The most recent Real House Price Index (RHPI) for March 2023 has been published by First American Financial Corporation. This index tracks the changes in prices of single-family properties nationwide, taking into account the influence of income and interest rate fluctuations on consumers’ ability to purchase homes over time. It provides a comprehensive assessment of housing affordability at the national, state, and metropolitan levels.
In March, the Real House Price Index (RHPI) revealed a decrease in housing affordability, putting an end to a positive trend over the previous four months. First American Chief Economist Mark Fleming attributed this decline to two factors: rising nominal home prices and increased mortgage rates, which collectively reduced home-buying power by 2.7% and subsequently impacted affordability.
While mortgage rates remain relatively consistent nationwide, leading to equal affordability reductions across markets, the components influencing house-buying power—such as household income growth and nominal house prices—vary from one market to another. As a result, the dynamics of affordability also differ across different regions.
According to Fleming, there was a decrease in affordability across all 50 markets included in the analysis. However, certain markets experienced a more significant decline compared to others. The top five markets with the largest month-over-month affordability decrease were as follows:
- Kansas City, Missouri: (6.1%)
- St. Louis, Missouri: (6.0%)
- Buffalo, New York: (5.7%)
- Sacramento, California: (5.1%)
- Columbus, Ohio: (4.9%)
Regarding the direction of nominal house prices, Fleming anticipates a potential decrease due to the impact of higher mortgage rates. However, he also acknowledges that the limited availability of housing inventory creates a situation where any increase in demand will exert upward pressure on prices.
Fleming noted that in March, there was a noticeable dynamic at play as the spring home-buying season resulted in increased demand for homes. However, the limited supply of housing inventory led buyers to compete with each other, driving prices higher.
Looking ahead, Fleming emphasized that affordability trends in the upcoming months will be influenced by mortgage rates and the dynamics of supply and demand that drive the appreciation of nominal house prices. It is important to recognize that these dynamics will vary from market to market, highlighting the localized nature of real estate affordability.