Powered by Google

Search form

Economist's Outlook

Subscribe to Economist's Outlook feed
Updated: 31 min 26 sec ago

A REALTOR® University Presentation on A Global Perspective on the U.S. Housing Market

Wed, 10/21/2015 - 14:08

U.S. housing prices have rebounded strong in the U.S. since the housing collapse in 2006. How does the U.S. recovery compare with other countries? And what is the impact of the collapse of oil prices and slower Chinese economic growth on the ongoing recovery of the U.S. housing market? This was the topic of discussion at a recent REALTOR® University Speaker Series, with Dr. Alessandro Rebucci, Assistant Professor of the John Carey Business School as speaker[1].

According to Dr. Rebucci, U.S. average house prices have increased fairly relative to national income from their 2010 levels compared to what has been happening in other countries (see Chart 1 below). Using the house price-to-income as indicator, he noted that prices have risen faster than income in countries such as Germany, Switzerland, the United Kingdom, Canada, and Australia.[2] So the increase in U.S. house prices after the housing downturn has actually been more moderate compared to the recovery in other countries.

Regarding the impact of oil prices on housing prices, Dr. Rebucci stated that his analysis of past oil price collapses does not indicate that the current low oil prices will lead to a broad collapse of housing prices as well. Falling oil prices only lead to falling house prices if the oil prices decline is triggered by a recession. Even in states like Texas, there is no evidence of an association between oil price declines and falls in house prices in excess of the national average. He noted also that the oil price decline this time around arose from excess global supply rather than a demand collapse, although the impact might be felt on house prices at the community level where gas shale production is concentrated.

Regarding the Chinese housing market and its economy, Dr. Rebucci cited recent NBER[3] research showing that house price appreciation is out of line with fundamentals only in China’s Tier 1 cities such as Beijing, Shanghai, Guangzhou, and Shenzen. Meanwhile, house prices increased in line with fundamentals in Tier 2 and in especially less liquid markets in Tier 3 cities. If the housing bubble in the Tier 1 cities does burst and house prices fall, Dr. Rebucci expects the U.S. market might benefit because of the possible inflow of capital to the U.S., under progressively more liberal regulation governing international capital flows to and from China.

Dr. Alessandro Rebucci is Assistant Professor at the Johns Hopkins Carey Business School, E. St. John Real Estate Program. He held various research positions at the International Monetary Fund and at the Inter-American Development Bank. He can be reached at arebucci@jhu.edu.


[1] The REALTOR® University Speaker Series was held on October 19, 2015 at the NAR Washington Office.

[2] An index lower than 100 means house prices are increasing less than income, while an index greater than 100 means housing prices are rising faster than incomes, making a house purchase more unaffordable. The index is an indicator of changes in prices and incomes compared to a base year.  In terms of levels, it is possible that house prices are in fact “ too high” or “unaffordable” relative to the level of income.

[3] National Bureau of Economic Research

How Do Homeowners Accumulate Wealth?

Mon, 10/19/2015 - 12:19
Lawrence Yun for Forbes

The differences between buying and renting are massive.  According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400.  The data reflects 2013 and the next survey of household finances, which is conducted every three years, will be out in 2016.  Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.

Read the rest of the article at Forbes > 

Waiting on the Boomerang

Fri, 10/16/2015 - 15:17

Return or boomerang buyers have grown in numbers in recent years. Forecasts indicate that these former homeowners who experienced a foreclosure or short sale will return to the market in greater volume in the years ahead. However, lack of knowledge about special financing programs or lender overlays are hampering this group’s return.

Several factors could hinder a boomerang buyer’s ability to purchase another home including an impared credit score, a weak job situation, or a family matter. Mandatory waiting periods for financing through the FHA, VA, or the GSEs also impact return buyers. As depicted below, the FHA, VA, and GSEs restrict acces to credit following a foreclosure for a minimum of 3, 2 or 7 years (bottom left), respectively, though the GSEs are more lenient for a short sale.

However, if the consumer can prove that they lost their home due to a decline of income, loss of employment or some family situations they may be eligible for the extenuating circumstances criteria. Consumers eligible for this program may be be able to attain financing in as little as a year through the FHA or VA programs (above right).

The chart above depicts the distribution of years in which the foreclosures or short sales took place for return buyers who purchased their subsequent home in 2014.[1] The data is also displayed by the type of financing used. Because each financing program has a standard and extenuating circumstances option, one would expect to find two concentrations of buyers in each distribution: one around[2] the standard time frame and another near the extenuating circumstances opportunity. This two-hump or bicameral pattern is evident in the conventional (green), but not for the VA (red) and FHA (blue). The difference in timing for the VA program is minimal and may result in the single hump. However, there is only one peak in the FHA’s distribution as well and it is higher or more concentrated than the other two distributions. Furthermore this point is four years prior to 2014, suggesting that the bulk of return buyers who use the FHA’s program are waiting three years and not taking advantage of the shorter extenuating circumstances option. Likewise, the VA distribution is most concentrated three years prior to re-purchase, aligning with the two year wait under the VA’s standard foreclosure definition.

