Columbus is becoming a less affordable place to own a home, based upon the three data points in First American Financial Corp.’s most recent measurement of the real housing price index.
In the October 2016 report, First American this week ranked the Columbus home-buying market in the top five of the largest 50 real estate markets with the highest year-over-year increases in the index — a 6.6 percent jump.
According to the national title company, the key drivers of the index are income, interest rates and an unadjusted housing price index.
The capital city ranked fourth, edging out Detroit at 5.8 percent. The top three markets to become less affordable for homeowners are Charlotte, N.C., (9.8 percent), Jacksonville, Fla. (9.8 percent) and Tampa, Fla. (7.5 percent).
By contrast, San Francisco led the list of the top 50 markets to become more affordable, recording a 5.3 percent drop in the index. Virginia Beach, Va., followed with a 4 percent drop, while San Jose, Calif. (2.4 percent), Milwaukee (.9 percent) and Baltimore (.5 percent) rounded out the list.
The successes are based largely on wage growth that has offset rising interest rates and unadjusted home prices, according to First American Chief Economist Mark Fleming.
In October, wages grew nationally 2.8 percent year-over-year, the fastest pace since the beginning of the financial crisis, the study detailed. Real house prices decreased on the same basis as mortgage rates remained significantly lower than last year — falling from 3.8 percent to 3.47 over the 12-month period.
Increasing mortgage rates and rising home prices are putting upward pressure on real prices in housing markets, such as Columbus.
“While we have yet to see the impact of the ‘Trump Bump’ and (Federal Reserve Chair Janet) Yellen’s increase in mortgage rates on unadjusted house prices, I expect there to be an impact early next year,” Fleming said. “While mortgage rates above 4 percent reduce affordability, accelerating wage growth and the expected slowdown in unadjusted price appreciation are both beneficial for affordability.
“I expect the net effect on consumer house-buying power to remain modest.”
The study found that real house prices are recorded at 40 percent less than they were during the height of the housing boom.
Additional data compiled in the study included:
- Real house prices increased .7 percent between September and October;
- Real house prices decreased by .4 percent compared to September 2015;
- Unadjusted house prices are expected to increase by 5.3 percent in October on a year-over-year basis;
- Real house prices are 39.9 percent below their housing-boom peak in July 2006 and 19.2 percent below the level of prices in January 2000; and
- The national, unadjusted price level is .01 percent below the housing-boom peak in 2007.
“Preceding the Federal Open Market Committee meeting earlier this month, we assessed the impact of rate changes on real house prices and affordability looking ahead to the end of 2017,” Fleming said. “While existing homeowners with fixed-rate mortgages will feel no affordability impact, potential first-time homebuyers will have to adjust their expectation for what they can afford.
“The post-election rate increase, as well as the expected path of (the committee’s) Federal Funds rate increases next year, leads me to forecast a 4.4 percent increase in real prices by the end of next year.”
First American is expected to release its November 2016 data next month.
A methodology statement for the First American Real House Price Index is available at www.firstam.com/economics/real-house-price-index.