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Updated: 2 hours 49 min ago

Consumer Interest in Housing Gains Momentum

3 hours 10 min ago

The Federal Reserve Board of New York released its update to the Survey of Consumer Expectations this morning.  Consumer optimism toward housing has improved significantly at the lower credit spectrum from last spring, and remains robust at the middle and upper credit tiers.  The positive trend relative to a year ago points to sustained improvement in demand for housing in 2015.

The share of lower-FICO borrowers who applied for a mortgage in February was 5.9%, up from 4.2% four months earlier and more than doubling the figure from February of 2014.  As the survey data is not seasonally adjusted, it’s better to track the year-over-year trend.  The share of borrowers in the middle tier of FICOs also rose from a year ago.  However, the share of high-FICO borrowers fell modestly over this period.

More importantly, over the next 12-month period, borrowers in all credit tiers expect to apply for mortgage credit at higher rates than they did last February.  Lower-credit borrowers expect to apply at a 75% higher rate than a year earlier, while middle and upper credit borrowers expect to apply at 40% higher and 14% higher rates, respectively.  This across-the-broad improvement bodes well for a robust housing market in 2015.  It also suggests improved millennial participation and household formation, which is likely fueled by improved employment trends.  The improvement at the lower credit spectrum also likely reflects concerted efforts on the part of the administration to improve credit access via new low-down payment products from Fannie Mae and Freddie Mac, better pricing from the FHA and relaxation overlays by the retail operations of some banks that have resulted from changes to the rep and warrant framework.  Constrained supply and supply miss-match remain a headwind to home sales, though.

REALTORS® Are Upbeat About the Outlook in the Next 6 Months

4 hours 58 min ago

Confidence about the outlook for the next six months improved across all property types, according to the February 2015 REALTORS® Confidence Index Survey.

In the single family market, the REALTORS®  Confidence Index - Six-month Outlook  increased to 75 (72 in  January 2015; 68 in February 2014).  For the first time, the index for townhomes and condominiums also hit the 50 mark. An index of 50 means that the number of respondents who view the market as “strong” outnumber those who view the market as “weak.”

REALTORS® reported that  the 0.5 percentage points reduction in the monthly mortgage insurance premium  and the offering of the 3 percent down payment loan were likely to help homebuyers[1].  However, REALTORS® in states with large oil/gas industries (TX, OK, ND) expressed concern about the impact of the low oil prices on their economies.

[1] For loans originated starting January 26, 2015, FHA charges a monthly mortgage insurance premium of  0.85 percent on the outstanding loan balance, down from 1.35 percent.  The GSEs (Fannie Mae and Freddie Mac) also increased the maximum loan to 97 of the house’s value, up from 95 percent. However, loans with lower down payment are charged higher extra fees (a.k.a. loan level pricing adjustments) for the increased risk.

Unemployment Insurance Claims Continue To Decline in Most States

Thu, 03/26/2015 - 14:10
  • The number of people losing jobs continues to remain on a downtrend. Initial unemployment insurance claims that were filed during the week that ended March 21 totaled 282,000 (seasonally adjusted), fewer by 9,000 claims from the previous week’s unrevised level. A decline in the number of unemployment claims indicates fewer job losses and greater job stability.
  • Based on latest state data (February 2015), almost all states have seen a decline in the number of unemployment claims (about 10 percent drop nationally), except in LA, TX, ND, OK and WY where their oil/gas industries are being buffeted by the steep drop in oil prices.
  • Despite the job losses in the oil and gas sector, these states appear to be coping up at this point, generating jobs on a net basis. Jobs are growing comparatively strongly in Texas (3.5%), and North Dakota (4.3%), above the national average of about 2.3 percent, although at a subdued pace in Oklahoma (1.5%), Wyoming (1.6%), and Louisiana (1.3%).

  • NAR expects the economy and job growth to strengthen in 2015 to levels which can support 5.3 million existing home sales in 2015, up from 4.9 million in 2014.

