Affordability fell to its lowest point in 2008 as rates and prices jumped


The gap between home prices and the ability to afford a home with financing has widened over the past 13 years, according to the October First American Real House Price Index.

The index, which measures the relative value of homes based on wages and mortgage rates, found that ‘real’ prices had risen 19.6% in the past 12 months, compared to an increase of 3.6% national income. Real home prices rose 3.7% in October. The average mortgage rate for October was 3.1%, down from 2.9% in September and 2.8% a year earlier. A year ago, the value of RHPI was also increasing, but not as rapidly. At that time, it was only up 1.7% from 12 months earlier.

“Affordability fell to its lowest level since 2008 in October,” said Mark Fleming, chief economist at First American, in a press release.

If, despite the recent rate reduction linked to the variant, affordability continues to deteriorate and ‘fringe’ buyers are sidelined, home buyers may see more buyers reduction of bidding wars and moderation in prices, but much still depends on the supply and price of houses for sale or to rent.

“The challenge for homebuyers in 2022 will mirror 2020 and 2021 – you can’t buy what isn’t for sale, even if you can afford it,” said Mark Fleming, chief economist at First American, in a press release.

Some markets may face more affordability constraints than others.

RHPI rose more than 30% year-on-year in October in cities like Phoenix (33.7%), Charlotte (32.3%) and Tampa (30.9%). Consistent with these numbers, the states with the largest 12-month adjusted price increases were Arizona (32.7%), Florida (25.9%) and South Carolina (25.9%).

A combination of strong investor activity, migration to the region and limited inventory led to the extraordinary increase in Phoenix, according to First American. In Charlotte, a modest drop in average income put pressure on affordability. Nominal home price gains in Tampa were higher than those in Charlotte, but with wage growth in the latter city taken into account, its relative 12-month growth, as measured on the RHPI, was slightly lower.

“Ultimately, nominal appreciation in house prices has outpaced any increase in affordability of housing purchasing power in these three markets,” Fleming said.


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