Housing affordability hits record low

The rapid annual decline was driven by two factors, expert says

Housing affordability hits record low

Real estate solutions provider First American Financial Corporation has released its April 2022 American Real House Price Index. The index measure price changes in single-family properties throughout the US at a national, state, and metropolitan level. Because the index makes adjustments for the impact of income and interest rate changes on house-buying power over time, it also serves as a gauge for housing affordability.

In April 2022, the index jumped up by 45.6% compared with April last year and by 11.4% from this March, the fastest acceleration recorded in the index’s 30-year history and thus the fastest decline in affordability on a year-over-year and month-over-month basis. “This rapid annual decline in affordability was driven by two factors,” said First American chief economist Mark Fleming, “a 21.2% annual increase in nominal house prices and a 1.9 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago.”

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Household income increased 5% since April 2021 and boosted consumer house-buying power, though even that was not enough to offset the affordability loss from fast-rising rates and prices over the year. The index recorded a decrease of 8.7% in consumer house-buying power between March and April 2022, and a 16.7% decrease year over year.

Taking into account household income growth and nominal house prices – which vary per city – First American found that affordability declined the most year over year in Charlotte, North Carolina (+62.5%), followed by Tampa, Florida and Raleigh, North Carolina tied for second (+60%), then Orlando, Florida (+56.2%) and Phoenix (+56.1%).

The drop in affordability in Charlotte was because of the 28% annual increase in nominal house price growth fueled by strong investor activity and net-in migration against a limited housing supply. In Tampa, the decline in affordability was driven by the annual nominal house price growth of 37%.

“Comparing the decline in affordability in Charlotte with Tampa illustrates the importance of shifts in household income,” said Fleming. “While annual house price appreciation in Tampa outpaced that of Charlotte, the decline in affordability was tempered by growth in household income.

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“Ultimately, the common dynamic across all 50 markets tracked in the [index] is that nominal house price appreciation outpaced house-buying power.”

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