Credit continued to flow to those with high credit scores, based on information provided by REALTORS® in the October 2014 REALTORS® Confidence Index Survey: http://www.realtor.org/reports/realtors-confidence-index. Almost half of REALTORS® providing transaction credit score information reported FICO credit scores of 740 and above; with normal credit conditions, approximately 40 percent of buyers would have credit scores of 740 and above. About 2 percent of REALTORS reported a purchase by a buyer with credit score of less than 620; in a normal market the credit scores would be closer to 5 percent. As of July 2014, the median borrower FICO score for purchase-only loans was 749, up from about 700—in 2000.
Senior government officials have indicated that mortgage credit should become more available in the foreseeable future. In addition to large financial institutions potential home buyers may find regional and community banks and credit unions as credit sources.
- One of the better indicators about the strength of the job market is the quit rate. How many workers are quitting their jobs? A rational person would only quit if they had a new job lined up or if there is a good prospect of finding a new one. Recent trends show increased quit rates and increased job opening rates.
- Two out of 100 employed people quit their jobs in the latest month, the highest quitting rate since mid-2008. The rising incidences of quits, which reached 2.75 million in October, are congruent with more job creations in the economy.
- People working in lodging and food service have the highest quit rate at 4.2 percent.
- Government workers are least likely to quit. Only 0.8 percent did so in the latest month. Rarely do we hear of a government worker getting excited about the latest work project. The low quit rate is therefore probably related to good pension and easy work load and not about the interesting aspects of their job.
- The quit rate is the highest in the South (2.2 percent) and the lowest in the Northeast (1.5 percent).
- REALTOR® membership experiences about a 15 to 20 percent turnover rate over the course of a year, translating into around 1.5 percent monthly quit rate.
- More dynamism in the labor market generally spills over into the real estate market as well. Some of the quits will necessitate a selling and buying of a house. Dynamism is also good for the economy. It implies mobility. Andrew Carnegie delivered newspapers and Warren Buffet threw peanuts at baseball games before quitting and moving on.
- “Take this job and shove it, I ain’t working here no more.” It’s fine to say that as one leaves. But please consider using a better grammar structure before interviewing with the next employer. Only in few instances is it fine to blurt out incorrect grammar. For example, James Brown’s “I Feel Good” carries a punch far better than the lame “I feel well.”
Every month, NAR conducts the REALTORS® Confidence Index Survey to gather real estate information for the Confidence Index. The RCI-Six-Month Outlook Index tracks/predicts the level of existing home sales three months in advance (i.e.: REALTORS® are excellent forecasters!).
For example, the uptick in Existing Home Sales in September 2013 were “predicted” by the rise in the June 2013 RCI Six Month Outlook Index. The correlation coefficient between the RCI-Six-Month Outlook Index and existing home sales is about 80 percent.
Looking forward, the 6-month outlook index for October 2014 ticked up a bit (seasonally adjusted) so an uptick in sales in the coming months is likely coming.
- A gangbusters figure on job gains in the past month. It is becoming more evident that we will have more home sales and increased commercial leasing activity next year. In November a total of 321,000 net new payroll jobs were added to the economy.
- Are the jobs paying well? First, the wage rate rose 2.2 percent from one year ago – which is a tad better than the consumer price inflation rate. Construction workers’ wages increased at a faster rate of 2.5 percent, now averaging $24.85 per hour. The workers in the leisure and hospitality sector got the biggest boost of 3.7 percent, though their wages are on the low end at $12.27 per hour.
- The unemployment rate was unchanged at 5.8 percent. This figure is determined by separate jobs data (not based on company payroll data, but by asking households if they have a job) and it showed essentially no job gains in the past month. It is normal for the payroll and household data to differ from one month to the next, but the long-term trend tends to move closer together. The household data showed 2.8 million net new job additions in the past year, while the payroll data showed 2.7 million net new job additions.
- A shortage of construction workers is hindering home building. Only 2.4 million workers and general contractors are involved in home construction today, down from 3.5 million several years ago, even though home builders are quickly selling newly constructed homes. The current shortage of construction workers further assures faster wage growth in the sector. At the same time there are too many law school graduates who cannot find a job for which they were trained for and are emerging with massive loads of student debt. Maybe it is time to pick up a shovel rather than law books?
- The net job gains at around 200,000 each month are likely to continue. That’s because the unemployment insurance claims have been rapidly falling. The U.S. economy is bucking the global economic slowdown and moving ahead. Good news indeed.
- Where is the sun? The earth is tilting the other way as we head into winter and workers are commuting through the dark. But let’s consider ourselves fortunate. Not many generations ago in the wealthiest country in the world, Britain in the 19th century, it was common for teenage boys as young as 11 years old to not experience natural light for months on end. They worked in the coal mines 12-to-14 hours a day. They trotted out of their homes early and came home late. They never saw the sun. We, because of their sacrifice and the resulting economic progress, get to enjoy fewer working hours and more hours of daylight.
In the 3rd quarter as in earlier surveys, respondents to NAR’s Survey of Mortgage Originators were asked about impacts of the Qualified Mortgage rule on the mortgage lending market. However, this quarter the survey expanded to measure lender expectations of market conditions and capacity as well as current policy issues including changes at the Rural Housing Service and lending headwinds.
