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Powerful Market Forces Reduce Affordability, According to First American Real House Price Index

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The supply squeeze and rising mortgage rates are powerful forces working against housing affordability, but homeowners are gaining equity and the economy remains strong, says Chief Economist Mark Fleming

Santa Clara, CA – April 23, 2018 (BUSINESS WIRE) First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the February 2018 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. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

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February 2018 Real House Price Index

  • Real house prices increased 2.9 percent between January 2018 and February 2018.
  • Real house prices increased 5.1 percent year over year.
  • Consumer house-buying power, how much one can buy based on changes in income and interest rates, declined 2.6 percent between January 2018 and February 2018, and increased 0.8 percent year over year.
  • Real house prices are 33.7 percent below their housing boom peak in July 2006 and 10.9 percent below the level of prices in January 2000.
  • Unadjusted house prices increased by 5.9 percent in February on a year-over-year basis and are 8.0 percent above the housing boom peak in 2007.

Chief Economist Analysis: Supply Squeeze and Rising Rates Impact Affordability

“Last week, the average 30-year, fixed-rate mortgage rose 5 basis points to 4.46 percent, reaching its highest level since January of 2014. The consensus among economists is that the 30-year, fixed-rate mortgage will approach 5 percent by the end of this year. All else held equal, this will make housing more expensive,” said Mark Fleming, chief economist at First American. “However, some perspective is important. The historical average for the 30-year, fixed-rate mortgage is about 8 percent so, even with the expected increase, mortgage rates will still be low by historical standards.

“The primary reason mortgage rates are rising is a healthy and growing economy. Income levels are growing in many markets, which helps offset rising interest rates. Nationally, house-buying power, how much one can buy based on changes in income and interest rates, has increased by 0.8 percent in the past year,” said Fleming. “However, some markets have seen faster income growth and subsequently greater increases in house-buying power – Riverside, Calif. (+4.5 percent), San Francisco (+3.5 percent), and Providence, Rhode Island (+2.8 percent) led the nation.

“So, if house-buying power has increased, meaning consumers can afford to purchase more home, why is affordability declining as illustrated by increases in our Real House Price Index of 2.9 percent month over month and over 5 percent since last year? Two words: supply squeeze,” said Fleming.

The Supply Squeeze is On

“Two dynamics are restricting housing supply this spring, namely an increasing number of homeowners are rate-locked, and the prisoner’s dilemma facing homeowners. The supply squeeze is already impacting the market. Existing-home sales, which account for roughly 90 percent of U.S. home sales, declined 1.3 percent in February compared with a year ago. The market is underperforming its potential by an estimated 300,000 seasonally adjusted annualized rate of sales,” said Fleming. “The risk of selling one’s home in a market with a shortage of inventory keeps existing homeowners from selling, preventing more supply from entering the market. This increases competition for homes and puts pressure on prices. Not surprisingly, unadjusted house prices increased 5.9 percent in February compared with a year ago.”

Relief on the Horizon?

“The supply squeeze and rising mortgage rates are powerful forces working against housing affordability, but homeowners are gaining equity and the economy remains strong. Millennial demand for homeownership is growing and builders remain confident, demonstrated by the number of homes under construction reaching its highest point in more than a decade in February,” said Fleming. “The conditions driving the supply squeeze, upward pressure on prices and consequently lower affordability are likely to continue through 2018. However, some relief may be on the horizon, as more homes are on the way and income gains are offsetting rising interest rates. That’s good for the housing market.”

February 2018 Real House Price State Highlights

  • The five states with the greatest year-over-year increase in the RHPI are: Nevada (+11.7 percent), New York (+11.3 percent), Kentucky (+10.5 percent), New Hampshire (+10.5 percent) and Missouri (+10.2 percent).
  • The five states with the greatest year-over-year decrease in the RHPI are: Washington, D.C. (-1.7 percent), Maryland (-1.1 percent), New Jersey (-0.9 percent), Vermont (+0.0 percent) and Arkansas (+0.0 percent).

