In the 6th Survey of Mortgage Originators, several important trends are highlighted that took shape in the 1st quarter of 2015 and bode well for the second half of 2015. In addition, a number of policy issues loom on the horizon and were examined in the survey. Lenders discussed their expectations for implementation of new closing documents as well as the impact of FHA’s indemnification and condo rules on their willingness to lend and the lingering impact of the QM rule’s 3% cap on points and fees.
Here are some highlights from the survey:
- The non-QM share of originations shrank to just 1.2% of production in the 1st quarter from 1.8% in the 4th.
- However, willingness to originate non-QM loans rose for the first time in a year while willingness to originate high quality prime mortgages grew at a slower rate and rebuttable presumption slid. The share of lenders offering high quality, prime was little changed while those offering non-QM and rebuttable presumption eased modestly.
- The share of respondents that indicated an improvement in investor demand for non-QM loans surged to 37.5%.
- Over the next six months, respondents expect better access to credit for non-QM, rebuttable presumption and lower credit score borrowers as well as increased demand from investor for these same mortgages. Little change was expected for high quality prime loans.
- The share of respondents that indicated having had an issue closing a loan due to some facet of the ATR/QM rule fell to 33.3%, its lowest on record. However, the share of respondents utilizing overlays ahead of the 3% cap peaked at 33.3%, while overlays on other facets of the QM rule eased.
- Survey participants reported that 4.5% of their lending was impacted by the 3% cap. The bulk of issues were created by including LLPAs and affiliated services (e.g. title insurance) in the 3% calculation.
- Roughly 90% of respondents reported spending time and money to implement the new TRID documentation, while 60% have unanswered questions.
- Two thirds expect the TRID implementation to delay some closings and 26.7% expect delays and some deals not to close at all.
- Finally, while roughly half of lenders report being asked to indemnify the FHA for a loans since 2009, two thirds indicate that this policy impacts their willingness to originate lower FICO loans and that their concern about indemnifications is on par with their concern about GSE buy backs.
In the monthly REALTORS® Confidence Index Survey, NAR asks REALTORS® “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?”.
The map below shows the median days on market of respondents about their sales from Feb 2015-April 2015. California and North Dakota were the fastest-selling markets with properties typically sold by 30 days. Properties also sold quickly, typically at 45 in Oregon, Washington, Nevada, Colorado, Texas, Louisiana, and the District of Columbia. Strong demand amid low inventory has caused properties to sell quickly and driven up prices, especially in the West Coast states. All real estate is local. State-level data is provided for REALTORS® who may want to compare local markets against the state and national summary.
- New home sales surged in April and they are selling quickly. The only problem is we are not yet building enough to fully satisfy the demand.
- Specifically, new home sales rose 26 percent from one year ago in April to 517,000 annualized pace – which would be the third highest monthly activity in eight years. On average it took 4 months to find a buyer. The median price was $297,300, which is 8.3 percent above last year’s price.
- The gap between new home price and existing home price still remains very wide. It implies that existing homes provide a relatively better bargain in relation to newly constructed homes.
- Even though new home sales are rising strongly in percentage terms, they are only at about half the activity as during the bubble years nearly a decade ago. This implies, first, that today’s strong activity is not likely to be a bubble. Second, there is more room to grow.
- The median number of months to find a buyer of new homes remains near historic lows. In April, it took 4 months. Given the low supply of both existing and new home inventory, as evidenced by low months supply of inventory, there is zero concern over any over production.
- For the year as a whole, new home sales are projected to rise by about 30 percent in 2015 and then another 20 to 25 percent in 2016. It’s a good time to be a homebuilder. If only the banks would make more construction loans or, depending upon your point of view, if there were less financial regulations to permit banks to make more construction loans.
Amid tight inventory in most states, properties that closed in April 2015 were typically on the market for a relatively short period of time at 39 days (52 days in March 2015; 48 days in April 2014), according to the April 2015 REALTORS® Confidence Index Survey.