Respondents indicated a production-weighted share of 5.0% for non-QM loans in the 3rd quarter, nearly double the 2.6% share from the 2nd quarter. However, the rebuttable presumption share fell sharply from 12.8% to just 3.5%. Interest rates fell to their lowest levels in nearly 12 months by the end of the 3rd quarter. Interest rate changes have a larger impact on the higher-priced portion of the market which also prefers interest-only (non-QM) products.
Additional Highlights of the Survey
- The non-QM share of originations nearly double in the 3rd quarter to 2.6%. However, the rebuttable presumption share tumbled from 12.8% to 3.5% over this same time frame.
- Respondents’ confidence in their preparations for the QM/ATR rules eroded again in the 3rd quarter, with just 58.3% indicating that they had fully adapted compared to 61.9% in the 2nd quarter.
- The net share of lenders offering rebuttable presumption and non-QM products increased from the 2nd to the 3rd quarter. Willingness to originate non-QM mortgages fell dramatically from the 2nd quarter, but the decline was less dramatic for rebuttable presumption mortgages. Lenders were more willing to originate prime mortgages with the exception of those with lower FICOs.
- 24% of lenders felt the investor takeout for non-QM loans had improved from the 2nd quarter.
- The QM rule continues to dog lenders with 64% indicating having had an issue closing a loan in the 3rd quarter due to some facet of the rule, and an increase in the share of lenders using buffers in advance of the QM requirements.
- Over the next 6 months, respondents expect improvements in demand for all products, but more so for non-QM and rebuttable presumption loans. The majority of respondents expect improved investor demand for all mortgage types, but some expect softening.
- Slightly more respondents indicated fewer pre-approvals in the 3rd quarter compared to a year earlier, but half indicated having more than normal level or preapproved borrowers who could not find a property.
- Respondents indicated a median forecast for mortgage rates to rise to 4.5% over the next six months.
- 66.6% indicated that the increase in fees at the RHS would have an impact on RHS lending in their area
- Overlays were the largest headwind to the market followed by documentation and DTI, suggesting that the QM rule is having an impact
- Finally, 87.5% of respondents indicated that repurchase requests were a concern.
Dr. Nayantara Hensel, Associate Director of Policy and Research at the Federal Housing Finance Agency, gave an update on the status of the housing market in a presentation at the REALTOR® University Brown Bag Lunch Series recently. A graduate of Harvard University and former Chief Economist of the U.S. Navy, Dr. Hensel discussed current trends in the housing market:
- Slides: http://www.realtor.org/presentations/realtor-university-speaker-series-presentation-economic-issues-in-the-housing-market
- Video: http://www.realtor.org/videos/realtor-university-speaker-series-economic-issues-in-the-housing-market
Of particular interest in her talk was the discussion of the major house price indexes. Each index measures housing trends slightly differently, but the indexes tend to vary together.
- The FHFA home price index is based on home prices within mortgage level data obtained from Fannie Mae and Freddie Mac.
- The S &P/Case-Shiller index of home prices is based on county recorder data.
- The CoreLogic Index uses county recorder data and home price data obtained from loan servicer data.
All indexes use the “repeat-transactions” modeling framework, based on the measurement of price changes for homes that have sold at least twice in the past. The Case-Shiller and CoreLogic Indexes are value weighted-- price trends for more expensive homes are given more weight in the index calibration.; the FHFA index is transaction weighted.
Dr. Hensel presented an overview of the 10 metropolitan areas with the highest rates of recent house price appreciation: Modesto, Merced, Vallejo-Fairfield, Yuba City, Stockton-Lodi, Riverside-San Bernardino, and Santa Rosa California; Las Vegas and Reno Nevada; and Bend-Redmond, Oregon.
Conclusions of Interest to REALTORS®: The press is filled with a variety of price index measures as related to housing. However, all of the indexes tend to vary together. Some of the areas of the country that appeared to have some of the worst housing markets during the Great Recession appear to have had good recovery. Put differently, avoiding excess in the housing markets is good; recovery from previous excesses has in many cases already occurred.
- Vehicle sales are rolling fast and are on pace to reach the highest mark since 2006. Considering an automobile purchase is typically the second most expensive expenditure item for most households, what does it imply about the most expensive expenditure of home sales?
- In November, vehicle sales were running at 17.2 million annualized pace. The 11 months of sales this year are at 16.5 million annualized pace. The last time the annual total was this high was way back in 2006.
- An improving economy with around 200,000 net new job additions each month and all-time high household wealth conditions are helping fuel auto sales. Falling gasoline prices surely help with sales as well.
- Note the graph below charting home sales and vehicle sales. Both industries underwent a harsh downturn in around 2007 to 2008. From the low points, both sectors are making a comeback. A closer look shows that the vehicle sales have climbed out more robustly compared to home sales. Does it then mean that home sales are primed for stronger growth in the upcoming year to “catch-up” with past relationship between these two sectors?
- Gasoline prices have fallen by more than 20 percent from the average price of the past 3 years. This trend may be enticing people to drive more and buy a new car. But gasoline prices are volatile, as can be seen in the graph below. No one can know for sure, but the recent slides in gasoline price could easily reverse and quickly climb higher. This point is worth noting because home sales in the outlying exurbs, requiring long commutes, did well in the past when gasoline prices were low but suffered significant declines when gasoline prices sharply increased. So even in broadly improving housing market conditions, the relative performance between the exurbs versus inner neighborhoods will depend on future gasoline prices.
