Real Home Prices Increased 3.2% in March

First American Financial Corporation has released its latest Real House Price Index (RHPI) covering March 2023 which measures the price changes of single-family properties across the country adjusted for the impact of income and interest rate changes on consumer house-buying power over time on national, state, and metropolitan areas. Because the RHPI adjusts for home-buying power, it also stands as a total measure of housing affordability. 

Overall, the RHPI found in March that housing affordability declined, breaking a four-month streak of improving affordability. 

According to First American Chief Economist Mark Fleming two of the three main drivers of the RPHI’s decline in March: nominal home prices and mortgage rates—which both increased—dragging down home-buying power by 2.7% and affordability with it. 

“While median household incomes increased by 0.3% compared with February, it was not enough to offset the affordability dampening impact from a 0.4% increase in nominal house prices and a 0.3 percentage point increase in mortgage rates,” said Fleming. “As always, real estate is local and national affordability trends often diverge from local trends.” 

So where did affordability decline the most? Due to the fact that mortgage rates are generally the same across the country at the moment, this reduces affordability equally in each market. On the other hand, the components of house-buying power—household income growth and nominal house prices—differ from market to market, so the affordability dynamic varies as well. 

“Affordability declined month over month in all of the 50 markets we track, but some markets saw a much sharper decline than others,” said Fleming. “The five markets with the greatest month-over-month decline in affordability were: 

Kansas City, Missouri: (6.1%) 

St. Louis, Missouri: (6.0%) 

Buffalo, New York: (5.7%) 

Sacramento, California: (5.1%) 

Columbus, Ohio: (4.9%) 

“In March, Kansas City had the greatest month-over-month decrease in affordability. While monthly income growth was positive at 0.3%, nominal house prices in Kansas City jumped 3.2% from February, one of the largest increases among the five markets where affordability declined the most,” continued Fleming. “The steep monthly increase in nominal house prices overshadowed any affordability gains from increased income. A very similar dynamic played out in St. Louis.” 

“Affordability in Buffalo declined by 5.7% on a month-over-month basis, driven by a 2.6% increase in nominal house prices. Unlike Kansas City and St. Louis, however, household income growth was flat in Buffalo. Income growth is a powerful factor in the affordability equation,” said Fleming. “The last two markets to round out the top five markets where affordability declined the most were Columbus and Sacramento. In these markets, not only did nominal house price growth accelerate by 1.3% and 0.2%, respectively, but household income declined on a monthly basis.” 

So where have nominal house prices headed? Fleming believes that due to elevated mortgage rates, this should prompt nominal home prices to decrease. However, due to low inventory levels, this means any uptick in demand will put pressure on home prices. 

“This is the dynamic that played out in March, as the spring home-buying season ushered in more demand for homes, while insufficient supply prompted buyers to compete and bid up prices,” said Fleming. “Affordability trends in the coming months will depend on mortgage rates and the supply and demand dynamics fueling nominal house price appreciation—dynamics that will play out differently in each market. Real estate affordability is local too.” 

March 2023 RHPI highlights, as laid out by First American: 

  • Real house prices increased 3.2% between February 2023 and March 2023. 
  • Real house prices increased 28% between March 2022 and March 2023. 
  • Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, decreased 2.7% between February 2023 and March 2023, and decreased 20.1% year over year. 
  • Median household income has increased 4.1% since January 2022 and 81.4% since January 2000. 
  • Real house prices are 37.1% more expensive than in January 2000. 
  • Unadjusted house prices are now 50% above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 4.1% below their 2006 housing boom peak.  

March 2023 RHPI state highlights include: 

  • The five states with the greatest year-over-year increase in the RHPI are: Illinois (+35.5%), Vermont (+35.3%), Maryland (+35.1%), Wisconsin (+35.0%), and Iowa (+34.9%). 
  • There were no states with a year-over-year decrease in the RHPI. 

March 2023 Real House Price Local Market Highlights include: 

  • 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: Miami (+45.6%), St. Louis (+40.5%), Dallas (+39.6%), Jacksonville, Fla. (+37.7%), and San Antonio (+37.0%). 
  • Among the Core Based Statistical Areas (CBSAs) tracked by First American, there were no markets with a year-over-year decrease in the RHPI. 

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