Short sales were on the market for the longest time at 180 days, while foreclosed properties typically stayed on the market at 50 days. Non-distressed properties were on the market at 38 days.
Approximately 46 percent of properties were on the market for less than a month when sold (40 percent in March 2015; 41 percent in April 2014).
 Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing to the time the seller accepted buyer’s offer?” A median of x days means that half of the properties were on the market for less than x days and another half of properties were on the market for more than x days.
- Today, Case Shiller released their housing price index data for March 2015 which showed that house prices rose 4.7 percent from March one year ago for the 10-city composite and 5.0 percent for the 20-city composite. The national index showed a gain of 4.1 percent year over year.
- Last week NAR reported growing prices in March and April. Price growth in the year ended April 2015 was 8.9 percent after rising 7.1 percent in March 2015 and 7.2 percent in February 2015. FHFA January data showed a gain of 5.2 percent for the year ended March after a gain of 5.3 percent for the year ended in February.
- Today’s release from Case Shiller provides mixed evidence on the acceleration or deceleration of home prices, but it unambiguously shows that home prices are growing at a strong pace.
- Looking at the seasonally adjusted Case Shiller data, price grew by 0.3 percent from January to February and only 0.1 percent from February to March—a sign of deceleration. Looking at the unadjusted data, however, Case Shiller shows an increase of 0.1 percent in January to February and 0.8 percent from February to March—a notable and somewhat expected acceleration.
- In other words, the seasonally adjusted data is showing a slight month to month deceleration while the unadjusted data is showing acceleration.
- For this reason, let’s look at acceleration or deceleration in the year over year data. Recent price measures have all showed a roughly steady pace of price increase in February and March, but recent NAR data suggests that this could be only a temporary reprieve as April data showed larger price gains than we saw in March. City by city in the Case Shiller data, half of the 20 cities saw acceleration in the pace of year over year price growth while half did not in March.
- Even without further acceleration, the pace of price growth remains too high. Strong buyer demand and low inventories coupled with relatively low new construction are helping to push prices up, keeping the housing market tipped in favor of sellers.
- Of course, potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. The fastest overall growth rates were seen in San Francisco (10.3%), Denver (10.0%), Dallas (8.7%), and Miami (9.2%) in the year ending March 2015. By contrast, Washington DC (1.0%), Cleveland (1.0%), and New York (2.7%) had the slowest year over year growth. Data shows that sellers in these somewhat weaker areas may not have as much power to demand higher prices for their homes given the local market.
- NAR reports the median price of all homes that have sold while Case Shiller reports the results of a weighted repeat-sales index. Case Shiller uses public records data which has a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported March prices include information from repeat transactions closed in January, February, and March. For this reason, the changes in the NAR median price tend to lead Case Shiller and may suggest that an additional pick-up in prices will be seen in the next few months. However, even if additional pick-up is not seen, the current pace is strong and needs to slow to keep housing prices in line with job and wage fundamentals.
In April 2015, more REALTORS® were confident about the outlook for all property types in the next six months than they were in March and a year ago, according to the April 2015 REALTORS® Confidence Index Survey. The April 2015 report is based on the responses of 2,012 REALTORS® about local market conditions in April.
For the third month in a row, the index rose above 50 for all property types. An index greater than 50 indicates that the number of respondents with “strong” outlook outnumbered those with “weak” outlook. In the single family market, the REALTORS® Confidence Index - Six-month Outlook rose to 76 (75 in March 2015; 68 in April 2014). The index for townhomes rose to 58 (56 in March 2015; 49 in April 2014), while the index for condominiums increased to 52 (51 in March 2015; 46 in April 2014).
The seasonal uptick in market activity during spring and summer, low interest rates and a sustained growth in jobs, and recent measures to lower the cost of borrowing and make credit more available (e.g, lower FHA mortgage insurance, 3 percent down-payment for GSE-backed loans) are likely underpinning the improved market confidence.
 Respondents were asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?”
