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Economist's Outlook

Fewer Unemployment Claims Filed

Thu, 05/08/2014 - 09:58
  • Fewer workers claimed unemployment insurance in the week ending May 3, an early indicator that the job market continues to improve surely even if slowly. Initial claims for unemployment insurance[1] were at 319,000, fewer by 26,000 from the previous week’s level.

  • Claims are now down to their normal levels. If this trend continues, NAR forecasts about 2 to 2.5 million net new job creations this year and the next year.
  • For the week ending April 26, the largest decrease in claims were in Michigan (-6,642), New Jersey (-2,269), Pennsylvania (-1,704), Maryland (-1,670), and California (-1,237).  The largest increases in claims New York (+23,523), Massachusetts (+3,983), Rhode Island (+1,080), Oregon (+959), and Delaware (+956).

  • Still, what matters to housing is the number of people with jobs as depicted in the graph above. Although the unemployment rate has been dropping with the April rate at 6.3 percent, the share of the population that is employed has barely nudged at 58 percent from its peak of about 63 percent. In a testimony before Congress yesterday, Federal Reserve Board Chairman Janet Yellen reported that labor market conditions are “far from satisfactory” and that “housing may be stalling and bears watching.”  Existing home sales are hovering at about 4.6 million in 2014, down from last year’s average of about 5 million. 

[1] Claims filed under the regular state programs, seasonally adjusted

Mortgage Applications

Wed, 05/07/2014 - 14:49
  • More people applied for mortgages to buy a home in the past week (8.8 percent increase). Despite the weekly increase, the overall trend to obtain mortgages has not been too encouraging. It is down by 16 percent from one year ago and has been bouncing around at 15 year lows.
  • Good thing all-cash transactions are partly making up for the sluggish mortgage market. Cash sales have been running at around one-third of transactions in recent years, compared to a historical norm of around 10 percent.
  • Because of huge cash reserves held by financial institutions there is abundant incentive to lend more. Recent delinquency trends at near historic lows for mortgages originated in the past four years should also be an added incentive to lend more. Moreover, we have a housing shortage situation which assures further price gains. And when prices rise, people do not default. The financial industry profit levels have been sky high of late.
  • The very low mortgage default rates are the reason why Fannie and Freddie have been raking-in huge profits lately. It is unclear why Fannie and Freddie now still charge high guarantee fees even after having paid back the taxpayers’ bailout money. The extra profit is going straight to the U.S. Treasury, where money is dispensed for all government programs, such as buying fighter jets and food stamps. But why should homebuyers pay the extra fee so that government can get the extra revenue in this fashion, when the sole mission of having Fannie and Freddie is to support the real estate sector and not national defense or welfare programs?
  • Meanwhile, because mortgage applications remain mostly lackluster because of excessively tight underwriting conditions, renters are not converting into homeowners. Rental households have risen by seven million in the past decade while homeowner households have increased by only one million. The homeownership rate has plunged as a result.
  • Though not everyone can be nor should be a homeowner, limiting many good renters to be stuck being renters raises serious social issues. Past research has shown that children of renters compared to that of homeowners vastly underperform at school (after accounting for socioeconomic demographic factors). Renters are less likely to give to charities or get involved in community activity. Is the country moving unnecessarily towards a renter nation?

Sales to First Time Buyers: 30 Percent of Sales in March 2014

Tue, 05/06/2014 - 16:15

First time home buyers accounted for 30 percent of residential sales in March (slightly up from 28 percent in February), according to the latest REALTORS® Confidence Index report.

REALTORS® have reported that first-time buyers are having problems with tighter underwriting standards and required higher down payments. In some cases, financing is reported approved but for a lower amount. REALTORS® have also reported that the increase in FHA mortgage insurance costs is discouraging buyers or making loans unaffordable.

