MortgageReal Estate

Consumer buying power grows as declining mortgage rates drive affordability

In March, home prices retreated 0.9% from the previous month

In March, home prices retreated 0.9%, sliding 0.04% year over year, according to First American’s Real House Price Index.

According to First American’s data, unadjusted house prices sit 2.6% above the housing boom peak. Additionally, consumer buying power rose 1.5% between February and March, increasing 5.2% year over year.

This means when consumer house-buying power is factored in, home prices are actually 40% below their 2006 peak and 15% below prices from January 2000.

First American Chief Economist Mark Fleming said what began as a modest shift toward a buyers’ market in six cities last month has expanded into a national shift in affordability.

“The shift is a departure from the long-term trend in the Real House Price Index, which had been steadily increasing throughout the rising mortgage rate environment that began in 2017 and continued until late 2018,” Fleming said. “Rising mortgage rates caused consumer house-buying power to decline at the same time as tight supply pushed house prices up rapidly.”

However recent improvements in wage growth and declining mortgage rates are now driving affordability, according to Fleming.  

“In March, two main components of the RHPI swung in favor of increased affordability – continued strong household income growth and declining mortgage rates,” Fleming said. “Nationally, affordability improved on a year-over-year basis for the first time since 2016."

And Fleming is right, as the average household income has increased 3% since March 2018 and 56% since January 2000.

“Consumer house-buying power climbed to $383,700 in March, 1.5% higher than last month and 5.2% higher than one year ago, reaching the highest level since December 2017. Mortgage rates in March fell to 4.27%, or 0.17 percentage points lower than one year ago,” Fleming said. “The decline in mortgage rates increased house-buying power by $7,800 since March 2018. Over the same period, household income grew by 3.0 percent, which boosted consumer house-buying power by nearly $11,000.”

So, what’s the net effect? Fleming says consumer house-buying power has increased by nearly $19,000 since March 2018.

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