REALTORS® remained generally confident about the outlook for all property types in the next six months, according to the April 2015 REALTORS® Confidence Index Survey . The April 2015 report is based on the responses of 2,012 REALTORS® about local market conditions in April.
Low 30-year fixed mortgage rates holding to below 4 percent in April, continued job creation (3.5 million net new jobs since 2014), and measures to ease credit tightness and affordability (lower FHA mortgage insurance premiums, 3 percent down payment for GSE-backed loans) are likely underpinning the improvement in confidence.
The following maps show the REALTOR® Confidence Index-Six-Month-Outlook by state based on data gathered from February-April 2015.In the case of single family homes, all states registered an index greater than 50 for the third month in a row, which means that the number of respondents who had a “strong” outlook outnumbered those with “weak” outlook. Despite the slump in oil prices, the real estate market remained broadly “strong” in North Dakota, Texas, and Oklahoma where the indexes were above 50. Colorado had the hottest market for townhomes, but demand was also strong in many states in the West(CA, NV, OR,WA), Midwest (ND SD,NE,KS,TX ) and the East Coast (FL,SC,VA,PA,NY,MA,NH).
 Respondents were asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?”
 The market outlook for each state is based on data for the last 3 months to increase the observations for each state. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30 observations.
- There is no inflation. The Federal Reserve can therefore relax and not hurry in raising rates. However, housing costs continue to rise above the comfort level.
- Specifically, the Consumer Price Index declined 0.1 percent in April over the past 12 months. Food prices are up by 2 percent and shelter prices are up by 3 percent. But the large decline in energy prices, down 19 percent, is helping the broad consumer inflation to be zero.
- The shelter costs as computed by the government are a bit different than what ordinary consumers may think. Rent payments are a straight forward calculation and they rose 3.5 percent, which is very close to the fastest pace since 2008. Homeowner mortgage payments would be considered to have not risen at all by most homeowners since nearly all have either 30-year fixed rate mortgages or own it out-right with no balance. Or for would-be homebuyers, the median national home price rose by 8.9 percent in April. But this is not how government statisticians compute homeownership costs. It computes something called owner-equivalent rent, which is a hypothetical rent a homeowner would pay to rent out their home. And this owner-equivalent rent rose by 2.8 percent, the fastest growth rate since 2007. Meanwhile, wages are rising by only 2 percent, so the housing costs squeeze is becoming acute.
- For monetary policy, the Federal Reserve is keener on the “core” inflation by not factoring the volatile price movements of food and energy components. The core inflation rose at 1.8 percent. The Fed likes to see this at near 2 percent but not greatly over, so it should be fine with the current interest rate policy. Furthermore, GDP growth for the first quarter is likely to be revised to a mild negative and the second quarter GDP growth will be sub-par at around 2 percent. Therefore, I have revised the timing of the Fed policy to delay the rate hike to October (from what I previously thought to be in September).
- As an aside, how to beat consumer price inflation when going out. First, never order the most expensive item. It is there only as a decoy to make other menu items look reasonably affordable. Only the professional sports athletes or celebrities order this item, thinking it impresses their friends. Second, we all know to avoid restaurants with heavy tourist traffic since these hungry visitors do not know where to go. In neighborhood restaurants, avoid places where there are too many mini-skirts. Young men are willing to pay high prices for even lousy meals just to be near them. Knowing this, these types of restaurants have no incentive to improve on their cooking skills.
A monthly survey of REALTORS® about their transactions in April 2015 indicated a pickup in market activity and more widespread confidence compared to the situation in March 2015 and a year ago. The April 2015 report is based on the responses of 2,012 REALTORS® about local market conditions in March.
The seasonal uptick in market activity in spring and summer, low 30-year fixed rates of below 4 percent, continued job growth, and recent measures to make credit more accessible and cheaper (e.g., lower FHA mortgage insurance, 3 percent downpayment for GSE-backed loans) appear to be having a positive market impact.