There are four potential reasons for borrowers not taking advantage of the shorter waiting period of the extenuating circumstances program at the VA and FHA:

  • Consumers are not aware of the program,
  • FHA and VA customers do not qualify for the extenuating circumstances,
  • Lenders are not aware or do not offer the program, or
  • Overlays are having an impact on this group’s ability to credit qualify for the program

Unfortunately, we cannot measure consumers’ awareness of the FHA’s program from this survey nor can we measure these consumers’ credit scores. Survey work by the FHA indicates that the majority of former homeowners who were financed by the FHA and experienced a foreclosure or short sale would have qualified for extenuating circumstances[3], but this does not necessarily imply that they would choose FHA financing again as pricing was higher for the FHA than conventional in 2014. However, these consumers’ initial choice of FHA suggests that they are either credit, capital or capacity constrained and would likely choose this program again. Finally, a review of several lenders’ product offerings suggests that many lenders do not offer the shorter option[4] for FHA and VA products. Furthermore, because this group’s credit scores are impacted by distress sales which can take years to recover[5], well documented credit overlays[6] on FHA production could be having a disproportionate impact. While not definitive, the latter two issues may be constraining this group.

From 2006 to 2014 nearly 9.3 million homes were foreclosure on or short sold. Homebuyers who experienced a short sale or foreclosure are returning to the market in growing numbers and will continue to do so over the next decade. While financing channels have expanded to provide opportunities for these potential return buyers, limitations persist.

[1] Special thanks to Brandi Snowden for preparing these cut of the 2014 Profile of Home Buyers and Sellers

[2] Ability to recover credit score and build down payment as well as the blend of foreclosures and short sellers may spread re-entry around these points.

[3] This may be different for owners who used VA or conventional financing on their initial purchase

[4] See Scotsman Guide’s FHA/VA/Government matrix for September or October of 2015

[5] For additional details on time to recover credit scores see http://economistsoutlook.blogs.realtor.org/2015/04/17/return-buyers-many-already-here-many-more-to-come/

[6] http://www.urban.org/research/publication/opening-credit-box/view/full_report


Latest Consumer Price Inflation (September 2015)

Thu, 10/15/2015 - 11:01
  • Though the headline shows no inflation, rents are now rising at the fastest pace in 7 years. Moreover egg prices are up 37 percent from one year ago. The lower gasoline prices are in essence masking much of inflationary pressures from other items.
  • The overall consumer inflation fell 0.2 percent over the month in September and was unchanged from one year ago. As a result, social security checks in 2016 will see no cost-of-living-adjustment.
  • The Federal Reserve in deciding on monetary policy is more concerned with the “core inflation” and not the headline inflation. The “core” – after taking out the volatile impact of large swings in energy and food prices – rose by 1.9 percent from one year ago. If it crosses the 2 percent line then the Fed will itch to raise rates. As long as rents rise, and they will given the 30-year low rental vacancy rates, the “core inflation” will trend higher. The Fed rate hike is therefore certain though the first rate hike could be delayed till December or early next year. In addition, the second and third rate hikes will occur later in 2016.
  • Renters’ rent rose by 3.7 percent, the highest pace since 2008. Homeowners’ equivalence rent (a hypothetical rent a homeowner would pay if the house was rented) rose by 3.1 percent, the highest pace since 2007. There is a housing shortage and these rent components will continue to rise for the foreseeable future because of falling vacancy rates.
  • For seniors on social security who are not homeowners and do not drive that much will get hurt next year from higher rents, higher food prices, higher medical fees, and higher public transportation costs. Prices are lower for clothes and electronic equipment, but seniors do not purchase many of these items.

Applications for Purchase Mortgages

Wed, 10/14/2015 - 10:41
  • Applications for purchase mortgages tumbled 34.1 percent for the week ending October 9th after surging 27.4 percent in the prior week, but the 4-week moving average remains strong. The new TILA RESPA Integrated Documentation (TRID) closing documents and process also known as the Know Before You Owe rule was introduced on October 3rd. Consequently the boom and bust pattern reflects applications that were filed early to avoid complications with the new rule and the subsequent slump.

  • This regulation streamlines many of the current closing docs and includes new features intended to make the consumer more aware of their true financial burden.
  • While both components fell sharply from a week earlier, the conventional applications portion declined slightly more than government applications (pictured above). However, the full index was down only 1.2% from a year ago, the first year-over-year decline in the seasonally adjusted index since January 2015. If demand had not been pulled forward into the prior week’s reading, this week’s reading likely would have been much stronger than a year earlier. The 4-week moving average, a means of smoothing this weekly volatility, declined just 3.1 percent from the prior week, but is up 23.4 percent from the same time a year ago, roughly the same as it was for the prior month.
  • The average rate for a 30-year fixed mortgage was unchanged from a week earlier at 3.99 percent, but was 21 basis points lower than the same time a year earlier.

