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Updated: 38 min 29 sec ago

The Home Search Process (2004-2013)

Mon, 10/13/2014 - 11:54

Looking at the interactive graph below, there is an obvious increase of people who started their home search online. Indeed, the share of people using the Internet has increased by 28% since 2004. In 2013, 48% of first-time home buyers and 40% of repeat home buyers used the Internet in their home search process.

Real estate agents are mostly preferred by first-time homebuyers for their initial housing search. Especially last year, there was an increase of the first-time home buyers who asked for the services of a real estate agent. This trend shows how increasingly important is the role of real estate agents when there is limited inventory on the market.

Hover over the line graph to see the distribution for each one of the types of home buyers. If you are interested in a particular type of home buyer, please tap on it (see list on the top right corner of the dashboard).

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At state level, in Nevada (2013), Arizona (2011, repeat home buyers) and South Carolina (2004, first-time home buyers) more than 60% of the home buyers preferred to use a real estate agent when they first started their home search. Conversely, New Hampshire (2013), Kentucky (2013, repeat home buyers) and Massachusetts (2013 and 2011, first-time home buyers) had more than 60% of home buyers who started searching for home online.
Please select your state and see what the first step in the home buying process was for your state.

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Next Release:
2014 Home Buyers and Sellers Survey will be released in November and we will look for any fresh trends in the data.

Methodology:
Data were used from the Home Buyers and Sellers Surveys for the period 2004-2013. The sample includes home purchases for primary residence use only. In order to be considered, a state needed to have sufficient response data for each one of the types of home purchase (first-time and repeat).

REALTORS® Cite Reasons for Not Closing a Sale in August 2014

Fri, 10/10/2014 - 11:49

Tight supply and the difficulty in accessing credit were often cited as factors by REALTORS® who did not close a sale in August, according to data gathered in the August 2014 REALTORS® Confidence Index Survey.

About 18 percent of responding REALTORS® reported having clients who could not obtain financing in August 2014, broken down into 11 percent who reported the buyer gave up and eight percent who reported that the buyer will seek financing from other institutions. Appraisal issues were reported as accounting for four percent of failures to close a sale. About 11 percent of REALTORS® who did not close a sale reported that the buyer and seller could not agree on the price, and eight percent reported the buyer lost the bidding competition. “Other” reasons include responses such as no interested buyer or listing, that the buyer is still searching, or that the transaction is in the escrow period or a closing is underway.

New Credit Models Could Help, Someday

Thu, 10/09/2014 - 18:51

The Fair Isaac Corporation recently introduced a new scoring model. The model could help to expand credit to first-time and minority groups. But there is a problem: Fannie Mae and Freddie Mac, who support the majority of the mortgage market, don’t use the new model.

In “FICO 9″, less emphasis is given to the impact of unpaid medical bills and the effect of missed payments on debts that have subsequently been paid off are eliminated. FICO estimates that the new model could improve scores by 25 basis points for the former group and by as much as 100 points for the latter group. Survey participants were asked if this new scoring model would increase accepted applications at their firm.

A 60% majority indicated that the new scoring model would increase accepted applications. Five percent indicated that it would not impact their decision to accept as they use an earlier version of the model, while 35% deferred to their investor’s model or that of the GSEs. This result was a surprise on the upside, but likely reflects the large share of small banks in the survey panel. Small banks can portfolio loans and are less dependent on the GSEs to purchase the loans they underwrite, hence a lower reliance on the old credit models. The same cannot be said for mortgage bankers and banks who originate loans to be sold to the GSEs.

The innovations in FICO 9 are not new though. VantageScore 3.0, the year-old product from FICO’s main competitor VantageScore, had these same methodologies. What’s more, these newer models incorporate utility and rental payments, information that helps lenders to evaluate younger persons and minorities who might not have a history of credit use (e.g. no car, credit card, or mortgage payments).

Work by the Harvard Joint Center for Housing Studies indicates that borrowers with lower incomes as well as minorities face higher rejection rates on their mortgage applications. [1] NAR analysis of mortgage data from 2007 to 2013 in the HMDA dataset indicate that the share of rejected loans due to credit scores were significantly higher for African Americans and American Indians, ranging from 2.1% to 7.0% higher for African Americans versus Whites over this time frame.

Over the coming decade, minority and first-time buyers are likely to play a more important role in the housing market. These innovative new models that exploit better information could help to usher in their participation.

