Recovery in House Price Appreciation Lifts Many Markets to New Price Peaks
In 2023, house prices re-accelerated in many markets with 33 of the top 50 markets reaching a new house price peak in December, says First American Chief Economist Mark Fleming
SANTA ANA, Calif., – First American Data & Analytics, a leading national provider of property-centric information, risk management and valuation solutions and a division of First American Financial Corporation (NYSE: FAF), released the December 2023 First American Data & Analytics’ 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: Affordability Improved in December, But Still Down 9 percent for the Year
“In December 2023, home buyers received a welcome holiday gift as mortgage rates fell and affordability improved by 6 percent over November, according to the Real House Price Index (RHPI). However, on an annualized basis, affordability decreased by nearly 9 percent,” said Mark Fleming, chief economist at First American. “Two factors drove the sharp annualized drop in affordability – a 7.7 percent annual increase in nominal house prices, according to our First American Data & Analytics House Price Index, and a 0.5 percentage point increase in the 30-year, fixed mortgage rate compared with one year ago.
“For home buyers, holding prices constant, the only way to mitigate the loss of affordability caused by higher mortgage rates is with an equivalent, if not greater, increase in household income,” said Fleming. “Even though household income increased 3.9 percent since December 2022 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and rising nominal prices.”
Re-Acceleration in House Prices Prompts Re-Examination of Boom-Bust Markets
“A year ago, we separated the top 50 markets into four categories[1]: boom-bust, boom-no bust, no boom-bust, and no boom-no bust. In January of 2023, nominal house prices had declined from their recent peaks in 35 of the top 50 markets we track,” said Fleming. “Since then, house prices have re-accelerated in many markets with 33 of the top 50 markets reaching a new house price peak in December and only 17 markets with house prices below their recent peaks.”
Boom-Bust: Only two markets remain in the boom-bust category: Austin, Texas and Phoenix. House prices increased 65 percent from February 2020 to the peak in May of 2022 in both markets,” said Fleming. “Since then, nominal house prices have declined by 6 percent and 3.8 percent, respectively. House prices in these pandemic “boom towns” overheated during the pandemic, but prices are now ‘busting.’”
No Boom-Bust: “The example of a no boom-bust market is San Francisco. In San Francisco, house prices increased 31 percent from February 2020 until the peak in April 2022, lower than the average growth rate across the top 50 markets. Prices have since declined by 8 percent from the peak. Other markets in this category include Sacramento, Calif., Seattle, and San Jose, Calif.,” said Fleming. “These coastal markets have long been among the most expensive and there wasn’t as much room for prices to rise from pre-pandemic to peak, but when mortgage rates more than doubled in a year, those already expensive markets felt the pain from the corresponding pullback in demand.”
Boom-No Bust: “Miami is an example of a boom-no bust market. Miami has yet to experience price declines. Since the start of the pandemic, Miami house prices have increased by over 67 percent,” said Fleming. “The Florida housing market has held up better than most of the country, in part, because of cash buyers that are undeterred by rising mortgage rates, but also because it has become a popular relocation destination.”
No Boom-No Bust: New York is an example of a no boom-no bust market. The pre-pandemic-to-peak growth rate in New York was nearly 41 percent, muted compared with other top markets,” said Fleming. “New York house prices dipped briefly and modestly in 2022, but have since re-accelerated to a new historic peak. New York house prices didn’t ‘boom’ during the pandemic relative to other markets, as many residents flocked to the suburbs from the density of the city. Not as fast a rise, not as hard a fall.”
The good news for the housing market is that, even in the markets where prices have declined from their peaks, the corrections have not been severe enough to erase all the equity that was gained over the pandemic. Substantial equity, regardless of the market, remains for those that were able to benefit from house price gains over the pandemic.” – Mark Fleming, Chief Economist, First American
Equity Remains a Bright Spot
“House prices continue to reach new heights nationally, but the boom-bust dynamic has played out very differently from market-to-market. House prices are correcting in some markets, especially in markets where house prices grew the most over the pandemic,” said Fleming. “Other markets are facing price corrections because higher mortgage rates exacerbated a pre-existing affordability crunch.
“The good news for the housing market is that, even in the markets where prices have declined from their peaks, the corrections have not been severe enough to erase all the equity that was gained over the pandemic,” said Fleming. “Substantial equity, regardless of the market, remains for those that were able to benefit from house price gains over the pandemic.”
[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-December 2023, then that is considered a bust market. The average pre-pandemic to peak growth rate was 48 percent, while the average peak-to-current growth was approximately -1 percent.
December 2023 Real House Price Index Highlights
- Real house prices decreased 6.0 percent between November 2023 and December 2023.
- Real house prices increased 8.6 percent between December 2022 and December 2023.
- Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, increased 6.8 percent between November 2023 and December 2023, and decreased 0.9 percent year over year.
- Median household income has increased 3.9 percent since December 2022 and 88.3 percent since January 2000.
- Real house prices are 43.3 percent more expensive than in January 2000.
- Unadjusted house prices are now 57.8 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 0.3 percent above their 2006 housing boom peak.
December 2023 Real House Price State Highlights
- The five states with the greatest year-over-year increase in the RHPI are: South Dakota (+17.4 percent), New Mexico (+16.8 percent), New Jersey (+16.1 percent), Maine (+15.7), and Vermont (+15.4 percent).
- There were no states with a year-over-year decrease in the RHPI.
December 2023 Real House Price Local Market Highlights
- Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year increase in the RHPI are: Cincinnati (+13.5 percent), Hartford, Conn. (+12.4 percent), Providence, R.I. (+10.2 percent), San Diego (+10.1 percent), and San Jose, Calif. (+10.1 percent).
- There were no markets with a year-over-year decrease in the RHPI.
Next Release
The next release of the First American Real House Price Index will take place the week of March 11, 2024 for January 2023 data.
Sources
Methodology
The methodology statement for the First American Data & Analytics’ Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.
Disclaimer
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. © 2024 by First American. Information from this page may be used with proper attribution.
About First American Data & Analytics
First American Data & Analytics, a division of First American Financial Corporation, is a national provider of property-centric information, risk management and valuation solutions. First American maintains and curates the industry’s largest property and ownership dataset that includes more than 8 billion document images. Its major platforms and products include: DataTree®, FraudGuard®, RegsData®, First American TaxSource™ and ACI®. Find out more about how First American Data & Analytics powers the real estate, mortgage and title settlement services industries with advanced decisioning solutions at www.FirstAmDNA.com.
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 $6.0 billion in 2023, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2023, First American was named one of the 100 Best Companies to Work For by Great Place to Work® and Fortune Magazine for the eighth consecutive year and was named one of the 100 Best Workplaces for Innovators by Fast Company. More information about the company can be found at www.firstam.com.
