First American Financial Corporation, the Santa Ana, California-based provider of comprehensive title insurance protection and professional settlement service, released on Tuesday (3-29-22) its latest Real Home Price Index (RHPI) for January 2022. The RHPI measures the price changes of single-family properties across, national, state, and metropolitan areas, which are adjusted based on income, interest rates, and home-buying power. The ultimate goal of the RHPI, according to First American, is to provide a clearer picture of housing affordability.
According to First American, the three key points of the First American RHPI are 1) income, 2) mortgage rates, and 3) an unadjusted house price index. Incomes and mortgage rates are used to inflate or deflate unadjusted house prices in order to better reflect consumers’ purchasing power and capture the true cost of housing.
For the month of January, First American found that real house prices increased by 26.8% year-over-year or 6.3% from December 2021. This represents the highest annual growth rate seen since 2004. It also found that the average house-buying power is $458,317, down from $477,343 the previous month while the average household income is $70,611, up by $267 from $70,344.
In a statement prepared for the release of the January RHPI, Mark Fleming, Chief Economist at First American, said:
“In the first report with 2022 data, the RHPI jumped up by nearly 27%, the fastest growth in the RHPI since 2004. This rapid annual decline in affordability was driven by a 21.7% annual increase in nominal house prices and a 0.7 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago. Even though household income increased 5% since January 2021, it was not enough to offset the negative impact on consumer house-buying power from higher rates and fast rising nominal prices.
Homes are less affordable than they were a year ago, but nationally and in most markets, they remain much more affordable than at the peak of the previous housing boom in 2006. House prices are widely expected to continue to increase, although at a slower pace, and mortgage rates are likely to rise, so it’s likely that affordability will decline further, but in most markets we’re still a long way from the mid-2000s boom.”
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Homes Remain More Affordable Than 2006 Housing Boom Peak, According to First American Real House Price Index