Latest New Home Sales (February 2015)

Wed, 03/25/2015 - 12:45
  • Contracts to buy a newly constructed home soared in February, portending a solid demand going into the spring home buying season. One reason is due to builders bringing less-expensive homes onto the market.
  • Diving into the numbers, new home sales hit 539,000 (annualized pace), which is a big increase of 25 percent from one year ago and marks the highest sales pace since February 2008.  The median price of a new home was $275,500, which is less than $300,000 of recent past months.  This implies that slightly lower price points are very popular with buyers.
  • Even with the latest big gain, new home sales and housing starts (the construction of all new homes) remains well below the levels of 2000.  There is indeed much room for further growth.  NAR expects new home sales to rise 30 to 35 percent in 2015.
  • The average time to move a property is quick.  It took only 3.5 months to find a buyer.
  • The gap between new home price and existing home price is still rather large.  This is good news for homeowners since it is implying that existing home price is in a better position to rise in order to close the gap.  The higher cost of construction makes it difficult to lower the price of new homes.
  • New home sales data does not measure closing activity.  Rather it measures contract signings, much like NAR’s pending home sales data. Also, not all single-family housing starts lead to new home sale contract signings.  Those new homes initiated at the owner’s request are not included in the new home sales data though are included in the housing starts data.
  • Home prices for both new and existing homes have been rising much faster than income.  Moreover, rent gains have also been easily outpacing income growth.  The only way to tame the strong rise in housing costs is to produce more new homes.  Unfortunately, many small-sized local homebuilders are still having hard time obtaining construction loans (even though homes are selling quickly and therefore carrying very low risk of a default).  Local community banks have indicated burdensome new regulations arising out of Dodd-Frank rules as to the reason why construction loans cannot easily be made.  Since one of the original goals of Dodd-Frank was to prevent systemic risk in the financial sector, there could be an exemption to regulation for smaller-sized lenders.  After all small banks are in a very competitive industry and bankruptcies by a few small banks do not cause a systemic risk of taking down the whole economy.  The exemption of small banks from Dodd-Frank rules should therefore be seriously considered.  Otherwise, many Americans could choke on rising housing costs.

February Existing Home Sales

Tue, 03/24/2015 - 10:26
  • NAR released a summary of existing home sales data showing that February’s existing home sales improved from last month and a year ago, while fewer homes on the market drive price growth. February’s sales show a fifth consecutive month of year over year improvement up 4.7%, while sales were up modestly 1.2% from last month.
  •  The national median existing-home price for all housing types was $202,600 in February, up 7.5% percent from a year ago which is the fastest pace since February 2014.
  • Regionally, all four regions showed growth in prices, the Midwest had the largest gain at 8.8% while the Northeast had the smallest gain at 3.3% from last February. The Northeast was the only region to show a decline in sales of 6.5% from last month, while the Midwest remained flat. The South had a modest gain of 1.9% while the West had the biggest increase at 5.7%. All regions showed an increase in sales from a year ago, and the South had the biggest gain at 6.0% while the West had the smallest gain at 2.8%.
  • February’s inventory figures increased 1.6% from last month but are down 0.5 % from a year ago and it will take 4.6 months to move the current level of inventory. It takes approximately 62 days for a home to go from listing to a contract in the current housing market.
  • Single family sales increased 1.4% and condo sales remained flat from last month. Single family homes had an increase of 5.9% from a year ago, while condo sales fell by 3.6%. Both single family and condos had an increase in price with single family up 8.2% and condo up 2.8% from a year ago, February 2014.
  • Potential home buyers have fewer options which may hinder future housing activity. New homes are doing well sitting for sale roughly 3 months after completion. Rents are still up by about 3.5% year over year, out pacing incomes in certain metro markets where potential home buyers are finding challenges saving for down payments.