- There are many factors leading to likely higher home sales next year, including continuing job gains, rising rents, increased inventory, and some dialing-down on mortgage underwriting standards. Consumer confidence will also matter for major expenditures like cars and houses. Recent gains in vehicle sales are clearly encouraging signs about the likely direction of home sales.
- As an aside, what did we do before cars? We had to walk, naturally. There is an elementary school on a top of a steep hill in one small town in South Korea. The graduates of this school all have large muscular thighs. Interesting that how small everyday unnoticed habitual activity accumulates over time into something unique. What “unnoticed” activity do you do every day? Something to consider.
The FHFA has announced new loan limits for 2015. A number of counties and metro areas will see an increase in their loan limits in 2015, which is important in this tight credit environment. As prices rise with the improving market, these limits must keep up, or credit worthy borrowers will have no outlet for financing and be unable to purchase a home.
The Federal Housing Finance Agency (FHFA) oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Each year, the FHFA determines the maximum loan size that the agencies can finance. Loans with balances above the limits are referred to as “jumbo” and must be financed by banks or in private label securities (PLS). There is a national “floor” to local limits of $417,000, but some areas with higher median homes prices are granted limits that go above this, but not higher than $625,500.
Financing can be cheaper by the jumbo route, but in the current market access is highly restricted to pristine borrowers with high minimum down payments, high credits scores, low debt-to-income ratios and large amounts of reserve funds, requirements well in excess of those in the conventional space. Despite low current default rates on new production, Banks and PLS investors hurt in the subprime meltdown last decade have been reticent to re-enter the non-pristine portion of the jumbo market without improved practices, protections and a sound legal framework. The FHFA’s director halted plans last fall to lower loan limits in an attempt to “crowd” in private capital as the fundamentals of the PLS market were not yet in place.
As local median home sale prices rise in the recovery, it will become increasing important that the FHFA keep up with conditions, or borrowers pushed into the jumbo portion of the market may not be able to find financing. In 2015, the agency will increase loan limits in 46 counties. Loan limits are determined at the county level, but are the same across metro areas. Thus, the loan limit for all ten counties in the Denver metro areas was raised from $417,000 in 2014 to $424,350 in 2015, an increase of $7,350. Boulder (4.7% increase), Baltimore (9.5%), and Napa (3.9%), will all experience significant increases in their loan limits, but the largest increase was in the Boston (10%) metro area where the limit will rise by $47,150 to $603,750.
The FHFA’s action to raise limits in 2015 will improve access to credit for many borrowers in affected areas. But in the years ahead, the FHFA’s responsiveness to changes in local conditions will grow in importance until health is restored to the jumbo sector.
Counties with higher loan limits in 2015: CLICK HERE
Every month NAR produces existing home sales, median sales prices, and inventory figures. The reporting of this data is based on homes sold the previous month and the data is explained in comparison to the same month one year ago. We also provide a perspective of the market relative to last month, adjusting for seasonal factors, with additional commentary on the potential direction of the housing market.
The data below shows what our current month data looks like in comparison to the last ten October months, and how that might compare to the “ten-year October average”, which is an average of the data from the past ten Octobers.
- The total number of homes sold in the United States for October 2014 is higher than the ten-year October average. Regionally, a similar trend is seen in the Midwest and the South, while the Northeast and the West are the only regions to show current sales below the ten-year October average.
- Because sales were buoyed by the first-time home buyer tax credit in late 2009, the October low point of sales was in 2010. Since the low point of home sales in 2010 there have been four consecutive year-over-year gains for all regions except the West region, which had a slight decline this October.
- The median home price this October is higher than the ten-year October average median price for the U.S. and all regions except the Northeast, which was modestly close.
- The median price year-over-year percentage change shows home prices struggling from 2006 to 2011. Since then home prices began to improve, however, price growth has been decelerating over the last year. For the U.S. and the four regions the best price percentage increase took place in 2005, except for in the West, which had its best gains in 2012. This October the Midwest has the highest year-over-year price percentage change over the U.S. and the other three regions.
- Inventory of homes for sale for the U.S. is currently lower than the ten-year October average. In 2004 the U.S. had the fastest pace of homes sold relative to inventory, while in 2007 the U.S. had the slowest pace with the months’ supply at 10.6. The ten-year October average months’ supply is 7.2 and this October we are at 5.1 months’ supply.
To view the full presentation, click here: October 2014 EHS Vs Ten Year Average
Some aspects of the qualified mortgage rule continue to weigh on the mortgage market. According to NAR’s Survey of Mortgage Originators, despite overtures from the CFPB and modestly fewer issues, lenders tightened some restrictions in the 3rd quarter.
The share of respondents that had issues closing mortgage(s) due to some facet of the qualified mortgage rule (QM) eased from 66.7% in the 2nd quarter to 64.0% in 3rd quarter. Only 20% of the survey respondents indicated not having an issue.
However, the use of buffers increased in the 3rd quarter and was most common on the 3% cap and 43% back-end DTIs requirements with 29.2% and 33.3% of respondents using them, respectively. Some lenders have opted for buffers ahead of the QM parameters to prevent producing a rebuttable presumption or non-QM mortgage.
The CFPB has worked to ease lender concerns and made opportunities for lenders to refund excess fees in certain instances. The increase in concern by lenders could point internal process issues or increased demands from investors.
- If the homeownership rate is at a 20-year low then the renting rate must be at a 20-year high. One consequence of this trend is a significant rise in rental income across the country. The total rental income of everyone combined has more than tripled in the past seven years.
