- Existing-home sales increased 1.1 percent in June from one month prior while new home sales rose 3.5 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 than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Specifically, 583,000 existing-homes were sold in June while new home sales totaled 54,000. These raw counts represent an 11 percent gain for existing-home sales from one month prior while new home sales were unchanged. What was the trend in recent years? Sales from May to June increased by 7 percent on average in the prior three years for existing-homes and decreased by 4 percent for new homes. So this year, both existing and new homes 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 that 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 July and even slower activity in August for existing-home sales. For example, in the past 3 years, July sales typically decreased by 2 to 4 percent from June while in August sales were unchanged or decreased by 3 to 9 percent from July. For the new home sales market, the raw sales activity also tends to decrease in both July and August. For example, in the past 3 years, July sales dropped by 2 to 23 percent and August sales typically decreased by 5 to 6 percent from July.
Lenders continue to deal with the effects of TRID and wavering investor demand but are more optimistic about investor demand for mortgage in the second half of 2016. Those are some of the sentiments expressed in the Survey of Mortgage Originators for the 2nd quarter of 2016. NAR surveyed a panel of lenders from credit unions, retail banks, and mortgage banks on current production trends as well as their outlook on regulations and policy issues such as TRID, Brexit, and front-end risk sharing.
Highlights from the 2nd quarter include:
- Non-QM lending remained in a slump in the 2nd quarter despite a modest improvement in investor demand for these loans.
- Credit access in general was expected to rise over the coming six months driven by gains in non-QM and rebuttable presumption
- The share of transactions delayed due to TRID eased further to 1.7 percent with a slight uptick in TRID-related cancellations.
- Half of lenders passed increased costs to consumer with a weighted average increase of $258. Lenders were more reluctant to originate smaller loans in the TRID environment.
- The share of lenders unwilling to share closing documents (CD) with REALTORS® rose to 64.3 percent in the 2nd quarter
- Lenders grew more optimistic about normalized operations in the next six months, but less so for investors’ ability to adjust, which could prolong the impact in jumbo markets on the coasts
- More than half of respondents indicated they would participate in front-end risk sharing or were considering it, but 42.9 were concerned about having no clear path for small lender participation.
- 14.3 percent of respondents cited more rate extensions due to Brexit, while 28.6 percent noted a shortage of appraised but a majority 64.3 percent noted not changes.
House Price Growth When Children are Teenagers—A Path to Higher Earnings? A REALTOR® University Speaker Series Presentation
Does house price appreciation prior to children attending college impact their future earnings as adults? This was the subject of a presentation at a recent REALTOR® University Speaker Series by Dr. Daniel Cooper, Senior Economist and Policy Advisor at the Federal Reserve Bank of Boston, who co-authored a study on this question with Maria J. Luengo-Prado.
In analyzing the impact of house price growth on children’s future incomes as adults (25 years old or over in 2007), Dr. Cooper and Dr. Luengo-Prado matched child and parent data from families in the Panel Study of Income Dynamics (PSID). The authors identified household heads who were at least 25 years old in 2007, and they matched these household heads with their parents and where they lived when they were 17 years-old (assumed to be the age before they enter college). The sample consists of 892 child respondents who turned 17 between 1979 and 1999 and lived in 126 different metropolitan areas.
The Cooper and Luengo-Prado study found that:
1) House price appreciation increases the income of homeowners’ children as adults and decreases the income of renters’ children as adults. For every 10 percent increase in home prices that occurred when children were 17 years-old, the income of homeowners’ children as adults was 9 percent higher on average, while the income of renters’ children as adults was 15 percent lower.
2) The children of homeowners who experience positive house price growth when their children are 17 are more likely to attend a school ranked in the top quartile of colleges and universities than are the children of homeowners that do not experience favorable house price growth. This is one of the channels that links house price growth to income.
3) While house price growth does not appear to have a consistent influence on the economic mobility of renters’ children, it seems to affect owners’ children. The probability of children ending up in the highest income quartile is lower for all parent income quartiles when house price growth is below the national average than when growth is above the national average. Also, the probability of children ending up in the lowest income quartile is greater when house price growth is below average, particularly for those children with parents whose income is above the lowest income quartile.
