Nationally, over the past five years, the increase in house prices has outpaced inflation by 34 percent. Though noteworthy, this increase is less than half the pace from between 1997 and 2006, when house price growth outpaced inflation by 87 percent.

The Housing Finance Policy Center’s housing affordability index is updated in each monthly chartbook. The index tracks whether the median household can afford the standard mortgage on a median-priced house. In October 2017, the index revealed that home prices nationally remain affordable by historical standards. Even if interest rates rise to 4.75 percent, affordability will still be at the long-term historical average.

Because affordability varies by community, we track affordability by city and rank the largest metropolitan statistical areas by how close each one is to being in a bubble on our “housing bubble watch list.”

Affordability Adjusted for MSA-Level DTI

The factors that are causing higher interest rates (greater demand and pressure on prices) will likely increase home prices, a trend that will be magnified by the inadequate supply of new units, a factor we don’t see changing quickly.

And we’ve talked about how the changing rental housing landscape will have a big impact on affordability, as people increasingly choose to rent, older properties continue to age, and new rental housing supply fails to meet growing demand.