Growing wages combined with flat mortgage rates handed homebuyers’ increased affordability with a 2.4% boost in purchasing power for February, according to First American Financial’s Real House Price Index.
“While household income rose steadily in 2018, rising mortgage rates offset any affordability benefit for home buyers, as illustrated by 11.1% year-over-year growth in the RHPI,” Mark Fleming, First American’s chief economist, said in a press release. “However, the first quarter of 2019 has been friendly to potential homebuyers, as declining mortgage rates, ongoing household income growth and moderating unadjusted home prices has boosted affordability.”
Wages jumped 2.8% year-over-year, almost on par with the home price index’s 2.9% annual gain — the lowest annual increase since January 2018’s 2.5%. Prices actually decreased month-over-month, falling 0.4% — a continued trend from November when real home prices had the largest monthly decline since 2016.
Six popular West Coast metro areas had annual declines in spite of the national growth. San Jose, Calif., led them with a 5.5% decrease, followed by Seattle’s 4.5% and San Francisco’s 2.1% dips. Los Angeles (1.6%), Portland, Ore. (1.1%), and San Diego (0.3%) rounded out the sextet of declines.
“These coastal markets all have something in common: they were the tightest and hottest markets of 2018. In the first half of 2018, rising millennial demand amid a backdrop of limited inventory and increasing mortgage rates put pressure on affordability, causing buyers to take a step back. But now, affordability is on the rise and the main reason is rising inventory,” said Fleming.
Unadjusted home prices continue to grow behind buying demand, accelerated in spring’s home buying season. “While these trends help homebuyers, it’s too soon to call it a buyers’ market,” Fleming explained.