The latest iteration of the First American Financial Corporation’s Real House Price Index (RHPI) covering September 2022 was recently released which as a whole found real home prices increased 10.5% over August 2022.

The RHPI aims to measure the price changes of single-family dwellings throughout the country and adjusts for the impact of income and interest rate changes on consumer home-buying power at the national, state, and local levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

Overall, the average American household had an income of $73,641—at the September mortgage rate average of 6.1% that means the average family home-buying power amounted to $351,322.

“In September 2022, the RHPI jumped up by 60.6% on an annual basis. This rapid annual decline in affordability was driven by two factors—a 13.5% annual increase in nominal house prices and a 3.2 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago. Even though household income increased 3.1% since September 2021 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and fast-rising nominal prices,” said Mark Fleming, Chief Economist at First American. “As affordability wanes and prompts buyers to pull back from the market, nominal house price appreciation has slowed. Nationally, annual nominal house price growth peaked in March at nearly 21 percent but has since decelerated by approximately 7 percentage points to 13.5 percent in September.

“But real estate is local, and there are markets where annual price growth isn’t just slowing, but prices are falling from recent peaks,” said Fleming. “Nominal house prices in many markets are poised to fall further as the hot sellers’ market of the pandemic turns in favor of buyers, but not all that was gained in the pandemic will necessarily be lost.”

“The pandemic housing market was unprecedented in multiple ways. The housing market was already strong prior to 2020, yet the pandemic redefined the role of a home, creating a surge in demand. As work-from-home became the new normal, a house was no longer just a dwelling or a vehicle for wealth creation, but also an office, a classroom, a daycare and even a gym. The broadening role of the home in American life, coupled with record-low mortgage rates and limited housing supply, powered the housing market to multiple records during this unprecedented time — the fastest annual house price appreciation, the lowest days on market in the history of record-keeping, and a near-record annualized pace of sales,” said Fleming. “Yet, the pandemic housing market was the exception, not the norm. Double-digit house price growth was not sustainable in the long run. As the saying goes, what goes up, must ‘eventually’ come down. Sellers may be anchored to yesterday’s prices, but buyers won’t buy unless sellers adjust prices down to meet the affordability-constraining reality of higher mortgages rates. Sellers are beginning to recognize this and price cuts are becoming more common.

“Nominal house prices declined in September from their recent peaks in 15 of the top 50 markets we track. The market with the biggest decline was San Francisco, where nominal house prices peaked in March 2022, but have since declined by 6.8 percent as the housing market rebalances,” said Fleming. “San Jose follows closely behind, as nominal house prices have declined 5.9 percent from the recent peak in April 2022.

“While prices are declining from the peak in these markets, much of the equity homeowners gained during the pandemic remains. For example, in both San Francisco and San Jose, house prices increased 29 percent from February 2020 to their respective peaks in 2022,” said Fleming. “House price declines would have to be substantial to eat away at all of the equity that many homeowners have accumulated over the last few years.”

September 2022 Real House Price Index Highlights include:

Real house prices increased 10.5% between August 2022 and September 2022.
Real house prices increased 60.6% between September 2021 and September 2022.
Consumer house-buying power, how much one can buy based on changes in income and interest rates, decreased 8.9% between August 2022 and September 2022, and decreased 29.3% year over year.
Median household income has increased 3.1% since September 2021 and 77% since January 2000.
Real house prices are 38.1% more expensive than in January 2000.
While unadjusted house prices are now 55.4% above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 2.5% below their 2006 housing boom peak. The five states with the greatest year-over-year increase in the RHPI are: Florida (+78.3%), Georgia (+66.9%), Arkansas (+65.8%), South Carolina (+64.9%), and Alabama (+64.7%).
There were no states with a year-over-year decrease in the RHPI.
Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Miami (+82.5%), Tampa, Fla. (+73.4%), Indianapolis (+70.4%), Nashville, Tenn. (+69.6%), and Orlando, Fla. (+69.3%).
Among the Core Based Statistical Areas (CBSAs) tracked by First American, there were no markets with a year-over-year decrease in the RHPI.
“House-buying power has declined by $145,500 compared with one year ago, primarily due to higher mortgage rates. Affordability will likely remain a drag on the housing market until house-buying power recovers as house prices decline. House prices have already begun to adjust to the reality of higher mortgage rates in many markets, which will help bring more balance to the housing market heading into 2023,” concluded Fleming. “Potential home sellers gained significant amounts of equity over the pandemic, so even as affordability-constrained buyer demand spurs price declines in some markets, potential sellers are unlikely to lose all that they have gained.”