[1] http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2013.pdf

FHFA Director Mulls New Mortgage Costs

Thu, 10/09/2014 - 07:58

Mortgages rates on conventional loans could change in the coming months. The Federal agency that regulates the GSEs, the FHFA, is re-evaluating the fees that it allows Fannie Mae and Freddie Mac to charge consumers. With mortgage rates expected to rise in the coming years and looming changes at private mortgage insurers, the outcome of the FHFA’s review could either compound headwinds for the housing market or broaden access to the conventional market.

The FHFA took comments from the public in early September as to whether the current fee structure is appropriate. Last fall, the former director of the FHFA announced an imminent increase in these fees prior to his departure. However, the new Director, Melvin Watt, called for a review of the fees and their impacts on consumers, the GSEs, and the market, which included questions suggestive of a potential reduction in g-fees.

The GSEs don’t originate mortgages. Rather, they package loans into mortgage backed securities (MBS) which they then either swap back to the banks or companies that provide the GSEs with loans or the MBS are sold to the public. The GSEs also provide a guarantee that a buyer of the MBS will receive the full and timely payment from the MBS making the MBS and loans packaged in it more attractive to the investor. This guarantee comes with a fee that is passed onto the consumer. The GSEs pass this charge onto the consumer in three types of fees: a base g-fee that is the same for all borrowers, a loan-level pricing adjustment (LLPA) that rises or falls based on the individual consumer’s risk factors (e.g. FICO, LTVs, etc.), and an adverse market delivery charge (AMDC) which reflects the risk of the local housing market in which the consumer is purchasing.

The changes proposed last fall by former Director Ed DeMarco included:

  • A 10 basis point increase (e.g. 0.1% increase in rate) in the guarantee fee for all borrowers
  • The current AMDC of 25 bps that applies to all markets would be dropped except for in Florida, Connecticut, New York, and New Jersey
  • Finally, a range of fees that apply to specific individuals would increase based on the borrower’s specific FICO score and down payment (LLPAs)

Taken together, these changes would raise costs for every buyer, but most significantly for buyers with a down payment less than 40% and a FICO score between 680 and 740. For some borrowers rates would rise by half a percentage point.

However, Director Watt has hinted at making changes that would help to stimulate mortgage access for borrowers with less than perfect credit and for middle-class Americans. Questions in the FHFA’s request for comment on the matter hinted at a flatter fee structure that would reverse the trend of higher fees for riskier borrowers. Some have argued that as entities fully backed by the Federal government, the GSEs should focus their mission on expanding credit by accepting a lower return on equity than a private MBS guarantor would. A flatter LLPA structure could reduce fees to a significant share of consumers, while a reduction in g-fees would benefit all consumers. As depicted above, the changes proposed in the fall (blue) would raise costs for all borrowers, while a flattening of the structure (red) [1] could provide modest relief for 50% to 80% of conventional borrowers [2]. For example, a prime borrower with a FICO score between 700 and 719 with a down payment of 5% to 10% would face an increase in monthly payment of $45 under the proposed plan, while a flattening of fees could reduce the cost by $26 or more. The number of consumers that benefit from a flattening of fees could rise if lower pricing draws consumers away from costly FHA insurance.

However, lower fees could also have no impact to consumers if private mortgage insurers (PMIs) raise fees by an offsetting amount as a result of changes also proposed by the FHFA. The GSE’s charter requires PMI on all loans with less than 20% down payment. PMI takes the first loss when these low down payment loans go into default. Several PMIs had issues during the housing downturn and are still paying back insurance claims long overdue to the GSEs. In response, the FHFA imposed the LLPAs and AMDC fees beginning in 2008 in part to shore up losses as the PMIs weakened, essentially taking over the PMI role. To bolster the PMIs and to prevent future losses at the GSEs, the FHFA is reviewing rules that could require the PMIs to hold more capital against potential losses. [3] Holding more capital increases costs to the PMIs, costs which are passed on to consumers. Compounding the issue is the fact that the PMIs require a higher return on equity for capital than the GSEs. Thus, a reduction in fees charged by the GSEs, could be offset by an increase in fees charged by the PMIs, or worse if the FHFA does not reduce its fees and/or the PMIs require high returns.