February 2018 Real House Price Local Market Highlights

  • Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: San Jose, Calif. (+17.8 percent), Las Vegas (+12.9 percent), Seattle (+11.1 percent), Charlotte, N.C. (+10.2 percent) and Nashville, Tenn. (+10.1 percent).
  • Among the CBSAs tracked by First American, the only market with a year-over-year decrease in the RHPI is: Pittsburgh (-3.4 percent).

Next Release

The next release of the First American Real House Price Index will take place the week of May 21, 2018 for February 2018 data.

Methodology

The methodology statement for the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2018 by First American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and wealth management services. With total revenue of $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.

Contacts

First American Financial Corporation
Media Contact:
Marcus Ginnaty
Corporate Communications
(714) 250-3298

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Investor Contact:
Craig Barberio
Investor Relations
(714) 250-5214

NAR, realtor.com® Report Housing Supply and Affordability Are at Odds in Markets Across U.S.

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Washington, D.C. – April 18, 2018 (nar.realtor) At the national level, housing affordability is down from a year ago and fewer households can afford the active inventory of homes currently for sale on the market based on their income. That is according to joint research from the National Association of Realtors® and realtor.com®, a leading online real estate destination.

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Using data on mortgages(1), state and metro area-level income(2) and listings on realtor.com®, the Realtors® Affordability Distribution Curve and Score(3) is designed to examine affordability conditions at different income levels for all active inventory on the market. A score of one or higher generally suggests a market where homes for sale are more affordable to households in proportion to their income distribution.

State affordability

According to March data, the states with the lowest Affordability Score(4) were Hawaii (0.52), California (0.57), Oregon (0.60), and the District of Columbia, Montana and Rhode Island (all at 0.64). In these areas, households at the median income level can afford only 19 to 23 percent of the active housing inventory. The states with the highest Affordability Score were Ohio (1.12), Indiana (1.09), Kansas (1.09), Iowa (1.07), and West Virginia (1.05). In these areas, a typical household can afford 54 to 62 percent of the active housing inventory currently on the market.

Metro affordability

By looking at the data by metropolitan statistical area (MSA), more metro areas experienced weakening (45) affordability conditions compared to improving conditions (35) from a year ago. The markets with the lowest affordability scores include Los Angeles-Long Beach, California (0.35), San Diego-Carlsbad, California (0.37), San Jose-Sunnyvale, California (0.43), Oxnard-Thousand Oaks-Ventura, California (0.45) and San Francisco-Oakland, California (0.48), where a typical household can only afford 3 to 11 percent of the active housing inventory.

The Youngstown-Warren, Ohio-Pennsylvania market had the highest Affordability Score at 1.25, followed by Dayton, Ohio (1.19), Toledo, Ohio (1.18), Akron, Ohio (1.16), and Scranton-Wilkes-Barre, Pennsylvania (1.11). In these areas, the typical household can afford nearly 75 percent of the homes that are currently on the market.

Lawrence Yun, NAR chief economist found a notable imbalance between what potential home buyers can afford and what is listed for sale. “The survey confirms that the lack of entry-level supply is putting affordability pressures on too many buyers – especially those at the lower end of the market, where demand is the strongest. This is why first-time buyers continue to struggle finding affordable properties to buy and are making up less than a third of home sales so far this year,” said Yun.
The Affordability Score decreased nationally from 0.86 to 0.84 between March 2017 and March 2018, because of rising prices across the country and a spike in mortgage rates. However, 14 states had better affordability compared to a year earlier, with the greatest increase in affordability in the District of Columbia (from 0.59 to 0.64), Vermont (from 0.81 to 0.84) Hawaii (from 0.50 to 0.52) and North Dakota (from 0.95 to 0.97). Thirty-five metro areas had better affordability compared to a year earlier, led by Austin-Round Rock, Texas (from 0.55 to 0.66), Syracuse, New York (1.04 to 1.1), North Port-Sarasota, Florida (0.60 to 0.66) and Palm Bay-Melbourne, Florida (0.71 to 0.77).