State and Metro Employment in January 2015

Tue, 03/24/2015 - 09:22
  • A job is virtually guaranteed in Midland (Texas), Lincoln (Nebraska), and Ames (Iowa), where the unemployment rate is under 3 percent.
  • The unemployment rate can be misleading about the health of the local economy at times.  If, for example, many people including the jobless left the area then the unemployment rate can fall since very few are around looking for work.  It would be better to see how many jobs are being created locally.  Job creation may attract some unemployed to the area in search of work, but at least we know that jobs are being created and thereby expanding the pool of potential homebuyers.  Commercial leasing activity would also correlate with the rise in employment.
  • Job gains have been accelerating recently in many metro markets.  Nationwide, 3.3 million net new jobs were added in the past 12 months.  That is the fastest 12-month pace for the country as a whole in nearly a decade.
  • At the state level, North Dakota and Utah were leading the way.  But North Dakota is losing steam, with a job growth rate of 4.5 percent in the latest versus above 5 percent in the prior months.  Texas is near the top but is also losing energy as the job creation clocked-in at 3.5 percent rather than the above 4 percent in the recent prior months.  The collapse in the oil price will continue to impact jobs in North Dakota and Texas.  Utah, with much less exposure to the oil sector, will therefore soon reach the top.
  • At the bottom were Maine and West Virginia.  Even so, these states are creating jobs, though not as strong as other states.  That means that all states are steadily building the source of housing demand and commercial leasing will most likely rise.
  • Among the metro markets, the job winners over the past 12 months are shown below.  Several beach towns and college towns are on the list with 4 percent or higher one-year job creation rate.  The residual impact from high oil prices of early last year also is still showing up in the local oil-based economies.  Here is the list of high flyers.

  • For investment, buy a condo at one of the above beach or college towns.  If you cannot rent it out to one of the recent job hires, then at least you can use for leisure or rent it out to one of the ever rising number of college students.

REALTORS® Confidence Index Survey: February 2015 Survey Highlights

Mon, 03/23/2015 - 10:53

A monthly survey of  REALTORS® about their transactions in February 2015 indicated an improvement in most local markets despite harsher winter conditions The REALTOR® Confidence Index-Current Conditions, the REALTOR® Confidence Index-Six-Month Outlook, and the Buyer Traffic Index all increased in February 2015 and were above the 50 mark, indicating that more local markets were strengthening.

REALTORS® were upbeat about the outlook for the next six months, with confidence boosted by the improving job market and recent measures to make credit more available through lower mortgage insurance premiums (0.5 percent  cut) for FHA-insured loans and lower down payment (3%) for GSE-backed conventional loans.  However, tight inventory in many areas, especially for “affordable” and “good” houses, remained a major bottleneck to the housing market’s growth.

Credit Availability: Trends, Issues, and Implications for First Time Home Buyers

Fri, 03/20/2015 - 15:13

Presentation by Dr. Laurie Goodman, Urban Institute

REALTOR® University Speaker Series

Dr. Goodman presented an analysis of mortgage credit availability, concluding that lending standards have been excessively tight as a result of reactions to credit problems experienced during the Great Recession:

  • Compared to 2001—a time of normal credit availability—the FICO scores required by lenders in making loans have increased significantly—thereby decreasing the number of loans made to potential buyers with credit scores under 720.
  • Requirements and standards for loan documentation have risen substantially and unnecessarily:  for example, mortgage applications processed per underwriter decreased from approximately 188 per month in 2002 to 36 per month as of 2013.
  • Penalties to financial institutions for mistakes in processing loan documents—even if minor– have been unrealistic and inappropriate in many cases.  To some degree the word “paranoia” describes some lender attitudes related to government lending requirements.

Dr. Goodman’s analysis showed that an additional 1.2 million home loans per year could have been made in 2013 if credit availability had been based on the lending standards in effect in 2001, a time during which normal, prudent lending conditions prevailed.  Unrealistic credit requirements and lender concerns have had a major, negative impact on the housing markets:  i.e., mortgage credit has been too tight.  This is starting to change.  Dr. Goodman mentioned that a number of recent actions by FHA and FHFA have to some degree increased credit availability.  However, it appears that substantial additional loosening of credit requirements and procedures continues to be needed—just to attain normal lending standards.

Looking to the future, Dr. Goodman discussed the projected profile of future home buyers.  In 2010 among homeowners identified as White, 72 percent owned a home.  White non-Hispanic buyers are projected to account for fewer than 23 percent of buyers by 2020.  Future home buyers are projected to be largely Hispanic, African American, and Asian.  These groups currently have a homeownership rate below that of White homeowners, but will be the bulk of the market in the future.  In addition, although home sales will expand as the population grows, homeownership rates will probably decline in the future due to changing demographics and lifestyles, possibly reaching 61 percent by 2030, compared to 65 percent in 2010.   Dr. Goodman’s presentation and accompanying PowerPoint slides can be found here.

What Does This Mean for REALTORS®?