- The total rental income grew by a whopping 240 percent from 2007 to today. This gain arose from more renter households and rising rents. By contrast, the overall salaries and wages of everyone combined grew by 17 percent – due largely to more job creation and from some wage boost. The comparison clearly implies a much better time for landlords as opposed to wage earners.
- Looking at other income categories, unemployment insurance payments have sharply fallen. More jobs have also meant fewer people on the public dole. Farm income has been shaved by a third in the past year as crop prices have fallen. Alert: agricultural land prices could be vulnerable to a meaningful correction if farm income continues to fall.
- Most REALTORS® are not forking over higher rents. That’s because 87 percent of members are homeowners. Because real estate is their life, 46 percent of REALTORS® also own rental properties. Some REALTORS® specialize principally in property management, and among those who do they managed 49 properties on average in 2012. The three most commonly reported tasks of property managers were selecting tenants, taking tenant applications, and collecting rent.
- The continuing fall in the homeownership rate is not good for the country on many levels. However, for business people, they have to follow the money and the rental income is where the action is. An owner of a rental property, if history is a guide, can expect rents to have doubled in 20 years while mortgage payments (if financed at fixed rate) to have not risen at all.
With rising inventory and modest expectations of demand growth, REALTORS® responding to the October 2014 survey expected home prices to increase modestly in the next 12 months, according to data gathered from the October 2014 REALTORS® Confidence Index Survey: http://www.realtor.org/reports/realtors-confidence-index. Local conditions vary with expectations anchored on factors such as the level of inventory, the state of the local job market, and credit conditions.
The median expected price increase is about 3 percent. The map shows the median expected price change in the next 12 months based on the August – October 2014 surveys. No state had a median expected price growth above 5 percent. States with the most upbeat price expectations (orange) include California, Washington, North Dakota, Texas, Florida, Georgia, the District of Columbia, and Massachusetts–states with strong housing markets, job growth, and economies.
 The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state. The graph shows the range of these state median expected price change. To increase sample size, the data is averaged from the last three survey months.
 In generating the median price expectation at the state level, we use data for the last three surveys to have close to 30 observations. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30 observations.
- Earlier this week, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional, state, and city or MSA level.
- FHFA releases monthly data at the Census division level and quarterly state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
- At the regional level: home price gains from a year ago show less variation among regions now. While the Northeast has somewhat consistently lagged, price growth in the Midwest and South has approached and occasionally exceeded home price growth in the West. NAR reported price change of 4% to 7% in these areas from a year earlier in September and October. According to FHFA year over year prices in September 2014 rose 7.1 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 5.8 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico and by the same pace in the West South Central division which includes Arkansas, Louisiana, Oklahoma, and Texas.
- NAR data showed the smallest price growth from a year ago in the Northeast (4% or less in September and October), and FHFA similarly showed the smallest gains of 1.7 percent in the New England and Middle Atlantic Census divisions which combine to form the Northeast Census Region.
- State by state data showed that Western states top the list but states from the Midwest and South are not far behind. Nevada was the only state to see house prices rise in the double-digits, 10.4 percent, in the year ending September 30, 2014. Hawaii, California, North Dakota, Florida, and Texas round out the top six and each area saw prices rise by more than 7 percent in the last year. At the other end, only Connecticut saw a loss in home prices from one year ago. Four other states, Delaware, Vermont, Maryland, and Virginia each saw home price gains of less than 1 percent.
- Among cities, Case-Shiller reported the biggest year over year gains in Miami, the only city with a double-digit price increase from a year ago at 10.3 percent. Other top cities, Las Vegas, San Francisco, and Dallas, had home price increases of 7% year over year or higher. The smallest gains in Case Shiller’s cities were Cleveland at 0.8 percent, Washington at 2.1 percent and Charlotte at 2.6 percent.
- For a more detailed, interactive look at home prices in more than 150 metro areas, see NAR’s quarterly metro area median info graphic.
Black Friday for some shoppers is a holiday in itself. Deals are scouted out in advance with a schedule of where to shop based store openings, vehicles are arranged to hold on the merchandise, and child care is taken care of. It can start on Thanksgiving itself, in the wee hours of the morning on Friday, or on Small Business Saturday. For some it’s an annual ritual.
In 2013, 92 million shoppers took part in this annual ritual – a rise of 3 percent from 2012. The National Retail Federation expects that over the weekend (Thursday-Sunday) 140.1 million shoppers will hit stores and 95.5 million will shop on Black Friday itself.
When home buyers purchase a home, location matters, but convenience to shopping is important for 31 percent of recent home buyers according to data from the Profile of Home Buyers and Sellers report. By generations, convenience to shopping when buying a home is most important to Older Baby Boomers and the Silent Generation. Interestingly, these age groups are the least likely to go shopping Thanksgiving weekend based on the report from the National Retail Federation. Perhaps their proximity to shopping year round, means they do not see a need to. Shoppers aged 18 to 24 are the most likely to report planning on shopping Thanksgiving weekend.
For more information about this research, check out the 2014 NAR Profile of Home Buyers and Sellers at http://www.realtor.org/reports/highlights-from-the-2014-profile-of-home-buyers-and-sellers or the National Retail Federation report at https://nrf.com/sites/default/files/Thanksgiving%20Wknd%20Preview%202014_1.pdf.
