Real house prices increased by 26.8% year-over-year in 2021, the highest annual growth rate since 2004.

First American Financial Corporation has released its Real House Price Index (RHPI) for January 2022, which measures the price changes of single-family properties which are adjusted based on income, interest rates, and home-buying power. The ultimate goal of this is to provide a clearer picture of housing affordability. According to First American, the three key points of the First American RHPI are income, mortgage rates and an unadjusted house price index.  For the month of January, First American found that real house prices increased by 26.8% year-over-year or 6.3% from December 2021. This represents the highest annual growth rate seen since 2004. It also found that the average house-buying power is $458,317, down from $477,343 the previous month while the average household income is $70,611, up by $267 from $70,344. Mark Fleming, the Chief Economist at First American. “Even though household income increased 5% since January 2021, it was not enough to offset the negative impact on consumer house-buying power from higher rates and fast rising nominal prices. In the near term, affordability is likely to wane further nationally as rising mortgage rates and increasing house prices continue to outpace gains in household income,”   All that being said, homes today are statistically more affordable than they were during the 2006 market peak.  “Nationally, real, house-buying power-adjusted house prices remain 29% below the peak in April 2006. While consumer house-buying power declined in January 2022, it remains near record levels and more than double the level of consumer house-buying power in April 2006 thanks to higher household income and significantly lower mortgage rates,” Fleming said. “Household incomes today are nearly 48% greater than April 2006 and the average mortgage rate is over 3 percentage points below its April 2006 level. In fact, real house prices nationally are at the same level they were in 2000.”

Source: DSNews