Rising incomes contributed $11,000 to consumer house-buying power
While homes became less affordable in August as mortgage rates and house prices increased, gains in household income have helped soften the blow, according to the Real House Price Index released by First American Financial for August.
Real house prices increased 0.6% between July and August, while real house prices increased 11.3% year over year. Consumer house-buying power, how much one can buy based on changes in income and interest rates, decreased 0.2% between July and August and declined 4.7% year over year.
First American Financial Chief Economist Mark Fleming noted, however, that average household income increased 3.2% since August 2017.
“Rising mortgage rates, which increased from 3.9% to 4.6% over the last year, reduced consumer house-buying power by nearly $30,000,” Fleming said.
However, he said the figure does not factor in the change in household income since last August.
“Wage growth translates into rising household incomes, which were 3.2% higher in August compared to a year ago. That growth in household income contributed $11,000 to consumer house-buying power, which helped mitigate the negative effects of rising mortgage rates,” Fleming said. “While rising mortgage rates reduced house-buying power by $30,000 over the last year, rising incomes increased consumer house-buying power by $11,000. The net effect? Overall consumer house-buying power fell by $19,000 in August compared with a year ago.”
