Era of Uncertainty Continues to Drive Consumer House-Buying Power, According to First American Real House Price Index

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—Rising household incomes and falling mortgage rates are currently
boosting consumer house-buying power in many major metropolitan markets,
offsetting any nominal gains in price levels, says Chief Economist Mark
Fleming—

SANTA ANA, Calif.–(BUSINESS WIRE)–First
American Financial Corporation
(NYSE: FAF), a leading
global provider of title insurance, settlement services and risk
solutions for real estate transactions, today released the May 2016 First
American Real House Price Index (RHPI)
. The RHPI measures the 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 United States at national, state and
metropolitan area levels. Because the RHPI adjusts for
house-buying power, it also serves as a measure of housing affordability.

May 2016 Real House Price Index

For the month of May, the RHPI was unchanged as compared with April 2016
and increased 0.4 percent as compared with May 2015.

“Unadjusted house prices are expected to increase by 5.0 percent in
April on a year-over-year basis,” said Mark Fleming, chief economist at
First American. “Real house prices are 39.7 percent below their
housing-boom peak in July 2006 and 19 percent below the level of prices
in January 2000. Unadjusted, the national price level is 3.0 percent
away from the housing-boom peak in 2007.”

Era of Uncertainty Continues to Drive Consumer House-Buying Power

“Demand for U.S. Treasury bonds remains at a record high as both
domestic and foreign investors, still reeling from the outcome of the
Brexit vote and grappling with greater global economic uncertainty,
search for safety. This is compounded by negative yields on government
bonds in Germany, Japan, Switzerland, and elsewhere, which make even the
record low yields on U.S. treasuries attractive by comparison,” said
Fleming. “The low yields on U.S. treasuries have kept mortgage rates
marching downwards with the 30-year, fixed-rate mortgage remaining under
4.0 percent since July 2015. The housing market has benefited with the
low rates fueling increases in consumer house-buying power and keeping
real house prices low by historic standards.

“The yield on the 10-year Treasury note hit record lows on the back of
the ‘Brexit’ vote, uncertainty around the future of the European Union,
and economic concerns in China,” said Fleming. “In the short term, the
global economic turmoil is paradoxically having a positive impact on
housing affordability and the health of the housing market in the form
of almost historically low mortgage rates.”

May 2016 Real House Price State Highlights

  • The five states with the highest year-over-year increase
    in the RHPI are: Wyoming (+10.6 percent), North Dakota (+10.3
    percent), Nevada (+9.3 percent), Delaware (+5.4 percent) and Michigan
    (+4.6 percent).
  • The five states with the highest year-over-year decrease
    in the RHPI are: New Jersey (-3.4 percent), Pennsylvania (-3.1
    percent), Nebraska (-3.0 percent), Virginia (-2.8 percent) and Iowa
    (-2.7 percent).

May 2016 Real House Price Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five
    markets with the highest year-over-year increase
    in the RHPI are: Jacksonville, Fla. (+11.9 percent), Tampa, Fla. (+8.7
    percent), Seattle (+6.8 percent), Denver (+6.3 percent), and
    Sacramento, Calif. (+6.0 percent).
  • Among the largest 50 CBSAs, the five markets with the highest
    year-over-year decrease in the RHPI are:
    Virginia Beach, Va. (-2.2 percent), Baltimore (-1.7 percent),
    Philadelphia (-1.7 percent), Richmond, Va. (-1.2 percent), and
    Oklahoma City (-1.1 percent).

Affordability in Many Major Markets Continues to Improve in May

“Real house prices declined on a month-over-month basis in 15 of the 43
metropolitan areas tracked by First American, as increases in consumer
house-buying power were sufficient to more than offset unadjusted price
appreciation. San Francisco, Washington, D.C., and Boston led the pack
in terms of real house price declines and improved affordability, each
experiencing month-over-month declines of roughly 1 percent,” said
Fleming. “Counter to the conventional wisdom that housing is becoming
less affordable in these markets, many consumers that were house hunting
benefited from an improvement in affordability in May.

“While a lack of inventory is still problematic, the improvements in
affordability, caused by a combination of low mortgage rates and job
growth are helping the market
reach its potential for home sales
. A rise in estimated median
household incomes is also playing a large role in certain key markets
that from a nominal standpoint seem expensive,” said Fleming. “For
example, the increases in estimated median household incomes in both
Dallas and San Francisco were enough to offset unadjusted price gains
and bring meaningful affordability improvements in real terms to both
markets.

“Rising household incomes and falling mortgage rates are currently
boosting consumer house-buying power in many major metropolitan markets,
offsetting any nominal gains in price levels,” said Fleming. “Improving
affordability for consumers is a direct result of increased demand for
long-term U.S. Treasury bonds due to overall uncertainty surrounding the
future of global markets.”

Next Release

The next release of the First American Real House Price Index will be on
August 22 for June 2016 data.

Methodology

The methodology statement for the First American Real House Price Index
is available at http://www.firstam.com/economics/real-house-price-index.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page
are those of First American’s Chief Economist, do not necessarily
represent the views of First American or its management, should not be
construed as indicating First American’s business prospects or expected
results, and are subject to change without notice. Although the First
American Economics team attempts to provide reliable, useful
information, it does not guarantee that the information is accurate,
current or suitable for any particular purpose. © 2016 by First
American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading
provider of title insurance, settlement services and risk solutions for
real estate transactions that traces its heritage back to 1889. First
American also provides title plant management services; title and other
real property records and images; valuation products and services; home
warranty products; property and casualty insurance; and banking, trust
and investment advisory services. With revenues of $5.2 billion in 2015,
the company offers its products and services directly and through its
agents throughout the United States and abroad. In 2016, First American
was recognized by Fortune® magazine as one of the 100 best
companies to work for in America. More information about the company can
be found at www.firstam.com.

Contacts

First American Financial Corporation
Media Contact:
Marcus
Ginnaty, 714-250-3298
Corporate Communications
or
Investor
Contact:

Craig Barberio, 714-250-5214
Investor Relations