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Economist's Outlook

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Updated: 14 hours 35 min ago

Using NAR Research to Address Prospective Buyer Concerns “Is Now a Good Time to Buy?”

Tue, 04/07/2015 - 08:12

REALTORS® can use NAR Research information to give the customer a different perspective on the question of whether to buy: the press encourages clients to think in terms of price.  Price is important, but the main reason clients want a home is lifestyle—i.e., for family and living purposes. Like most economic questions, there are two answers to the question of whether it is a good time to buy: “Yes” and “No”.  Put differently, “Yes, it is always a good time to buy if you need a home for your or your family.”  The answer is “No if you are over-extending your financial capabilities, speculating on changing home prices, or expect to need to move in the near future:  that is how people get in trouble.”

NAR has detailed the major benefits achieved by homeownership

  • Higher student test scores by children.
  • Higher rate of high school graduation thereby higher earnings.
  • Children more likely to participate in organized activities–less television screen time.
  • Homeowners take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments and those skills transfer to their children
  • Lower teenage delinquencies.
  • General increase in positive outlook to life.
  • Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives.

Quality of life is a major benefit from homeownership—which is why a prudent home purchase by someone who is financially responsible makes sense at almost any time.

Home Inspection Issues: Major Reason for Contract Terminations

Fri, 04/03/2015 - 14:36

In the February 2015  REALTORS® Confidence Index Survey, NAR asked  REALTORS® what problems they encountered in their most recent contract that either went into settlement or was terminated in the past 3 months.   

Among contracts that were terminated (7 percent of REALTORS® reported contracts that went into settlement or were terminated), the major problem encountered was home inspection issues, cited in 29 percent of reported contract terminations.  Obtaining financing was the next major problem cited for a contract termination (25 percent).  Meanwhile, only 8 percent of terminated contracts had appraisal issues, indicating that although appraisal issues can be a problem, they are less likely to lead to contract terminations than home inspection or financing problems.

What this Means for REALTORS®:  Home inspection issues are the biggest reasons for contract termination. Work with the seller to fix potential home inspection issues (e.g. structural, water damage, mold, lead paint, etc.) before putting the house on sale.

REALTORS® Reported High Credit Score Requirements Are Easing

Fri, 04/03/2015 - 14:01

Qualifying for a mortgage is still generally difficult, although becoming easier, according to the February 2015 REALTORS® Confidence Index Survey.

About 52 percent of REALTORS® providing transaction credit score information reported FICO credit scores in the range of 620-740; in 2013, the share was hovering at about 40 percent. About 2 percent of REALTORS® reported a purchase by a buyer with credit score of less than 620, up from about 1-2 percent in 2012-2014. In a normal market, the share of credit scores below 620 would be closer to 5 percent.

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

Latest Employment Condition (March 2015)

Fri, 04/03/2015 - 10:46
  • Job growth slowed markedly in March. It is likely a one-month hiccup.  The broad job market conditions will likely re-strengthen in the upcoming months simply because the number of new filing for unemployment insurance has been rapidly declining.  In the construction industry, there was no net job over the month implying a weather-related halt.  There is, however, an evident shortage of skilled construction workers since the wages in the sector are rising much faster than in other industries.
  • Diving into the numbers, only 126,000 net new jobs were added to the economy in March compared with the monthly average of 268,000 over the prior 12 months.  The 12-month job gain is still impressive with 3.1 million net new job additions.  Jobs in the construction industry fell by 1,000 (even after accounting for the normal seasonal patterns.)  This is a clear case of temporary condition from excessive cold weather this year since many homebuilders would like to ramp up production by hiring more workers.  There were 11,000 fewer workers in the mining and oil exploration.  This is not a temporary cut but a possible start of deeper reduction related to lower oil prices.
  • The unemployment rate did not change and stood at 5.5 percent.  But the employment rate – counting how many of the adult population have jobs rather than counting how many do not have jobs – is barely improving and still crawling along the bottom.  Only 59.3 percent of adult population is working, compared to 62 to 64 percent in more normal times.
  • The average worker wage rose by 2.1 percent in March.  Depending on a given month, it could be a little better or a little worse than the broad consumer price inflation.  In other words, workers in general are not getting ahead and just spinning the wheel like a hamster.  The construction industry is one of the few areas where wages are comfortably rising above consumer inflation.  In March, construction workers commanded nearly a 3 percent higher pay to $27.23 per hour.  The other industry that is quickly raising wage rates is in the leisure and hospitality industry, where wage rose by 3.6 percent to $14.23 per hour, a sign more workers are needed to cater to wealthy travelers.
  • Those workers who are also homeowners are feeling a little better despite the lackluster wage growth since the typical home value has increased by around $30,000 over the past three years.  Sadly though from a societal point of view, we have fewer homeowners and many more renters.  That is one big reason why America has become more unequal financially.  Finally, for those few with a big exposure to the stock market – about 10 percent of American families – the wealth gains have been more than nice with the stock market having almost tripled from the lows of few years ago.  They therefore have been buying vacation homes.  Indeed, a very happy life on the top of the world for the few.

