First American’s “real house price index” surged in certain cities as the median income plummeted while home prices rose.

As prices continue to skyrocket, homebuying power is diminishing in the majority of the nation’s cities, according to the latest real house price index (RHPI) released Monday by First American.

“As the old adage goes, real estate is all about ‘location, location, location,’” Mark Fleming, the chief economist at First American and author of the monthly report, said in a statement. “In June, the RHPI increased in 35 of the 44 markets we track year over year, meaning affordability declined in each.”

New York City saw the biggest change in house-buying power, according to the data, followed by San Diego, Pittsburgh, Orlando and St. Louis.

Changes in affordability in the nation’s cities. | Credit: First American

In New York City, real house prices — a measure of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes — increased by 29.2 percent, while house-buying power declined by 16.8 percent.

“Even though nominal house price appreciation in New York City was less than in some other cities, the big drop in house-buying power meant New York City saw the greatest annual decrease in affordability,” Fleming said. “Since the average 30-year, fixed mortgage rate in June is the same across cities, the decline in house-buying power was driven by a significant decrease in median household income.”

Despite the majority of cities seeing a decrease in affordability, nationally, things are trending in a better direction for would-be homebuyers. Real house prices declined 4.8 percent year over year in June, while consumer home-buying power increased 13.7 percent year over year.

Mark Fleming | Photo credit: First American

“Nationally, house-buying power, how much home one can afford to buy given their income and the prevailing 30-year, fixed-rate mortgage, continues to outpace nominal house price appreciation, resulting in a 4.8 percent improvement in affordability relative to one year ago,” said Fleming. “Yet, all real estate is local and affordability dynamics can vary greatly at the market level.”

The dynamics of the economy — the uncertainty of the path of recovery and the impact of the pandemic on the labor market — could bring more decreased affordability in the fall.

“Faster nominal house price appreciation and lower household income can erode, or even completely eliminate, the affordability boost from today’s record-low mortgage rates,” Fleming said. “From June 2019 until April 2020, affordability was improving for all top markets as house-buying power outpaced house price appreciation.

“However, as the pandemic and its impacts linger, house-buying power is no longer winning the affordability tug-of-war against nominal house price appreciation in many markets.”

Email Patrick Kearns

homebuying | mortgages
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