Dr. Cooper noted that the results of the study are based on data prior to both the housing boom and the Great Recession and thus may not fully capture the impact of the housing boom and bust on children’s future incomes.
About the Speaker
Dr. Cooper is a senior economist and policy advisor in the macroeconomics/ international economics section of the research department at the Federal Reserve Bank of Boston. His main research interests are related to household consumption and wealth and using microeconomic data to investigate macroeconomic policy questions. Dr. Cooper holds a B.A. in economics from Amherst College and earned M.A. and Ph.D. degrees in economics from the University of Michigan. His CV and full list of publications and studies can be accessed here.
About REALTOR® University Speaker Series
REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.
 Daniel Cooper, María José Luengo-Prado, House price growth when children are teenagers: A path to higher earnings?, Journal of Urban Economics, Volume 86, March 2015, Pages 54-72, ISSN 0094-1190, http://dx.doi.org/10.1016/j.jue.2014.12.003. The views expressed in the study are those of the authors and do not necessarily reflect the views the Federal Reserve Bank of Boston or the Federal Reserve System.
 The presentation was held on July 29, 2016 at the NAR Washington Office. Thanks to Meredith Dunn, Communications Manager, for recording and editing the webinar video.
Every four months the New York Federal Reserve Board (FRBNY) conducts a survey of consumers to measure their perceptions and tastes about credit. The Survey of Consumer Expectations (SCE) covers a broad set of topics about mortgages including:
- Whether the respondent had applied for a mortgage,
- Whether their application had been rejected,
- Whether they planned to apply in the future, and
- If they were to apply, whether they expect their application to be rejected
In recent quarters, the results have cut an odd path. While the share of respondents who indicated that a mortgage application had been rejected fell from a peak of 24.5 percent in February of 2015 to 10.3 percent in June of 2016, the share that felt their application would be rejected rose to its highest level since the survey began at 39.9 percent. The share reporting a rejected application did rise modestly from the February to June of this year, but reached a level less than half of the peak from the February of 2015.Could consumers’ perception be that far off? Or could consumers be self-selecting where higher quality borrowers applied and received mortgages, while non-pristine consumers perceived tightening and applied at lower rates?
Applications for credit by borrowers with credit scores below 680 and between 680 and 760 fell from October of 2015 through June of 2016, while applications from the highest quality borrowers climbed (above).
At the same time, borrowers with the highest credit scores indicated a greater likelihood of applying for a mortgage in June of 2016 compared to 12 months earlier (9.3 percent increase), while respondents with credit below 680 and between 680 and 760 were 14.8 percent and 26.5 percent less likely to apply over this period, respectively. Each sector rose from February of 2016 to June, but the increase was most pronounced in the over 760 sector, which grew roughly 23 percent compared to gains of just 2.6 percent and 2.7 percent for the other two sectors, respectively.
The SCE survey does not report rejection rates by credit score, so the driver of this pattern is not clear. However, respondents as a whole indicated a drop in plans to apply for a mortgage in June at 7.8 percent relative to 8.6 percent 12 months earlier. The June reading was up from February, but still off 8.8 percent from a year earlier when consumers rode a wave of enthusiasm garnered by the FHA’s 50 basis point premium.
The Brexit-led decline in mortgage rates in June may have fueled renewed demand for mortgages, but it is not clear if this upward trajectory will hold in the face of non-pristine consumers’ perceptions about access to credit.
 Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY).
The SCE data are available without charge at http://www.newyorkfed.org/microeconomics/sce and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.
NAR commercial members work with small businesses in their local communities all over the country. Often REALTORS® can provide an ear to the ground for what’s happening in local economic development as they are one of the first sources to help companies buy, sell, lease, and manage property that enable businesses to operate and grow. In the 2016 Commercial Member Profile, we asked commercial members to give us a pulse on their cities and towns.
A majority of commercial members were optimistic and saw economic growth in their areas. We asked members if they have seen an increase in new businesses opening in their communities. Seventy-five percent said they had seen new businesses opening around them, while only 20 percent they had not seen new companies open, and five percent did not know.