Changes in interest rates are not the issue, regardless of what is in the press.  In addition, home prices continue to be affordable.  Credit availability and –most particularly its increased availability—is the central issue currently influencing housing markets.  There have been some improvements, and Dr. Goodman’s presentation shows that with additional loosening the housing markets can grow further.  Overall, that’s good news.

In the meantime, finding mortgage money and qualifying for the mortgage will important in bringing the home search to a successful conclusion.  As noted in various NAR sources, local and regional banks as well as credit unions may be good possibilities for mortgage money in comparison to other sources.  Overall, Dr. Goodman’s presentation is positive—there is significant upscale potential for the housing markets as credit requirements ease.

Lenders Pensive, But Warming to Government Overtures

Fri, 03/20/2015 - 10:05

It has become rarer for banks and lenders to hold the loans they originate.  One factor linked to tight credit is the process where loan investors force lenders to buy back mortgages they sold to the investor.  In this case, the investors are the FHA and GSEs.  These buyback requests occur when the FHA, Fannie Mae or Freddie Mac receive loans that do not meet their standards.  While academic studies have shown that the incidence of these repurchase requests have dropped to historic lows in recent years, the fear of reputational risk and potential costs remain elevated.

Lenders Feel the Pinch

85% of participants in the 4th quarter Survey of Mortgage Originators indicated having been the subject of a repurchase request between 2009 and 2013.  Of those, more than 60% resulted in a buy-back, while the remaining 41% were resolved without one.  Furthermore, 90% of respondents indicated that repurchase requests from aggregators or investors impacted their willingness to lend, 40% significantly so.  Repurchase requests were the leading factor cited by survey participants as driving reluctance to lend to borrowers with greater risk (e.g. FICO<640, higher DTIs, and low down payments).

Government Response

The agencies made overtures to ease lender concerns about buy-back risk in recent months through their representation and warrant policies.  An estimated 40% of respondents indicated a modest improvement in willingness to lend to riskier borrowers as a result, while an equal share indicated that the changes would have no effect.  A fifth of respondents indicated that they would wait and see.

Of the suggestions that would improve credit availability, 25% of respondents cited more clearly defined rules that determine repurchase risk.  An additional 12.5% cited allowing indemnification for minor infractions rather than repurchase of these loans, while 12.5% indicated that no changes would ameliorate their concerns.

Government attempts to ease lenders’ concern appears to have worked to a degree, but more change to programs or perception may be necessary.  Though the government has made a concerted effort to shift repurchase requests closer to origination, historically they have come when loans default.  Furthermore, private aggregators and the FHA have sued originators whom they purchased loans from.  Thus, the market may have to wait for another housing cycle and rise in defaults for lenders to observe the government’s actions before they wade back into the deep end of the market en mass.

Rising Foreign Investment and Non-immigrant Admission Trends: An Opportunity for Engaging in Transactions with International Clients

Thu, 03/19/2015 - 12:01

The United States continues to be a prime destination for foreign direct investment[1]  (FDI) with its open investment regime and favorable economic and political environment. [2]  With its top-notch and many universities, the U.S. also has been attracting an increasing number of international students.

Expanding trade and investment flows and increasing international student population present opportunities for engaging in real estate transactions with international clients.  According to NAR surveys of its REALTORS®, about half of international clients are citizens of another country who are in the U.S. on temporary visas or are recent immigrants who have been in the U.S. for less than six months.

Over the period 2010-2013 (latest data available by country), the United Kingdom, Japan, and the Netherlands were the largest sources of foreign direct investment. Canada remained as a major investor (Chart 1). Among Asian countries, next to Japan were Korea, Australia, and China as the biggest sources of foreign capital.  Although China has the least inflow in terms of volume of dollars, its growth has been the most spectacular, with inflows increasing from $114 million during 2002-2005 to $ 8 billion during 2010-2013, a 70-fold increase. Among Latin American countries, Mexico, Brazil, and Venezuela made the largest foreign direct investments.  Not surprisingly, these countries have also been the major sources of international clients purchasing U.S. residential property.

