Market Update

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Real Estate

Six Cities Leading Shift Toward A Buyers' Market

Home values have softened over the last twelve months. We are no longer seeing 6-7% annual appreciation levels for the national housing market. The current numbers are closer to 4%. Some have suggested that year-over-year appreciation levels could fall to 3% or less this year.

However, a stronger-than-expected economy and a good spring housing market have changed some opinions. Some analysts are now predicting that home value appreciation may begin to increase as we move forward.

Throughout 2018, consistent growth among three driving forces – mortgage rates, household income, and unadjusted house prices – defined the housing market. These three factors are also the core elements of the Real House Price Index (RHPI). While household income rose steadily in 2018, rising mortgage rates offset any affordability benefit for home buyers, as illustrated by 11.1 percent year-over-year growth in the RHPI. However, the first quarter of 2019 has been friendly to potential home buyers, as declining mortgage rates, ongoing household income growth and moderating unadjusted home prices has boosted affordability.

“Data on the movement of unadjusted house prices during the early spring home-buying season won’t be available for a few more months, but it’s quite likely that price appreciation will accelerate again.”

Market Dynamics Shifting Toward Home Buyers

In February, mortgage rates fell 0.9 percentage points compared with the previous month and were only 0.04 percentage points higher than one year ago. Flat mortgage rates are a welcome change for home buyers following 2018 and the 2.8 percent year-over-year growth in household income helped boost affordability. The result? House-buying power increased 2.4 percent in February compared with one year ago, and 1 percent compared with last month.

Additionally, while unadjusted house price appreciation in February persisted, the pace of appreciation slowed to 5.4 percent, compared with the 7.1 percent year-over-year growth in February 2018. As a result, real house price appreciation fell to 2.9 percent, the slowest year-over-year pace since December 2017.

Six Cities Where Affordability Increased
While we know that rising household income and a decline in mortgage rates caused real house price appreciation to slow nationally, real house prices declined in a few markets. Compared with a year ago, six cities saw year-over-year declines in the RHPI, signaling an improvement in affordability:

San Jose, Calif. (-5.5 percent)
Seattle (-4.5 percent)
San Francisco (-2.1 percent)
Los Angeles (-1.6 percent)
Portland, Ore. (-1.1 percent)
San Diego (-0.3 percent)