Key Points:

• Affordability fell by 4 percent on a month-over-month basis, the second consecutive month of decline. Yet affordability remains improved on an annual basis.
  
  
• Housing supply has increased nationally and in 49 of the top 50 markets we track on a year-over-year basis.
  
  
• As more homes are listed for sale, the power dynamics can shift in favor of buyers, leading to price moderation and improved affordability.

Affordability declined for the second consecutive month in November, as mortgage rates drifted higher. Yet, the housing market remains approximately 6 percent more affordable compared to one year ago. Two factors contributed to the 6 percent annual improvement in affordability – nominal household income increased 3.6 percent and the average 30-year, fixed mortgage rate decreased by 0.64 percentage points compared with one year ago. Nominal house price appreciation remained stable at 3.9 percent in November, but still reached another record high. The increase in nominal house prices was not enough to offset the improved affordability from lower mortgage rates and higher household income. 

Despite a broad-based annual improvement in affordability in November, with 46 of the top 50 markets showing gains, regional disparities persist.

“Where supply surges, improving affordability often follows, which may bring buyers off the sidelines, unlocking pent up demand and reinvigorating market activity in the new year.”  

South and West Perform the Best

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 declines. 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 11 percent in 2021. Since then, higher mortgage rates and still-rising house prices dragged affordability down further – an average of 29 percent from 2022 through 2023. However, real estate dynamics play out differently from market-to-market and affordability is improving in some markets more than others. 

According to Zillow’s for-sale inventory metric, which is the number of unique listings that were active at any time in each month, housing supply has increased by 19 percent nationally compared to one year ago. In fact, housing supply has increased in 49 of the top 50 markets we track on a year-over-year basis. Yet the inventory growth has not been distributed equally across the country. Using the U.S. Census Bureau’s definition of the four U.S. regions, we find in the strongest supply surges in Southern and Western markets, but more muted improvements 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 improving affordability as measured by the RHPI. The analysis indicates a statistically significant and positive relationship between increasing housing supply and improving affordability – the faster the inventory growth, the more affordable the market becomes.

In November, housing supply increased more than the top-50 market average in 21 markets (top right quadrant), while affordability improved year over year in 49 of the top 50 markets. In Tampa, Fla., for example, active inventory jumped nearly 33 percent on annual basis in November and affordability improved annually by 19 percent. As more homes become available, the power dynamics can shift in favor of buyers, leading to price moderation. In fact, nominal house price growth was below average in 17 of the 21 markets where housing supply increased more than the average across the top 50 markets, indicating that increased housing supply brought more balance to those markets.

More Homes, More Deals, More Keys

While inventory nationally and in most markets is greater than one year ago, it remains low from a historical perspective. Nationally, housing supply is nearly 26 percent lower compared with November 2019, the winter before the pandemic hit. Nevertheless, as this analysis shows, the faster housing supply increases, the more affordability improves and the strength of the seller’s market wanes. Where supply surges, improving affordability often follows, which may bring buyers off the sidelines, unlocking pent up demand and reinvigorating market activity in the new year.

Sources:

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

November 2024 Real House Price Index Highlights

The First American Data & Analytics’ Real House Price Index (RHPI) showed that in November 2024:

• Real house prices increased 4.1 percent between October 2024 and November 2024.  
  
  
• Real house prices decreased 5.9 percent between November 2023 and November 2024.
  
  
• Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, decreased 3.5 percent between October 2024 and November 2024, and increased 10.4 percent year over year.
  
  
• Median household income has increased 3.6 percent since November 2023 and 58.5 percent since January 2014.
  
  
• Real house prices are 36.9 percent more expensive than in January 2000.
  
  
• Unadjusted house prices are now 63.6 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 4.2 percent below their 2006 housing boom peak. 

November 2024 Real House Price State Highlights

• There were no states with a year-over-year increase in the RHPI.
  
  
• The five states with the greatest year-over-year decrease in the RHPI are: South Dakota (-13.2 percent), Florida (-10.9 percent), Colorado (-10.6 percent), Texas (-9.7 percent), and Oregon (-9.3 percent).

November 2024 Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, there was only one market with a year-over-year increase in the RHPI: St. Louis (+3.7 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. (-18.8 percent), Raleigh, N.C. (-15.3 percent), Orlando, Fla. (-11.6 percent), San Diego (-11.4 percent), and Charlotte, N.C. (-10.3 percent).

Next Release

The next release of the First American Data & Analytics’ Real House Price Index will take place the week of January 27, 2025.

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.