California, Texas, New York, Florida, and Illinois were the major destination of investors, intra-company transferees, and those granted business waivers in 2013 (Chart 2). These states, except for Illinois, have also been the preferred locations of international home buyers.REALTORS® have also reported that some international clients purchase homes for their children studying at U.S. universities and later use these homes for vacation or investment/rental purposes. China, Canada, Mexico, South Korea, Saudi Arabia, and India are the top countries of origin of international students (Chart 3). California, New York, Texas, Michigan, and Massachusetts were the top 5 states of choice of international students in 2013 (Chart 4). It’s worth noting that Michigan draws far more foreign students than Florida even though the state is notably smaller in population.What This Means to REALTORS®: Increasing foreign investments in the U.S. and the accompanying flow of people is enhancing the opportunities for engaging in transactions with international clients.  NAR provides training/certification to increase one’s expertise in dealing with international clients. Visit the website for more information at http://www.realtor.org/global.

[1] Foreign direct investments are investments in which the investor seeks some long-term management control of the company by acquisition of some control of the company. The Organization for Economic Co-operation and Development, of which the U.S. is a member, considers 10 percent ownership of the voting stock of a company as a benchmark. Foreign direct investment differs from portfolio investments which are made for the purpose of portfolio diversification or securing a financial return.

[2] “Foreign Direct Investment in the United States”, Department of Commerce and the Council of Economic Advisers, October 2013. See  http://www.whitehouse.gov/sites/default/files/2013fdi_report_-_final_for_web.pdf

Apartment Spotlight: Six Markets Tie for Year over Year Vacancy Declines

Wed, 03/18/2015 - 11:11

Commercial fundamentals improved in the fourth quarter 2014, with rising net absorption driving rents higher across the major property types. As employment gains are expected to continue into 2015, demand for commercial space is expected to advance.

Multifamily demand is expected to remain strong, as the pace of household formation closes on historical averages. However, 2015 will mark the first year since the recession that supply will likely outpace demand.

Fundamental improvements were experienced across the country at different rates. In 2014, Lexington, KY provided the largest year-over-year availability decline, with a 100 basis point drop. The second largest declines came from six markets, with varying vacancy rates, which all experienced 90 basis point drops: Albuquerque, NM; Columbia, SC; Dayton, OH; Fort Worth, TX; Las Vegas, NV; and Tulsa, OK.

Of the group, Ft. Worth and Las Vegas are the largest by population, with over 2.0 million people in each metro area. The other markets hover slightly below 1.0 million people. Employment trends were positive for five metros, with Albuquerque being the only one to experience a slight decline in total employment. A contributing factor to the decline may have been an exodus of residents from the metro area. Albuquerque lost 2,940 households between 2013 and 2014.  Dayton was the other metro area with a decline in the number of households over the period—890 households.

Las Vegas had the strongest employment growth of the group, at 3.2 percent followed by Ft. Worth, with 2.8 percent growth year-over-year.  In contrast to its household change, Dayton’s employment advanced 1.3 percent on a yearly basis. Tulsa experienced a 1.2 percent gain in employment, while Columbia posted 0.4 percent increase in total employment.

Vacancies ranged across the group from about 3.0 percent in Albuquerque to 6.0 percent in Columbia during 2014. Demand was positive across all metros, with net absorption registering growth in three metros—Dayton (85% YoY change), Ft. Worth (17% YoY change) and Tulsa (27% YoY change). Asking rents advanced in all markets, with Ft. Worth posting the highest annual growth rate, at 3.3 percent, followed by Tulsa, with 3.2 percent.  Rents rose 2.3 percent in Las Vegas, 2.1 percent in Columbia and Dayton, and 1.7 percent in Albuquerque.

For a look at NAR’s commercial forecast for 2015, visit the Commercial Real Estate Outlook.

Latest Housing Starts (February 2015)

