Consumer purchasing power jumps, especially in West
While affordability remains a challenge with the continued strain on housing supply, purchasing power took a big leap in September thanks to a rise in income and descending interest rates, according to First American Financial Corp.
“Two of the three key drivers of the Real House Price Index (RHPI), household income and mortgage rates, modestly swung in favor of increased affordability in September, yet affordability declined month-over-month,” Mark Fleming, chief economist at First American, said in a press release. “The 30-year, fixed-rate mortgage fell by 0.01 percentage points and household income increased 0.03% compared with August 2019. When household income rises, consumer house-buying power increases. Declining mortgage rates have a similar impact on consumer house-buying power.”
The RHPI fell in some of the famously expensive Western hubs. The year-over-year change in San Francisco was negative-12.36%, followed by negative-11.33% in Portland, Ore., negative-10.26% in Denver, and negative-9.74% in Seattle.
Meanwhile, the metro areas with the smallest gains in affordability were scattered along the East coast and Midwest. The annual RHPI of Providence, R.I., was negative-0.71%, followed by negative-2.99% in Milwaukee, the negative-3.89% in Cleveland, negative-3.95% in Cincinnati, and negative-4.06% in Philadelphia.
“One month does not make a trend, yet these markets demonstrate the dynamic we expected to see – the consistent growth in house-buying power over 2019 has boosted demand in a supply constrained market, putting upward pressure on house price appreciation. Faster nominal house price appreciation can erode, or even completely eliminate, the boost in affordability from increasing house-buying power,” said Fleming.