International Trade

Tue, 05/06/2014 - 11:36
  • Both exports and imports rose in the latest month, marking general growth in international trade for five straight years. Home sales therefore can be expected to rise to international buyers from greater linkage with other countries.
  • Part of the growth is foreign investment in the U.S. More Germans will need a home in Greenville, SC, where a BMW factory will be expanding. Homebuyers from France can be expected in Mobile, AL in the future as an Airbus production facility gets completed. More Koreans will be buying homes in college towns across America as they send their kids to be educated in the U.S.
  • After a major pullback during the recent past recession, U.S. exports have risen by more than 50 percent. Exports hit a new all-time high in March.
  • Imports are also rising. But due to slower growth, imports are only matching up with pre-recession peaks. The United States is importing much less oil now than before because of massive new production in North Dakota.
  • Given that trade with China has become increasingly important, expect more Chinese buyers of U.S. properties than ever before.
  • As the charts below show, international trade slumps during a recession. There was a total collapse in international trade during the awful Great Depression in the 1930s as every country restricted trade by imposing high tariffs.
  • Before the birth of the United States, sovereign states Virginia and Maryland signed a treaty to openly trade between the two states. Tobacco to Maryland and Crabs to Virginia. That helped improve the economies of both states. Recognizing the benefits, other states soon signed on to trade with each other as well. This type of mutual benefit is the primary reason why most countries have been reducing trade barriers over the years.

Properties Sold Faster in March, Typically At 55 Days in March 2014

Mon, 05/05/2014 - 07:22

With limited inventory relative to demand, properties sold faster in March, at a median of 55 days, according to the latest REALTORS® Confidence Index[1]. Based on reported days on market of a survey of REALTORS®, short sales were on the market for the longest, at 112 days (98 in February), and foreclosed properties were on market at 55 days (60 in February). Non-distressed properties were on the market at 53 days (61 in February). Conditions varied across areas.

[1] A median of 60 days means that half of the properties were on the market for less than 60 days and another half of properties were on the market for more than 60 days.

Latest Jobs Report

Fri, 05/02/2014 - 10:14

  • The headline figure from today’s employment report was strong, but the underlying numbers still point to weakness. 288,000 payroll jobs were created in April according to the Bureau of Labor Statistics, while the March numbers were revised upward by 11,000 to 203,000. The 85,000 jump from March is significant but likely reflects some catch-up following several months of adverse weather. The improvement was broad-based across industries and the government.
  • The unemployment rate slipped from 6.7% to 6.3% over this same period. This figure is derived from a different survey which queries households about their employment position. Consequently, non-payroll jobs are counted. While the figure is strong at face value, the decline was in part due to the departure of 806,000 workers from the labor force. Fewer workers mean fewer people earning incomes and spending, so while the jobs increase is positive, the decline in people searching for work is troubling. This portion of the report is volatile, though, so next month’s figures and revisions will be important. Because of the drop in the labor force, the labor participation rate fell from 63.2% to 62.8%.
  • This month’s reading of the labor market was a mixed bag. The job gains, decline in unemployment rate, and revision point to improvement and will help consumer confidence, but the loss of 806,000 workers and drop in labor utilization suggest a schism in the labor force driven by a skills miss-match where workers with skills in demand are being hired, while others languish. The economy depends on consumer spending and if the number of persons spending declines, those with jobs must spend more, which is difficult to sustain. Better weather in May will help construction and construction employment, and the April pop will likely ease to a higher-than-recent plateau, but still far more jobs are needed to affect the large reserve of unemployed and underemployed.

60 Percent of First-time Buyers Put Down 6% or Less

Thu, 05/01/2014 - 15:53

About 60 percent of first time home buyers put down 6 percent or less, according to the March REALTORS® Confidence Index. This is down from about 74 percent in 2009. Under tight underwriting standards, REALTORS® have reported that buyers who pay cash or put down large down payments generally win against those offering lower down payments. REALTORS® also reported that in some cases financing is approved for a lower amount. For buyers with sufficient financial resources, a higher down payment also results in saving on mortgage insurance premium payments.

Rents Continue to Increase for Residential Properties

Wed, 04/30/2014 - 14:52

Demand for rentals remained strong in March, according to the latest REALTORS® Confidence Index. Among those REALTORS® involved in a rental, 48 percent (46 percent in February) reported higher residential rents compared to 12 months ago. Rising rents may make home ownership more attractive but also may slow the ability of current renters to save for a home purchase.