Wed, 03/18/2015 - 08:18
  • Housing starts tumbled in February.  The snowy weather was the reason since the declines were much deeper in the Northeast and the Midwest regions compared to the South and the West regions where the cold weather was less of a factor.  Even as the outdoor activity of actual construction fell, the indoor activity of obtaining housing permits actually increased in February.  More new homes will surely reach the market as the weather improves.
  • Specifically, housing starts in February hit 897,000 (annualized pace) from 1.081 million in January.  Housing permits rose 3 percent to 1.092 million in February.  The permit increase was predominately in the multifamily units (apartments and condominiums).
  • The overall inventory of homes for sale is running low.  The supply of existing home inventory at 4.7 months in January.  For new homes, it was 5.4 months.  A normal condition would be around 6 to 7 months.  Therefore, there is a slight inventory shortage and more new homes need to be built.
  • Many locally based homebuilders have been restrained by excessive difficulty in obtaining construction loans.  Many local lenders have indicated the new financial regulations as being burdensome as to the reason why construction loans are not an easy matter.  The national homebuilders do not need construction loans since they obtain capital from Wall Street.  In addition there has been a shortage of qualified construction workers.  Larger firms are more easily able to outbid and provide a steadier flow of work hours then smaller firms.  Therefore, the combined influences of construction loan difficulty and worker shortage have led to an increased market concentration in the homebuilding industry with less competition.
  • Despite frictions related to homebuilding, new home construction will no doubt increase in 2015.  Single-family new home construction is expected to rise by around 25 percent while multifamily new home construction is expected to rise by around 10 percent.  The overall housing starts are expected to reach around 1.2 million units in 2015.  Unfortunately, that is grossly inadequate given the already low inventory levels and falling apartment vacancy rates. A cool 1.5 million new units are needed.  Home prices and rents will likely therefore outpace people’s income growth.

Accelerating Housing Costs Has Renters Feeling the Squeeze

Tue, 03/17/2015 - 12:41

The gap between rental costs and household income is widening to unsustainable levels in many parts of the country, and the situation could worsen unless new home construction meaningfully rises according to new research by the National Association of Realtors®. In the past five years, a typical rent rose 15% while the income of renters grew by only 11%.

NAR’s research analyzed changes on income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years in 70 metropolitan statistical areas across the U.S.

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The top markets where renters have seen the highest increase in rents since 2009 are:

  • New York, NY-NJ-PA (50.7%),
  • Seattle, WA(32.4%),
  • San Jose, CA (25.6%),
  • Denver, CO (24.1%),
  • St. Louis, MO-IL  (22.3%).

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A way to relieve housing costs is to increase the supply of new home construction – particularly to entry-level buyers. Builders have been hesitant since the recession to add supply because of rising construction costs, limited access to credit from local lenders and concerns about the re-emergence of younger buyers. Yun estimates housing starts need to rise to 1.5 million, which is the historical average.


Return Buyers on the Rise

Tue, 03/17/2015 - 10:24

Millions of former homeowners experienced a foreclosure or shortsale over the last 9 years.  Eventually these borrowers will return to the housing market.  Participants in the 4th quarter Survey of Mortgage originators survey were asked if there was a change in volume of formerly distressed sellers seeking mortgage credit.  Relative to 2013, half of respondents indicated an increase in potential return buyers seeking credit.

 This result suggests a continuation of the growing trend of return buyers.  Over the 12-month period from July of 2013 to June of 2014, 8% of home buyers were previously distressed sellers.  This share was an increase from 6% in the prior period.

Irish Home Price Trend and the U.S. Forecast

Tue, 03/17/2015 - 09:11
  • Irish home prices rose at 16 percent in 2014.  That gain was the best in the world.  Ireland had experienced a big bubble and burst, but the climb since then has been consistently one of the best.   It is also why the broader Irish economy is projected to grow much faster than the rest of Europe.
  • According to a major real estate firm based in Britain, the home prices moved this way in 2014:               See the full list of countries here.
  • Irish took a drastic step during the recent past financial crisis that nearly all other major countries did not do.  Government spending was slashed, government employee salaries were cut, and it raised taxes to help balance the budget.  The short-term pain was going to be acute.  But it realized there will be long-term gains.  The long-term gains are already here in terms of rising home prices, rising employment, and rising economy.
  • The fast-rising home prices in Ireland (though still well below the prior bubble-peak) are due to many years of under-construction of new homes.  Now that the economy is rising and employment gains solid, more construction needs to take place from low inventory conditions.  This story sound familiar.  America has been under producing new homes in recent years.  Inventory levels are low.  Prices are rising in the mid-single digits.  But is it on the verge of accelerating into double-digit rate of appreciation as occurred last year in Ireland?
  • A crucial turning point in the rich history of Ireland was when St. Patrick escaped slavery many centuries ago and arrived on the island to spread the word of the Bible.  Another significant moment was when the island became free and sovereign after the First World War.  The process was not easy, as the largely Catholic country wanted the whole island free while the Protestants in the northern portion continued to wish to be part of Britain.  In the end, however, Ireland did free itself.  In the very first presidential election, the Irish people elected a Protestant.  That an overwhelmingly Catholic country could freely elect a Protestant was evidently a major signal that people could overcome their fears.  Economies prosper when people do not fear.  That is why people in Ireland now have a higher per capita income than those in Britain.  America at first could not accept a Catholic Presidential candidate so voted solidly for Herbert Hoover.  Later, America did elect JFK – signaling no fear of religion and economic prosperity.

