In March 2024, mortgage rates increased and affordability fell modestly by 0.1% compared with February. Year over year, affordability decreased by approximately 5.3%.
That's according to First American Data & Analytics' March 2024 First American Data & Analytics’ Real House Price Index (RHPI), released today. The 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 at national, state and metropolitan area levels.
Consumer house-buying power, defined as how much one can buy based on changes in income and mortgage rates, decreased 0.1% between February and March 2024 and increased by 0.8% year over year.
Median household income has increased 3.7% since March 2023 and 90.2% since January 2000. Real house prices are 42.5% more expensive than in January 2000.
“Two factors drove the year-over-year decline in affordability – a 6.2% annual increase in nominal house prices, according to our First American Data & Analytics House Price Index, and a 0.3 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago," said Mark Fleming, chief economist at First American.
“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,” continued Fleming. “Even though household income increased 3.7% since March 2023 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and rising nominal prices."
Fleming says that in March, the median-income household nationally could afford to buy a house for no more than $350,000, assuming that the buyer put down a 5% down payment, their mortgage rate was the average rate for the month of March, and their mortgage payments take up one-third of their pre-tax income. However, the median sale price of an existing home in March, according to data from First American Data & Analytics, was also approximately $350,000.
“If housing is appropriately valued, house-buying power should equal or exceed the median sale price of a home. At a national level, the housing market is neither overvalued nor undervalued by this metric,” Fleming said. "The housing market was considered overvalued from June through November of last year, then modestly undervalued until March, when the median sales price and house-buying power equalized. However, examining this metric at the market level paints a more affordable picture.”
Of the top 50 markets tracked by First American, 22 were overvalued in March, meaning the median existing home sale price exceeded house-buying power. The number of overvalued markets increased since the last analysis of overvalued markets in July 2022, when just 15 markets were considered overvalued.
"The market with the highest overvaluation was San Jose, Calif., where the median consumer house-buying power in March was $723,000, significantly below the median sale price of a home at $1,430,000,” said Fleming. “In markets considered overvalued, the chronic housing supply shortage is preventing prices from adjusting downward enough to reflect the affordability reality. Additionally, house prices are “downside sticky.” Home sellers would rather withdraw from the market than sell at lower prices.”
Fleming continued, “The good news is that most of the markets we track remain undervalued by this measure, and nine markets were undervalued by $100,000 or more. Detroit, Philadelphia, and Cleveland are markets considered undervalued by an average of $145,000.”
The five states with the greatest year-over-year increase in the RHPI are West Virginia (+14.7%), New Mexico (+14.6%), New Jersey (+14.0%), Massachusetts (+13.2%), and Indiana (+12.6%).
The states with a YOY decrease in the RHPI are Washington, D.C. (-2.3%) and Colorado (-0.3%).