- Last week NAR released median home price information that showed gains of 5.5 percent in October 2014 home prices compared to October 2013. This gain was slightly higher than the 5.3 percent seen in September and also higher than the 4.2 percent average price increase in the peak selling months of May to August. Still, this rate of price growth is in the normal 4 to 6 percent range, a great improvement over the double-digit price growth that prevailed in 2013.
- Today, both the FHFA and S&P/Case-Shiller released their housing price index data for September. Both data series showed continued but decelerating gains in home prices following the previous trend of NAR data back into a normal range of growth.
- S&P/Case-Shiller showed that home prices rose 4.8 percent year over year in September for the 10-city and national indexes while the 20-city index saw a gain of 4.9 percent from September 2013. The FHFA showed that prices increased by 4.3 percent in the same period.
- NAR reports the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price sometimes increases by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
- Other sources of difference in the data that may explain why Case-Shiller data is measuring a lower rate of increase than NAR is the data lag. Case Shiller uses public records data as the source of the index, and public records have a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported September prices include information from repeat transactions closed in July, August, and September. For this reason, changes in the NAR median price tend to lead Case Shiller changes.
- FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government backed transactions such as those using VA or FHA financing.
- Given recent trends in NAR data, we expect Case Shiller- and FHFA-measured price growth to stabilize at this more moderate rate of year over year price gains. To determine what this means for home prices in your market, contact a local expert who can give you the most current local MLS information and put these national headlines in context.
- There has been a boom in total production in the U.S. as the third quarter GDP grew at a 3.9 percent annualized rate. This growth is on top of the 4.6 percent expansion in the second quarter. Such a boom, if it can be sustained, could yield fast job gains and higher wages.
- Unfortunately, GDP growth rates have not been consistently high and early data suggest softening conditions in the fourth quarter. U.S. exports will not grow because many important foreign countries are either in recession or are about to fall into one. Fourth quarter GDP looks to rise by only 2 percent. Also way back in the first quarter, GDP had actually contracted by 2.1 percent. Economic growth has not been consistent.
- For the year as a whole in 2014, GDP will likely have grown by 2.2 percent: another subpar performance of the less-than-historical-average growth rate of 3 percent. It would mark nine consecutive years of below the historical average growth rate. But in 2015, GDP is forecasted pick up to 2.7 percent.
- As to the latest strong third quarter GDP numbers, business spending picked up notably with fixed investment rising at a 6.2 percent clip and exports solidly grew at 4.9 percent. Consumer spending just plodded along unexcitedly with 2.2 percent growth while housing investment of new home construction and broker commissions rose by 2.7 percent. Many government agencies do not like to leave money on the table so they found a way to spend taxpayers’ money before the fiscal year end in September. Federal government spending surged 9.9 percent.
- As can be seen in the chart below, GDP growth leads to employment growth. Recently, job growth rate hit 1.9 percent, bringing 2.6 million net new jobs to the economy.
- More jobs mean more spending capacity and higher future GDP. Higher GDP in turn means more job creation. The economy is essentially already in this happy virtuous cycle, though a faster spinning of the cycle would be welcomed.
- An economy grows best if there is stability through the rule of law. In the 1830s, France did not have that. Red or Black? France had to decide which way to go between a new revolution or the restoration of the monarchy. In a novel reflecting the times, the energetic principal character in The Red and Black faced a choice between joining the military to revive the Napoleonic spirit, or entering into the clergy to restore the Bourbon King Dynasty. Such a back and forth hesitating decision hinders economic growth. That is why neighboring Germany, with faster economic growth, was easily able to win the Prussian-Franco War several years later. It is also a lesson for every country on the importance of the rule of law, rather than a rule by military or rule by church or rule by any one individual.
The American Dream of homeownership is not only about a financial investment, it’s about a place to call home. The number one reason 24 percent of buyers buy a home is the desire to own a home of their own. Buying a home of one’s own can mean different things to different buyers, but given Thanksgiving is this week, it could mean the ability to host friends and family – proximity to friends and family is important to 43 percent of home buyers when considering neighborhood. While buyers will often compromise on price of home, size of home, and condition of home, distance to friends and family is low on the compromise list.
Buyers typically buy a home large enough to host family for the Thanksgiving holiday. The typical home purchased was a single-family detached home that was 1,870 square feet, with three bedrooms and two bathrooms and was built in 1993. Most buyers bought a home that previously owned, which they bought because it was a better price, better overall value and had more charm and character.
Given the recent temperature dips, to many homeowners the cost of heating is an added expense. When buyers chose the home they purchased, 36 percent placed a high importance on heating and cooling costs. Additionally, for 23 percent of buyers having energy efficient appliances was important to their home purchase – all the better for loading up with a turkey and all the fixings.
To other recent home buyers living close to entertainment and leisure activities is important – perhaps those buyers are enjoying a dinner out or treating themselves to a weekend blockbuster at the local cineplex.
For more information about this research, check out the 2014 NAR Profile of Home Buyers and Sellers at http://www.realtor.org/reports/highlights-from-the-2014-profile-of-home-buyers-and-sellers.
- NAR released a summary of existing home sales data showing that October’s existing home sales is the first year over year gain since October 2013. Additionally, this was the highest annual sales pace since September 2013. October’s sales rose 1.5% from September 2014 and now are up 2.5% from a year ago October 2013.
- The national median existing-home price for all housing types was $208,300 in October, up 5.5% percent from October 2013. October marks the 32nd successive year over year price gains.