St. Patrick’s Day: Green and Energy Efficient Home Features

Mon, 03/16/2015 - 13:12

How do green features influence buyers’ purchasing choices? Using the 2014 Profile of Home Buyers and Sellers and the 2015 Home Buyer and Seller Generational Trends report, it is apparent that green and energy efficient features are important to a significant portion of recent home buyers.

All Buyers:

  • The importance of the home’s environmentally friendly features which were described as very important or somewhat important included:
    • Heating and cooling costs: 86 percent
    • Energy Efficient Appliances: 68 percent
    • Energy Efficient Lighting: 66 percent
    • Landscaping for Energy Conservation: 46 percent
    • Environmentally Friendly Community Features: 47 percent
    • Solar Panels Installed on Home: 11 percent

  • When purchasing a newly-built home, one of the top reasons was for green/energy efficiency features. Nine percent of buyers cited this as the reason for their newly-built home purchase.

Generational Trends:

  • Ten percent of the 34 and younger age group described the reason for their new home purchase as for green/efficiency reasons. Nine percent of 35 to 49 year olds and 60 to 68 years olds also said that green/ energy efficiency was the reason for their newly-built home purchase.
  • Among buyers who considered environmentally friendly features as “Very Important” here are the top age groups in each category:
    • Heating and cooling costs: 40 percent of 60 to 68 year olds.
    • Commuting costs: 39 percent of buyers aged 34 or younger.
    • Energy efficient appliances: 37 percent of 60 to 68 year olds.
    • Energy efficient lighting: 25 percent of both 50 to 59 year olds and 60 to 68 year olds.
    • Landscaping for energy conservation: 13 percent of 60 to 68 year olds.
    • Environmentally friendly community features: 11 percent of both 35 to 49 and 60 to 68 year olds.
    • Solar Panels installed on home: 2 percent of 35 to 49, 50 to 59, and 60 to 68 year olds.

For more information on Home Buyers and Sellers check out the Going Green Infographic, the 2015 Home Buyer and Seller Generational Trends report, and the 2014 Profile of Home Buyers and Sellers.


Credit Conditions Still Difficult But Slowly Easing

Fri, 03/13/2015 - 15:27

Qualifying for a mortgage is still generally difficult, although becoming easier, according to the January 2015 REALTORS® Confidence Index Survey.  Some respondents in states such as TX, CA, and NY reported that more people are qualifying for credit.  About 4 percent of REALTOR® respondents reported a purchase by a buyer with credit score of less than 620, up from about 1-2 percent in 2012-2014. In a normal market, the share of credit scores below 620 would be closer to 5 percent. Almost half of  REALTORS® providing transaction credit score information reported FICO credit scores of  740 and above; in 2013, the share was hovering at about 60 percent.

Potential buyers facing credit limitations might want to consider a mortgage origination by community banks and credit unions.

Apartment Spotlight: Lexington, KY Records Largest YoY Vacancy Decline

Fri, 03/13/2015 - 11:47

Commercial fundamentals improved in the fourth quarter 2014, with rising net absorption driving rents higher across the major property types. As employment gains are expected to continue into 2015, demand for commercial space is expected to advance.

Multifamily demand is expected to remain strong, as the pace of household formation closes on historical averages. However, 2015 will mark the first year since the recession that supply will likely outpace demand.

Across metropolitan areas, Lexington, KY experienced the largest year-over-year availability decline during 2014. Apartment vacancy declined 100 basis points, closing the year at 5.0 percent.  The decline was driven by a significant shift in demand, coupled with zero new completions.  Net absorption moved from negative 129 units in 2013 to 214 units in 2014.


Employment growth in the Lexington-Fayette MSA was positive for the year, with 2,400 net new jobs. In addition, the metropolitan area recorded 590 new households. The average household income rose 5.0 percent on a yearly basis.

