Housing affordability fell the fastest since December 2018 in April and is not likely to improve anytime soon, according to First American.
The Real House Price Index – a measure that adjusts house prices to reflect fluctuations in income and interest rates – rose 0.7% from March and 7% year-on-year. When the RHPI goes up, homebuyers' affordability goes down. The median household income rose to $ 74,249 from $ 73,455 per month and $ 70,542 per year, while home purchasing power rose to $ 505,904 from $ 499,060 in the previous month and to $ 465,906 in April 2020.
Although purchasing power has risen for the 16th consecutive month, it has failed to keep up with the 16.2% house price growth from a year ago, a likely trend that will continue. These growth rates need to be flipped in order to increase consumer affordability, but a combination of rising mortgage rates and the low inventory environment should accelerate them further in the same direction. The ongoing rise in property prices also poses risks for borrowers.
Under current conditions, household income would have to rise 5% to offset the projected rate hike by the end of 2021, according to First American Chief Economist Mark Fleming.
"While nominal house price growth could slow down due to the affordability constraints for fringe buyers, the severe mismatch between supply and demand means that the housing market is unlikely to cool enough to result in a significant improvement in affordability," said Fleming in the report. "It will take years before supply catches up with demand and, in the meantime, every new housing stock is absorbed very quickly by existing demand."
Arizona led all states with an annual increase in RHPI of 18.3%, beating Washington's 16.1%, Vermont's 15.3% and Wyoming's 15.2%. No state saw a year-over-year decline in RHPI in April, but Kentucky had the lowest growth at 2.3%, followed by 2.9% in Iowa and 3.5% in Illinois.
Among the 50 largest housing markets, RHPI grew the fastest per year in Phoenix at 20.8%, Kansas City, Missouri, at 20.52%, Seattle at 18.21%, and Tampa, Florida, at 16.55%. Only San Francisco fell as of April 2020, declining 0.68%, followed by gains of 0.43% in Riverside, California and 1.74% in Miami – modest increases that make home purchases cheaper in these metropolitan areas than the rent.