Which Foreigners Had the Greatest Interest In U.S. Homes in 2013?

Wed, 04/30/2014 - 09:03

Based on information from realtor.com, NAR economists have formulated a country search index delineating which countries had the most home search contact on realtor.com in 2013.

The index is based on a count of actual house searches by potential buyers from specific countries (excluding Germany and Japan due to large numbers of U.S. citizens residing there temporarily) throughout the year as measured by traffic on www.realtor.com, NAR’s official property listing website.  Realtor.com helps connect people with the content, tools and expertise they need to find their perfect home, including  information on homes for sale; connections with REALTORS®; neighborhood, moving, and mortgage advice; and in terms of buying a home– how to “make it happen”.

REALTORS® Expect Modest Price Growth in Next 12 Months Based on March 2014 REALTOR® Survey

Tue, 04/29/2014 - 13:10

REALTORS® generally expect prices to increase over the next 12 months at a modest pace with a median expected price increase at about 4 percent, according to the latest REALTORS® Confidence Index. Low inventory compared to demand is expected to continue to buttress prices, as well as the declining share of distressed sales in the market.

The states with the most upbeat expected price increases of 5 to 7 percent are California, Oregon, Nevada, Georgia, Florida, and Hawaii (red). In states with booming economies like Washington, North Dakota, Texas, Michigan, the DC-Metro Area, and NY, the expected price increase is about 3 to 5 percent (orange). In the rest of the states, the expected price growth is less than 3 percent (blue).

A Deeper Look at Last Week’s Existing Home Sales Data

Tue, 04/29/2014 - 11:02
  • Last week, NAR released a summary of existing home sales data showing that existing home sales declined again for the seventh time in eight months. March sales showed a decrease in sales of 0.2% from last month and 7.5% from a year ago.
  • The national median existing-home price for all housing types was $198,500 in March, up 7.9% percent from March 2013.
  • All regions showed growth in prices, but the West maintained the biggest gain at 12.6% from a year ago. The Northeast had the smallest price again at 3.2% from a year ago. Affordability is having an impact in the South and West regions.
  • March’s inventory figures increased by 3.1% from a year ago and it will take 5.2 months to move the current level of inventory.
  • With sales down this month, March marks the second straight month of decimal declines. Job creation will help compensate in markets where affordability is a challenge. Housing starts are at a historic low and a boost will help inventory and slow down rising home prices. See the full NAR Existing Home Sales press release here and data tables here.
  • Find a full graphical summary of the data here.
  • Check out this month’s EHS infographic here.

Buyer Traffic Index Shows Demand Stronger Than Supply in March 2014

Mon, 04/28/2014 - 07:36

Buyer demand was on the upswing in March 2014 with the onset of the spring season, according to the latest REALTORS® Confidence Index. The REALTORS® Buyer Traffic Index notched up to 63, while the Seller Traffic Index stayed about at 42. Demand was softer compared to a year ago as buyers faced higher prices and the continued difficulty in getting a mortgage. An index of 50 indicates “moderate” traffic conditions [1].

[1] The index is constructed from a survey of REALTORS® reporting on whether they perceive traffic as “weak”, “moderate”, or “strong.”

U.S. Cities Where Canadians Looked for a Home in 2013

Fri, 04/25/2014 - 14:00

Which U.S. cities are of greatest interest to Canadians searching for a house? NAR economists have created a City Search Index (CSI) ranking U.S. cities where Canadians looked for a property in 2013.

The index is based on a count of actual house searches by potential buyers throughout the year as measured by traffic on Realtor.com, NAR’s official property listing website. Realtor.com helps connect people with the content, tools and expertise they need to find their perfect home, including information on homes for sale; connections with REALTORS®; neighborhood, moving, and mortgage advice; and in terms of buying a home– how to “make it happen”.

Cash Sales: 33 Percent of Sales in March 2014

Thu, 04/24/2014 - 13:46

Approximately 33 percent of respondents reported cash sales (35 percent in February), according to the latest REALTORS® Confidence Index report [1].

Move-up buyers, investors, buyers of second homes, and foreign clients are more likely to pay cash. About 14 percent of reported sales to first-time buyers were cash sales compared to about 60 to 75 percent for international buyers and buyers of property for investment or second home purposes.

