Housing affordability in the U.S. fell in May, driven by a reduction in house-buying power as a result of increased nominal house prices and mortgage rates, according to the May 2023 First American Real House Price Index (RHPI) released today.
The RHPI, which measures the price changes of single-family properties throughout the U.S., showed that real house prices increased by 1.3% between April and May 2023, and 11.7% year over year. Meanwhile, consumer house-buying power decreased 0.7% over the month and 9% year over year.
According to Mark Fleming, chief economist at First American, nominal house price growth ticked up 0.6% compared with April, and the average 30-year, fixed mortgage rate increased by 0.08 percentage points. The median household income rose 0.2% compared with April, but it was not enough to offset the decrease in affordability.
Boom-Bust?
The RHPI breaks down the top 50 U.S. markets into four categories: boom-bust; boom-no bust; no boom-bust; and no boom-no bust.
Boom-Bust: Phoenix and Austin are prime examples, with house prices having increased 65% from February 2020 to the peak in May 2022 before declining 9.5%.
Boom-No Bust: Miami and Tampa fall into this category, with house prices yet to decline in Miami and only down 1% in Tampa.
No Boom-Bust: Concentrated on the West Coast, including San Jose, San Francisco, and Seattle. These markets saw less than the average growth rate of 44% across top markets putting them in the ‘no boom’ category.
No Boom-No Bust: New York, Boston, and Chicago experienced muted pre-pandemic-to-peak growth. “House prices have not yet declined in New York, in part because there was less of a boom during the pandemic, as many residents flocked to the suburbs from the density of the city,” Fleming said.
May 2023 Highlights
Real house prices are 36.6% more expensive than in January 2000. Unadjusted house prices are now 51.2% above the housing boom peak in 2006. Five states with the greatest year-over-year increase in RHPI: Illinois (+19.4%), New Hampshire (+18.9%), New Jersey (+18.8%), Wisconsin (+18.5%), and Maryland (+17.6%).
Recent data hints that house prices may be past the trough, but Fleming cautioned, “It’s too soon to make the call that house prices have bottomed.” Higher mortgage rates continue to pressure affordability, and further adjustments to house prices may be needed.
The May 2023 RHPI paints a complex picture of the housing market. Although some markets continue to thrive, others face challenges as increased house prices and mortgage rates affect affordability. The index underscores the nuanced nature of real estate trends, with significant variation by market.