For the third month in a row, the REALTOR® Confidence Index-Six-Month Outlook was above 50 across all property types (single family townhomes, condominiums), indicating that the number of respondents who viewed the market as “strong” outnumbered those who viewed the market as “weak.” Inventory remained tight as indicated by the Seller Traffic Index which stayed below 50. With stronger demand and tight supply, homes sold realtively quickly, typically within 39 days. First-time homebuyers continued to account for 30 percent of existing home sales, while investors accounted for 14 percent. Given the decline in sales to investors, cash sales accounted for 24 percent of sales.
- New home construction is desperately needed to alleviate the on-going inventory shortage in much of the country. Good news! Housing starts rose decisively in April. The growth in new home construction will further help expand employment in the construction industry.
- In April, housing starts rose 20 percent from the prior month to a seasonally adjusted annualized rate of 1.14 million units. This is the strongest activity in over 7 years. Single-family starts rose 17 percent while multifamily starts increased 27 percent during the month. The longer-term trend shows multifamily activity essentially back to its historic norm, but single-family starts still need to rise by another 50 percent to get back to normal.
- The Northeast region posted the biggest gain of 89 percent, but this is just a reflection delayed activity after a deeper and snowy winter. The West region notched up 39 percent. The most acute inventory shortages have been in this region so this is indeed good news. The activity in the Midwest increased 28 percent. In the South, housing starts fell by 2 percent. To the extent that the decline is likely in the Texas oil markets, it is understandable.
- Housing starts have been greatly underperforming in this recovery cycle compared to the past. Even the latest figure of 1.14 million is woefully inadequate compared to about 1.5 million that is needed. Snap back recoveries were the norm. Not this time. Why? People no longer want to work outside with a hard hat? Construction loans from local banks are extremely difficult to obtain because of new bank regulations and excessive compliance rules? The end result of slow housing starts will be faster home price growth and possibility a greater wealth inequality in America.
- As an aside and opining: the widening inequality and the lack of homeownership opportunity should concern us all. One may say that America was the first country to transform working-class citizens into middle-class citizens when the homeownership rate rose went from minority to majority (from 40 percent in the 1930s to 60 percent in the 1950s). The recent fall in the homeownership rate partly due to fast increases in home prices from underperformance in new home construction is therefore not the direction the country should be headed.
Based on information for cap rates in NAR’s Commercial Real Estate Market Trends report one can conclude that the small commercial real estate (SCRE) market for properties less than $2.5 million is distinctly different from the large commercial real estate market (LCRE). . NAR has estimated that the commercial market for buildings selling for under $2.5 million could be in the neighborhood of $50 billion annually, compared to the market for large buildings—which totaled $438 Billion in 2014.
REALTORS® have reported that SCRE cap rates averaged 8.0 percent during Q4.14. Data for the LCRE segment for recent cap rates averaged 6.8 percent in the latter part of 2014. Whereas steady cap rate compression characterized the past six years in major markets, capitalization rates in SCRE markets exhibited higher volatility. Moreover, data from SCRE markets clearly display the yield premium associated with secondary/tertiary markets. Averaging the cap rates in LCRE markets over the 2010-14 period, results in a 4-year cap rate of 6.9 percent. Applying the same procedure to data from SCRE markets produces a 9.4 percent yield.In general, the markets view small commercial buildings as more risky and difficult to finance than is the case for larger buildings. This has been illustrated in the slower post-recession recovery of secondary/tertiary markets, both in terms of fundamentals and asset prices. Conversely, during 2013 and 2014, as investors—buoyed by rising capital availability and shrinking inventory in top-tier markets—shifted their focus to stable markets offering yield premiums over the 5 – 6 percent caps in major markets, secondary/tertiary markets experienced a rebound. More information on commercial real estate markets can be accessed here.
The average property transaction in commercial real estate markets served by REALTORS® has been in the neighborhood of $1.6 million, significantly below the $2.5 million threshold typically used by major databases in compiling sales information. The markets for small commercial real estate properties (SCRE) under $2.5 million appear to be very different from those for large commercial real estate properties (LCRE) selling for more than $2.5 million—and sometimes much more. NAR has estimated that the SCRE market could be in the neighborhood of $50 billion annually, compared to the market for large buildings—which has averaged $360 billion and above in recent years. These appear to be distinctly different markets.