- Regionally, all four regions showed growth in prices, and the Midwest had the biggest gain of 6.8% from last year. The West was the only region to have a decline in home sales at 3.4% from a year ago.
- October’s inventory figures increased by 5.2% from a year ago and it will take 5.1 months to move the current level of inventory. It takes approximately 63 days for a home to go from listing to a contract in the current housing market, up from last year when it took 54 days.
- Housing starts need to pick up to keep home price gains to a more normal level which is needed during a time of slow wage growth. Slower home price growth and low mortgage rates should help buyers come back to the housing market. Sales since June have been above the 5 million pace which points to a healthy housing market next year.
REALTORS®’ assessments of market conditions indicated flat market activity in October 2014 compared to September and a year ago. The REALTOR® Confidence Index-Current Conditions for single family homes and the Buyer Traffic Index registered near 50, a level that indicates an equal number of respondents with “strong” and “weak” outlook: (http://www.realtor.org/reports/realtors-confidence-index).
REALTORS® reported on market conditions. Properties stayed longer on the market, typically at two months. First-time home buyers continued to account for less than a third of the market. The percent of home purchases for investment purposes was steady compared to September but weaker than a year ago. The percent of sales of distressed properties continued to be on the downtrend.
REALTORS® were more confident about the outlook for the next six months, with the REALTOR® Confidence Index-Six-month Outlook for single family homes above 50. Respondents expect prices to increase in the coming 12 months at a modest pace, with the median expected price growth at 3 percent.
This long-form article was written by Jessica Lautz, Director of Member and Consumer Survey Research, for the Richard J Rosenthal Center for Real Estate Studies at REALTOR® University and is used here with their kind permission. It first appeared in the Journal of the Center of Real Estate Studies, Vol 2 No. 2.Introduction
Multi-generational housing is not a new concept, but a concept long forgotten while households made the shift towards nuclear families living in separate homes. Recently, data released by the U.S. Census Bureau, Pew Research, Generations United, and the National Association of REALTORS® suggests a trend of moving back to multi-generational households is now underway. While there are no doubt societal implications of this trend, this article will focus on the housing implications and will attempt to make sense of the data.Analysis
Understanding the definition of a multi-generational home is important to understanding the depth and breadth of the topic. Data collected by the U.S. Census Bureau defines multi-generational households as “a family household consisting of three or more generations. These include families with either a householder with both a parent and a child, a householder with both a child and grandchild, a householder with a grandchild and parent or a four-generation household…”. The National Association of REALTORS® (NAR) recently started collecting data on recent home buyers who purchased a multi-generational home and defined it as “a home that will house more than you and children under the age of 18 (such as adult siblings, adult children, and/or grandparents, etc.)”. Data collected from AARP defines a multi-generational household as “Householder, child, and grandchild; Householder with parent; Householder with parent and child; Householder with grandchild; Householder with parent; child, and grandchild; Householder with parent and grandchild. It does not include households comprised of parents and children, regardless of the age of the child.”
In 2010, the AARP Public Policy Institute issued a fact sheet titled Multigenerational Households Are Increasing, in which they conducted an analysis of the Current Population Survey. “In 2008, 6.2 million intergenerational households resided in the United States (5.3% of all households.) That number jumped to 7.1 million households by 2010 (6.1% of all households.) The increase in these two years represents a faster rate of growth than the previous eight years combined.” In September 2011, Generations United released the report Family Matters: Multigenerational Families in a Volatile Economy based on a survey conducted by Harris Interactive. The survey was based on 2,226 U.S. residents over the age of 18 and found that 136 of these individuals responded that they lived in a multi-generational household.  Among online survey panelists who lived in a multi-generational household, 66 percent reported that “the current economic climate was a factor in their family becoming a multi-generational household…”. Because the Generations United data is based on a survey panel, they cite figures from Pew Research that 51.4 million—nearly one in six—Americans of all ages live in a multi-generational home.
Data from Pew Research has been updated and is based on an analysis of U.S. Census Bureau data. It is weighted based on the American Community Surveys. In the Pew Research report, released in July 2014, a staggering “57 million Americans or 18.1% of the population of the United States, lived in a multi-generational family household in 2012, double the number who lived in such households in 1980.” The report, In Post-Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living, details the fast pace in which young adults ages 25 to 34 living in multi-generational homes have grown to be the largest segment living in these household types—even outpacing those who are 85 and older. Data released from the U.S. Census Bureau in 2013 reports that 4.6 percent of family households live in a multi-generational home.
Regardless of the report cited or definition used, this is a household type that is increasing in presence and is increasingly being discussed by real estate agents and brokers, home builders, and economists. The topic stirs discussion surrounding student loan debt, the perception of housing, immigration, even the American Dream of homeownership. Understanding the needs and potential growth of these types of homes is essential for real estate professionals.
In 2013, the National Association of REALTORS® first started collecting data on the share of home buyers who purchased a home for a multi-generational household in the annual Profile of Home Buyers and Sellers survey. Overall, 14 percent of recent buyers purchased a multi-generational home. Twenty-four percent of multi-generational buyers bought this type of home, because children over the age of 18 were moving back into the home; 24 percent purchased for cost savings; 20 percent purchased for health/caretaking of aging parents; and, 11 percent purchased to spend more time with aging parents. 
Source: National Association of REALTORS®, 2014 Home Buyer and Seller Generational Trends, March 2014.