  • This week’s decline is likely to abate in the weeks ahead, but the pattern may remain choppy as originators wrestle with the new regulatory environment.
  • In the long term, the rule should help to make the process a more transparent process for consumers. Luckily the change was timed for the fall, a slower period, the Consumer financial Protection Bureau has signaled its intention to hold lenders harmless so long as they perform a “best effort” to comply in the near term.
  • Some lenders may be better prepared for the changes than others. Consumers and Realtors should shop a variety of lenders and ask their Realtors for their experiences with various lenders in the TRID environment. The closing process may take longer and as a result could cost slightly more for longer rate locks. A savvy lender could help to smooth the process.

Twitter Chat, Oct. 16, 3 pm ET: Technology in the Home Buying Process

Wed, 10/14/2015 - 07:39


Join us for our next Real Insight Twitter chat this Friday, Oct. 16, at 3 pm EST on technology use in the home buying process. We will be discussing how home buyers use technology to research and identify properties as well as how they connect with and ultimately choose their REALTOR®.

We will be co-hosting this chat with Lauren Mitrick, an award-winning Realtor for Chicago-based Newman Realty. Lauren’s been recognized as a “30 Under 30” Realtor by Forbes, REALTOR® Magazine and the NAR Young Professionals Network. Follow her on Twitter at @laurenmitrick.

Lauren will be joined by an esteemed panel of current and recent homebuyers:

Lexie Kier, Managing Director of LaterPay USA, a micropayment company for digital content, and Founder at Cuurio, an index for tech startups and a partnership platform for brands, is currently going through the process of buying a new home. Follow her on Twitter at @a0k.

A recent Chapel Hill, N.C. transplant with her husband and two daughters, Beth Torrie is VP of Strategic Engagement at Sitecore, an enterprise content management platform. Beth has 20 years of experience leading marketing and communications programs for innovative software companies. Follow her on Twitter at @bethtorrie.

Follow the #RealInsightChat hashtag on Twitter to stay connected to the conversation. We encourage you to ask your own questions and participate in the chat, just don’t forget to use the hashtag!

We hope you can make it!

Latest State and Metro Employment (August 2015)

Mon, 10/12/2015 - 10:47
  • Good News: 47 states have created jobs over the past 12 months. Utah is leading the way with a 4 percent job growth rate. The Pacific Ocean states of Oregon and Washington are right behind. Florida and Nevada round out the top-five. Naturally, these states are seeing solid demand for home buying and for commercial real estate leasing activity.
  • Bad News: Though jobs are positive, nearly all states lost momentum. The job creation to August were slightly weaker compared to July in 41 states. Only 9 states had a stronger pick-up. For example, Texas had created 278,000 net new jobs in the 12-months to July; but then slipped to a fewer 212,000 to August.
  • Ugly News: There are fewer jobs this August compared to one year ago in West Virginia, Alaska, and North Dakota. Lower oil prices are leading to fewer drillings and coal miners are very unhappy about the current state of its industry. Fewer jobs will mean lower demand for real estate.
  • At the metro level, some cities continue to fly high. Here are markets with 3.5 percent or better job growth rate:

  • Job creations are all fine and welcomed. But inadequate new construction in relation to jobs will lead to real estate prices shooting up too high, too fast, and thereby divide the community between the haves and have-nots. Social tensions are evident in Silicon Valley where fresh job takers in Facebook, Google, and Apple forcing off long-time residents who are renters to move away. It is these types of perceived economic injustice as to why Bernie Sanders can tap into their anger even though successes of high tech companies are good for the country. Broadly speaking, there are too many cities where new home construction is lagging behind in relation to job gains. Though the solution is simple of issuing more housing construction permits by local authorities, this will not occur. Therefore, expect even more angry renters over time.

Applications for Purchase Mortgages

Wed, 10/07/2015 - 10:57
  • Applications for purchase mortgages spiked 27.4 percent for the week ending October 2nd, likely a result from implementation of the new TILA RESPA Integrated Documentation (TRID) closing documents and process also known as the Know Before You Owe rule on October 3rd. Some originators are concerned that the implementation could cause delays and have advised clients to close earlier.

  • This regulation streamlines many of the current closing docs and includes new features intended to make the consumer more aware of their true financial burden.
  • The increase in weekly purchase applications was nearly uniform between the conventional and government spaces which rose 27.1 percent and 27.9 percent, respectively. Relative to last year, the increase was even more pronounced at 48.9 percent.
  • Mortgage rates slipped eight basis points to 3.99 percent from a week earlier and were 31 basis points lower than the same time a year earlier. While the drop in rates may have spurred more refinance business, purchase applications rarely respond this robustly to changes in mortgage rates.


