Talk of a US housing affordability crisis misses a key element of household budgets according to a real estate industry economist.
Mark Fleming, chief economist at title insurer First American says that while unadjusted house prices have risen more than household income (6% vs. 2.8% in the 12 months to November 2017), the proclamations of a crisis are only using a single metric of household buying power.
“A consumer’s house-buying power, how much one can afford to buy, is also based on changes in mortgage interest rates,” said Fleming. “Even if one’s income doesn’t change, but interest rates go down, house-buying power increases.”
He added that consumer house-buying power, based on changes in income and interest rates, was unchanged between October and November 2017 and actually improved by 1%, compared with a year earlier.
“In fact, consumer house-buying power is 2.3 times higher than it was in 2000, almost two decades ago. It’s also only 2.9% below the peak in July 2016,” said Fleming, noting that mortgage interest rates have been trending lower from their peak of 18% in 1981.
Prices keep climbing
First American’s Real House Price Index for November 2017, the latest month of data available, was up 0.5% month-over-month and 5% year-over-year. Real buying power was up 0.9% year-over-year but unchanged from the previous month.
Delaware (12.4%), Nevada (10.7%) and Missouri (10.6%) saw the largest year-over-year increases while Pittsburgh was the only market analyzed which decreased (by 2.5%).
Source: Steve Randall, Mortgage Professional America, 1-30-18