Home prices are 40% more affordable than at housing boom height

by Liz Hughes

Mortgage rates and income levels are making home prices more than 40% more affordable than they were at the height of the housing boom, giving June homebuyers 129% more house-buying power than in 2006, according to First American Financial Corp., citing its June Real House Price Index.

Chief Economist Mark Fleming said the underlying fundamentals driving today’s market are signals that high housing prices are poised to moderate gradually, rather than bust; June saw affordability declining for the fourth consecutive month. 

While house prices are well above their 2006 peak, real house prices are 42% below them, according to Fleming.

“Since the housing boom peak in unadjusted prices in 2006, the average 30-year, fixed mortgage rate has fallen by approximately 3.3 percentage points, from 6.32% to 2.98%,” Fleming said in a press release. “Over the same period, nominal household income has increased 55%. The dramatically lower mortgage rates and higher income levels mean homebuyers in June had 129% more house-buying power than in 2006. House-buying power matters because people buy homes based on how much it costs each month to make a mortgage payment, not the price of the home.”

First American’s index measures the price changes of single-family properties adjusted for the impact of income and interest rates on consumer homebuying power at national, state and metropolitan levels.  

The report also found June’s real house prices increased 1.9% from May and 11.6% from June 2020. The consumer house-buying power (how much one can buy based on changes in income and interest rates) decreased 0.03% from May and increased 6.8% from a year earlier.

Median household income in June increased 4.3% from June 2020 and 77.6% since January 2020, while real house prices were 18.1% less expensive than in January 2000. 

The five states with the greatest year-over-year increase in the RHPI were Arizona (23.3%);  Vermont (21.4%), Nevada (20.9%), Connecticut (19.2%) and Rhode Island (17.8%). The report found no states had year-over-year decreases. 

The five markets with the greatest year-over-year increase in the RHPI are Phoenix (27.3%);  Kansas City, Mo. (22.6%); Las Vegas (22.3%); Seattle (20.5%); and Tampa, Fla. (19.8%).

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