  • This week’s surge in applications pushed the index to its highest level since the week of May 7th, 2010 when the first-time home buyer tax credit expired, but it likely to be transitory with a decline or choppy pattern in applications in the week or weeks ahead as demand that would have occurred in the future was pulled forward. The new rules may result in longer lock periods and costs for some consumer in order to hold onto low rates as closing times may close. Furthermore, as some lenders may not be fully prepared, those that are prepared may see higher volumes that result in delays.
  • In the long term, the rule should help to make the process a more transparent process for consumers. Luckily the change was timed for the fall, a slower period, the Consumer financial Protection Bureau has signaled its intention to hold lenders harmless so long as they perform a “best effort” to comply in the near term.
  • Consumers and Realtors concerned about delays may want to shop around for lenders who are best prepared and can close on time.

More Loans Getting Approved, But Applications Still Low

Wed, 10/07/2015 - 09:49

The share of home purchase loan originations to total home purchase loan applications improved steadily if slightly, based on the latest Home Mortgage Disclosure Act (HMDA) loan level data as of 2014 (most recent). However, consumers remained reluctant to borrow as credit standards remained difficult, even for middle-income earners. FHA-insured mortgages have higher debt-to-income requirements and are more accessible to non-high income earners.

Loan approvals continue to increase although modestly

The share of loan originations to the total loan applications has been improving steadily, although modestly since 2011. In 2014, 69.4 percent of all home purchase loan applications resulted in a loan origination, a slight increase from 66.6 percent in 2011. Conversely, the share of loan applications that were denied decreased from 15.6 percent in 2011 to 13.4 percent in 2014. The combined share of loans that were approved but not accepted by the applicant and loans that were withdrawn by the applicant also decreased from 15.6 percent in 2011 to 14.7 percent in 2014 (Chart 1).

Across income group categories, the shares of home purchase loans originated to loan applications have increased since 2011, although modestly (Chart 2)[1]. Among applicants whose income is 80 percent or more of the median family income of the metropolitan statistical area (MSA) in which the applicant’s census tract is located, the share of loans originated was greater than 70 percent in 2014.  Among applicants whose income is below 80 percent of the MSA median family income, the percentage of loan applications that were originated also improved to 64.9 percent in 2014 from 62.5 percent in 2011. The likelihood of having a loan originated increases as income increases.

 “Middle” to “higher income” borrowers increasing, but “lower” income borrowers still reluctant to borrowAlthough the share of loan originations to total applications has been improving across all income groups, the number of loan originations has increased only among applicants earning 80 percent or more of the MSA median family income.  Meanwhile, the number of loan originations among applicants earning below 80 percent of the MSA median family income has stayed at about the same level since 2010 (Chart 3). Loan originations from this latter group were essentially flat because loan applications have barely budged since 2011. In contrast, applications from those earning 80 percent or more of the MSA median family income have steadily increased, especially among applicants earning 120 percent or higher of the MSA median family income (Chart 4).Altogether, the number of home purchase loan originations increased only modestly to 3.14 million in 2014 from about 3.02 million in 2013, a slower pace compared to the turnaround in 2012-2013. The number of loan originations remains far below the 6.81 million level in 2005.

Access to credit remains difficult for middle-income earners

One reason why the number of applications has barely increased among those earning below 80 percent of the MSA median family income and has improved only modestly overall is that credit access remains tight. Underwriting standards such as FICO credit scores, debt-to-income ratios, and ability to make a down payment are all related to income, and these standards have become more stringent.[1] Amid modest income growth, tight inventory conditions have also caused a rapid rise in prices that made homes more unaffordable. Finally, lower-income borrowers also tend to avail of FHA loans, and FHA’s increase in the annual mortgage insurance premiums from 55 basis points in 2010 to 135 basis points by 2014 also likely affected low-to middle-income earners during this period.[2]

The reduction in the upfront mortgage insurance premium by 0.5 percent in 2015 is intended to lower the cost of credit for FHA-insured loans and attract more first-time homebuyers. As noted in a NAR analysis by Ken Fears, NAR’s Director for Regional Economics and Housing Finance, this change in policy appears to have been well-received by consumers with lower credit scores whose optimism towards housing demand improved dramatically over the 12-month period ending in March of 2015.

What this means to REALTORS®. Among those who do make a decision to purchase a home and apply for a loan, access to credit has been improving, especially for those earning above average incomes. However, access to credit still remains generally difficult, even for middle-income earners. REALTORS® need to work with borrowers to access FHA-insured loans or loans backed by state housing finance agencies where income-related requirements are less stringent.

[1] The Urban Institute reported in its September 2015 Housing Finance at a Glance Monthly Chartbook that “the mean and median FICO scores on new originations have both drifted up about 43 and 48 points over the last decade. The 10th percentile of FICO scores, which represents the lower bound of creditworthiness needed to qualify for a mortgage, stood at 668 as of June 2015. Prior to the housing crisis, this threshold held steady in the low 600s.” See http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000421-Housing-Finance-Housing%20Finance-At-A-Glance-A-Monthly-Chartbook-September-2015.pdf

[2] In the New York Federal Reserve Board’s various surveys on consumer expectation regarding credit access to a mortgage from February 2014 thru June 2015, respondents’ perceived likelihood of being rejected was nearly 40 percent. See http://www.newyorkfed.org/microeconomics/sce/credit-access.html#indicators/overall-credit-rates-t2/g29

[1] A detailed breakdown of the action taken on a loan application was reported by lending institutions starting in 2011. Previously, reporting lending institutions only reported if the loan was originated or purchased from another institution. In counting loan applications, NAR used the “Action Data” counts. In counting total applications, we excluded preapprovals and loans purchased by the institution to eliminate double counting.