“We’ve seen affordability improve as inventory declines have begun to lessen these areas. More balanced supply and demand dynamics have kept listing price growth below the national average, providing some much needed relief for stretched home buyers in these areas,” according to Danielle Hale, chief economist for realtor.com®.

“Wages are growing, which is welcome news for prospective buyers, but prices are increasing at a faster rate, up almost 6 percent in the first two months of 2018. Solutions to improve these conditions include more homeowners selling, investors releasing their portfolio of single-family homes back onto the market and more single-family housing construction,” Yun said.

The Realtors® Affordability Distribution Curve and Score was created to be a valuable resource for Realtors® and consumers to assess the affordability of markets in different income groups.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.

Realtor.com® is the trusted resource for home buyers, sellers and dreamers, offering the most comprehensive source of for-sale properties, among competing national sites, and the information, tools and professional expertise to help people move confidently through every step of their home journey. It pioneered the world of digital real estate 20 years ago, and today helps make all things home simple, efficient and enjoyable. Realtor.com® is operated by News Corp [NASDAQ: NWS, NWSA] [ASX: NWS, NWSLV] subsidiary Move, Inc. under a perpetual license from the National Association of REALTORS®. For more information, visit realtor.com®.

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1. Down payment percentages are determined from recently locked mortgages from Optimal Blue to determine the maximum affordable home price. The maximum affordable home price assumes that 30 percent of a purchaser’s income can go to pay for the financing, property tax, homeowner’s insurance costs, and a mortgage insurance premium if the down payment is less than 20 percent. Assumptions are made that homes are financed with a 30-year fixed-rate fully-amortizing mortgage at the prevailing mortgage rate. Mortgage rates are those advertised on realtor.com® during the period analyzed.

2. Income distribution data is collected from Nielsen. Nielsen data is provided as numbers of households within income brackets, which are then calculated to find the percentile within, above, or below any bracket. See detailed methodology here: http://www.tetrad.com/pub/documents/popfactsmeth (link is external).

3. The Affordability Distribution Curve gathers income data for households in our desired market and constructs a maximum affordable house price for the income level using a down payment percentage determined from recently originated mortgages from Optimal Blue. Once a maximum affordable house price for a given income percentile is determined, active listings on realtor.com® are reviewed to see what percent of homes on the market are priced less than that maximum affordable house price.

4. The Affordability Score is two times the area under the Affordability Distribution Curve. The score varies between zero and two. A score of zero will result when no household can afford any of the homes that are currently on the market. A score of two will result when all households can afford all of the homes that are currently on the market. A score of one generally suggests a market close to equality, in other words, homes on the market are affordable to households in proportion to their income distribution.

Median-Priced Homes Not Affordable For Average Wage Earners In 68 Percent Of U.S. Housing Markets

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73 Percent of Markets Less Affordable Than a Year Ago; Eight of 10 Highest-Priced Counties Post Negative Net Migration in 2017

Irvine, CA – March 29, 2018 (PRNewswire) ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q1 2018 U.S. Home Affordability Report, which shows that median home prices in Q1 2018 were not affordable for average wage earners in 304 of 446 U.S. counties analyzed in the report (68 percent).

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The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home, assuming a 3 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics (see full methodology below).

The 304 counties where a median-priced home in the first quarter was not affordable for average wage earners included Los Angeles County, California; Maricopa County (Phoenix), Arizona; San Diego County, California; Orange County, California; and Miami-Dade County, Florida.

The 142 counties (32 percent of the 446 counties analyzed in the report) where a median-priced home in the first quarter was still affordable for average wage earners included Cook County (Chicago), Illinois; Harris County (Houston), Texas; Dallas County, Texas; Wayne County (Detroit), Michigan; and Philadelphia County, Pennsylvania.

View Q1 2018 home affordability heat map by county

“Coastal markets are the epicenter of the U.S. home affordability crisis, but affordability aftershocks are now being felt further inland as housing refugees migrate from the high-cost coastal markets to lower-priced markets in the middle of the country where good jobs are available,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. “That in turn is pushing home prices above historically normal affordability limits in those middle-America markets.”

