Not All Markets 'Boomed' and Not All Markets Are 'Busting,' According to First American Real House Price Index
First American Financial Corporation (NYSE: FAF), a 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 January 2023 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 Decreased 1 Percent Month Over Month
"Affordability has now improved for three straight months, yet remains down 39 percent since January 2022, according to the RHPI. Nominal house price appreciation has slowed dramatically in response to dampened demand. Nationally, annual nominal house price growth peaked in March 2022 at 21 percent, but has since decelerated by nearly 17 percentage points to 4.4 percent in January," said Mark Fleming, chief economist at First American. "The pandemic-era boom in house prices was broad-based, with house prices increasing by an average of approximately 42 percent from pre-pandemic to peak in the 10 markets now experiencing the lowest annual price growth. Now, as house prices adjust to the reality of higher mortgage rates, it's becoming clear that the pace of adjustment will vary significantly by market."
What Factors Determine Boom and Bust Markets?
"The ongoing adjustment in house prices is broad-based as well, with nominal house prices declining in January from their recent peaks in 35 of the top 50 markets we track, but also varies significantly by market. In some markets, house prices have declined from recent peaks by double-digits, while house prices in other markets have yet to decline," said Fleming. "Of course, repeat-sales price indices, such as the one used in this analysis are based on closed sales prices, which are a lagging indicator of price changes in the housing market because the contracts for these closed sales were set months earlier. Even so, a pattern emerges that allows us to separate markets into four categories1: boom-bust; boom-no bust; no boom-bust; and no boom-no bust."
"While prices declines will likely continue across the top 50 markets, there is one trend that bodes well for all markets - much of the homeowner equity gained during the pandemic remains," said Fleming. "As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners during the pandemic boom."
January 2023 Real House Price Index Highlights
January 2023 Real House Price State Highlights
January 2023 Real House Price Local Market Highlights
The next release of the First American Real House Price Index will take place the week of April 17, 2023 for February 2023 data.
The methodology statement for the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.
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. © 2023 by First American. Information from this page may be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a premier provider of title, settlement and risk solutions for real estate transactions. With its combination of financial strength and stability built over more than 130 years, innovative proprietary technologies, and unmatched data assets, the company is leading the digital transformation of its industry. First American also provides data products to the title industry and other third parties; valuation products and services; mortgage subservicing; home warranty products; banking, trust and wealth management services; and other related products and services. With total revenue of $7.6 billion in 2021, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2022, First American was named one of the 100 Best Companies to Work For by Great Place to Work® and Fortune Magazine for the seventh consecutive year. More information about the company can be found at www.firstam.com.
1 If a market is above the average rate of nominal house price from 2020 until the peak, then it is considered a pandemic "boom" market. If a market is below the average rate of growth from peak-to-January 2023, then that is considered a bust market. The average pre-pandemic to peak growth rate was 41 percent, while the average peak-to-current growth was -2 percent.
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