Sales to First-Time Buyers: 32 Percent of Sales in August 2015

Tue, 10/06/2015 - 10:58

First-time home buyers accounted for 32 percent of existing-home sales in August 2015 (28 percent in July 2015; 29 percent in August 2014): August 2015 REALTORS® Confidence Index Survey.12

Sustained net job creation, a low interest rate environment with 30-year fixed rates at below four percent for most of 2015, and better pricing of FHA-insured mortgages appear to be helping first-time homebuyers. The prospect of an interest rate increase by the Federal Reserve Board may also have spurred first-time home buying activity.[1] REALTOR® respondents reported that tight inventory, increasingly unaffordable prices, and weak credit profiles that fail to meet tighter underwriting standards are conditions that continue to work against first-time home buyers.

Buyers age 34 and under accounted for 29 percent of sales reported by the respondents. Nearly half of buyers were in the age group 35 to 55 years.

Renters accounted for 38 percent of sales, essentially unchanged compared to past months. Although rents are rising faster than mortgage payments, the rate of renting has remained elevated, likely due to a mix of factors related to lifestyle choice, household formation, financial constraints for younger households, and tighter underwriting standards.

12 First-time buyers accounted for about 33 percent of all home buyers based on data from NAR’s 2014 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence home buyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.

12 First-time buyers accounted for about 33 percent of all home buyers based on data from NAR’s 2014 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence home buyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.

[1] The Federal Open Market Committee, in its September 17 statement, decided to maintain at 0 to ¼ percent target range for the federal funds rate, a benchmark rate that influences all rates, including mortgage rates.

REALTORS® Expect Price Growth Moderate in Next 12 Months

Mon, 10/05/2015 - 10:13

REALTORS® who responded to the August 2015 survey expected prices to increase by 3.5 percent over the next 12 months (3.6 percent in July 2015; 3.5 percent in August 2014): August 2015 REALTORS® Confidence Index Survey. 9

The map shows the median expected price change in the next 12 months for each state based on the June-August 2015 RCI surveys.10 REALTOR® respondents from Florida had the most upbeat price expectations, with a median expected price growth in the range of five to six percent. In Washington, Oregon, Colorado, and Georgia, the median expected price growth among respondents was four to five percent.

REALTOR® respondents reported that they expect price growth to moderate after a strong price recovery that has made homes less affordable.

9 A comparison of the expected price growth for the next 12 months compared to the actual price growth shows the expected price growth to be more conservative than the actual price growth, but both are generally headed in the same direction.

10 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 D.C., may have less than 30 observations.

Latest National Employment Figures (September 2015)

Fri, 10/02/2015 - 09:53
  • Jobs continue to be added to the economy, but the momentum is less strong than before. Even so, the latest monthly addition of 142,000 is not shabby and brings the 12-month total to an impressive 2.75 million net new jobs.
  • Both residential and commercial real estate markets have been improving principally because of jobs. One can see the differences in the recovery pace between states with fast job creation (e.g., Utah and Florida) versus states with slow or no job creations (e.g., West Virginia and North Dakota). Given that jobs are being added at a respectable pace, the real estate markets should continue to improve.
  • The lost in momentum can be seen in the 12-month job change. The pace had been 3 million or so from late last year to the early summer months of this year. Now, rather than 3 million, it is 2.75 million net new jobs.
  • No mystery that the collapse in the oil price has forced job cuts in the oil extraction. The low oil prices, however, are helping consumers save extra money to spend elsewhere. Retail spending and auto sales have been solidly positive.
  • It is a big mystery that jobs in home building are not being added more aggressively. There is a housing shortage in many local markets, yet builders have been complaining of the difficulty of finding qualified construction workers, even though the pay is well over the minimum wage.
  • No government shutdown for now, but could happen in December. As part of uncongenial debates, shouting, and bluffs, a sequestration came into effect a few years ago, resulting in a steady decline in government workers and military personnel. Those sequestration impacts are all but over now and new people are being hired. One thing people should know is if there is to be a government shutdown in December, it will be when a new budget needs to get passed. After the shutdown all government employees get paid retroactively. Employees, in essence, have joked that government shutdown is nothing more than a paid vacation time while the rest of America suffers inconvenience of not having this or that service.

Credit Conditions Continue Tighter than Normal

Thu, 10/01/2015 - 11:33

REALTORS® have reported that credit conditions remain generally tight, with significant loan processing delays: August 2015 REALTORS® Confidence Index Survey. One indicator of credit tightness is the distribution of FICO scores on approved loans.