In terms of price, REALTORS® reported that commercial sales prices increased 4 percent year-over-year during 2014. Data for the LCRE market segment indicated a year-over-year price increase of approximately 21 percent. Taking a longer horizon approach, the differences in price growth have remained wide apart. Comparing year-over-year price growth rates for the two markets during the 2009-14 period illustrates the steep decline in valuations for assets in in the SCRE markets. Even with the recovery of the past two years, sales prices in the SCRE markets from 2009 to 2014 are still down 7.6 percent. Prices in the LCRE markets are up 1.1 percent.
More information on commercial real estate markets can be accessed here.
- The birth rate in America has been on a long-term decline as people are deciding to have fewer babies and at a later age. The most recently available data shows the lowest birth rate in the U.S. modern history. But due to the overall rise in the number of child bearing years over time, the actual number of live births in the U.S. has been fairly steady at around 4 million each year.
- There are 4 million births each year. There are also about 2 million deaths each year. So the natural process is yielding a gain of about 2 million in population. In addition, immigration makes up another ½ million to one million each year. The total U.S. population, therefore, rises by roughly 3 million each year.
- Nothing can be simpler to understand than the fact that more people mean more housing demand. To accommodate the rising population, about 1.5 million new housing units need to be built each year (including the need to replace demolished units). Unfortunately, housing starts have averaged only 766,000 per year from the economic downturn in 2008 to 2014 (7 consecutive years). These multiple years of undersupply compared to what is needed is the reason why much of the country is experiencing a housing shortage with few inventory of homes for sale and falling apartment vacancy rates. Consequently, rents and home prices are rising by at least twice as fast as wage growth.
- Housing starts have to kick higher soon. Otherwise housing shortage will continue. Housing affordability will take a hit as a result. Many people may then be forced to live in squeezed places. An unhealthy development.
- The most famous live birth of recent days is of Princess Charlotte in Britain. One thing that is nearly assured of Charlotte is that she will be judged in the future as one of the more attractive persons among the royal families. Why? Simple. The mother Kate Middleton was a commoner. Where royal blood mixes with another royal blood, many healthy issues appear. Moreover, it is well known at European courts that the royal family of Monaco is said to be the better looking. And this is no doubt due to Monaco royals’ long history of marrying a commoner and doing it without much qualms.
The investment sales markets for large and small commercial buildings are distinctively different. NAR’s Commercial Real Estate Market Trends report summarizes sales and rental activity based on a quarterly survey of commercial REALTOR® practitioners. A second report, NAR’s yearly Commercial Lending Survey report provides information on commercial real estate financial issues addressed by REALTORS®. Both reports present commercial real estate information generally not available elsewhere: the average commercial transaction size in markets served by REALTORS® has been about $1.6 million, significantly below the $2.5 million threshold typically used by major databases in providing information on commercial transactions. Although many REALTORS® participate in transactions above the $2.5 million threshold, in general REALTORS® report that they serve a segment of the commercial real estate market for which data are generally not reported—Small Commercial Real Estate transactions (SCRE) under $2.5 million, in contrast to Large Commercial Real Estate transactions (LCRE) over $2.5 million.
NAR has estimated that the commercial market for buildings selling for under $2.5 million could be in the neighborhood of $50 billion annually, compared to the market for large buildings—which totaled $430 Billion in 2014. A comparison of the two market segments—SCRE properties valued below $2.5 million vs. LCRE properties valued above $2.5 million shows their difference in terms of sales.
In 2014 REALTORS® reported an increase in SCRE sales volume of 10 percent year-over-year. In comparison, data for the LCRE segment showed a sales volume increase of 21 percent for 2014 vs. 2013. The contrast between the two markets is sharper when taking into account a longer time horizon, and it underscores the post-recession difficulties experienced in sales of smaller buildings and properties located in secondary/tertiary markets. Over the 2009-14 period, sales volume for LCRE markets averaged 35 percent growth. For the same period, sales volume in SCRE markets averaged a negative one percent growth.
