Home prices increased once again in June, however affordability did not take a hit, in fact, it improved, according to the latest Real House Price Index from First American Financial Corp.
The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time and across the United States at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.
Consumer buying power, how much they can buy based on changes in income and the interest rate, increased 1.3% in June, and 3.5% from June 2016.
First American’s index points to signs of increasing affordability in the housing market. The index showed real home prices actually decreased 1.3% monthly in June, but increased 9.3% from last year.
“On a month-over-month basis, affordability improved slightly thanks to the seventh straight month of falling rates for 30-year, fixed-rate mortgages and modest wage gains,” First American Chief Economist Mark Fleming said.
“The increase in consumer purchasing power offset the gains in unadjusted house prices,” Fleming said. “However, on a year-over-year basis, with rates still higher than a year ago, affordability declined 9.3%.”
While real home prices are up more than 9% from last year, this is still down significantly, 34.8%, from the housing boom peak in July 2006 and even down 12.3% from January 2000 price levels.
First American measured unadjusted home prices rose 5.4% annually in June. However, this prediction is slightly lower than other home price measures, such as Black Knight’s report which showed home prices increased 6.2% annually to a new peak.
“The underlying fundamental issue is an overwhelming lack of supply,” Fleming said. “With current homeowners facing a prisoner’s dilemma and unwilling to list their homes for sale, little relief is expected in the supply of existing homes.”
“The supply of newly constructed homes is also sagging, adding to the supply challenges,” he said. “Over the last eight years, housing demand has increased by 5.9 million, but the net new number of housing units has only increased by 3.5 million. This supply shortage will continue to put pressure on affordability and strain first-time home buyers entering the market.”