Consumer home purchasing power surges again in October

Homebuyer purchase power took another big jump in October as wages grew and mortgage rates stayed low despite continuously tight housing inventory, according to First American Financial.

October's home purchasing power — the amount a consumer can buy based on fluctuations in income, mortgage rates and home prices — jumped 17.6% annually while decreasing 0.7% from September.

"While homebuyers benefited from the increase in house-buying power driven by lower rates and household income growth, they also face greater competition for homes as increased house-buying power has also fueled greater demand," Mark Fleming, chief economist at First American, said in a press release. "As demand increases for a scarce (limited or low supply) good, prices will rise faster. The housing market saw this dynamic play out in October as nominal house price appreciation accelerated relative to a year ago."

The Real House Price Index, which measures changes in home values based changes in home purchasing power, decreased 7.9% year-over-year while increasing 2% month-over-month.

"Financial readiness combined with a heightened appetite for homeownership will power continued demand for homes in 2020," Fleming said. "Yet, there is not enough supply to meet the growing demand, so we expect faster house price appreciation, a dynamic we're already experiencing in the housing market today. While rising house-buying power, largely driven by declining mortgage rates, made monthly mortgage payments more manageable in 2019, any further increases in house-buying power will likely rest on the labor market and continued household income growth in 2020."

A sign of improved affordability at the state level was that none posted an annual increase in its RHPI. New Mexico had the largest decline, falling 13.4%. Vermont's 12.2% and California's 12.1% decreases followed.

Similarly, no metro areas experienced RHPI increases year-over-year. Several expensive West Coast housing markets decreased the most, such as San Jose, Calif., which fell 16.2% annually in October; it was followed by drops of 13.1% in San Francisco and 12.6% in Portland, Ore.