[1] The RCI Survey asks about the most recent sale for the month.

Latest New Home Sales, Inventory Data

Thu, 04/24/2014 - 08:26
  • Contracts for new home sales tumbled 14.5% from February to March, to a seasonally adjusted annualized rate of 384,000. This decline is a sharp acceleration of the declining trend that began last month. New home sales are 13.3% lower than the same period a year ago. Mortgage rates have increased nearly 1.25% to 4.5% over that same time frame while home prices are roughly 12% stronger.
  • Inventories rose 3.2% from February to March and are up nearly 25.3% relative to the same time last year. This increase brings the months supply of home sales up to 6 months, still in neutral territory.
  • The median price for a new home under contract jumped 12.6% over the 12-month period ending in March to $290,000. The median existing home price was 31.7% lower at $198,200, more than three times the historical average spread of 10.8%, suggesting that existing homes are a bargain by historical standards. According to the BLS, a shortage of skilled labor and rising labor costs have contributed to the rising median price of new homes.
  • It appears that new home sales have begun to feel the weight of the sharp increase in mortgage rates, home price gains, and the erosion of affordability over the last 12 months. The impact of weather on new production will ease through the summer, resulting in additional inventory coming on line in six to nine months. However, inventory remains tight and prices continue to rise. A moderate increase in inventory will help to steady prices to a historically stable growth path.

Existing Home Sales and the FHFA Housing Price Index

Wed, 04/23/2014 - 07:45
  • This week NAR released existing home sales and median home price information that showed gains of 7.9 percent in prices in March 2014 compared to March 2013, notably slower than trends in early summer/fall 2013 when price growth topped double-digit pace.
  • The Federal Housing Finance Agency (FHFA) also released their housing price index data which, like NAR data, showed continued gains in home prices with some deceleration.
  • FHFA reported home price gains of 6.9 percent year over year in February.  NAR data in the same period showed gains of 8.7 percent in home prices.  S&P/Case-Shiller will release February data next week.
  • NAR reports the median price of all homes that have sold while FHFA reports the results of a weighted repeat-sales index.  Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price had risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.   In spite of this methodological difference, NAR price data tends to be a reliable early indicator of price trends seen in repeat sales indexes.
  • FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government backed transactions such as those using VA or FHA financing.
  • As NAR and FHFA both show deceleration in prices, expect Case Shiller data to follow suit but given Case Shiller’s higher trajectory, it may still show another month or two of double-digit gains before slipping into high single digit increases.

REALTORS® Confidence in March 2014 Buoyed Up By Seasonal Uptick

Tue, 04/22/2014 - 14:18

Confidence about current market conditions improved in March 2014 compared to February 2014, reflecting in part the seasonal uptick in spring, according to the latest REALTORS® Confidence Index report.

Confidence about the outlook for the next six months slightly improved compared to February, but it is still lower compared to the same period a year ago. REALTORS® mentioned concerns about the low levels of inventory, difficult credit conditions, consumer confidence, and uncertainties about rising costs of flood insurance.

Weekly Unemployment Insurance Claims Still Generally Declining

Thu, 04/17/2014 - 09:26
  • Initial claims for unemployment insurance[1] filed in the week ended April 12 increased slightly from last week’s level to 304,000. The increase of 2,000 claims can be considered as  weekly volatility in the data. In fact, the 4-week moving average –a less volatile measure – dipped to 312,000   the lowest since 2007[2]. Claims have been trending down and have normalized to levels prior to the Great Recession.
  • The largest decreases in claims for the week ending April 5 were in California (-13,892), Iowa (-1,266), Kentucky (-699), Tennessee (-582), and Idaho (-383). The largest increases were in Michigan (+4,285), Pennsylvania (+2,335), New Jersey (+1,630), Florida (+1,624), and Georgia (+1,453). Pennsylvania and New Jersey attributed some of the layoffs to construction.
  • Notwithstanding the positive trend related to fewer layoffs, job creation needs to accelerate. Today, only 58% of adult population is working compared to 62% to 64% prior to the recession.
  • What this Means for REALTORS®: Fewer claims filed means fewer workers lost their jobs during the week and indicates greater job stability.



