Home prices rose 2.1% from a year earlier in March when taking into account consumers' buying power, less than half as much as the raw number, First American Financial Corp. said.
When not adjusted for income and interest rate fluctuations, home prices grew 5.1%, Mark Fleming, First American's chief economist, said in a news release Tuesday.
"Low rates have fueled increases in consumer house-buying power, keeping real house prices low by historic standards," Fleming said, even if homebuyers feel sticker shock from the unadjusted price increases.
The Santa Ana, Calif.-based company has created the First American Real House Price Index, which measures changes in the price of single-family properties. The index adjusts for changes in income and interest rates that can affect buying power, over time and at the national, state and metropolitan levels.
"After adjusting for increased consumer house-buying power, real house prices are significantly lower than they were prior to the housing boom," Fleming said. "Real house prices are 39.1% below their housing-boom peak in July 2006 and 18% below the level of prices in January 2000."
The state with the largest Real House Price Index increase was North Dakota with a 16% jump, followed by Wyoming and Rhode Island. Providence, R.I., outpaced all of the other top 50 metropolitan areas with an 11.6% increase.
The District of Columbia posted the biggest decrease at 5.5%, with Alaska and Maryland coming in second and third. Baltimore experienced a 9.3% decrease to its price index, for the biggest decline nationwide at a metropolitan level.
Fleming using San Francisco and Detroit as examples to illustrate how interest rates and income can help to level the playing field.
"The common perception is that San Francisco, the shining example of the new economy, and Detroit, the tarnished example of the old economy, couldn't be more different cities when it comes to housing costs," Fleming said. But when you adjust for income growth and mortgage rates, "real house prices in both cities remain well below the pre-recession peak. So, really how different are these two markets?"
