National affordability improved in August on an annual basis, marking the first positive year-over-year change since 2021. That's according to First American's latest Real House Price Index (RHPI) data for August, released today.
Two factors drove the 4.4% annual increase in affordability — a 3.1% annual increase in nominal household income and a 0.57 percentage point decrease in the 30-year, fixed mortgage rate compared with one year ago.
Real house prices decreased 3.4% on a month-over-month basis between July and August 2024. Year over year, real house prices decreased by 4.4%. Real house prices are 32.9% more expensive than in January 2000.
Consumer house-buying power — how much one can buy based on changes in income and mortgage rates — increased 4.0% between July 2024 and August 2024 and increased 9.3% year over year.
Nominal house prices reached another new record high in August, but annual house price appreciation slowed for the eighth consecutive month. The increase in nominal house prices was not enough to offset the improved affordability from lower mortgage rates and higher household income.
The RHPI noted that median household income for August 2024 has increased by 3.1% since August 2023 and 56.7% since January 2014.
The FOMC reduced the federal funds rate by 0.5% in September, marking the first cut since early 2022, which First American says could change the affordability cycle. The Fed also plans to lower the rate by another 0.5% this year and 1% next year, aiming for 3.4% by the end of 2025 — down from its June projection of 4.1%.
The expectation of a rate reduction has already influenced the market, putting downward pressure on the 10-year Treasury bond yield and loose association mortgage rates in recent months. First American predicts that since the Fed has started easing and signaled a more aggressive easing trajectory, mortgage rates are likely to fall further later this year.
If mortgage rates drop to 6% by the end of 2024, household income grows at the pre-pandemic historical annual average of 2.9%, and nominal house prices increase by 3.9% annually, affordability will improve by 7%. Further rate reductions in 2025 could be a game changer for potential homebuyers, the report noted.
August 2024 Real House Price State Highlights
The only states with a year-over-year increase in the RHPI are Illinois (+0.8%) and New Jersey (+0.6%). The five states with the greatest year-over-year decrease in the RHPI are Colorado (-12.5%), Oregon (-10.7%), Hawaii (-8.5%), Arizona (-8.3%), and Texas (-8.2%).\
August 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 Buffalo, N.Y. (+3.2%), Cincinnati (+2.2%), Milwaukee (+2.0%), Providence, R.I. (+1.6 %), and Louisville, Ky. (+1.2%).
The five markets with the greatest year-over-year decrease in the RHPI are Tampa, Fla. (-14.0%), Denver (-12.4%), Portland, Ore. (-11.7%), Raleigh, N.C. (-11.6%), and San Francisco (-10.1%).