Failure is a part of economic development, identified by companies shutting their doors. It is normal to have some businesses close in the face of competition. The important thing to measure if there is a steady increase in closures, then market conditions may be unfavorable to economic growth. Next we asked if commercial members had seen an increase in businesses closing in their areas. Roughly half (56 percent) said they had not seen an increase of companies closing, compared to a third (36 percent) that said there was an increase in businesses closing.
As for the market conditions of local companies in the last year, more commercial members were optimistic of growing local economic development. When asked their view on the net ratio for the number of businesses opening closing, 63 percent of members said that more businesses were opening in their areas than closing, 18 percent said the ratio had remained the same in the last year, and 13 percent said more businesses were closing than opening.
The data found above was the same across all firm sizes, roughly three-fourths of commercial members across all firm sizes said there was an increase in businesses opening in the past year and roughly two-thirds said there were more businesses opening than closing in their communities.
Last, we cut the data by population size in which the commercial member operates. We see an upward trend in the data where more businesses are opening in larger cities. When asked if there was an increase in businesses opening, 63 percent of commercial members in regions with less than 49,999 people said yes compared to 84 percent of commercial members in areas with 2,000,000 to 3,999,999 million people. Similarly, 46 percent of commercial members in regions with less than 49,999 people said more businesses were opening than closing compared to 70 percent of commercial members in areas with 2,000,000 to 3,999,999 million people. The trend illustrates that business is growing faster in more densely populated areas.
NAR will continue to take a pulse on economic development from its commercial members throughout the year. Stay tuned for more info!
REALTORS® Median Expected Price Change in Next 12 Months, By State, Based on April–June 2016 Surveys
In the monthly REALTORS® Confidence Index Survey (RCI), the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”
The map shows the median expected price change in the next 12 months for each state based on the April–June 2016 RCI surveys, according to the June 2016 REALTORS® Confidence Index Survey Report.
The District of Columbia and the states of Washington, Oregon, and Colorado are the areas that are expected to have the highest price growth, with the median expected price growth at more than five to seven percent in each of these states. REALTOR® respondents from California, Idaho, Kentucky, Tennessee, South Carolina, Florida, and Hawaii also expected strong price growth, with the median expected price growth at more than four to five percent in each of these states.
Prices have been rising because supply has not kept pace with demand:
- As of June 2016, the inventory of existing homes for sale was equivalent to 4.7 months of the current monthly sales pace, which is below the six months’ supply which most analysts consider to be the level that reflects a healthy balance of demand and supply (Chart 1).
- New single-family housing construction stood at 1.15 million, 70 percent of its level in January 2000. Housing construction is in short supply across all regions (Chart 2).
- With new construction at a low level and the supply of existing homes for sale at low levels, the turnover rate of existing homes relative to the housing stock is quite low. As of the first quarter of 2016, approximately four percent of existing homes were recently sold, down from six percent in 2006 and five percent in 1999 (Chart 3). The turnover rate has improved since the rate dipped to three percent during the housing downturn in 2008 through 2011, but it still remains below the 4.5 percent rate in 1999.
The U.S. homeownership rate has slowly fallen in recent years to currently its lowest level since 1965. After the recent housing downturn, it has been suggested that some are more hesitant to buy a home, and while data show that 74% of consumers think that it is a good time to buy a home, renters are less likely to think this than homeowners. A majority of those who do not own a home also believe it will be very or somewhat difficult to qualify for a mortgage, given their current financial situation.
However, based on our study, there are affordable metro areas right now where renters earn enough income to qualify to buy a home even with a down payment lower than the traditional 20 percent. While nationwide, 28 percent of renters have income to qualify for a home purchase, the top metro areas each had higher than 40 percent of renters who are qualified to buy. Comparing household income with qualifying income levels for renters in nearly 100 of the largest metro areas across the country, here are the top ten metro areas with the highest share of qualified renters for a home purchase and above-national hiring conditions:
Many of the top ten markets are located in the Midwest and South – including three areas in Ohio. The median existing-home sales price in these two regions continue to be lower than the Northeast and West, and while many of these areas were slower to recover from the recession, improvements in their local labor markets in the past year have pushed their hiring levels to at or above the recent national growth rate.
