Homebuying may become more affordable as the year progresses, according to preliminary February data released by Mark Fleming, chief economist for First American Financial Corp.
Fleming’s report notes that affordability actually declined in January, though.
Based on First American’s proprietary Real House Price Index (RHPI), affordability dipped 2.3% on both a monthly and year-over-over basis in January due to increases in both nominal house prices and the 30-year fixed-rate mortgage. And though nominal household income increased 3.8% annually in January, according to the report, it was not enough to offset the affordability constraints.
However, preliminary February data “shows an improvement in annual affordability due to slower price appreciation, a decline in mortgage rates and still-positive income growth,” Fleming wrote.
The current supply of unsold housing inventory sits at 4.6 months, according to the First American report. While Fleming considers anything under six months of supply a seller’s market, the current inventory is more balanced than the 3.9-month supply the company reported in February 2024.
“As existing homeowners increasingly accept the ‘higher for longer’ mortgage rate environment and decide to list their homes for sale, it’s reasonable to expect [the] supply will creep higher, further cooling price appreciation,” Fleming stated.
The preliminary February RHPI data estimates annual home price appreciation of 2.1% this year. If that remains steady and the supply stays near its current level, “affordability will improve by nearly 3% by the end of 2025,” Fleming wrote.
