Key Points:

• In July, affordability improved annually in 12 markets for the first time since 2021.
  
  
• Despite the improvement in affordability, the only 17 percent of consumers indicated that it’s a good time to buy a home, down from 19 percent in June, according to the Fannie Mae Home Purchase Sentiment Index (HPSI).
  
  
• Affordability nationally remains 92 percent lower compared with pre-pandemic levels (February 2020).

Nationally, affordability improved on a monthly basis for the second consecutive month in July, driven by lower mortgage rates and positive income growth. However, on an annual basis, affordability remains nearly 2 percent lower than one year ago. The primary factor contributing to the annualized drop in affordability was a 5.3 percent annual increase in nominal house prices, according to our First American Data & Analytics House Price Index. The 30-year, fixed mortgage rate was essentially flat compared to July 2023. 

Even though household income increased 3.6 percent since July 2023 and boosted consumer house-buying power, it was not enough to offset the affordability loss from rising nominal prices. Although affordability on a national level remains lower than it was a year ago, there are 12 markets now more affordable than they were a year ago – a first since 2021. 

“Affordability may be improving in more markets, but potential home buyers have long memories and homes everywhere are significantly less affordable than before the pandemic.”

Improving Affordability Not Enough to Boost Buyer Sentiment

Affordability may be improving in more markets, but potential home buyers have long memories and homes everywhere are significantly less affordable than before the pandemic. Modest improvements may not be enough to significantly boost demand, as household incomes remain stretched relative to mortgage payments.

Tampa, Fla. offers a telling example of the dynamic playing out in the housing market. In July, affordability improved the most on an annual basis in Tampa. Yet, despite the progress, affordability in Tampa is down more than 100 percent compared with February 2020 due to a 3.4 percentage point increase in mortgage rates and a nearly 65 percent increase in nominal house prices. The monthly principal and interest on the median-priced existing home in Tampa has increased by nearly 160 percent from $875 to $2,272. Meanwhile, the median household income has only increased by approximately 19 percent since 2020. 

The chart below depicts these affordability dynamics across the top markets in the U.S., with higher rates of growth indicating declining affordability, and vice versa. The x-axis represents the change in affordability compared with pre-pandemic levels, while the y-axis is the annual change in affordability. Affordability has declined by more than 40 percent since February 2020 in all markets, with affordability crashing by more than 100 percent in 16 markets. 

Markets in the South and West dominate the bottom portion of the chart, indicating improvements in affordability. Markets that have seen improvements in affordability are those with below-average nominal house price growth, either because prices are cooling from unsustainable highs or because prices in traditional more expensive markets are correcting given the higher rate environment. But, even with those improvements, affordability in these markets remains on average 80 percent lower than in February 2020.

While any incremental improvement in affordability is welcome news for potential home buyers, context is important when considering buyer sentiment in today’s market. For example, according to Fannie Mae’s Home Purchase Sentiment Index (HPSI) sentiment decreased 1.1 percentage points in July to 71.5 and only 17 percent of consumers indicated that it’s a good time to buy a home, down from 19 percent in June and 18 percent from one year ago. However, mortgage rates have fallen further in August, which may help stretch the streak of improving affordability into a third month and slowly start to lift buyers’ views on the housing market. 

Sources:

•    First American Data & Analytics
•    Freddie Mac
•    Census Bureau

July 2024 Real House Price Index Highlights

The First American Data & Analytics’ RHPI showed that in July 2024:

• Real house prices decreased 0.3 percent between June 2024 and July 2024. 
  
  
• Real house prices increased 1.7 percent between July 2023 and July 2024.
  
  
• Consumer house-buying power, how much one can buy based on changes in income and mortgage
  rates, increased 0.9 percent between June 2024 and July 2024, and increased 3.5 percent year over year.
  
  
• Median household income has increased 3.6 percent since July 2023 and 92.2 percent since January 2000.
  
  
• Unadjusted house prices are now 62.3 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 1.5 percent above their 2006 housing boom peak. 
  
  
• Real house prices are 44.8 percent more expensive than in January 2000.

July 2024 Real House Price State Highlights¹ 

• The five states with the greatest year-over-year increase in the RHPI are: Rhode Island (+7.3 percent), Illinois (+7.2 percent), Delaware (+6.5 percent), Montana (+6.3 percent), and New Jersey (+6.2 percent).
  
  
• The five states with the greatest year-over-year decrease in the RHPI are: Colorado (-7.2 percent), Oregon (-4.6 percent), Louisiana (-3.5 percent), Texas (-2.5 percent), and Vermont (-2.5 percent).

¹ This month's report does not include South Dakota or New York.

July 2024 Real House Price Local Market Highlights^*2 

• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year increase in the RHPI are: Buffalo, N.Y. (+12.1 percent), Memphis, Tenn. (+9.9 percent), Chicago (+9.1 percent), Cincinnati (+8.9 percent), and Boston (+8.7 percent).
  
  
• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year decrease in the RHPI are: Tampa, Fla. (-8.5 percent), Denver (-8.1 percent), Portland, Ore. (-5.8 percent), Raleigh, N.C. (-3.7 percent), and Phoenix (-3.3 percent).

² This month’s report does not include the NYC CBSA.

Next Release

The next release of the First American Data & Analytics’ Real House Price Index will take place the week of September 23, 2024.

About the First American Data & Analytics’ Real House Price Index

The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what matters to potential buyers - their purchasing power, or how much they can afford to buy. First American Data & Analytics’ proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow.

The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the house price level. For example, if the house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power. 
 

Disclaimer

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