Eight of top 10 highest-priced counties post declines in net migration in 2017
The report also incorporated recently released Census bureau data showing net migration of population in 2017 at the county level. Net migration is the difference between the number of people coming to a county and the number of people leaving a county, including both domestic and international migration.

Eight of the top 10 counties with the highest median home prices in Q1 2018 posted negative net migration in 2017: Kings County (Brooklyn), New York (25,484 net migration decrease); Santa Clara County (San Jose), California (5,559 net migration decrease); New York County (Manhattan), New York (3,762 net migration decrease); Orange County, California (3,750 net migration decrease); and San Mateo, Marin, Napa and Santa Cruz counties in Northern California.

The two exceptions among the top 10 highest-priced counties were San Francisco County, California (5,555 net migration increase); and Alameda County, California, also in the San Francisco metro area (1,286 net migration increase) — both of which had large positive international migration outweighing negative domestic migration.

Among the 446 counties analyzed in the affordability report, those with the largest net migration increases in 2017 were Maricopa County (Phoenix), Arizona (49,770 net migration increase); Clark County (Las Vegas), Nevada (36,635 net migration increase); Riverside County, California, in the “Inland Empire” of Southern California (23,397 net migration increase); Denton County, Texas in the Dallas metro area (21,333 net migration increase); and Hillsborough County, Florida, in the Tampa-St. Petersburg metro area (20,603 net migration increase). Median home prices in those five counties ranged from $197,000 in Hillsborough County to $360,000 in Riverside County.

“Home affordability continues to be a symptom relating to a cultural divide of wage earners,” said Michael Mahon, president at First Team Real Estate, covering Southern California. “Median wage earners are finding coastal communities unaffordable across Southern California, which is driving migration of the consumer population to create housing demand booms in such counties as Riverside County — recently recognized as one of the fastest growing counties in the state.”

41 percent of markets less affordable than historic averages
Among the 446 counties analyzed in the report, 181 (41 percent) were less affordable than their historic affordability averages in the first quarter of 2018, up from 35 percent of counties in the previous quarter and up from 24 percent of counties in the first quarter of 2017.

Counties that were less affordable than their historic affordability averages included Los Angeles County, California; Harris County (Houston), Texas; San Diego County, California; Kings County (Brooklyn), New York; and Dallas County, Texas.

Counties with the lowest affordability index (least affordable relative to their own historic affordability averages) were Santa Fe County, New Mexico (72); Grayson County, Texas in the Sherman-Denison metro area (75); Adams County, Colorado in the Denver metro area (77); Ellis County, Texas in the Dallas metro area (78); and Denver County, Colorado (79).

Most affordable counties in Atlantic City, Baltimore, Philadelphia, Cleveland
Among the 446 counties analyzed in the report, 265 (59 percent) were more affordable than their historic affordability averages in the first quarter of 2018, including Cook County (Chicago), Illinois; Maricopa County (Phoenix), Arizona; Orange County, California; Miami-Dade County, Florida; and King County (Seattle), Washington.

Counties with the highest affordability index (most affordable relative to their own historic affordability averages) were Atlantic County (Atlantic City), New Jersey (223); Baltimore City, Maryland (156); Camden County, New Jersey in the Philadelphia metro area (153); Cuyahoga County (Cleveland), Ohio (153); and Howard County, Maryland in the Baltimore metro area (150).

“Affordable home prices that are still accessible to the average wage earner are helping to spur positive net migration to some Ohio counties, particularly in the Columbus and Cincinnati metro areas,” said Matthew L. Watercutter, broker of record for HER Realtors, covering the Dayton, Columbus and Cincinnati markets in Ohio. “But affordability could start to become a bigger challenge in Ohio if home price appreciation continues to outpace wage growth in most of the state’s markets as it did in the first quarter.”

73 percent of markets post worsening affordability compared to year ago
A total of 326 of the 446 counties analyzed in the report (73 percent) posted a year-over-year decrease in their affordability index, meaning that home prices were less affordable than a year ago, including Los Angeles County, California; San Diego County, California; Miami-Dade County, Florida; Queens County, New York; and Riverside County, California.

