Business View Civil and Municipal | January 2021

10 CIVIL AND MUNICIPAL JANUARY 2021 by 2.5 percent since the start of the recession in March,” said Fleming. “In this month’s report, we dive deeper and examine how affordability trends have fared at the market level since March and, in particular, during the post stay-at-home-order super-sellers’ market of June to October.” Pandemic-Driven Decline in Affordability? “Mortgage rates are fairly consistent across the country, so when mortgage rates fall, they boost house-buying power and increase affordability in every city. However, the other components of the RHPI, household income levels and nominal house prices, vary market by market, so they do not have a uniform impact on affordability. During the initial months of the recession, from March through June, affordability improved because falling rates and rising incomes were enough to offset house price appreciation gains,” said Fleming. “However, as potential homebuyers emerged from the stay-at-home orders implemented early in the pandemic, the housing market began to heat up once more. Comparing the RHPI levels in October relative to the resurgence of home buyer interest in June, affordability declined in 24 of the top 50 markets we track.” The five markets with the greatest decline in affordability since June were: Las Vegas (-4.9 percent) Cleveland (-4.6 percent) Kansas City, Mo (-4.6 percent) Hartford, Conn. (-4.0 percent) Providence, R.I. (-3.8 percent) “June marked a turning point in affordability trends for all five of these markets as affordability had actually improved in each market since the beginning of the recession in March, with affordability improving anywhere from 2.4 percent to 9 percent. However, the pent-up demand from spring came roaring back in June and the super-sellers’ market emerged,” said Fleming. “Between June and October, nominal house price appreciation exploded in all five markets and household income levels declined in each market, except Cleveland, due to the economic stresses of the recession. Even though the 30-year, fixed mortgage rate fell from 3.16 percent in June to 2.83 percent in October, the rate-driven boost to affordability was not enough to offset the affordability loss from faster house price appreciation and lower household income.” The Outlook for Affordability “Recent history has shown that in times of economic distress, lower mortgage rates have provided a boost to affordability that has partially offset the affordability loss from faster house price appreciation and lower household income,” said Fleming. “But, in a super-sellers’ market where nominal house prices are increasing rapidly, lower mortgages are not always enough. In 2021, mortgage rates are anticipated to remain near historic lows and the economy should improve as vaccinations become more widespread. Both of these conditions will keep house-buying power strong in 2021. Yet, housing supply constraints will likely remain and continue to fuel a sellers’ market. The question is, will robust house-buying power be enough to offset strong nominal house price appreciation, or will the trend of declining affordability continue?” October 2020 Real House Price State Highlights The three states with the greatest year-over-year increase in the RHPI are: Wyoming (+2.7 percent), Vermont (+0.3 percent), and Oklahoma (+0.2 percent). The five states with the greatest year-over-year decrease in the RHPI are: California (-9.0 percent), New Hampshire (-7.6 percent), Hawaii (-7.6 percent), Massachusetts (-7.6 percent), and Nevada (-7.4 percent). October 2020 Real House Price Local Market Highlights Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Cleveland (+4.8 percent), Pittsburgh (+4.0 percent), Kansas City, Mo. (+2.0 percent), New Orleans (+1.8 percent), and Nashville, Tenn. (+0.8 percent). Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year decrease in the RHPI are: San Francisco (-16.9 percent), San Jose, Calif. (-13.6 percent), Boston (-11.6 percent), Miami (-10.9 percent), and Raleigh, N.C. (-9.8 percent). More information about First American Financial Corporation can be found at www.firstam.com .