Real home prices, or home prices adjusted for the impact of income and interest rate changes on consumer house-buying power over time, decreased 0.9% month over month in April 2019, and 0.72% year over year, according to the latest First American Real House Price Index (RHPI). First American took a look at how changes in the RHPI impacted affordability across the country.
“Two of the three key drivers of the Real House Price Index (RHPI), household income and mortgage rates, swung in favor of increased affordability in April. The 30-year, fixed-rate mortgage fell by 0.33 percentage points and household income increased 2.7% compared to April 2018,” said Mark Fleming, Chief Economist at First American. “When household income rises, consumer house-buying power increases. Declining mortgage rates have a similar impact on affordability, so in April home buyers received a double shot of house-buying power to jolt affordability in their favor nationally.”
Affordability increased the most on the West Coast, according to First American. San Jose, California’s affordability increased the most, up by 6.9% due to the decline in mortgage rates, with a 2.9% increase in household income compared with a year ago, Fleming notes.
First American’s top five cities by increases in affordability were:
- San Jose, Calif.
- Portland, Ore.
- San Francisco
- Los Angeles
“Declining mortgage rates increase affordability equally in each market as mortgage rates are generally the same across the country. However, household income growth and nominal house prices vary by market, so the affordability dynamic varies as well,” said Fleming. “In fact, one reason why these markets have seen such strong gains in affordability is because household income growth was so strong. In the top four markets, household income growth exceeded house price growth. That’s an affordability boost even without the help of falling rates.”
Several of the cities with highest increase in the RHPI were on the East Coast. First American’s top five cities by RHPI increase were Providence, R.I. (+5.9%), Las Vegas (+5.2%), Salt Lake City (+4.4%), Orlando, Fla. (+3.9%), and Atlanta (+3.7%).
By state, Wisconsin saw the highest increase in the RHPI, up by 4.7%. Other states with high RHPI increases year over year include Rhode Island (+4.3%), New Hampshire (+3.5%), Georgia (+2.8%), and Ohio (+2.4%).