Despite homes being more expensive than they were a year ago, they are still relatively affordable compared to the 2006 housing boom period.
Data from the First American Financial Corp.’s January 2022 First American Real House Price Index (RHPI), shows home prices jumped up by nearly 27%, the fastest growth in the RHPI since 2004, driven by a 21.7% annual increase in nominal house prices and a 0.7 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago.
But put into context, homebuyers are still better off than in 2006, with national house prices 29% below the peak in April 2006—largely due to lower mortgage rates and higher incomes providing enough counter-power to the supply-demand imbalance.
“According to our house-buying power-adjusted RHPI, homes are 34 percent more affordable on average across all 50 markets than their respective RHPI peaks,” said Fleming, adding that while prices are expected to continue increasing and mortgage rates to rise, “it’s likely that affordability will decline further, but in most markets we’re still a long way from the mid-2000s boom.”
The index also shows that four cities—Washington, D.C., Baltimore, Chicago and Miami—are more than 50% more affordable than the prior peak.
The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.