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June 2018

Seattle among areas where house-buying power is eroding

Years of pent-up demand resulting in a supply imbalance, a long run of historically low levels of new home construction, existing owners who are increasingly reluctant to list their homes, and rising mortgage rates are creating an ultra-competitive market and in some areas, eroding purchasing power, according to First American's Real Home Price Index (RHPI).

In a list of 12 cities where purchasing power is threatened, Seattle and its RHPI of 11.1 percent ranked second, behind Las Vegas, with an Index of 12.94 percent.

First American's Real House Price Index measure price changes of single family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time and across the country at the national, state and metropolitan area level. Because the Index adjusts for house-buying power, First American Title (a leading global provider of title insurance, settlement services, and risk solutions for real estate transactions) says it is also a measure of housing affordability.

Income, mortgage rates, and an unadjusted house price index are the three key drivers of the firm's RHPI. Incomes and mortgage rates are used to inflate or deflate unadjusted house prices to better reflect consumers' purchasing power and capture the true cost of house.

Other cities on First American's latest ranking of metro areas where purchasing power is in danger are Charlotte, North Carolina, at #3, followed by Jacksonville, Fla., Columbus, Ohio, Tampa, Fla., Minneapolis, Orlando, Fla., Milwaukee, Boston, Atlanta, and Cleveland (#12).

First American also publishes lists of states and metro markets with the greatest year-over-year increases and decreases in RHPI. Its website also features an interactive tool for viewing and comparing house prices and additional perspective on income and interest rate changes.

In a statement accompanying its analysis of figures for March, First American noted, "While unadjusted house prices have been on the rise since the end of 2011, nearly a seven-year run, consumer house-buying power has also increased by 14.3 percent over the same period," adding "Even though unadjusted house prices are higher today than historically ever before, consumer house-buying power remains strong, so real house prices aren't even close to their historical peak."