SANTA ANA, CA—On the one hand, rising mortgage rates reduce the affordability of housing since the cost of borrowing increases, but rates are increasing because wages are rising faster than expected, says First American Financial Corp.'s chief economist Mark Fleming.

Fleming's take is that wage growth simultaneously helped and hurt housing affordability. “However, rising household income has largely offset the increase in borrowing costs brought about by higher interest rates in the past year,” said Fleming in a prepared statement. “In December, consumer house-buying power was up 5.6% compared with a year before, even though mortgage rates increased in 2017.”

Interestingly, some of the markets considered to be high priced are actually less exclusive than one might think. “It's no surprise that house prices exceed house-buying power in markets like San Francisco, New York and Los Angeles; yet, housing markets generally considered expensive, like Washington DC, Boston and Denver, are actually more affordable than many believe,” said Fleming. “The fact is most of the markets we monitor in our Real House Price Index have more than enough house-buying power when compared to the average house prices in the market.”