Could New Hampshire’s Housing Market Be Undervalued?

Skyrocketing home prices across the Granite State have set off worries about residents getting locked out of homeownership, or worse – a possible future bubble.

But according to new research from First American Financial Corp., local house prices could comfortably rise even further thanks to a combination of the state’s high average household income and record-low mortgage interest rates.

The statewide median single-family sale price jumped12 percent on a year-over-year basis to $320,000 for all of 2020 – a new all-time high, according to The Warren Group, publisher of The Registry Review.

By First American’s calculations, however, the average family in Connecticut – income $87,254 – could buy a home worth $624,025 given a mortgage interest rate of 2.7 percent on a 30-year loan.

What’s more, the company’s researchers calculated that the effective price of a home, as measured by the average family’s buying power, actually dropped 6.8 percent in December on a year-over-year basis. In fact, First American said, it saw the third-greatest decrease in the effective price of a home of any state in the nation.

First American does not describe specifically how it calculates the effective home price in each real estate market nation-wide, but says that it is driven by incomes in each state, mortgage interest rates and its own “weighted repeat-repeat sales house price index that tracks how prices of single-family residential properties rise and fall over time and across numerous geographies.” Thus, changes in incomes or interest rates will change how much house consumers can buy. The company says this approach helps account for different loan terms encountered by individual buyers and seeks to more accurately reflect real prices as experienced by consumers regardless of income level.

First American’s home sale price information is provided by The Warren Group.

This analysis shows fears of a 2000s-style property price bubble are overblown, said First American chief economist Mark Flemming.

“Most importantly, today’s housing market is not overvalued. Considering only the nominal level of house prices is not sufficient to determine whether the market is overvalued or not. Lower mortgage interest rates and rising incomes correspond with higher house prices as home buyers can afford to borrow and buy more,” Flemming said in a statement. “If housing is appropriately valued, house-buying power should equal or outpace the median sale price of a home. Looking back at the bubble years, house prices exceeded house-buying power in 2006 nationally, but today house-buying power is nearly twice as high as the median sale price nationally. ”

According to Flemming’s analysis, only three markets – Los Angeles, San Jose and San Francisco, California – are currently overvalued and the other 47 major markets First American’s research tracks still have further room for home price growth that’s supported by economic fundamentals.