According to the latest First American Real Home Price Index , slightly lower interest rates and higher wages helped increase consumer home-buying power between August and September 2017. Supply shortages continue to ensure that demand is outpacing supply, driving up prices as many existing homeowners remain reluctant to sell  for fear of not being able to find a new house. In spite of that, however, home prices continue to be well below their pre-Recession, pre-housing bubble levels.
The First American  Real House Price Index (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.” It uses income levels and interest rates to adjust the home prices “in order to better reflect consumers' purchasing power and capture the true cost of housing.” It then assigns an RHPI rating using January 2000’s numbers as a baseline value of 100. For September 2017, the RHPI nationwide was 82. This places it 8 percent higher than the same time last year, but down 0.9 percent from the previous month.
According to the report, real house prices are 38.9 percent below their housing boom peak in July 2006. That disparity is to be expected given the unsustainable price surges of the bubble, but real prices are also 17.9 percent below the level of real prices in January 2000. Without the RHPI’s adjustments, house prices increased by 5.7 percent in September 2017 year-over-year, and were 4.7 percent above the housing boom peak in 2007.
The RHPI paints a very different picture of home prices than is revealed at first glance. Housing prices unsurprisingly dropped significantly after the housing bubble burst, but many markets have since seen those prices continue to increase. However, the RHPI reveals that, even with those increases, prices still lag well below even their pre-bubble totals.
To demonstrate this, RHPI’s new report compares house prices in both San Francisco, California, and Detroit, Michigan—ostensibly, two very different markets. However, both showed home price drops of approximately 60 percent over three years after their peak in the middle of the previous decade. Since then, the recovery of real home prices has been shallow when compared to the unadjusted numbers.
“The common perception is that San Francisco, the shining example of the new economy, and Detroit, the tarnished example of the old economy, couldn't be more different cities when it comes to housing costs,” says First American’s report. “Yet, after adjusting for income growth and mortgage rates and their influence on house-buying power, real house prices in both cities remain well below the pre-recession peak.”