Affordability Continues to Challenge Homebuyers

On Tuesday (7-27-21), the First American Financial Corporation — a leading global provider of title insurance, settlement services, and risk solutions for real estate transactions headquartered in Santa Ana, California — released the May 2021 First American Real House Price Index (RHPI). 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. The RHPI found that homebuying power increased by 8% in May, compared to a year ago, driven by continued record low rates and an improving U.S. economy and jobs market.

In comments prepared for the release of the RHPI, Mark Fleming, Chief Economist at First American said, “Housing affordability declined on a year-over-year basis for the third month in a row in May, following a two-year streak of rising affordability. The decline in May occurred even as two of the three key drivers of the Real House Price Index (RHPI) — household income and mortgage rates — swung in favor of greater affordability relative to one year ago.” Fleming added that “The affordability gains from house-buying power, however, were offset by the third component of the RHPI, nominal house price appreciation, which reached a record 18% in May, surpassing the previous peak from 2005. As always, real estate is local and national affordability trends are not necessarily reflected in local trends, as house-buying power and nominal house price gains vary greatly from city to city.”