Going one step further, the following visualization shows the top ten markets sorted by:
- Median household income,
- Qualifying income,
- Share of qualified renters,
- Extra income—the gap between the typical qualified-renter household income and qualifying income
Use the filters to see the top ten metro areas for each of the studied variables.
- a. Sorting by Median household income (high to low) and above-national hiring conditions: The top ten markets are mostly located in the West (such as San Jose, San Francisco and Honolulu) where the share of qualified renters is low. With the exception of Washington, DC, nine of the top 10 markets have a share of qualified renters which is lower than the national level (22%). However, these small groups of qualified renters earn much more than the income needed to buy a home. For instance, in San Jose the median household income for qualified renters was $325,545 in 2015 while they need $246,784 for a home purchase. Thus, they earn $78,761 more than the qualifying income.
- b. Sorting by Qualifying Income and above-national hiring conditions (high to low): It is no surprise that the list mostly includes markets with high median household incomes of qualified renters and a small share of qualified renters.
- c. Sorting by Share of qualified renters and above-national hiring conditions (high to low): see analysis above.
- d. Sorting by Extra Income and above-national hiring conditions (high to low): With the exception of Washington and Baltimore, the share of qualified renters is below the national level in these metro areas. Median household income of qualified renters in most of those market is above $100,000 while the qualifying income is $75,000 and higher.
According to the U.S. Census Bureau, the homeownership rate fell to 62.9 percent, which is the lowest since 1965.
Qualifying income in this study is based on a 3 percent down payment in each metro area’s median home price in 2015. Both Fannie Mae and Freddie Mac have 3 percent down payment programs, and Federal Housing Administration (FHA) loans require a minimum 3.5 percent down payment. The rankings of these metro areas would all hold under a 3.5 percent down payment assumption. Additionally, because this study considers income qualification, a lower down payment assumption leads to a smaller share of qualified renters, because income requirements are higher for lower down payments.
 National job growth rate for the period May 2015-May 2016 of 1.6% was compared to metro area job growth in the same time period.
 The median existing-home price in June 2016 was the lowest in the Midwest ($199,900) and South ($217,400) regions.
 In this study context, median household income refers to the median among qualified renters, only.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members “How do you rate the past month’s traffic in the neighborhood(s) or area(s) where you make most of your sales?” NAR compiles the responses on buyer traffic into a REALTORS® Buyer Traffic Index and the responses on seller traffic into a REALTORS® Seller Traffic Index. The maps below show the condition of buyer and seller traffic using data collected from April‒June 2016, according to the June 2016 REALTORS® Confidence Index Survey Report.
Local conditions vary in each state, but the REALTORS® Buyer Traffic Index indicates that markets were “strong” to “very strong” in all states except in Delaware and Connecticut where buyer traffic was “weak” and Alaska and Oklahoma where buyer traffic was “moderate.”Amid strong demand, seller traffic was “weak” in many states, measured by the REALTORS® Sellers Traffic Index. However, seller traffic was “moderate” to “strong” in several states, including those that had benefited from the oil boom but who are now facing slower job growth due to lingering lower oil and natural resources prices—North Dakota, Wyoming, New Mexico, and Texas. With the collapse of oil prices, the slower job growth and job cutbacks in oil-producing states are likely leading to more home selling and a shift to a buyer’s market.
Job creation is strongly associated with the demand and supply of homes: strong job growth improves the prospect for homeownership, while job contraction in an area may lead to more homes being sold as people move out of the area. The chart below shows the change in non-farm employment in May 2016 from the levels in May 2015 by state. Non-farm employment increased strongly in Washington, Oregon, Idaho, Utah, and Florida where homebuying demand has been robust as well. On the other hand, employment contracted in the oil-producing states of Alaska, North Dakota, Wyoming, Kansas, Oklahoma, and Louisiana (also in Maine, although it is not an oil-producing state). In states with negative or low employment growth such as North Dakota, Wyoming, New Mexico, Texas, and Louisiana, there are more REALTOR® respondents who reported “strong” than “weak’ seller traffic.