About 53 percent of REALTORS® providing transaction credit score information reported FICO credit scores in the range of 740+. For comparison, in the period 1999-2004, only 37 percent of Fannie Mae’s and 33 percent of Freddie Mac’s 30-year, fixed rate, fully amortizing loans had FICO scores greater than 750.16

Among first-time home buyers, 32 percent of buyers were reported to have FICO scores of 740 or higher. Among buyers age 34 years and under, 37 percent had FICO scores of 700 or over. Borrowers with FICO scores of 740+ put in a higher down payment while the majority of borrowers with FICO scores of less than 740 availed of “low” down payment loans (zero to six percent). For example, 73 percent of borrowers with FICO scores of below 620 made a down payment of zero to six percent.

16 Source: Urban Institute Housing Finance Policy Center, “Housing Finance at a Glance”, May 2015 chartbook.  http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000231-Housing-Finance-At-A-Glance-Monthly-Chartbook-May-2015.pdf


August 2015 EHS Over Ten Years

Wed, 09/30/2015 - 15:56

View the August 2015 EHS Over Ten Years slides.

Every month NAR produces existing-home sales, median sales prices and inventory figures. The reporting of this data is always based on homes sold the previous month and the data is explained in comparison to the same month a year ago. We also provide a perspective of the market relative to last month, adjusting for seasonal factors, and comment 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 August months and how that might compare to the “ten year August average” which is an average of the data from the past ten August months.

  • The total number of homes sold in the US for August 2015 is higher than the ten year August average. Regionally, the Northeast was slightly below the ten year August average, while all other regions showed stronger sales. The Midwest had the largest increase above the average by 10 percent; the South was also up 7 percent while West was only up 1 percent essentially level with the August average. The West had consistently been second to the South in August sales, but over the last three years the Midwest has taken the lead.
  • Comparing August of 2005 to August of 2015 fewer homes were sold in 2015 in the US and all regions, the Northeast undergoing the biggest decline of 42.1 percent. The Midwest and the South both had the smallest drop in sales at 21 percent over the ten year period.
  • This August the median home price is higher than the ten year August average median price for the US and all four regions.
  • Comparing August of 2015 to August 2005, the median price of a home increased only in the Midwest and South. The US had a slight decline in price while the Northeast dipped 4 percent and the West experienced a 7 percent decline in price.
  • Looking at year over year changes the West led all regions in price growth until 2007 when the Northeast had the fastest growing home prices. Since 2012 the West has resumed the lead in August price growth, coming in as the top or second-place region measured by growth rate. By price level, the Northeast took the lead from the West in 2008 and held it until 2013 when it fell to the second highest price region. The median for the West surpassed the $300,000 mark while the Northeast median remains under that threshold.
  • The median price year over year percentage change shows that home prices began to fall in 2006 nationally, and prices dipped by double digits in 2009 for all regions. The trend for median home prices turned around completely in 2012, when all regions including the US showed price gains. Because of this, all regions and the US saw their lowest August median price in 2011. The West had the largest gain in price of 16 percent, while the Northeast had the smallest gain at 2 percent from 2011 to 2012.  This August the West (7.1%) had the highest year over year price percentage change over the US and the other three regions.
  • There are currently fewer homes available for sale in the US this August than the ten year August average.  In 2005 the US had the fastest pace of homes sold relative to the inventory when months supply was 4.7 months. In 2010 the US had the slowest relative pace when it would have taken 11.5 months to sell the supply of homes on the market at the prevailing sales pace. Relative to all supply, the condo market had the biggest challenge in 2008 when it would have taken almost 16 months to sell all available inventory at the prevailing sales pace. Since 2011 supply levels for both single family and condos have gradually come down to a healthy balance of inventories.
  • The ten year August average national months supply is 7.5, and this August we are at 5.2 months supply. The ten year average month supply for August for condos is 8.8 months and the single family supply is 7.3 months.

In What States Did Properties Sell Quickly in June-August 2015?

Wed, 09/30/2015 - 09:53

In the monthly REALTORS® Confidence Index Survey, NAR asks REALTORS® “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The map below shows the median days on market of respondents about their sales from June-August 2015: August 2015 REALTORS® Confidence Index Survey.[1]

Properties typically sold within a month in Washington, Oregon, California, Utah, Colorado, North Dakota, Texas, Michigan, Massachusetts, and the District of Columbia. In Vermont, properties were typically on the market for longer than 90 days when sold. Nationally, properties that closed in August 2015 were typically on the market for 47 days (42 days in July 2015; 53 days in August 2014).11 Days on market typically increase after June due to the seasonal slowing down in demand. Respondents reported that it typically took another 42 days to close the sale.  All real estate is local. State-level data is provided for REALTORS® who may want to compare local markets against the state and national summary.

[1] The median days on market is the value such that half of properties stayed in the market below the median days and half of properties stayed on the market above the median days.

11 Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market.