The largest population of home buyers who purchased a multi-generational home was among Younger Boomers. Twenty-two percent of buyers who were born between 1955 and 1964 purchased a multi-generational home. The most commonly cited reason for this household type was due to children over the age of 18 moving back into the home, at 38 percent.
NAR data shows the typical home buyer who purchased a multi-generational household was 50 years old, and had a median household income of $85,800 in 2012. Buyers of multi-generational households are more ethnically diverse than buyers who do not buy multi-generational homes—75 percent of buyers of multi-generational homes were white/Caucasian compared to 88 percent of buyers who did not purchase a multi-generational home. The share of home buyers who purchased a multi-generational home varies significantly by sub-region. The buyers were typically buying a home that was 2,150 square feet and most (82 percent) were buying a single family home. Aside from the desire to own their own home, they were buying for a larger home, to accommodate family changes, and to be closer to friends and family.
Source: National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
The Pew Research data and the National Association of REALTOR® data suggest the boomerang population of Gen Y may be the key to multi-generational housing growth. Data indicate that these young adults want to be homeowners, but there may be other factors holding them back. According to data from Fannie Mae, 59 percent of young renters (defined as 18 to 39) believe owning a home makes more sense, but 73 percent of young renters also believe it would be difficult to get a mortgage today.  Additionally, 90 percent of young renters are likely to buy at some point, but the majority have “…insufficient assets to cover a 5% down payment plus closing costs on a typical starter home…”. It is promising that younger renters in Gen Y and Gen X do still want to own a home. It is not necessarily the “sharing generation” many the media outlets have led us to believe.
Given this research, one of the surprising results from the 2014 Home Buyer and Seller Generational Trends report is that the share of Gen Y buyers (born between 1980 and 1995) is just slightly higher than the other generations, at 31 percent.  The expectation is that Baby Boomers would still outweigh Gen Y as buyers given the average age from 1981 to 2013 for the typical first-time buyer is 31. If there were no economic constraints, Gen Y would soon overtake Baby Boomers as the largest home buying segment.
However, there are economic conditions at play. Restricted access to credit, slow wage growth, and lack of employment opportunities are holding many potential first-time buyers back, and living with other family members has become a comfortable alternative. For good reason. Those aged 65 and older have historically been at retirement age. According to the Census Bureau the percent of workers aged 65 and older who were employed increased to 16.2 percent in 2010 from 14.5 percent in 2005, while the share of 20 to 24 year olds who were employed decreased to 60.3 percent from 68 percent during the same time period. The annualized income growth from 2008 to 2012 has remained flat for those 25 to 34 and has increased just 0.3 percent for ages 35 to 44. During the same time period income growth for those aged 45 to 54 has risen 0.8 percent, 0.6 percent for those aged 55 to 64, and 3.2 percent for those 65 to 74.
While ages and employment grow for those outside of Gen Y and Gen X, the younger generations are disproportionate holders of the $1.12 trillion in student loan debt. Thirty-nine percent of the borrowers are less than 30, and 28 percent of the borrowers are aged 30 to 39. Eleven percent of student loans were 90 days delinquent in the second quarter of 2014, up from 6.3 percent in 2003. In comparison, the delinquency rate for all debt is 6.2 percent.
Those who are successful buyers have experienced stricter lending conditions and access to credit in recent years. As such, incomes of successful first-time buyers increased from $54,800 in 2002 to $67,400 in 2012. Higher income home buyers are also less likely to be delinquent on loans such as student loans and have the ability to pay them back faster than their lower-income peers.
Among recent successful home buyers, 12 percent cited saving for a home as the most difficult part of the home buying process, but this increases to 20 percent among Gen Y buyers and 15 percent among Gen X buyers. Of the 12 percent that cited difficulty saving, 43 percent attributed student loans as the expense that delayed saving for a downpayment. Among the 20 percent of Gen Y who cited saving for a home as the most difficult step, 56 percent cited student loan debt as the factor that made it more difficult to save. Among the 15 percent of Gen X who cited saving for a home was the most difficult step, 35 percent cited student loan debt as the factor that made it more difficult to save.
Even younger repeat buyers who already owned a home face some headwinds in purchasing another property. Gen Y and Gen X sellers who bought another property are more likely to state that they wanted to sell their home but could not sell when they wanted to and waited or were stalled because the home was worth less than the mortgage—17 percent among Gen Y and 19 percent among Gen X. This further adds to their financial problems. However, it is promising that sellers ultimately went on to buy a home instead of moving and renting.
Gen Y and Gen X buyers are often making the most financial sacrifices to buy a home of their own, but they are also the most optimistic that, when they are a successful home buyer, that their home is a good financial investment. More than half made financial sacrifices, such as cutting spending on luxury items or non-essential items, on entertainment, on clothes, cancelling vacation plans, and earning extra income through a second job.  When asked if the buyer thought the home was a good financial investment, 87 percent of Gen Y and 82 percent of Gen X buyers did feel their home was a good financial investment compared to 74 percent of the Silent Generation.Conclusion and Implications
Renters and those moving in with relatives ultimately want to buy a home. They recognize the long term financial value of owning, and the American Dream of homeownership is still very much alive. However, stagnant wage growth, coupled with a difficult job market, tightened lending standards, and student loan debt potential buyers took on to invest in their human capital, has made it difficult to purchase a home. For now, multi-generational housing is the retro trend that is more achievable for some American families.
