Nationally, affordability improved modestly on a monthly basis in June, driven by slightly lower mortgage rates and positive income growth. However, on an annual basis, affordability nationally remains approximately 4 percent lower than one year ago. Two factors drove the annualized drop in affordability – a 5.6 percent annual increase in nominal house prices, according to our First American Data & Analytics House Price Index, and a 0.2 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago. 

For home buyers, holding prices constant, the only way to mitigate the loss of affordability caused by higher mortgage rates is with an equivalent, if not greater, increase in household income. Even though household income increased 3.8 percent since June 2023 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and rising nominal prices. While affordability on a national level is lower than one year ago, real estate dynamics play out differently from market-to-market and there are markets that are trending more affordable. 

“The faster housing supply increases, the more affordability improves and the strength of a seller’s market wanes.”

More Supply, More Affordable

The national housing market has been chronically undersupplied for more than a decade. When rising demand meets limited supply, all else held equal, price appreciation accelerates, and affordability will decline. When mortgage rates were hovering near 3 percent in 2021, the corresponding increase in demand amid low supply contributed to double-digit house price growth. As a result, affordability on a year-over-year basis declined by an average of 10 percent in 2021.

In this analysis, we use Zillow’s for-sale inventory metric to measure housing supply. For-sale inventory is the count of unique listings that were active at any time in each month and, according to Zillow’s for-sale inventory metric, housing supply has increased by more than 21 percent nationally compared to one year ago. In fact, housing supply has increased in 48 of the top 50 markets we track on a year-over-year basis. Yet the growth in inventory has not been distributed equally across the country. Using the U.S. Census Bureau’s definition of the four U.S. regions, we find that inventory growth has been particularly strong in Southern and Western markets, but more muted in the Northeast and Midwest. 

The scatterplot below of the top 50 markets is divided into four quadrants, with the y-axis representing annual for-sale inventory growth and the x-axis representing affordability growth as measured by the RHPI¹. The analysis indicates a statistically significant and negative relationship between housing supply and improving affordability – the faster the inventory growth, the more affordable the market becomes. 

Click on the chart for an interactive view.

Note: The lines on the y and x axes indicate the averages, so markets above the horizontal line have above-average inventory growth, and those to the right of the vertical line have above-average declines in affordability.

In June, affordability improved year over year in only five of the top 50 markets, and housing supply increased more than average (top left quadrant) in four of those five markets.  In Tampa, Fla., for example, active inventory jumped nearly 62 percent on annual basis in June and affordability improved by 5 percent. As more homes become available, the power dynamics can shift in favor of buyers, leading to price moderation. In fact, all five markets with year-over-year improvements in affordability had below average, but still positive, nominal house price growth, indicating that increased housing supply is bringing more balance to those markets.

¹Higher RHPI values indicate declining affordability. 

A Waning Seller’s Market

There may be markets where the increase in housing supply is quickly absorbed by demand, and fierce market competition continues to fuel robust price appreciation that reduces affordability. These markets, like Memphis and Seattle, appear in the upper-right quadrant of the chart, indicating above-average inventory growth, but still-strong declines in affordability. 

While inventory nationally and in most markets is higher than one year ago, it remains low from a historical perspective. Nationally, housing supply is nearly 34 percent lower compared with June 2019, the summer before the pandemic hit. Nevertheless, as this analysis shows, the faster housing supply increases, the more affordability improves and the strength of a seller’s market wanes.

Sources:

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

June 2024 Real House Price Index Highlights

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

• Real house prices decreased 1.3 percent between May 2024 and June 2024. 
• Real house prices increased 3.9 percent between June 2023 and June 2024.
• Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, increased 1.7 percent between May 2024 and June 2024, and increased 1.7 percent year over year.
• Median household income has increased 3.8 percent since June 2024 and 91.8 percent since January 2000.
• Unadjusted house prices are now 61.4 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 1.8 percent above their 2006 housing boom peak. 
• Real house prices are 45.3 percent more expensive than in January 2000.

June 2024 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Rhode Island (+11.9 percent), Illinois (+10.4 percent), Delaware (+9.5 percent), New Jersey (+9.4 percent), and West Virginia (+8.8 percent).
• The five states with the greatest year-over-year decrease in the RHPI are: Colorado (-6.1 percent), Oregon (-1.9 percent), Louisiana (-1.6 percent), Vermont (-0.9 percent), and Texas (-0.7 percent).

June 2024 Real House Price Local Market Highlights

• 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: Memphis, Tenn. (+12.5 percent), Providence, R.I. (+11.5 percent), Cincinnati (+10.9 percent), Buffalo, N.Y. (+10.1 percent), and Hartford, Conn. (+9.8 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: Denver (-7.0 percent), Tampa, Fla. (-5.1 percent), Portland, Ore. (-3.3 percent), Austin, Texas (-2.3 percent), and Raleigh, N.C. (-1.8 percent).

Next Release

The next release of the First American Data & Analytics’ Real House Price Index will take place the week of August 26, 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

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2024 by First American. Information from this page may be used with proper attribution.