In January 2019, home prices retreated 1.9%, but increased 7% year over year, according to First American’s Real House Price Index.

According to First American’s data, unadjusted house prices sit 1.6% above the housing boom peak. This means consumer buying power moved forward 2.3% between December and January, declining 1.6% year over year.

So, when consumer house-buying power is factored in, home prices are actually 38.8% below their 2006 peak and 14% below prices from January 2000.

“While 2018 was largely characterized by declining affordability, ending the year with a 5% yearly decline in house-buying power, this trend reversed sharply in early 2019,” First American Chief Economist Mark Fleming said. “Moderating home prices, in conjunction with gains in household income and declining mortgage rates, boosted affordability for potential home buyers.”

In fact, the decline in mortgage rates from 4.64% to 4.46% in January boosted house-buying power by $7,500. This means a home buyer with a 5% down payment and a mortgage rate of 4.46% saw their house-buying power increase to $373,100, according to Fleming.

“The decline in mortgage rates over the last two months and the positive impact from the strong job market and the demographic tailwind from the Millennial generation aging into homeownership should translate into higher demand,” Fleming said.

And Fleming is right, as the Mortgage Bankers Association reported new home mortgage applications surged 43% in January compared with the previous month.

That being said, Fleming warns that the increase in homeownership demand is likely to tighten supply.

“As wages continue to grow and mortgage rates remain low going into spring, we except demand to rise further,” Fleming said. “What happens when increasing demand for homes meets a market with tight supply? A rebound in house price appreciation appears likely, so the home-buyer power play may be short lived.”