 The index for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents were asked “How do you rate the past month’s buyer traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 49 are labeled “Weak,” a value of 50 is labeled “Moderate,” values greater than 50 to 75 are labeled “Strong,” and values greater than 76 are labeled “Very strong.”
 Respondents were asked “How do you rate the past month’s seller traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. A value of 50 indicates a balance of respondents who reported “Strong “and “Weak” markets. For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 49 are labeled “Weak,” a value of 50 is labeled “Moderate,” values greater than 50 to 75 are labeled “Strong,” and values greater than 76 are labeled “Very strong.”
 https://communityimpact.com/houston/the-woodlands/economic-development/2015/12/09/falling-oil-prices-starting-to-affect-woodlands-economy/; http://www.theatlantic.com/business/archive/2015/06/north-dakota-oil-boom-bust/396620/
- NAR released a summary of pending home sales data showing that June’s pending home sales are up modestly 0.2 percent from last month and also slightly improved 1.0 percent from a year ago.
- Pending sales are homes that have a signed contract to purchase on them but have yet to close. They tend to lead Existing Home Sales data by 1 to 2 months.
- All regions showed increases from a year ago except the West, which had a decline of 1.8 percent. The South saw the biggest gain from a year ago at 1.8 percent while the Midwest had the smallest gain at 1.6 percent.
- From last month, the West had the largest decline at 1.3 percent while the South followed with a decline of 0.6. The Northeast had the biggest gain in pending sales at 3.2 percent.
- The pending home sales index level was 111.0 for the US, making it the second-highest level in 2016, behind April’s record 115.0.
- The 100 level is based on a 2001 benchmark and is consistent with a healthy market and existing home sales above the 5 million mark.
Most REALTORS® Expect Strong Market Conditions in the Next Six Months Based on April–June 2016 Surveys
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?” NAR compiles the responses into a REALTORS® Confidence Index—Six-Month Outlook. An index above 50 indicates that more respondents view markets as “strong” rather than “weak.”
Compared to current conditions in the single-family homes market, the market outlooks in the next six months are “strong” to “very strong” in the District of Columbia and in all states except Alaska. Sustained job creation and the low cost of obtaining a mortgage appear to be sustaining housing demand even as homes have become increasingly unaffordable.In the townhomes market, the outlook varies from “very weak” in Alaska and Mississippi, “moderate” and “strong” in many states, and to “very strong” in Colorado, Nebraska, and the District of Columbia.
In the condominium market, the outlook in the next six months is expected to “very weak” to “weak” in 27 states. The June survey was conducted before the approval of H.R. 3700, the “Housing Opportunity Through Modernization Act of 2016” by both the House of Representatives and the Senate, so the survey results do not yet reflect the expected positive impact of this law on the condominium market. Compared to the detached single-family home and townhome markets, the condominium market has recovered more slowly because many condominium projects did not meet the eligibility requirements of the Federal Housing Authority so interested buyers of condominium units have been unable to obtain financing. The approval of H.R. 3700 is expected to increase access to FHA condominium financing by addressing a number of restrictive conditions regarding owner-occupancy requirements, the condominium re-certification process, mixed-use buildings, and private transfer fees. Under the new regulation, condominiums that are 35 percent owner occupied are eligible for FHA-insured financing, a lower barrier than the current requirement of 50 percent.
 The market outlook for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. A diffusion index greater than 50 means more respondents rated conditions as “Strong” than “Weak.” For graphical purposes, states with index values 25 and lower are labeled “Very weak,” values greater than 25 to 49 are labeled “Weak,” a value of 50 is labeled “Moderate,” values greater than 50 to 75 are labeled “Strong,” and values greater than 76 are labeled “Very strong.”