In What States Do Properties Sell Quickly?

Thu, 04/02/2015 - 15:57

In a 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 December 2014-February 2015.  Properties in Washington, D.C., California, Nevada, North Dakota, Texas, and Louisiana typically sold within 30 to 45 days[1] (red). Properties in these states have experienced the strongest job growth in the nation, mainly from the technology and oil-gas sectors. Data shows that despite the drop in oil prices, the economies are still going strong. Properties in Washington, Oregon, South Dakota, Nebraska, Florida, Georgia, and Massachusetts typically sold within 2 months (pink). Properties in Montana and Vermont took the longest time to sell at 3 months or longer (blue).

All real estate is local: state-level data is provided to enable a comparison of local market trends against the state and national summary.

[1] The median days on market is the number of days below which 50 percent of properties sold. So this means that half of all properties sold in these states sold  below the median days. 

 

February 2015 EHS Vs Ten Year February Average

Wed, 04/01/2015 - 15:18

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 February months and how that might compare to the “ten year February average” which is an average of the data from the past ten February months.

  • The median home price this February is higher than the ten year February average median price for the US and all regions except the Northeast which was down slightly and the Midwest which was level to the average. The median price of a home in February of 2015 was higher only in the US and South the compared to 2005 while the other regions experienced declines in price. The Northeast had the biggest drop in prices at 7% while the West and the Midwest had minor declines.
  • Comparing February of 2005 to February of 2015 fewer homes were sold in 2015 in the US and all regions, with the Northeast undergoing the biggest decline of 48.7%. The South, still leading all regions in home sales had the smallest drop in sales at 19.2% over the ten year period. Families on average are now staying in their home for ten years which is a sizable time period shift, from seven which could contribute to less homes sold.
  • The total number of homes sold in the US for February 2015 is lower than the ten year February average. Regionally, only the South had higher than average home sales while the Northeast, Midwest, and West show current home sales below the ten year February average. While the South was above the average by more than 6%, all other regions were within 5% except the Northeast which was actually more than 17% lower than the February average.
  • The median price year over year percentage change shows that home prices began to fall in 2007, but did not fall considerably in most areas until around 2009. Home prices began to stabilize in 2012, only the South and West regions showed slight price gains. The West had the largest gain in price growth of 22% in 2013, while the Northeast had the smallest gain at 5%.  This February the Midwest 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 February than the ten year February average. In 2005 the US had the fastest pace of homes sold relative to the inventory while during the bubble in 2008 the US had the slowest pace taking 9.8 months to sell the supply of homes on the market. Relative to all supply, the condo market had the biggest imbalance in 2009 when it would have taken 14 months to sell all available inventory at the prevailing sales pace.
  • The ten year February average national months supply is 6.7 and this February we are at 4.6 months supply. The ten year average month supply for February for condos is 8 and the single family supply is 6.5.

Latest Consumer Confidence (March 2015)

Wed, 04/01/2015 - 12:37
  • Consumers are becoming ever more confident.  That is a very good sign for home sales.  Only by believing in a better future will consumers make expenditures that are longer-lasting.
  • In March, the consumer confidence index rose to 101.3.  An index reading of 100 or better is a terrific sign that a majority of people in the country believe in a better future.  January’s figure was also above 100.  The last time consumers were this happy was prior to the Great Recession in 2007.
  • One can be rich, but if they have anxiety about the future then they will not spend or invest.  Conversely, one may not be rich but if they are confident of a better condition in the future then they will spend –even if it means borrowing money.  Academically talented students have no qualms about borrowing to attend medical school, for example, as long as they believe there will be a nice future payoff.  Renters with a good credit and enough financial resources will also want to borrow to buy a house if they believe in a better future.  With home prices rising in many areas of country, consumers evidently are becoming more confident of the housing market.
  • REALTORS® are also expressing increased confidence no doubt based on many interactions with their clients.  Particularly they are  expressing better times for single-family home sales.
  • Without hope, what is there to get people out of bed in the morning?  There is nothing possibly worse than not believing in better times ahead.  The sharp retort “Frankly, my dear, I don’t give a damn” in the ending of Gone with the Wind is said to be one of the most memorable movie phrases of all time.  The headstrong Scarlett was not going to let that be the final word, however.  She said to herself “After all, tomorrow is another day.”  American consumers in 2015 have finally shaken off their depressive feelings.