Some of the discrepancy between the two markets may be due to tight credit—reported by NAR’s commercial practitioners as having been unreasonably tight. Some of the discrepancy between the markets may be due to location and usage, with smaller buildings having very different characteristics than larger Class A office space in central business districts.
More information on commercial real estate markets can be accessed at: http://economistsoutlook.blogs.realtor.org/2015/04/30/small-commercial-real-estate-market/.
For more information, please visit http://www.realtor.org/research-and-statistics/.
- Job gains were solid in April. But the wage growth remains stuck and not matching up with the rises in rents and home prices. Nonetheless, more jobs even with slow wage growth means continuing support for housing demand and rising demand for commercial real estate leasing activity.
- Here are the numbers in detail:
- 223,000 net new jobs in April
- 2.98 million net new jobs in the past 12-months
- Nearly 12 million net new jobs from the cyclical low point from 2009
- The unemployment rate fell to 5.4 percent (the lowest since May 2008)
- Even with the job gains, however, there are fresh sets of college and some high school graduates looking for work. Not all are finding jobs. The employment rate remained stuck at 59.3 percent of American adults. Before the recession, 63 to 64 percent of adults were working.
- Wage growth is stuck at near 2 percent. Before the recession in 2009, wages were rising by 3.5 percent. The current wage growth therefore is not catching up with changes in housing costs. Rents are rising close to 4 percent and home prices are rising at 7.5 percent.
- The construction industry is hiring. The hard-hat construction jobs were expanded by 57,800 over the past 12 months. Moreover, the general contractor employment increased by additional 188,500 over the past 12 months. Construction is one of the better paying industries with the average hourly wage of $27.28. By comparison, workers at retail stores earn $17.32. Therefore, one quick way to boost a personal pay is to acquire skills in carpentry, bricklaying, and other construction related jobs.
- Job growth could slow in few months. Why? Labor productivity was negative for the past 6 months. The jobs momentum could slow from current 3 million net new jobs in 12-months to around 2 million net new jobs.
- As the nation celebrates the victory over evil in the Second World War, we should note the special work experience of the Greatest Generation (as coined by Tom Brokaw). They suffered the unemployment and hunger during the Great Depression. They went to Europe and islands across the Pacific Ocean to fight and win the war. Many women worked outside of home for the very first time. They then after the war worked to build the American economy into an unmatched superpower status.
Based on information in NAR’s Commercial Real Estate Market Trends report one can conclude that small commercial real estate (SCRE) markets (properties less than $2.5 million) are distinctly different from large commercial real estate markets (LCRE), where properties exchange hands for over $2.5 million.  NAR has estimated that the commercial market for buildings selling for under $2.5 million could be in the neighborhood of $50 billion annually, compared to the market for large buildings—which has averaged $360 billion and above in recent years.
Property fundamentals also seem to diverge along valuation lines. In 2014 REALTORS® reported that vacancy rates in the SCRE markets were mixed across property types. For apartments, the national average vacancy rate rose to 6.8 percent (compared to rates in the 4.0 percent level for LCRE properties). Office vacancies declined to 14.9 percent (roughly comparable to LCRE markets), while industrial availability rose to 11.6 percent (compared to approximately 9.0 percent for LCRE properties). Retail availability decreased to 12.5 percent (compared to 9.7 for LCRE properties). Overall, the vacancy rates pointed out that in SCRE markets the recovery in leasing activity was slower than in the LCRE markets.
In terms of capital availability, the divergent trends continued. REALTORS® reported that in SCRE markets, the main sources of commercial real estate funding came from local and regional banks. In comparison, the LCRE segment was broadly diversified, with representation from government agencies (Freddie/Fannie), insurance companies, national banks, REITs, commercial mortgage backed securities, private investors and cross-border funds.
