Income gains and low interest rates have contributed to the most affordable housing market in a quarter-century, according to First American Financial Corp.
Real house prices, which measures the change in price for single-family properties as adjusted for changes in income and interest rates, rose 1% between August and September but fell 2% from a year ago, First American said Monday.
On the same adjusted basis, real house prices remain 40.4% off the peak reached in July 2006. That contrasts with unadjusted measures of home price appreciation, some of which say that prices have exceeded the peak set precrisis.
The monthly increase in real home prices stems from higher interest rates. Although interest rates are rising, they are still historically low, according to First American Chief Economist Mark Fleming.
"The low rates, combined with recent meaningful income gains, fueled an increase in consumer house-buying power, meaning affordability is at a quarter-century best," Fleming said in a news release. "Even as interest rates increase above 4% post-election, housing, on a purchasing-power adjusted basis, will continue to be more affordable than it was in the early 1990s."
Fleming added that affordability is rising in more markets than it is decreasing, including ones that are commonly regarded as expensive. For instance, San Francisco had the largest decrease in real house prices from 2015, with a 6.3% drop.
At the state level, New Jersey had the largest decrease at 6.2%, while Wyoming had the highest increase at 5.8%.