A total of 120 of the 446 counties analyzed in the report (27 percent) posted a year-over-year increase in affordability index, meaning that home prices were more affordable than a year ago, including Cook County (Chicago), Illinois; Harris County (Houston), Texas; Maricopa County (Phoenix); Arizona; Orange County, California; and Kings County (Brooklyn), New York.

Highest share of income needed to buy in Brooklyn, Santa Cruz, San Francisco, Maui
Nationwide an average wage earner would need to spend 29.1 percent of his or her income to buy a median-priced home in the first quarter of 2018, slightly below the historic average of 29.6 percent of income.

Counties where an average wage earner would need to spend the highest share of income to buy a median-priced home in Q1 2018 were Kings County (Brooklyn), New York (119.0 percent); Santa Cruz County, California (108.8 percent); Marin County, California in the San Francisco metro area (106.3 percent); Maui County, Hawaii (94.1 percent); and New York County (Manhattan), New York (92.5 percent).

Counties where an average wage earner would need to spend the lowest share of income to buy a median-priced home were Baltimore City, Maryland (10.2 percent); Bibb County (Macon), Georgia (11.0 percent); Wayne County (Detroit), Michigan (11.3 percent); Clayton County, Georgia in the Atlanta metro area (12.0 percent); and Rock Island County (Quad Cities), Illinois (13.4 percent).

Home price appreciation outpacing wage growth in 83 percent of markets
Home price appreciation outpaced average weekly wage growth in 370 of the 446 counties analyzed in the report (83 percent), including Los Angeles County, California; Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; San Diego County, California; and Orange County, California.

Average weekly wage growth outpaced home price appreciation in 76 of the 446 counties analyzed in the report (17 percent), including Cook County (Chicago), Illinois; Duval County (Jacksonville), Florida; San Francisco County, California; Suffolk County (Boston), Massachusetts; and Lake County, Illinois in the Chicago metro area.

Report Methodology
The ATTOM Data Solutions U.S. Home Affordability Index analyzes median home prices derived from publicly recorded sales deed data collected by ATTOM Data Solutions and average wage data from the U.S. Bureau of Labor Statistics in 446 U.S. counties with a combined population of more than 221 million. The affordability index is based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate mortgage and a 3 percent down payment, including property taxes, home insurance and mortgage insurance. Average 30-year fixed interest rates from the Freddie Mac Primary Mortgage Market Survey were used to calculate the monthly house payments. Only counties with sufficient home price and wage data quarterly back to Q1 2005 were used in the analysis.

The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home with, assuming a 3 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio (see full methodology below).

For instance, the nationwide median home price of $229,500 in the first quarter of 2018 would require an annual gross income of $57,009 for a buyer putting 3 percent down and not exceeding the recommended “front-end” debt-to-income ratio of 28 percent — meaning the buyer would not be spending more than 28 percent of his or her income on the house payment, including mortgage, property taxes and insurance. That required income is higher than the $54,847 annual income earned by an average wage earner based on the most recent average weekly wage data available from the Bureau of Labor Statistics, making a median-priced home nationwide not affordable for an average wage earner.

About ATTOM Data Solutions
ATTOM Data Solutions blends property tax, deed, mortgage, foreclosure, environmental risk, natural hazard, and neighborhood data for more than 155 million U.S. residential and commercial properties multi-sourced from more than 3,000 U.S. counties. A rigorous data management process involving more than 20 steps validates, standardizes and enhances the data collected by ATTOM, assigning each property record with a persistent, unique ID — the ATTOM ID. With more than 29.6 billion rows of transactional-level data and more than 7,200 discrete data attributes, the 9TB ATTOM data warehouse powers real estate transparency for innovators, entrepreneurs, disrupters, developers, marketers, policymakers, and analysts through flexible delivery solutions, including bulk file licenses, APIs and customized reports.

Media Contact:
Christine Stricker
(949) 748-8428
christine.stricker@attomdata.com

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