Low Rates and Increased Wages Increase Affordability for U.S. Home Buyers in Almost All Major Markets, According to First American Real House Price Index

—Contrary to popular opinion, housing isn’t getting more
expensive. In fact, on a purchasing-power adjusted basis, housing is
becoming more affordable, 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 August 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.

August 2016 Real House Price Index

  • Real house prices increased 0.8 percent between July 2016 and August
    2016
  • Compared to August 2015, real house price decreased by 2.6 percent.
  • Unadjusted house prices are expected to increase by 5.7 percent in
    August on a year-over-year basis.
  • Real house prices are 41.0 percent below their housing-boom peak in
    July 2006 and 20.7 percent below the level of prices in January 2000.
  • Unadjusted, the national price level is 1.7 percent away from the
    housing-boom peak in 2007.

Chief Economist Analysis: Low Rates and Increased Wages Increase
Affordability for U.S. Home Buyers in Almost All Major Markets

“Contrary to popular opinion, housing isn’t getting more expensive. In
fact, on a purchasing-power adjusted basis, housing is becoming more
affordable,” said Mark Fleming, chief economist at First American.
“Interest rate declines, combined with meaningful gains in incomes, have
provided the consumer with greater buying power, which increases housing
affordability. The growth in consumer house-buying power is actually
outpacing the increases in nominal prices driven by remarkably tight
inventories.

“Until there is a meaningful increase in mortgage rates, likely starting
later this year and continuing into 2017, real house price levels will
remain low in most major markets. At the moment, affordability is
actually increasing in more markets than it is decreasing, including San
Francisco, San Jose, New York, Washington and Boston. The conventional
wisdom that these markets are over-valued does not account for the
meaningful growth in consumer house-buying power across the majority of
major metropolitan markets,” said Fleming.

Additional Quotes from Chief Economist Mark Fleming

  • “Real House Prices fell on a year-over-year basis in the month of
    August as the average rate for the 30-year fixed mortgage dropped from
    3.91 percent in August 2015 to 3.44 in August 2016.”
  • “Low rates combined with an estimated 2.0 percent year-over-year
    increase in median household income in August have brought a
    significant boost to consumer buying power.”
  • “Real house prices declined on a year-over-year basis in 32 of the 43
    metropolitan areas tracked by First American, as increases in wages
    and low mortgage rates offset unadjusted price appreciation.”
  • “Virginia Beach, Va., Oklahoma City, San Francisco and Milwaukee
    continue to be at the top of the list for improved affordability, each
    experiencing year-over-year declines of -4.0 percent or more.”
  • “Widespread growth in consumer house-buying power continues, despite
    the low number of homes for sale driving up prices
    .”

August 2016 Real House Price State Highlights

  • The five states with the highest year-over-year increase
    in the RHPI are: Michigan (+5.9 percent), Wyoming (+4.8 percent),
    Maine (+3.1 percent), Vermont (+2.5 percent) and Colorado (+1.8
    percent).
  • The five states with the highest year-over-year decrease
    in the RHPI are: Iowa (-5.9 percent), Arkansas (-5.8 percent),
    District of Columbia (-5.6 percent), New Jersey (-5.1 percent) and
    Virginia (-5.1 percent).

August 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. (+8.1 percent); Tampa, Fla. (+5.3
    percent); Detroit (+3.9 percent); Seattle (+3.6 percent); and Kansas
    City, Mo. (+3.5 percent).
  • Among the largest 50 CBSAs, the five markets with the highest
    year-over-year decrease in the RHPI are:
    Virginia Beach, Va. (-5.5 percent); Oklahoma City (-4.8 percent); San
    Francisco (-4.6 percent); Milwaukee (-4.5 percent); and Richmond, Va.
    (-3.6 percent).

Next Release

The next release of the First American Real House Price Index will be
the week of November 28, 2016 for August 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