NAR analysis of Case-Shiller Price Index

Tue, 03/31/2015 - 11:02
  • Today, Case Shiller released their housing price index data for January 2015 which showed that house prices rose 4.4 percent from December one year ago for the 10-city composite, 4.6 percent for the 20-city composite, and 4.5 percent for the national index.
  • Last week NAR reported growing prices in January and February.  Price growth in the year ended February 2015 was 7.5% after rising 5.2% in January.  FHFA January data showed a gain of 5.1% for the year ended January 2015.
  • Case Shiller’s city by city data show some areas are increasing at a faster pace in January over December though this trend is not yet evident in the headline figures.  Fourteen cities saw accelerating prices including Chicago (2.5% from 1.4%), Boston (4.7% from 3.8%), and Charlotte (4.3% from 3.5%).  The biggest weakening in year over year growth rates was seen in previously hot areas San Francisco (7.9% from 9.4%), Las Vegas (5.9% from 6.9%), and Tampa (5.7% from 6.4%).
  • While the previous cities had the biggest changes in year over year growth rate, others top the list of areas with the fastest overall growth rates: Denver (8.4%), Miami (8.3%), and Dallas (8.1%) had the fastest growth in the year ending January 2015.  By contrast, Washington DC (1.3%), Cleveland (1.6%), and New York (2.1%) had the slowest year over year growth.   Therefore, it is critical that home sellers in slow appreciating markets properly price their home (not too high) in order to attract buyers.
  • Case Shiller data, like NAR data is showing more even price growth across regions as prices picked up in previously slow growing areas and slowed down a bit in previously hot areas.
  • NAR reports the median price of all homes that have sold while Case Shiller reports the results of a weighted repeat-sales index.  Case Shiller uses public records data which has a reporting lag.  To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported January prices include information from repeat transactions closed in November, December, and January.  For this reason, the changes in the NAR median price tend to lead Case Shiller and may suggest that a slight pick-up in prices will be seen in the next few months.  

February Pending Home Sales

Mon, 03/30/2015 - 10:51
  • NAR released a summary of pending home sales data showing that February’s pending home sales index is up 3.1% from last month and improved 12.0% from a year ago which is a good start for the spring months.
  • Pending sales are homes that have a signed contract on them but have yet to close. They tend to lead Existing Home Sales data by 1 to 2 months.
  • February’s data shows a sixth consecutive month of year over year gains.
  • Regionally, the West saw the biggest gain from a year ago at 18.3% while the Northeast had the smallest gain at 4.1%.
  • From last month only two regions had an increase; the Midwest had the largest gain at 11.6% while the Northeast had the biggest decline in pending sales at 2.3%. The pending home sales index level was 106.9 for the US. A level of 100 is consistent with the existing home sales figures around the 5 million level in a healthy housing market.

REALTORS® Reported Strong Buyer Traffic in Many States in February 2015

Fri, 03/27/2015 - 14:29

In a monthly REALTORS® Confidence Index Survey, NAR asks REALTORS®: “How do you view buyer traffic in your market?”. The map below shows the buyer traffic index by state. An index above 50 indicates that more REALTOR® respondents viewed traffic conditions as “strong” compared to those who viewed conditions as “weak.”

In many states, there were more local markets where buyer traffic was viewed as “strong” than “weak” over the period from December 2014-February 2015 (orange).  The states with “weak” buyer traffic (blue) were mostly in the Northeast and Mid-Atlantic which were hit by an unusually harsh winter.  Buyer traffic was also reported to still be generally “strong” in Texas, North Dakota, Oklahoma, Colorado, and Louisiana despite the deceleration in oil/gas exploration.  However, buyer traffic was reported to be generally “weak” in Wyoming and South Dakota.

Consumer Interest in Housing Gains Momentum

Fri, 03/27/2015 - 11:09

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

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

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

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

Fri, 03/27/2015 - 09:21

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

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

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

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

Unemployment Insurance Claims Continue To Decline in Most States

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

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

Latest New Home Sales (February 2015)

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

February Existing Home Sales

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

State and Metro Employment in January 2015

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

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

REALTORS® Confidence Index Survey: February 2015 Survey Highlights

Mon, 03/23/2015 - 10:53

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

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

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

Fri, 03/20/2015 - 15:13

Presentation by Dr. Laurie Goodman, Urban Institute

REALTOR® University Speaker Series

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

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

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

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

What Does This Mean for REALTORS®?

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

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

Lenders Pensive, But Warming to Government Overtures

Fri, 03/20/2015 - 10:05

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

Lenders Feel the Pinch

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

Government Response

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

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

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

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

Thu, 03/19/2015 - 12:01

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

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

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

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

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

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

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