LCRE markets appear to focus to a significant degree on central business district office and retail properties as well as large properties in the suburbs. In comparison, REALTORS® reported a significant level of warehouse and suburban office sales.
Based on the recent release of the Federal Reserve, the net worth of households and nonprofits rose to $82.9 trillion during the fourth quarter of 2014. This is an increase of $4 trillion from one year ago and $26 trillion compared to the lowest net worth level in 2008. But how is this net worth distributed by U.S. households at the local level?
In 2013, the national median inflation-adjusted family net worth – the difference between families’ gross assets and their liabilities – increased only in the upper – middle income tiers of households (the top 40 percentile of income) compared to 2010. This increase eased the net worth gap between the top 10 percentile income tier and the top 20 percentile from 4.2 to 3.8 multiples. The gap narrowed also with the top 30-40 percentile income tier from 9.3 to 7.1 multiples. In contrast, the net worth gap increased between the top 10 percentile income tier and the middle, middle – low income tiers. For example, the gap widened between the top 10 percentile and the middle – low income group (top 60-80 percentile) from 46.7 to 50.5 multiples.
Real estate markets, which contribute the value of property to net worth, slowly began to recover from 2010. Specifically, home prices rose in 84% of the 100 largest metro areas. Data show that homeowners have steadily recovered and built housing wealth as a result.
However, the homeownership rate declined in 93% of those metro areas. Hence, the rising housing wealth goes to fewer people as the number of homeowners has fallen while the number of renters has risen. Based on Federal Reserve data, the typical homeowner’s net worth in 2013 was 36 times greater than that of renters. Here is the net worth for Homeowners and Renters for the period 2010 – 2015 estimate.
Although it is difficult to assess the true level of wealth inequality in markets at the metro level, inequality can easily be identified as intensifying or lessening by simply measuring the change in the number of owners and renters at a time when values are rising. Analyzing Census data, Bakersfield, Richmond, Toledo, Orlando and Tampa were found to have experienced the largest decline in homeownership rate among the 100 metro areas. For instance, based on the table above, a typical homeowner in Orlando gained $31,500 in housing wealth from 2010. However, the homeownership rate in Orlando declined by 4.3%. This means that fewer people received that housing wealth increase to their net worth. Therefore, it is easy to infer that Orlando has become more unequal as the number of homeowners has fallen.
The inability for renter households to become homeowners is leaving them behind financially. A typical homeowner’s net worth climbs because of upticks in home values and declining mortgage balances over time. On the other hand, renters have likely seen increased housing costs and are less likely to have been active investors in the stock market’s strong growth in recent years.
Additionally, most metro areas also showed intensifying income inequality. While both are important to understanding inequality, wealth is different from household income. Wealth is the difference between the value of a family’s assets (money in bank account, value in property, etc.) and liabilities (debts). On the other hand, household income measures the annual inflow of wages, interests, profits and other sources of earnings. Income inequality is measured by the Gini Index (U.S. Census Bureau). Data showed that most of the metro areas with high Gini index had also low homeownership rates (Los Angeles, New York, San Francisco, San Diego). Based on the negative relationship of wealth inequality and the homeownership rate above, it seems that those metro areas with higher income inequality were also associated with greater wealth inequality.
According to the visualization above, Los Angeles, New York, Fresno (CA), San Diego and San Francisco can be inferred to have the most unequal wealth distribution as a result of their low homeownership rates.
Comparing the Gini index level between 2010 and 2013, data also show that 93 out of the top 100 metro areas experienced a rising Gini Index, which also means rising income inequality. Bridgeport (CT), New York, Miami, New Orleans and Los Angeles were found to have the highest income inequality in 2013.
Based on the above analysis, the decline in homeownership appears to have serious implications for our economy and is currently leading to a more unequal America. Although better economic conditions should eventually open the door for more prospective buyers, improving access to mortgage products to creditworthy borrowers and ramping up new home construction – especially to entry-level buyers – will help ensure the opportunity is there for more American households to enjoy the potential wealth benefits and long-term stability homeownership provides.
