Home prices aren’t that high, history shows

Aly J. Yale
Aly J. Yale
The Mortgage Reports Contributor
June 26, 2018 - 2 min read

Peak prices are still far away

Rising home prices have certainly made headlines in recent months, but according to historical data, housing’s still relatively affordable. When factoring in things like income and other data, home prices are still 32.1 percent below their 2006 peak.

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Historically high homebuying power

According to the latest Real House Price Index from First American, which factors in household income, mortgage rates and other data, home prices are still historically – especially when compared with their housing boom peak.

“When house prices are adjusted for consumer house–buying power, the real level of house prices becomes more apparent,” said Mark Fleming, First American’s chief economist. “Real consumer house–buying power adjusted house prices today are 32.1 percent below their peak in July 2006 and 8.9 percent below their level in the year 2000.”

The gist? Though home prices have risen nominally, so have other factors, like wages and incomes. When these items are factored in, they show housing’s still more affordable than most years in recent history.

“Though unadjusted house prices have risen to record highs, consumer house–buying power stands at near–historic levels, as well, signaling that real house prices are not even close to their historical peak,” Fleming said. “Between the peak of unadjusted house prices in 2007 and this April, the 30–year, fixed–rate mortgage has fallen from 6.29 percent to 4.47 percent. Over the same period, household income has increased 23.7 percent. Lower mortgage rates and higher income levels mean consumers have significantly higher house–buying power today than they did in 2007.”

Affordability crisis? Maybe not, according to new data

Looking back

At a national level, the average American has homebuying power at around $356,000. The average household income sits at $62K and the average mortgage rate at 4.5 percent.

Ten years ago, in April 2008, homebuying power sat at $244K, income at $50K and rates at 5.9 percent.

Where house prices haven’t peaked; the nation’s safest bets to buy a home for now

Though no states or metro areas saw a decrease in homebuying power over the last year, some certainly saw slower price growth. According to First American’s data, the states with the smallest increase in “real” home prices were Maryland (0.7 percent), New Jersey (1.3 percent), Louisiana (3.8 percent), Vermont (4 percent) and Wyoming (4.1 percent)

At the metro level, Pittsburgh, Washington, D.C., Baltimore, Oklahoma City, and Memphis, Tennessee, came in with the slowest growing real home prices.

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