First American Financial Corporation, the premier provider of title, settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, today released the February 2022 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 at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

Chief Economist Analysis: Real House Prices Increase Nearly 31 percent

“In February 2022, the Real House Price Index jumped up by nearly 31 percent. That’s the fastest growth in the more than 30-year history of the series. This rapid annual decline in affordability was driven by two factors – a 21.7 percent annual increase in nominal house prices and a nearly full percentage point increase in the 30-year, fixed mortgage rate compared with one year ago,” said Mark Fleming, chief economist at First American. “Rising mortgage rates impact both housing supply and demand, limiting supply by reducing the propensity of homeowners to sell and flattening demand by reducing consumer house-buying power.

“For home buyers, the only way to mitigate the loss of affordability caused by a higher mortgage rate is with an equivalent, if not greater, increase in household income,” said Fleming. “Even though household income has increased 5.1 percent since February 2021 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher rates and rapidly rising nominal prices.

“Rising mortgage rates and surging nominal house prices are expected to continue outpacing household income, so affordability will likely wane further nationally in the near term,” said Fleming. “One forecast, based on an estimate of when the 10-year Treasury yield will peak, suggests that the 30-year, fixed mortgage rate will likely peak between 5.0 and 5.7 percent, but may move as high as the low 6 percent range. So, let’s examine how these mortgage rate scenarios would impact house-buying power.”