Apartment asking rents in Lexington rose 1.0 percent year-over-year in 2014, to $692. Effective rents advanced 0.8 percent.

For a look at NAR’s commercial forecast for 2015, visit http://www.realtor.org/reports/commercial-real-estate-outlook.

Latest Producer Price Index

Fri, 03/13/2015 - 11:30
  • The prices of things that companies pay to make products are falling.  This is an early indicator that consumer prices are likely to be well-contained and thereby delay interest rate hike by the Federal Reserve.  But the prices on construction-related goods are rising.
  • In February, producer price index on finished goods was lower by 3.4 percent from one year ago.  The prices on the intermediate and crude products – those things that are not yet in a finished form – plunged by an even larger amount, 6 percent and 25 percent respectively.  Such a trend bodes very well that inflation is far away.  The best guess on the eventual filtering impact to consumer prices is such that the cost-of-living-adjustment (COLA) on social security benefits checks in 2016 will be zero.  Difficult to swallow, but there will likely be no increase on the amount of the social security benefit checks next year.
  • Even though prices of many things for producers are falling, that is not the case for the construction industry.  The prices of raw timber and sand (used for construction) have consistently been moving higher, both about 2 to 3 percent higher.  The price of cement is way up by 9 percent.  The newly constructed home price will therefore rise – from both the broad inventory shortage and due to increases in the cost of construction.
  • Already the gap between the newly constructed home price and existing home price is very wide.  Since the price of new homes is unlikely to decline, the price of existing homes will likely need to rise faster in the upcoming years to get us back to the historical normal spread.
  • As an aside, the prices of things we eat at the early stage of production (not the consumer prices at grocery stores) are moving in the following way: wheat (down 12 percent), corn (down 12 percent), slaughter hogs (down 43 percent), slaughter broilers (down 2 percent), raw milk (down 34 percent).  One major food item that is rising is the price of slaughter cattle (up 15 percent).  For the benefit of the wallet, therefore, it’s time to give up rib-eye steak.  One can read The Jungle by Upton Sinclair to get disgusted about meat processing and packaging.  Or one can switch to pork chops and bacon.   

Latest Retail Sales

Thu, 03/12/2015 - 10:50
  • Consumers spent far less at gas stations due to lower gasoline prices. The saved money, however, did not lead to higher sales at clothing and department stores.  Sales at furniture and home furnishing stores also declined.  One area where retail sales did rise was at sporting and hobby stores.
  • In detail, retail sales fell 0.6 percent in February from the prior month.  From one year ago, retail sales were markedly slower with only 1.7 percent gain, the slowest gain over a 12 month period since 2009.
  • A big reason for the lower overall retail sales was less money spent at gas stations, which fell 23 percent from one year ago.  The lower gasoline prices are projected save around $1,000 to $1,500 per family this year compared to last year.  This savings, however, is not leading to higher spending elsewhere – at least not yet.
  • Related to housing, retail sales at furniture & home furnishing stores were modestly down over the month, but were comfortably higher (up 6 percent) from one year ago.
  • Spending at building material & garden equipment stores also fell during the month though were higher by 4 percent from one year ago.  The direction of home sales will largely determine the direction of retail sales in this sector.
  • Given the job gains of recent months and the savings from gas stations, it is inevitable that retails sales will pick up steam.  Online sales will grow faster just because people are ever becoming more comfortable clicking the mouse from home and from office.  NAR projects the retail vacancy rate to steadily fall and reach 9 percent by next year.  The vacancy rate on industrial spaces (needed for storing online merchandises) will fall to around 8 percent.
  • The introduction of the Apple Watch could be the catalyst for higher retail and online spending in the future.  The Apple Watch will also standardize the time.  Watchmakers in the past worked years on end, mostly in Switzerland, to mesh gears in such a way to produce the most accurate (and also most expensive) watches.   Very interesting though that people who wore these expensive and accurate watches tended to be the least punctual.  And then there are people who do not need a watch at all.  When Falstaff upon waking up asked what time is it, Prince Hal had to give him an honest answer: “You are so fat-witted, with drinking of old sack, and unbuttoning after supper, and sleeping upon benches after noon … What a devil have you to do with the time of the day?”