 Only 20 percent of condominiums are eligible for FHA condominium unit financing because of strict eligibility criteria such as those pertaining to occupancy requirements, commercial space requirements, and delinquent dues. FHA and the GSEs have financing eligibility criteria relating to ownership occupancy requirements, delinquent dues, project approval process, and use for commercial space, among others. See NAR’s position at http://www.realtor.org/news-releases/2015/10/nar-president-testifies-before-house-subcommittee-in-support-of-fha-reforms
The bill, which was championed by NAR, passed the House of Representatives 427-0 and the Senate under unanimous consent on July 14, 2016. The bill is on the way for the President’s signing. See http://www.realtor.org/articles/hr-3700-heading-to-president
- NAR released a summary of existing-home sales data showing that housing market activity increased for the fourth consecutive month, as June’s existing-home sales reached the 5.57 million seasonally adjusted annual rate. June’s existing-home sales are up 3.0 percent from a year ago.
- The national median existing-home price for all housing types was $247,700 in June, up 4.8 percent from a year ago.
- Regionally, all four regions showed growth in prices from a year ago, with the West leading at 7.2 percent. The Midwest had an increase of 5.7 percent, and the South followed with a 5.5 percent increase. The Northeast had the smallest gain of 1.4 percent from June 2015.
- From May, only two of the four regions experienced increases in sales. The Midwest dominated regional sales with an increase of 3.8 percent. The West had an increase of 1.7 percent while the sales in the South didn’t change. The Northeast had the only decline of 1.3 percent.
- All regions showed gains in sales from a year ago except the West where sales declined 0.8 percent. The Northeast had the biggest increase of 5.6 percent followed by the Midwest with a gain of 4.7. The South had the smallest gain of 3.2 percent. The South leads all regions in percentage of national sales at 40.6 percent while the Northeast has the smallest share at 13.6 percent.
- June’s inventory figures are down 0.9 percent from last month to 2.12 million homes for sale and the level is below historical averages. Inventories are down 5.8 percent from a year ago. It will take 4.6 months to move the current level of inventory at the current sales pace. It takes approximately 34 days for a home to go from listing to a contract in the current housing market, which is the same as a year ago.
- Single family sales increased 0.8 percent while condos also increased 3.2 percent compared to last month. Single family home sales increased 3.1 percent and condo sales are also up 1.6 percent from a year ago. Both single family and condos had an increase in price with single family up 5.0 percent and condos up 3.2 percent from June 2015.
In the line with the influx of new NAR members working in residential real estate from the 2016 Member Profile, NAR also saw a surge of members into its commercial ranks. While commercial members are a smaller subset of professionals in the industry, new entrants affected some of the demographics while other aspects of the industry remained unchanged from last year. We released the 2016 Commercial Member Profile highlighting the trends—let’s take a look at what’s new in field.
An increase in members into commercial real estate is evident with a jump in new NAR members that reported having less than two years of experience, which nearly doubled to nine percent in 2016 from five percent in 2015. In 2016, the median age of commercial members stayed the same at 60 years old. Primary and secondary specialties of members, hours worked per week, household composition, and education were also unchanged from last year.
On the other hand, new entrants affected the percent distribution of license types. Sales agents gained the most new members at 31 percent (up from 24 percent in 2015). Brokers dropped to 47 percent in 2016 (down from 59 percent), as did broker associates falling to 17 percent (down from 20 percent).
Income and years of experience was naturally brought down by the new entrants. The median gross annual income of commercial members was $108,800 in 2015. This is down from a six year high in 2014 at $126,900, yet is still higher than 2013 at $96,200. Commercial members typically have been in real estate 20 years, down from 25 years in 2015, and in commercial real estate for 15 years, down from 20 years in 2015.
Nevertheless, sales volumes continue to rise indicating a healthy commercial market. The median number of sales transactions fell slightly to nine in 2015 from 11 reported in 2014. Despite fewer transactions, the median annual sales transaction volume increased in 2015 to $2,931,000 from $2,916,700 in 2014. The annual median dollar value of sales also increased to $541,700 in 2015 up from $521,700 in 2014. The median lease transaction also increased in 2015 to $600,000 up from $500,000 in 2014, as did the median leasing dollar value gained in 2015 at $221,200 up from $203,800 in 2014.