REALTOR® Lending Highlights: Small Business Administration

Tue, 09/29/2015 - 15:30

Commercial real estate investments trends have been positive in 2015, as global economic volatility has driven investors to the relative safety and performance of U.S. assets. Sales of large CRE transactions (LCRE)—over $2.5M—advanced 36 percent year-over-year in the first half of 2015, totaling $255 billion, based on Real Capital Analytics (RCA) data. Prices in LCRE markets rose by 3.1 percent during the second quarter of this year, based on RCA’s Commercial Property Price Index.

In comparison to the high-end deals, 86 percent of commercial REALTORS® handle transactions below the $2.5 million threshold. Although many REALTORS® participate in transactions above $2.5 million per deal, they serve a segment of the commercial real estate market for which data are generally not as widely reported, which we term the small CRE transactions (SCRE).

Based on National Association of REALTORS® (NAR) data for the SCRE market, sales volume in the first half of the year advanced 11 percent year-over-year. With the shortage of available inventory reported as the number one concern for NAR members, price growth accelerated in SCRE markets during the second quarter of 2015, with properties trading at 6.6 percent higher average prices compared with the same period in 2014. The average transaction price increased from $1.7 million in the first quarter 2015 to $2.0 million in the second quarter 2015.

With rising transactions and asset valuations, capital availability has broadened. According to the REALTORS® Commercial Lending Trends 2015 report, major capital providers found new energy in revitalized commercial markets and competed for deals. In LCRE markets, national banks accounted for the bulk of capital providers, riding the wave of low interest rates and offering low cost floating rate lending. Government-sponsored enterprises (GSEs) were the second largest debt originator, dominating the financing in the multi-family segment. CMBS conduits and life insurance companies also increased their originations.

Based on NAR’s data, the capital picture displays a fundamentally different landscape. Local and community banks were the largest lending groups in REALTORS® commercial markets in 2014, accounting for 32 percent of transactions. Private investors and national banks accounted for the third and fourth largest funding sources.

The Small Business Administration (SBA) comprised six percent of funding for REALTORS® real estate transactions. SBA provided $26.6 billion in loans during 2015, a 19 percent increase from 2014. The bulk of SBA lending was in the form of a General Small Business Loan, also known as a 7(a) loan, which comprised 85 percent of total. The Real Estate & Equipment Loan—CDC/504—accounted for the rest.

REALTORS® indicated in a separate survey that they used SBA loans in the course of business activity. In keeping with the trend, the most popular SBA loan product used by REALTORS® was the SBA 7(a) loan, used by 48 percent of NAR members. The second most popular loan type was the Real Estate & Equipment Loan CDC/504, accessed by 31 percent of respondents. Disaster loans and those offered under SBA’s Microloan Program were the remaining lending facilities employed. The average SBA loan amount was $422,310.

While only 12 percent of REALTORS® indicated that they contacted the SBA for resources other than loans, most did so for advice on working with the SBA and training. Members also sought small business mentoring and information about other federal or state programs.


To access the Commercial Lending Trends, visit http://www.realtor.org/reports/commercial-lending-trends-survey.


Raw Count of Home Sales (August 2015)

Tue, 09/29/2015 - 10:26
  • Existing-home sales decreased 4.8 percent in August from one month prior while new home sales increased 5.8 percent. These headline figures are seasonally adjusted figures and are reported in the news. However, for everyday practitioners, simple raw counts of home sales are often more meaningful compared to the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
  • Specifically, 505,000 existing-homes were sold in August while new home sales totaled 45,000.  These raw counts represent an 8 percent loss for existing-home sales from one month prior while new home sales rose 2 percent. What was the trend in the recent years? Sales from July to August increased by 2 percent on average in the prior three years for existing-homes and decreased by 3 percent on average for new homes. So this year, existing-homes underperformed compared to their recent norm while new home sales outperformed.
  • Why are seasonally adjusted figures reported in the news? To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate have an effect on data around the same time each year. For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity. Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends. That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month. When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
  • What to expect about home sales in the upcoming months in terms of raw counts? Independent of headline seasonally adjusted figures, expect less activity in September for existing-home sales. For example, in the past 3 years, September sales dropped by 9 to 22 percent from August. In contrast, existing-home sales increased in October by 2 to 8 percent. For the new home sales market, the raw sales activity in September and October tends to be better compared to those occurring in August. For example, in the past 3 years, October sales rose by 6 to 16 percent from August.

REALTORS® Reported Slower Buyer and Seller Traffic in August 2015

Mon, 09/28/2015 - 15:50

REALTORS® generally reported “strong” demand amid “weak” supply conditions in their local markets in the August 2015 REALTORS® Confidence Index Survey.[1]

The REALTORS® Buyer Traffic Index registered at 60 (62 in July 2015; 55 in August 2014). Buyer traffic is seasonally slower in August than in July, with the start of the school season.

Inventory remained tight, with more respondents reporting “weak” than “strong” seller traffic. The REALTORS® Seller Traffic Index was essentially unchanged at 45 (46 in July 2015; 45 in August 2014). While the construction of new privately owned housing units improved to 1.1 million units as of the second quarter of 2015, the figure is still short of the normal 1.5 million units required by household formation and the replacement of obsolete housing. Moreover, about 40 percent of new construction is of multi-unit structures, generally for rental use. REALTORS® reported low inventory of properties in the lower price range and for those that are move-in ready.

