Homes became more unaffordable during the month despite higher incomes
The affordability of homes declined in February from January as housing supply continues to be restricted, according to the Real House Price Index (RHPI) released by First American Financial.
Real house prices rose 2.9% month over month. The year-over-year increase was 5.1%. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.
The index also revealed that consumer house-buying power – how much one can buy based on changes in income and interest rates – declined 2.6% between January and February, but increased 0.8% compared to the year-ago period.
First American Chief Economist Mark Fleming said that housing affordability declined during the month despite the increase in house-buying power because of the supply squeeze. Fleming noted that some markets, such as Riverside, Calif., San Francisco, and Providence, R.I., posted greater increases in house-buying power given faster income growth compared to the rest of the nation.
The growing income levels help offset increases in interest rates, which are driven primarily by the growing economy.
“Last week, the average 30-year, fixed-rate mortgage rose five basis points to 4.46%, reaching its highest level since January of 2014. The consensus among economists is that the 30-year, fixed-rate mortgage will approach 5% by the end of this year. All else held equal, this will make housing more expensive,” Fleming said.
