House Buying Power At Near Historic Levels

Dated: 07/12/2018

Views: 29

House-Buying Power at Near-Historic Levels | MyKCM

We keep hearing that home affordability is approaching crisis levels. While this may be true in a few metros across the country, housing affordability is not a challenge in the clear majority of the country. In their most recent Real House Price Index, First American reported that consumer “house-buying power” is at “near-historic levels.”

Their index is based on three components:

  1. Median Household Income

  2. Mortgage Interest Rates

  3. Home Prices

The report explains:

“Changing incomes and interest rates either increase or decrease consumer house-buying power or affordability. When incomes rise and/or mortgage rates fall, consumer house-buying power increases.”

Combining these three crucial pieces of the home purchasing process, First American created an index delineating the actual home-buying power that consumers have had dating back to 1991.

Here is a graph comparing First American’s consumer house-buying power (blue area) to the actual median home price that year from the National Association of Realtors (yellow line).

House-Buying Power at Near-Historic Levels | MyKCM

Consumer house-buyer power has been greater than the actual price of a home since 1991. And, the spread is larger over the last decade.

Bottom Line

Even though home prices are increasing rapidly and are now close to the values last seen a decade ago, the actual affordability of a home is much better now. As Chief Economist Mark Fleming explains in the report:

“Though unadjusted house prices have risen to record highs, consumer house-buying power stands at near-historic levels, as well, signaling that real house prices are not even close to their historical peak.”

Blog author image

Derrick Houston

Derrick has been in real estate for ten years. Before embarking on a career in real estate, Derrick served his country honorably for nine years in the United States Navy supervising young aviation ele....

Latest Blog Posts

House Buying Power At Near Historic Levels

We keep hearing that home affordability is approaching crisis levels. While this may be true in a few metros across the country, housing affordability is not a challenge in the clear majority of the

Read More

Rising Interest Rates Have Not Dampened Demand

Since the beginning of the year, mortgage interest rates have risen over a half of a percentage point (from 3.95% to 4.52%), according to Freddie Mac. Even a small rise in

Read More

How Long Do Most Families Live In A House

The National Association of Realtors (NAR) keeps historical data on many aspects of homeownership. One of their data points, which has changed dramatically, is the median tenure

Read More

The Number One Reason To List Your House For Sale NOW

If you are debating whether or not to list your house for sale this year, here is the #1 reason not to wait!Buyer Demand Continues to Outpace the Supply of Homes for SaleThe National

Read More