[May 25, 2017]

Supply Squeeze Sends Real House Prices Higher, According to First American Real House Price Index

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released the March 2017 First American Real House Price Index (RHPI). The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time and across the United States at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

March 2017 Real House Price Index

• Real house prices increased 0.7 percent between February and March.
• Real house prices increased by 11.5 percent year-over-year.
• Consumer house-buying power, how much one can buy based on changes in income and the interest rate, decreased 0.4 percent between February and March, and fell 5.2 percent year-over-year.
• Real house prices are 32.5 percent below their housing-boom peak in July 2006 and 9.3 percent below the level of prices in January 2000.
• Unadjusted house prices increased by 5.8 percent in March on a year-over-year basis and are 2.4 percent above the housing boom peak in 2007.

Chief Economist Analysis: "Prisoner's Dilemma" Squeezes Supply, Fueling Continued Surge in Real House Prices

"Real, purchasing-power adjusted house prices are rising even faster than unadjusted home prices alone, primarily due to declining consumer purchasing power," said Mark Fleming, chief economist at First American. "Strong Millennial demand, a limited supply of homes for sale, and higher mortgage rates have all combined to impact the affordability of homes compared to a year ago."

"Rising real house prices are a nationwide phenomenon, as real house prices increased in all 50 states and in every market we track. Many markets even experienced double-digit real house price increases in March, compared with a year ago. The supply in most markets is insufficient for this spring's strong demand," said Fleming. "The market faces a 'prisoner's dilemma.' If everyone sells, the supply squeeze would ease. However, homeowners may not be putting their homes on the market because they're wary of the risk of selling when others don't - the inability to find another home to purchase at the right price."

Additional Quotes from Chief Economist Mark Fleming

• "The average rate for a 30-year, fixed-rate mortgage remained above 4 percent for the fourth consecutive month in March. The mortgage rate was half a percent higher than in March 2016."
• "Wages continue to move higher, growing at an annual pace of 2.7 percent in March 2017, as the labor market continued to improve. Wage growth has helped to offset the impact that higher mortgage rates and increasing house prices are having on home affordability."
• "However, supply shortages in most markets relative to strong demand is putting upward pressure on house prices and lowering affordability."
• "Homes, on a real purchasing-power adjusted basis, are 11.5 percent more expensive than they were a year ago."
• "For the third consecutive month, real house prices increased on a year-over-year basis in all of the metropolitan areas tracked by First American."
• "Jacksonville, Fla. continues to lead the nation in declining housing affordability, which fell 18.8 percent in the last 12 months."

March 2017 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Wisconsin (+17.0 percent), Michigan (+16.7 percent), Alabama (+16.0 percent), New York (+15.2 percent) and Colorado (+15.0 percent).
• The five states with the smallest year-over-year increase in the RHPI are: Nebraska (+1.2 percent), Tennessee (+4.3 percent), Massachusetts (+4.4 percent), Connecticut (+5.0 percent) and Montana (+5.2 percent).

March 2017 Real House Price Local Market Highlights

• 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: Jacksonville, Fla. (+18.8 percent), Milwaukee (+18.3 percent), Charlotte, N.C. (+16.6 percent), Denver (+15.4 percent), and Seattle (+14.9 percent).
• Among the CBSAs tracked by First American, the markets with the smallest year-over-year increase in the RHPI are: Hartford, Conn. (+4.6 percent), Pittsburgh (+5.0 percent), Virginia Beach, Va. (+6.2 percent), San Francisco (+6.5 percent), and Riverside, Calif. (+7.5 percent).

Next Release

The next release of the First American Real House Price Index will be the week of June 26, 2017 for April 2017 data.

Methodology

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

Disclaimer

Opinions, estimates, forecasts and other views contained in 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, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2017 by First American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With total revenue of $5.6 billion in 2016, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016 and again in 2017, First American was named to the Fortune 100 Best Companies to Work For^® list. More information about the company can be found at www.firstam.com.

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