Real house prices decreased 3.4% on a month-over-month basis between July and August 2024.

National affordability improved in August on an annual basis, marking the first positive year-over-year change since 2021. That’s according to First American’s latest Real House Price Index (RHPI) data for August, released today.

Two factors drove the 4.4% annual increase in affordability — a 3.1% annual increase in nominal household income and a 0.57 percentage point decrease in the 30-year, fixed mortgage rate compared with one year ago.

Real house prices decreased 3.4% on a month-over-month basis between July and August 2024. Year over year, real house prices decreased by 4.4%. Real house prices are 32.9% more expensive than in January 2000.

Consumer house-buying power — how much one can buy based on changes in income and mortgage rates — increased 4.0% between July 2024 and August 2024 and increased 9.3% year over year.

Nominal house prices reached another new record high in August, but annual house price appreciation slowed for the eighth consecutive month. The increase in nominal house prices was not enough to offset the improved affordability from lower mortgage rates and higher household income.

The RHPI noted that median household income for August 2024 has increased by 3.1% since August 2023 and 56.7% since January 2014.

The FOMC reduced the federal funds rate by 0.5% in September, marking the first cut since early 2022, which First American says could change the affordability cycle. The Fed also plans to lower the rate by another 0.5% this year and 1% next year, aiming for 3.4% by the end of 2025 — down from its June projection of 4.1%.

The expectation of a rate reduction has already influenced the market, putting downward pressure on the 10-year Treasury bond yield and loose association mortgage rates in recent months. First American predicts that since the Fed has started easing and signaled a more aggressive easing trajectory, mortgage rates are likely to fall further later this year. 

If mortgage rates drop to 6% by the end of 2024, household income grows at the pre-pandemic historical annual average of 2.9%, and nominal house prices increase by 3.9% annually, affordability will improve by 7%. Further rate reductions in 2025 could be a game changer for potential homebuyers, the report noted.

August 2024 Real House Price State Highlights

The only states with a year-over-year increase in the RHPI are Illinois (+0.8%) and New Jersey (+0.6%). The five states with the greatest year-over-year decrease in the RHPI are Colorado (-12.5%), Oregon (-10.7%), Hawaii (-8.5%), Arizona (-8.3%), and Texas (-8.2%).\

August 2024 Real House Price Local Market Highlights

Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year increase in the RHPI are Buffalo, N.Y. (+3.2%), Cincinnati (+2.2%), Milwaukee (+2.0%), Providence, R.I. (+1.6 %), and Louisville, Ky. (+1.2%).

The five markets with the greatest year-over-year decrease in the RHPI are Tampa, Fla. (-14.0%), Denver (-12.4%), Portland, Ore. (-11.7%), Raleigh, N.C. (-11.6%), and San Francisco (-10.1%). 

By Sarah Wolak, Staff Writer Sep 30, 2024

Lawrence Yun • 1st • 1stChief Economist at National Association of REALTORS®

The market is loosening up with more homes for sale and lengthening days-on-market. That means FHA and VA mortgage homebuyers have a better shot. They carry lower mortgage rates because of full government guarantee to a lender in case of a homebuyer default.

There is some room for 30-year conventional mortgage rates to decline if the spread with the 10-year Treasury yields returns to normal 150 to 200 basis points.

My forecast is for mortgage rates to be near 6% to the end of 2025. Maybe 5.5% is possible.

Mortgage Rates Begin The Month With a Modest Victory

While the past 5 months have been well-stocked with victories for mortgage rates, the past week and a half brought a bit of a pull back.  Most of that upward momentum can be chalked up to rates rushing to get into position for the Fed’s rate cut on September 18th.  It’s actually quite a bit more complicated than that, but thankfully, the movement has been small enough that it doesn’t demand a detailed explanation.

In not so many words, the entire bond market had some “refiguring” to do after Fed day, and that process was pretty good for the shortest-term rates and mildly inconvenient for longer-term rates like mortgages.

While there was some uncertainty at times, last week now looks like it clearly marked the end of the reaction phase to the Fed’s policy shift.  That leaves the rate market to move on to watching the normal stuff: scheduled economic data and unscheduled surprises that are big enough to impact global financial markets.  Both came into play today.

Interestingly enough, today’s economic data didn’t have a big impact on rates.  Instead, the market focused on headlines regarding missile strikes in the Middle East.  In general, escalating military conflict (if sufficiently alarming) tends to push stock prices and interest rates lower, as was the case this morning.  

Mortgage rates fell back to last  Friday’s levels after yesterday saw the highest rates in several weeks. 

By: Matthew Graham

Tue, Oct 1 2024, 4:04 PM