According to the Real House Price Index released by First American Financial, consumers are still in a strong position to purchase a home but are getting squeezed on just how much home they can afford.

Real house prices increased 0.6% between July and August, while real house prices increased 11.3% year over year. Consumer house-buying power, how much one can buy based on changes in income and interest rates, decreased 0.2% between July and August and declined 4.7% year over year.



First American Financial Chief Economist Mark Fleming noted, however, that average household income increased 3.2% since August 2017.



“Rising mortgage rates, which increased from 3.9% to 4.6% over the last year, reduced consumer house-buying power by nearly $30,000,” Fleming said.



However, he said the figure does not factor in the change in household income since last August.



“Wage growth translates into rising household incomes, which were 3.2% higher in August compared to a year ago. That growth in household income contributed $11,000 to consumer house-buying power, which helped mitigate the negative effects of rising mortgage rates,” Fleming said. “While rising mortgage rates reduced house-buying power by $30,000 over the last year, rising incomes increased consumer house-buying power by $11,000. The net effect? Overall consumer house-buying power fell by $19,000 in August compared with a year ago.”