What Makes an Affordability Run Shift Gears

Fleming: “We could easily see relative improvement again in affordability, if rates continue to trend back down from the initial ‘Trump Bump.’”

IRVINE, CA—Affordability is a function of mortgage rates, income and nominal price levels, and the first two are driven by economic health, First American Financial Corp.’s chief economist Mark Fleming tells GlobeSt.com. In the firm’s recent Real House Price Index, Fleming analyzed the driving forces that snapped a six-month trend of increasing affordability in November 2016.

“Real purchasing-power adjusted house prices jumped 4.4% month-over-month, reversing a six-month trend of decreases,” Fleming said. “Year-over-year, real house prices have increased 2%. The shift in real house prices signals a decrease in affordability, driven primarily by rising mortgage rates. However, while rates are increasing, they remain very low from a historical standpoint. In contrast, meaningful gains in wages help offset some of the decrease in affordability. Even as rates rise above 4%, housing, on a purchasing-power-adjusted basis, continues to be as affordable as it was almost 18 years ago in April 1999.