Housing market affordability is as bad as it has been in more than three decades, and there’s no relief this year.
This is the conclusion first americanThe May Real House Price Index (RHPI) report showed affordability fell 9% from a year earlier. The RHPI growth was driven by nominal house price growth of 5.9% and a 0.6% increase in 30-year fixed mortgage rates from a year earlier.
The RHPI measures affordability by adjusting nominal house prices “to measure purchasing power by taking into account how income levels and mortgage rates affect the amount homebuyers can borrow,” the company explained.
“At the beginning of the year, we forecast that affordability at the end of 2024 would likely be slightly higher than at the end of 2023,” First American chief economist Mark Fleming said in the report. “Unfortunately, inflation has proven stubborn and has led to United States Federal ReserveThe “long-term high” interest rate stance has led to an increase in the outlook for mortgage interest rates, while house prices have once again demonstrated their “downward stickiness.”
While Fleming doesn’t think affordability will see a meaningful improvement the rest of the year, he does think that could happen in 2025 if mortgage rates fall as the Fed has suggested. Other positive signs that may improve affordability include a 4.1% annual increase in hourly wages, solid job growth and a low unemployment rate.
However, if current income growth, nominal price growth and mortgage rates remain stable through the remainder of 2024, affordability will be 45% lower than in February 2022, when interest rates began to rise, according to the First American report.
“While affordability is likely to remain constrained through the remainder of 2024, mortgage rates are expected to fall in 2025, which will be good news for potential homebuyers,” Fleming said in the report.
From a geographical perspective, the traditionally affordable state of West Virginia has the highest annual RHPI increase of 23.2%, followed by Illinois (16%), Rhode Island (15.6%), Vermont ( 15.3%) and New Jersey (15.1%)).
Memphis, Tennessee, topped the list of cities tracked by First American, with an RHPI growth of 18% compared to May 2023. Providence, Rhode Island (16.4%); Seattle (16.1%); and Boston (15.5%).
First American report mirrors May report core logic Released this week. The report showed that house prices increased by 4.9% year-on-year, up 0.6% from April. In a meaningful departure, CoreLogic sees New Hampshire as having the highest home price growth over the past year, at 12%.
