Six Cities Leading Shift Toward A Buyers' Market

By First American Chief Economist, Mark Fleming

Throughout 2018, consistent growth among three driving forces – mortgage rates, household income and unadjusted house prices – defined the housing market. These three factors are also the core elements of the Real House Price Index (RHPI). While household income rose steadily in 2018, rising mortgage rates offset any affordability benefit for home buyers, as illustrated by 11.1 percent year-over-year growth in the RHPI. However, the first quarter of 2019 has been friendly to potential home buyers, as declining mortgage rates, ongoing household income growth and moderating unadjusted home prices has boosted affordability.

Market Dynamics Shifting Toward Home Buyers

In February, mortgage rates fell 0.9 percentage points compared with the previous month and were only 0.04 percentage points higher than one year ago. Flat mortgage rates are a welcome change for home buyers following 2018 and the 2.8 percent year-over-year growth in household income helped boost affordability. The result? House-buying power increased 2.4 percent in February compared with one year ago, and 1 percent compared with last month.

Additionally, while unadjusted house price appreciation in February persisted, the pace of appreciation slowed to 5.4 percent, compared with the 7.1 percent year-over-year growth in February 2018. As a result, real house price appreciation fell to 2.9 percent, the slowest year-over-year pace since December 2017.

Six Cities Where Affordability Increased

While we know that rising household income and a decline in mortgage rates caused real house price appreciation to slow nationally, real house prices declined in a few markets. Compared with a year ago, six cities saw year-over-year declines in the RHPI, signaling an improvement in affordability:

  • San Jose, CA (-5.5 percent)
  • Seattle, WA (-4.5 percent)
  • San Francisco, CA (-2.1 percent)
  • Los Angeles, CA (-1.6 percent)
  • Portland, OR (-1.1 percent)
  • San Diego, CA (-0.3 percent)

Supply Surge

These coastal markets all have something in common: they were the tightest and hottest markets of 2018. In the first half of 2018, rising millennial demand amid a backdrop of limited inventory and increasing mortgage rates put pressure on affordability, causing buyers to take a step back. But now, affordability is on the rise and the main reason is rising inventory.

According to First American calculations of February 2019 data, the number of listings in San Jose, Seattle and San Francisco increased 124 percent, 89 percent and 52 percent respectively compared with one year ago. As inventory enters the market, buyers have more options, bidding wars are less likely, and sellers are more likely to reduce list prices. In fact, these three markets experienced the greatest yearly growth in the number of listings with price reductions.

Softening Sellers’ Markets

These six markets may signal a broader shift in the housing market. Across the nation, home buyers are benefiting from lower-than-anticipated mortgage rates, rising wages and a slowdown in unadjusted house price appreciation. Only the six markets above showed a year-over year decline in the RHPI, but 37 out of the 44 top markets that we track showed month-over-month declines in the RHPI in February.

However, while these trends help home buyers, it’s too soon to call it a buyers’ market. Unadjusted house prices are still rising and it’s clear that demand continues to outstrip supply in most markets. Data on the movement of unadjusted house prices during the early spring home-buying season won’t be available for a few more months, but it’s quite likely that price appreciation will accelerate again.

The RHPI is updated monthly with new data. Look for the next edition of the RHPI the week of May 27, 2019.


  • DataTree by First American
  • Freddie Mac
  • Census Bureau