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Number of Markets Considered Overvalued Rises as Mortgage Rates Rise, First US Real House Price Index Shows | New

SANTA ANA, Calif.–(BUSINESS WIRE)–September 27, 2022–

First American financial company(NYSE: FAF)a leading provider of securities, settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, released today July 2022 First U.S. Real House Price Index (RHPI). The RHPI measures single-family home price changes across the United States adjusted for the impact of income and interest rate changes on consumer purchasing power over time at the national, state, and metro levels. . Since the HRPI takes into account the purchasing power of a home, it also serves as a measure of housing affordability.

Chief Economist Analysis: Real Home Prices Rise 53.8% Year Over Year

“Housing affordability continued its rapid annual decline in July 2022, as nominal house prices rose 16.7% year-over-year and the 30-year fixed mortgage rate increased by 2.5 percentage points from a year ago. The RHPI reflects the decline in affordability, as it jumped almost 54% on an annual basis,” said Mark Fleming, chief economist at First American. “For homebuyers, there are few options to mitigate the loss of affordability caused by a higher mortgage rate and rising prices. One way to compensate for the decline in affordability is to increase household income by an equivalent, if not greater, amount. Another option is to choose an adjustable rate mortgage (ARM), which usually has a lower rate than a 30-year fixed rate mortgage. Even though household income and higher MRAs help increase consumer purchasing power, they are not enough to offset the loss in affordability due to higher rates and rapidly rising nominal prices in July.

“As affordability declines, potential buyers pull out of the market, causing annual home price appreciation to moderate. Annual home price growth peaked in March at nearly 21%, but has since slowed to a still high 16.7% in July,” Fleming said. “As the housing downturn continues, the pace of house price moderation will vary across markets. , with prices decelerating faster in some markets than in others. By analyzing which markets are considered overvalued, we can identify markets at risk of a faster price deceleration.

Where is the overpriced housing?

“If housing is valued appropriately, a home’s buying power should equal or exceed the median selling price of a home,” Fleming said. “As of July, most of the top 50 markets we track remain undervalued by this metric, some significantly undervalued. For example, Detroit, Philadelphia and Pittsburgh are markets considered undervalued by nearly $200,000.

“However, real estate is local and not all markets are created equal. There were 15 markets considered overvalued in July, meaning the median selling price of existing homes exceeded the buying power of homes. Only a year ago four markets were considered overvalued,” Fleming said. “San Jose, California was the most overvalued market. Median consumer spending power in San Jose in July was just over $770,000, just over half the median selling price of a home at $1,460,000. Therefore, the annual house price growth adjusts to San Jose. Price growth peaked at 19.4% in February 2022, but has since slowed rapidly to 4.6% in July – the second-fastest price deceleration among the top 50 markets we track, second only to Sacramento.

“The overvaluation was calculated based on July 2022 house prices and mortgage rates, but mortgage rates have since risen. If we hold household income and median selling prices constant at their July 2022 levels, the increase in the average 30-year fixed mortgage rate from 5.4% in July to 6% in Septemberincreases the number of overvalued markets by four, adding San Antonio, Miami, Tampa, Florida and Salt Lake City to the list and bringing the total to 19,” Fleming said.

Where does the housing market go from here?

“Household overvaluation is a function of three factors: house prices, household income and mortgage rates. The preliminary nominal house price index from First American Data & Analytics indicates that the deceleration in house prices is likely to continue in September. Meanwhile, median household income is expected to continue to rise, as imbalance of supply and demand in the labor market persists, putting upward pressure on wages,” Fleming said. “While mortgage rates are expected to continue to climb over the next few months, much of the rapid rate increase is likely behind us. While markets seen as overvalued may have to adjust to the not-so-new reality of higher mortgage rates, housing market fundamentals still support a moderation in annualized house price appreciation rather than a sharp decline.

“Nationally, while month-to-month home prices may decline, year-over-year declines in home prices are not expected given the current imbalance of supply and demand and continued strength in the labor market,” Fleming said. “Before the pandemic, the historical average for annual house price growth was just under 4%, as the market adjusts to a not-so-new normal pace of appreciation, some buyers who have pulled back due to the frenzy of super sellers ‘ the market could rebound.

July 2022 Real House Price Index Highlights

  • Real house prices decreased by 0.9% between June 2022 and July 2022.
  • Real house prices increased by 53.8% between July 2021 and July 2022.
  • Consumer purchasing power, i.e. the amount one can buy based on changes in income and interest rates, increased by 1.7% between June 2022 and July 2022 and decreased 24.1% year-over-year.
  • Median household income has increased by 3.0% since July 2021 and by 76% since January 2000.
  • Real house prices are 28.7% more expensive than in January 2000.
  • While unadjusted house prices are now 55.1% above the peak of the housing boom in 2006, real house prices adjusted for purchasing power remain 9.3% below their peak in 2006.

July 2022 House Price Report Highlights

  • The five states with the largest year-over-year increase in the HRPI were: Florida (+72.2), South Carolina (+59.6%), Georgia (+59, 4), North Carolina (+58.5%) and Vermont (+58.2%). percent).
  • No state recorded a year-over-year decline in the HRPI.

July 2022 Actual Home Prices Local Market Highlights

  • Among the major statistical areas (CBSAs) tracked by First American, the five markets with the largest year-over-year increases in HRPI were: Miami (+68.5%), Tampa, Florida (+ 67.3%), Charlotte, NC (+65.1), Raleigh, NC (+64.1%) and Orlando (+62.5%).
  • Of the Basic Statistical Domains (CBSAs) tracked by First American, no market saw a year-over-year decline in HRPI.

next release

The next release of the First American Real House Price Index will be the week of October 17, 2022 for August 2022 data.



The methodological statement of the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.


The opinions, estimates, forecasts and other views contained on this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable and useful information, it does not warrant that the information is accurate, current, or fit for any particular purpose. © 2022 by First American. Information on this page may be used with proper attribution.

About First American

First American financial company (NYSE: FAF) is a leading provider of securities, settlement and risk management solutions for real estate transactions. With its financial strength and stability built on more than 130 years, innovative proprietary technologies and unparalleled data assets, the company is leading the digital transformation of its industry. First American also provides data products to the title industry and other third parties; assessment products and services; mortgage service; home warranty products; banking, trust and wealth management services; and other related products and services. With total revenue of $9.2 billion in 2021, the company offers its products and services directly and through its agents in the United States and abroad. In 2022, First American was named one of the 100 Best Companies to Work For by Great Place to Work® and Fortune Magazine for the seventh consecutive year. More information about the company can be found at www.firstam.com.

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PUBLISHED: 09/27/2022 07:00 / DISK: 09/27/2022 07:02