[1] Respondents were asked “How do you rate the past month’s traffic in the neighborhood(s) or area(s) where you make most of your sales?” The responses were “Strong”, “Moderate,” and “Weak.”

August Existing-Home Sales

Mon, 09/28/2015 - 10:49
  • NAR released a summary of existing-home sales data showing that August’s existing-home sales slipped after three straight months of gains, as sales reached the 5.31 million seasonally adjusted annual rate. Previous months were strong, so despite the 4.8 percent month-to-month drop in sales, the current level remains strong. August’s existing-home sales mark 11 consecutive months of year-over-year gains, and sales are up 6.2 percent from a year ago.
  •  The national median existing-home price for all housing types was $228,700 in August, up 4.7 percent from a year ago August 2014. Moderate price growth is welcome after months of unhealthy price gains.
  •  Regionally, all four regions showed growth in prices from a year ago. The West had the largest gain at 7.1 percent while the Northeast had the slightest gain at 2.4 percent from last August.
  • From July, the Northeast remained flat while all the other regions dipped in sales. The West had the biggest decline at 7.8 percent while the Midwest decreased 1.5 percent. However, all regions showed an increase in sales from a year ago. The Midwest had the smallest increase of 5.8 percent while the West had the biggest gain of 7.2 percent. The South leads all regions in percentage of national sales at 41 percent while the Northeast has the smallest share at 13.5 percent.
  • August’s inventory figures modestly increased 1.3 percent from last month but are down 1.7 percent from a year ago. It will take 5.2 months to move the current level of inventory at the current sales pace. It takes approximately 47 days for a home to go from listing to a contract in the current housing market.
  • Single-family sales fell 5.3 percent while condos fell 1.6 percent from last month. However, single-family home sales increased 6.1 percent and condo sales are up 6.9 percent from a year ago. Both single-family and condos had an increase in price with single family up 5.1 percent and condo up 2.2 percent from a year ago August 2014.


Baby Boomers Lead Recent Household Formation

Fri, 09/25/2015 - 10:18

The United States Census Bureau compiles data on households through the Current Population Survey, a joint project with the U.S. Bureau of Labor Statistics. Based on the latest data, there were 124.5 million households in the U.S. in 2015. The number of households in 2015 was 0.5 percent higher than in 2014.

Household formation (HHF) is an important driver of real estate demand, both for single and multifamily properties. Household formation averaged 1.3 million every year over the 1958-2007 period. Between 2008 and 2013, the average number of new households dropped to 579,000 per year, underscoring the severity of the Great Recession and ensuing slow recovery. In 2014, net HHF jumped to 2.2 million, as employment growth encouraged more young people to strike it on their own. In the second quarter of 2015, HHF continued the upward trends with the addition of 480,000 new households.

When looking at recent HHF data by age, Baby Boomers are the driving force of growth. Based on data comparing the first half of 2014 with the first half of 2015, the highest gains in HHF were recorded by 65-74 year olds, who accounted for 860,000 new households[1]. The 55-64 age group accounted for the second highest HHF figure—391,000. The group with the third largest HHF number was made up of people over 75 years of age, who formed 264,000 new households during the twelve month period.

The younger age groups had mixed HHF numbers. In the 20-24 age range, there was a negative net HHF of 85,000 households. The 25-34 year old group proved the only bright spot, with 159,000 new households.

Separately, in a recent presentation at the REALTOR® University Speaker Series[2], Jordan Rappaport of the Federal Reserve Bank of Kansas City outlined several important trends in household formation and its impact upon multifamily home construction:

  • The share of U.S. population living with parents has risen from 1980 – 2013 across the age spectrum. For the 25-29 year old group, the proportion increased from a little over 10 percent to 25 percent over the period. The increases became smaller as the data moved higher in the age ranges, however the trend remained noticeable.
  •  The share of the population to have ever been married declined significantly. For 25-29 year olds, the percentage dropped from about 70 percent in 1980 to less than 40 percent in 2013. The decline in marriage was present in each age group up to 65-69 year olds.
  • The age at which adults have children has been steadily rising.
  •  For seniors, the share living with a partner has increased over time. For the 75-79 year old population, the proportion of those living with a partner rose from about 30 percent in 1980 to approximately 50 percent in 2013.

His conclusions are that while young adults have been the main driver of the recent rebound in multifamily construction, the baby-boom generation will be the leading force of the long-term demand for multifamily space and constru

[1] Kolko, J. “Who Is Actually Forming New Households?” August 17, 2015. U.C. Berkeley Terner Center for Housing Innovation.

[2] Rappaport, J. “Millennials, Baby Boomers, and Rebounding Multifamily Home Construction.” http://www.realtor.org/topics/realtor-university/videos/realtor-university-speaker-series.