The level of affordable homeownership has declined to a depth not seen in more than three decades, according to the new Real House Price Index (RHPI) published by First American Financial Corp. (NYSE: FAF).
According to First American, the RHPI measures the price changes of single-family properties 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.
First American determined that real house prices increased 2% between June and July and soared by 16.9% 2023 between July 2022 and July 2023. During July, consumer house-buying power – defined as how much one can buy based on changes in income and mortgage rates – dipped by 1% from June but dropped by 11% year-over-year.
The five states with the greatest year-over-year increase in the RHPI are Maine (27.8%), Connecticut (27 %), Indiana (25.3%), Alaska (24.6%) and Virginia (23.9%). There were no states with a year-over-year decrease in the RHPI.
“In July 2023, the Real House Price Index (RHPI) jumped up by nearly 17% on an annual basis, bringing housing affordability to the lowest point in over three decades,” said Chief Economist Mark Fleming, who noted that of the “top 50 markets tracked, 24 markets were overvalued in July, meaning the median existing-home sale price exceeded house-buying power. This is significantly higher than in July 2022, when just 15 markets were considered overvalued.”
“The good news is that most of the markets we track remain undervalued by this measure, and some markets remain significantly undervalued,” Fleming added. “For example, Detroit, Philadelphia and Cleveland are undervalued by an average of $126,000.”