 2007 peak and 9.2% below their level in the year 2000. Even though unadjusted house prices are higher today than ever before, consumer house-buying power remains strong, so real house prices aren’t even close to their historical peak.”
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