 The Change of Wealth includes the change in median home prices for single family homes (2010 – 2013) and an estimate of principal accumulated. Principal is estimated using a 30 – year mortgage and assuming that the homebuyer finances 80% of a median – priced home.
 Gini Index measures the extent to which the distribution of income among households within an area deviates from the perfectly equal distribution. A Gini index of 0 represents perfect equality, where all households have equal income. A value of 1 implies perfect inequality, where only one household has any income. Thus, the higher the Gini index, the higher income inequality in the metro area. Similarly, the higher the positive change in Gini index, the more income inequality has increased in the metro area. Areas with negative change in Gini index have seen income inequality decline.
- American workers have become less productive in the past two quarters. A sizable number of new workers were added to the payroll yet overall production barely increased. So production per person declined. Without rising worker productivity many bad things can happen to the economy – including a faster rise in mortgage rates.
- More detail on the numbers: In the first quarter, productivity fell at a 1.9 percent annual rate, following a 2.1 decline in the prior quarter. There have not been 2 consecutive quarters of decline in over 20 years. Since this time last year, productive is only barely positive with each worker producing 0.48 percent more for each hour or work. The 3.2 million net new hires over the past 12 months have not meaningfully pushed up GDP. The historical productivity growth rate in the U.S. has been around 2 percent per year. In the past four years, productivity has been disappointingly low with less than 1 percent growth.
- Is it a big deal whether it rises at 1, 2 or 3 percent? Definitely! Faster worker productivity means
- faster worker wage increases
- faster economic and tax revenue growth
- lower consumer price inflation, and
- lower mortgage rates, among many other beneficial effects. If productivity was to rise at 1 percent then the standard of living would double in about 70 years (that is, grandchildren will have twice as many things as their grandparents). If productivity was to rise at 3 percent then the standard of living would double in 24 years (that is, children will have twice as many things as parents).
- Due to disappointing productivity figures of late, expect companies to scale back hiring decisions and be stubborn about giving raises. Also inflation, which had been non-existent, could slowly increase and, consequently, pressure mortgage rates to rise a bit.
- Some say, because of the service nature of our economy, with less manufacturing the productivity growth will be more challenged in upcoming years. However there are many examples of where even a person facing physical handicap can raise productivity. Many wounded soldiers become productive citizens in software development, teaching, financial planner, and a multitude of other professions that are knowledge-based and not necessarily physical. One long ago example was of a young man who lost a hand from a factory accident. He then went to work doing minor tasks at a local drug store. Then an idea popped in his head: why not turn a drug store into a convenient place to buy other things? Mr. Walgreen went on to make a fortune even with a physical handicap because he greatly boosted retail store productivity.
Cash sales appear to be on the downtrend, according to the March 2015 REALTORS® Confidence Index Survey. Cash sales accounted for 24 percent of total existing home sales in March 2015 and have been hovering at this mid 20’s compared to about 30 percent in 2013.
The decline in cash sales is related to the drop in buying activity by investors, given fewer distressed sales on the market and rising prices. Sales for investment purposes fell to 14 percent in March 2015 from about 20 percent in 2014 while distressed sales accounted for 10 percent of existing home sales.
The declining share of sales for investment purposes and cash sales indicates that long-term homeowners, rather than investors, are increasingly driving the recovery.
First-time homebuyers made up 30 percent of existing home sales in March 2015, at par with past months’ levels (29 percent in February 2015; 30 percent in March 2014) according to the March 2015 REALTORS® Confidence Index Survey. 
Recent measures to make mortgages more affordable and credit more available for first-time buyers (e.g., lower FHA mortgage insurance, 3 percent down payment GSE-backed loans, and relaxation and clarity regarding lender buyback of loans they originate) were reported to be helping homebuyers get back into the market.
 First time buyers accounted for about 33 percent of all homebuyers based on data from NAR’s 2014 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence homebuyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.