Popular votes and their importance are debatable. The winners-take-all electoral votes in the swing states will determine who will be the next President of the United States. Many have already decided for whom to vote, but for some still deliberating, they may cast their ballot on how they feel about their overall financial situation.
View Lawrence Yun’s full Forbes article here.
Have you ever dreamt about buying a vacation home? The NAR 2016 Investment and Vacation Home Buyers Survey reveals some surprising, and reassuring to the dreamers in all of us, statistics about vacation home buyers.
While buyers of primary residences typically purchase homes because of the desire to be a home owner or due to a job relocation, buyers of vacation homes are motivated by other factors. Thirty-seven percent of vacation home buyers plan to use their property for vacations and family retreats, 16 percent plan to convert their vacation home into their primary residence in the future, and 13 percent purchased because of low real estate prices and the buyer found a good deal.
The median vacation home purchase price was higher in 2015 than in 2014. The typical price was $192,000 for vacation buyers, up from $150,000.
Thirty-nine percent of vacation buyers paid all cash for their property purchase. When financing their purchase, 52 percent of vacation buyers financed less than 70 percent of their purchase.
Among vacation buyers, 27 percent purchased in a resort area, 19 percent purchased in a small town, and 16 percent in a rural area—higher than other buyer types. Forty percent of vacation buyers purchased in a beach area, 19 percent purchased in the mountains, and 19 percent purchased a vacation home on a lake front.
While a detached single-family home is the most common type of home for all buyers, higher shares of vacation buyers purchased condos and townhomes in 2015. The median square feet of a vacation home was 1,500. The typical vacation property was 200 miles from the buyers’ primary residence.
More than 80 percent of vacation buyers reported that now is a good time to purchase real estate. Among primary residence buyers, 15 percent are very likely to buy a vacation property in the next two years.
Positivity about owning a home is still high. In the latest HOME Survey, released earlier this month, 87 percent of people surveyed want to own a home in the future and 88 percent believe homeownership is a good financial decision. However, becoming a homeowner is still presently out of reach for some. Affordability continues to be a speed bump on the road to homeownership, and this is particularly acute in certain areas of the country.
Forty-eight percent of non-homeowner respondents reported that the main reason they currently don’t own a home is because they can’t afford to buy one. This is close to respondents in the Northeast, where 47 percent feel they can’t afford to buy a home. It is slightly less in the Midwest at 44 percent and in the South at 45 percent, but the number jumps to 59 percent in the West.
What might change these potential home buyers’ minds about owning in the future? Interestingly, while an improvement in their financial situation is one of the top answers both nationally and regionally, it is lifestyle considerations such as getting married, finding a new job or retiring that would entice most into becoming a homeowner (38 percent). This holds true across the regions: forty percent in the Midwest and South report that this is the case, while slightly lower numbers were reported in the Northeast at 36 percent and in the West at 34 percent.
- Recent housing price data at the national level suggests that home prices continue to increase at a strong pace—faster than what would be considered typical. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets. However, prices in some areas are creating affordability concerns that may dampen demand and slow the pace of increase in the months to come.
- The pace of home price growth still has a substantial way to go before it moves back to a rate that is sustainable. New construction is needed to help meet the continued strong demand from buyers in an economy where jobs are being created and there is a low supply of homes for sale. Without an increase in new construction, affordability could cause a new housing crisis where would-be owners are held back by ever-rising rents, debt obligations such as student loans, and a lack of affordable housing supply.
- Various data sources are flashing the same rising price signals:
- Today, Case Shiller data showed that house prices rose roughly 5 percent in all three indices since May 2015. The national index gained 5.0 percent, while the 10-city composite rose 4.4 percent and the 20-city composite rose 5.2 percent year over year. Each area’s measured gain the same or lower than the gain reported in April.
- Last week, the Federal Housing Finance Agency (FHFA) and the National Association of Realtors® (NAR) reported price data for April and May.
- NAR data showed that prices grew at a 4.3 percent pace from May 2015 to May 2016. NAR also reported on new June 2016 data which showed a slight acceleration to 5.0 percent growth from one year ago.
- FHFA data showed that prices were up 5.6 percent in May from one year ago, slightly slower than the 5.9 percent pace seen in April, but within the 5 to 6 percent pace seen in the last 16 months.
- Potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. The fastest overall growth rates in the NAR data are in the West where prices rose 7.1 and 7.2 percent from one year ago in May and June. By contrast, NAR’s median price showed a slight decline in the Northeast in May and only 1.4 percent growth in June.
- FHFA data show similar trends. The top two divisions in May were the Pacific (7.9 percent) and Mountain (8.5 percent) divisions which together make up the West Census region. 
- According to FHFA, New England (3.9 percent) and the Middle Atlantic (3.4 percent) divisions, which make up the Northeast region, lagged behind.
- Case Shiller data show similar results. The strongest price growth was seen out West in Portland (12.5%), Seattle (10.7%), and Denver (9.5%) in the year ending May 2016. By contrast, Washington DC (2.4%), New York (2.0%), and Cleveland (2.5%) were the slowest growing markets. Data shows that sellers in these somewhat weaker areas may not have as much power to demand higher prices for their homes given the local market. How does your market compare to the national price trends?
- NAR reports the median price of all homes that have sold while Case Shiller and the Federal Housing Finance Agency report 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 May prices include information from repeat transactions closed in March, April, and May. For this reason, changes in the NAR median price tend to lead other indexes and suggest that continued strength in home price growth is ahead.
1) The Pacific division includes Hawaii, Alaska, Washington, Oregon, and California, and the Mountain division includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
2) The New England division includes Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, and the Middle Atlantic division includes New York, New Jersey, Pennsylvania.
International real estate is multi-faceted. Not only do international clients choose to purchase U.S. real estate, U.S. clients are also interested in purchasing property abroad. Approximately 14 percent of responding REALTORS® reported that they had a client who was seeking to purchase property in another country compared to six percent in the previous 12-month period, according to NAR’s recently released 2016 Profile of International Activity in U.S. Residential Real Estate.
Among REALTORS® who had clients interested in purchasing property abroad, the countries that generated the most inquiries were Mexico, Costa Rica, Philippines, Colombia, and Canada. Spain, Brazil, Thailand, and Italy were also countries of interest to domestic clients searching for property abroad.
The vast majority of U.S. clients seeking property abroad were interested in residential property (79 percent), and a slim majority of those seeking residential property were interested in purchasing a detached single-family home (53 percent) while nearly a third (30 percent) were interested in a condominium. Most clients (87 percent) were looking to use the property as a vacation home and/or residential rental unit. Only nine percent of U.S. clients were seeking a primary residence abroad.
Among all respondents, four percent reported that they referred an interested buyer to a business contact outside the United States, three percent helped the client directly, and one percent referred the client to a business contact in the United States who works with international clients. About six percent of respondents reported that they had a client interested in purchasing property abroad but could not refer the client to anyone to assist in the purchase process.
NAR’s recently released 2016 Profile of International Activity in U.S. Residential Real Estate gathered information from residential seller’s agents about international clients who sold residential property.
International clients who sold their U.S. residential property mostly came from Canada, China, United Kingdom, Mexico, Germany, and India–a list that is notably similar to the list of top foreign buyers of residential property. Other major sellers of U.S. residential property are from Brazil, Australia, Japan, Venezuela, and Colombia. Respondents reported several cases of Canadians selling their U.S. property because of the stronger U.S. dollar. Just less than ten percent of respondents could not identify the seller’s country of origin.
The properties sold by international clients were mostly located in Florida, California, Arizona, Texas, Nevada, New Jersey, New York, Illinois, and Ohio. Not surprisingly, the list of states where foreign buyers sold their U.S. property is similar to the list of states where foreign buyers typically purchase U.S. residential property.
Properties owned by international clients sold for $446,191 on average and for a median of $245,331. International clients from China and the United Kingdom sold more expensive properties. This is consistent with the data that Chinese and U.K. clients tend to purchase properties that are more expensive than properties purchased by other foreign buyers.
 A stronger U.S. dollar means that a Canadian who sells U.S. property gets more Canadian dollars for every U.S. dollar of investment on the purchase of a U.S. residential property.