For housing, this trend means there are implications for builders. The value of mother-in-law suites or rather “Gen Y college educated son/daughter suites” have increased among recent home buyers. In 2004 only two percent of recent home buyers found buying a home with an in-law suite very important. That doubled in 2013 to four percent of buyers valuing in-law suites as very important. While the share of buyers who find an in-law suite very important has stayed the same since 2007, at four percent, the dollar value has increased. Among buyers who bought a home without an in-law suite in 2007, they were willing to pay $1,900 more for a home with an in-law suite; in 2013 that rose 54 percent to $2,920.
According to a Pulte Group survey conducted in 2012, adult homeowners who are over the age of 35 and who have children ages 16 to 30 living with them or who have living parents, 14 percent have an adult son or daughter living with them; and, 15 percent have an aging parent living with them. Both sets of respondents expect the share with adult children residing at home and the share of aging parents living with them to double.
When respondents were asked how they will house a larger family, change seems more necessary among those with aging parents living with them or anticipating living with them—72 percent plan to renovate or move. That compares to 49 percent of homeowners who have an adult child living with them who are anticipating a move. “Respondents noted that the most important features to comfortably support an extended family include separate living spaces, such as a mother-in-law suite, additional bathrooms and larger great rooms.“ It is possible that homeowners see adult children living with them as a temporary situation, while those adult children save money or look for job opportunities. Aging parents may seem to be a longer term situation that requires a larger space and, in some instances, a more comfortable environment for aging relatives.
The topic of multi-generational housing is not as simple as having three generations who want to live under the same roof; nor is this is a new and unique aspiration. To some, this is not even a comprehensive definition. This is a housing situation that often transforms due to economic constraints and out of compassion for family. Aging parents may move into a home with their childrens’ families to be cared for and to spend time with them. Young adults may move back home — or perhaps never leave — due to high debt loads and low incomes. While young adults recognize the benefits of homeownership, some may have trouble reaching that goal quickly.
For home builders there is increased value placed on separate living spaces and dual master suites or in-law suites. For REALTORS® working with clients, helping buyers to see how a space can be transformed to accommodate growing families in one location can be helpful. For researchers and economists, it is important to look not only at the economic influences that lead households to forming multi-generational homes, but also to the future impact of Baby Boomers who may be financially pressured with both aging parents and young adult children. It will be important in coming years to see if Boomers are able to retire and move to retirement destinations or if they will stay put under one roof in non-traditional retirement settings to keep family in place. Multi-generational housing is a multi-faceted issue, and will continue to be an important one as long as these economic conditions persist.
 National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
 Harrell, Rodney, Enid Kassner, and Carlos Figueriredo, Multigenerational Households Are Increasing, AARP Public Policy Institute, April 2011. http://assets.aarp.org/rgcenter/ppi/econ-sec/fs221-housing.pdf
 Generations United, Family Matters: Multigenerational Families in a Volatile Economy, 2011. http://www.gu.org/LinkClick.aspx?fileticket=QWOTaluHxPk%3d&tabid=157&mid=606
 Fry, Richard, and Jeffery S. Passel, In Post Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living, Pew Research, July 2014. http://www.pewsocialtrends.org/2014/07/17/in-post-recession-era-young-adults-drive-continuing-rise-in-multi-generational-living/
National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
 National Association of REALTORS®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf
 National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
 Fannie Mae, National Housing Survey, What Younger Renters Want and the Financial Constraints They See, May 2014. http://fanniemae.com/resources/file/research/housingsurvey/pdf/nhsmay2014presentation.pdf
 Thompson,Derek, and Jordon Weissmann, The Cheapest Generation, Why Millennials Aren’t Buying Cars or Houses, and What it Means for the Economy, The Atlantic, August 22, 2012. http://www.theatlantic.com/magazine/archive/2012/09/the-cheapest-generation/309060/
 National Association of REALTORS®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf
 National Association of REALTORS®, Profile of Home Buyers and Sellers, Historical data 1981-2013.
 U.S. Bureau of Census, From Living Arrangements to Labor Force Participation, New Analysis Looks at State of the Nation’s 65-and-Older Population, June 2014. http://www.census.gov/newsroom/releases/archives/aging_population/cb14-124.html
 U.S. Bureau of Census, Table P10-Median Income. https://www.census.gov/hhes/www/income/data/historical/people/
 Federal Reserve Bank of New York, Household Debt and Credit Report, Second Quarter 2014. http://www.ny.frb.org/householdcredit/2014-q2/data/pdf/HHDC_2014Q2.pdf
 National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013. National Association of REALTORS®, 2003 Profile of Home Buyers and Sellers, 2003.
 National Association of REALTORS®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf
 Ibid .
 National Association of REALTORS®, 2004 Profile of Buyers’ Home Feature Preferences, 2004.
 National Association of REALTORS®, 2013 Profile of Buyers’ Home Feature Preferences, 2013.
 National Association of REALTORS®, 2013 Profile of Buyers’ Home Feature Preferences, 2013. National Association of REALTORS®, 2007 Profile of Buyers’ Home Feature Preferences, 2007.
 PulteGroup, Multi-generational households to double in the future; families making plans for new space, PulteGroup Survey: Mom and Dad Anticipate Future Roommates, October 2012. http://www.pultegroupinc.com/files/doc_news/2012/Releaseaafa0f19-9717-4e5e-b688-fe90d91c27f2_1746385.pdf