Housing prices fell 1.8% in April from March, but remained 13.5% higher than a year earlier, according to First American Financial Corp.
The provider of title, settlement, and risk solutions for real estate transactions on Monday released its April 2023 First American Real House Price Index (RHPI). The index measures 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 at national, state, and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.
According to the RHPI, consumer house-buying power — how much a person can buy based on changes in income and mortgage rates — increased 2.3% between March and April, but decreased 10.5% year over year.
The RHPI also found that:
- Median household income has increased 3.8% since April 2022 and 81.6% since January 2000.
- Real house prices are 34.6% more expensive than in January 2000, and
- Unadjusted house prices are now 50% above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 5.8% below their 2006 housing boom peak.
“In April, housing affordability improved relative to one month ago, as two of the three key drivers of the RHPI — income and mortgage rates — boosted house-buying power by 2.3%,” said First American Chief Economist’s Mark Fleming. “Median household incomes increased by 0.1% compared with March, while mortgage rates dipped by 0.2% points.”
He continued, “Nominal house price growth was up 0.4% compared with one month ago, but it was not enough to offset the affordability boost from rising incomes and falling rates. Nominal house price growth has re-accelerated in recent months and even reached a new peak in April.”
Prices Resistant To Rising Rates
Fleming noted that, since 2021, the housing market has slowed by design, as the Federal Reserve tightened monetary policy to tame inflation. That, in turn, has cooled the housing market.
“Yet, house prices have remained resilient, even in the face of fast-rising mortgage rates,” he said. “That’s because the relationship between rising mortgage rates and home prices may not be as straightforward as many believe.”
According to Fleming, a review of unadjusted house prices in seven rising mortgage rate eras over the past three decades found that house prices seem to be resistant to rising mortgage rates.
“Apart from the 1994 rising-rate period — when house prices declined slightly and briefly — house prices have often continued to rise, albeit more slowly, when rates have increased,” he said. “The other exception is the 2005-06 period, during the U.S. housing bubble, when house prices peaked in early 2006 and subsequently declined.”
According to First American’s study, in one of the longest rising mortgage rate eras, 1998-2000, “nominal house prices remained elevated as the economy continued to recover from the previous recession,” Fleming said. “This period was defined by tight labor markets, low inflation, and an increase in the minimum wage, all contributing to a healthy housing market. During this era, house prices increased 14% nationally in just over a year and a half. In the 2017-18 rising mortgage rate era, nominal house prices increased approximately 7% in 15 weeks.”
In today’s housing market, he said, nominal house prices declined in the second half of 2022, but have since re-accelerated.
“Since the start of this rising mortgage rate era, house prices have increased by over 12% nationally,” Fleming said. “Nominal house prices need to adjust to the reality of higher mortgage rates to allow for the housing market to become more affordable and balanced, but a fundamental housing supply shortage is keeping a floor on how low house prices can go.”
The takeaway, he said, is that, “historically, house prices are resilient to rising mortgage rates, but just how resilient depends on the economic environment. House prices are generally ‘downside sticky,’ as home sellers would rather withdraw from the market than sell at lower prices. Additionally, housing supply remains so restricted that any uptick in demand will put upward pressure on prices.”
He added that, even as the Fed continues to fight inflation “with restrictive monetary policy, which will keep upward pressure on mortgage rates, don’t expect house prices to decline dramatically. History has shown that higher rates may take the steam out of rising prices, but it doesn’t cause them to collapse entirely. This is especially true in today’s housing market, where the demand for homes continues to outpace supply, keeping the pressure on house prices.”
Other Key Highlights:
- The five states with the greatest year-over-year increase in the RHPI are: Illinois (+20.5%), Alabama (+20.1 %), New Jersey (+20%), Wisconsin (+19.6%), and Maryland (+19.1%).
- There were no states with a year-over-year decrease in the RHPI.
- Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Miami (+27.4%), St. Louis (+22.6%), Hartford, Conn. (+21.9%), Jacksonville, Fla. (+21.6%), and Chicago (+20.5%).
- Among the Core Based Statistical Areas (CBSAs) tracked by First American, the only market with a year-over-year decrease in the RHPI is Salt Lake City (-5.8%).