[1] Claims filed under the regular state programs, seasonally adjusted

[2] Since October 7, 2007 when the 4-week moving average was at 302,000.

Always Important, Real Estate’s Influence Grows

Thu, 04/17/2014 - 07:23

The real estate industry has a significant role in the U.S. economy. Historically, real estate and related industries accounted for roughly 18% of GDP. While the economy slumped following the decline of the housing market, record low mortgage rates in 2012 and 2013 touched off a resurgence of home sales growth. As a result, prices have improved, boosting buyer confidence and spending on housing and related goods and services.

At the state level, Hawaii’s economy is by far the most dependent on housing related industries for its state product. In 2012, rental and leasing along with other real estate services and construction contributed 23.1% of Hawaii’s gross state product (data for 2013 has not been released yet). This figure does not include expenditures on furniture and related manufactured goods that often accompany a home purchase. Several of the sand states, including Florida, Arizona, and California, hardest hit by the housing slump and recession were among the top ten most housing-dependent economies. Steady sales and modest price growth held roughly stable the contribution of real estate to these state economies in 2012, but this data does not reflect the strong price growth witnessed in 2013. The 2013 housing recovery in these areas should have a strong impact on local employment as well as state and local finances. Price growth in Maryland, New Jersey and Connecticut has been more muted in 2013 due in part to the local judicial processes which constrained market clearing.

How is housing’s contribution measured? Each home sale results in additional expenditures for remodeling, appliances, services, and furnishings. In addition, as the supply of homes for sales declines, home builders respond by adding new inventory. The employees of building companies and material suppliers in turn spend their incomes thereby expanding the economy, a process referred to as an economic multiplier. Furthermore, rising home values have a strong wealth effect where consumers will spend more of their income if they feel confident that rising home prices are expanding their personal wealth. Strong price growth in the District of Columbia boosted the contribution of real estate to the local economy by nearly $19,000 per sale in 2012.

Housing plays an important role in the economy, which was blunted following the recent housing market decline. Low mortgage rates in 2012 and 2013 boosted buyer confidence and sales which in turn helped to expand the economic impact of housing at the state level. In the years ahead, record low inventories will require new construction to satisfy consumer demand. Access to credit has been limited for some smaller builders, a trend that shows signs of improvement. On the consumer front, access to credit remains tight, but employment and incomes have grown modestly, a pattern that bodes well for home sales and housing related expenditures in the future.

[To view the latest State-by-State Economic Impact of Real Estate Activity report, visit: http://www.realtor.org/reports/state-by-state-economic-impact-of-real-estate-activity]

Housing Starts in March

Wed, 04/16/2014 - 08:37
  • Housing starts rose by 3 percent in March.  More single-family homes are being constructed while multifamily units contracted modestly.
  • The latest pace of 946,000 units on an annualized basis, however, is still well short of what is needed to relieve the housing shortage.  Another good 50 to 60 percent increase is needed to measurably bring additional new inventory onto the market.
  • Whatever is built is being sold easily, due to inventory shortage.  The number of new homes for sale is essentially at a 50-year low.
  • Past housing recessions have been followed by a strong snap-back in housing starts.  That is not the case in the current recovery despite the housing shortage.  The extreme difficulty of obtaining construction loans appears to be hindering a robust recovery especially among locally based homebuilders.   New financial regulations are said to be onerous and uncertain, preventing local lenders from making these loans.  Meanwhile, those big homebuilders who do not need loans and can tap Wall Street funding – like Lennar, KB Homes, and Toll Brothers – are having an easier time due to lack of competition.
  • It is worth recalling that Polish Girl Scouts in the aftermath of the Second World War went from construction site to construction site to help rebuild homes.  These teenage girls, not yet in their  twenties, did so spontaneously with high enthusiasm for the simple love of their country.  (It was only for a couple of years before the mini-KGBs arrived from Moscow to flip Poland into a totalitarian state.)  Today, in America, there is an historically low labor participation rate among adult men.  The country needs more new homes to be built yet many men are not even in the labor force.