To gauge the impact of a reduction in rates charged by the GSEs, participants in NAR’s 3rd Survey of Mortgage Originators were asked whether a reduction in LLPAs targeted at lower FICO and/or higher LTV borrowers would help to expand access to credit. A robust majority of 80% felt that a reduction in rates would help to expand the credit box, while 20% felt that there would be no change.

The economy has shown steady improvement in recent months and most economists agree that this portends an increase in borrowing costs ahead. NAR forecasts the average 30-year mortgage rate to rise nearly a percentage point to 5.1% in 2015 [4] and potential changes at the PMIs could exacerbate this increase. Entry level and minority homebuyers have been slow to join the housing recovery in this low rate environment. With rates forecast to rise, reform of GSE fees may help to improve their participation in housing.

[1] This is hypothetical example where the AMDC is eliminated and LLPAs for borrowers with less than 30% down payment are reduced to resemble those with a down payment of 30.1% to 40%. Thus borrowers with 35% and 5% down payments would face the same fee if their FICO scores are the same. LLPAs would vary by FICO score according to the current schedule for a borrower with a down payment of 30.1% to 40%.
[2] Based on estimates of current market GSE market share by Moody’s Analytics https://www.economy.com/getlocal?q=B97EB9C4-9876-47F9-AB47-527469375F89&app=eccafile
[3] Most of the PMIs have significantly improved their financial footing and argue for reduced LLPAs for that reason alone.
[4] http://www.realtor.org/sites/default/files/reports/2014/embargoes/phs-09-29/forecast-10-2014-us-economic-outlook-09-29-2014.pdf

August 2014 EHS Data Vs. The Ten-Year August Average

Wed, 10/08/2014 - 09:03

Every month NAR produces existing home sales, median sales prices and inventory figures. The reporting of this data is based on homes sold the previous month and the data is explained in comparison to the same month one year ago. We also provide a perspective of the market relative to last month, adjusting for seasonal factors, and comment on the potential direction of the housing market.

The highlights below show what the current month data looks like in comparison to the last ten August months, and how that might compare to the “ten-year August average”, which is an average of the data from the past ten Augusts.

  • Total homes sold in the United States for August 2014 is slightly below the ten year average. A similar trend is seen in the Northeast and the West. The Midwest and the South are the only two regions to show current sales above the ten-year August average.
  • Regionally, since the low point of sales in 2010, there had been three consecutive year-over-year gains, but that changed this year with sales declining in August.
  • The median home price in August 2014 is higher than the ten-year August average median price for the U.S. and all four regions. The West leads all regions with the highest home prices.
  • The median price year-over-year percentage change shows prices having a positive change for the last three years after struggling the previous six years. The West has predominately guided the direction of home prices for the U.S. and all regions over the ten-year cycle. For the U.S. and the four regions the best price percentage increase took place in 2005 except for the South, which had its best gains in 2013. The biggest decline took place in 2009 for all U.S regions except the West, which had the largest drop in 2008 when home values declined more than 20%. This August the Midwest is the only region to have a negative year-over-year price percentage change.
  • Inventory of homes for sale for the U.S. is currently lower than the ten-year August average. In 2004, the U.S. had the fastest pace of homes sold while in 2010 the U.S. saw the slowest pace relative to inventory, with the months supply at 11.5. The ten-year August average months supply is 7.4. In August 2014 the figure is 5.5 months supply, close but slightly below a healthy level of homes on the market relative to demand.

View the full PPT slidedeck: August 2014 EHS Vs Ten Year Average

FHA Reforms Only Modest Boost to Credit Access

Tue, 10/07/2014 - 08:10

In response to tight mortgage credit, the FHA has announced three changes that it hopes will help to ameliorate lender overlays and broaden access to credit. Specifically, the FHA will consolidate all of its current lending rules into one document that clearly outlines lenders’ responsibilities and penalties for not complying, it plans to increase early reviews of loan files, and finally, it will reduce the fees it charges under certain conditions. In NAR’s 3rd Survey of Mortgage Originators, lenders were asked whether these changes would have an impact.

The FHA’s HAWK program will offer a discount of 10 bps in annual mortgage insurance premium (MIP) and 50 bps in the UFMIP to consumers who complete a buyer education program. The annual MIP would fall by an additional 15 basis points if the borrower is not delinquent after 18 months. The education program is estimated to cost the borrower up to $400 upfront. Respondents were asked whether the incentives are sufficient to attract consumers to the new program. Only 15% of respondents indicated that the incentives would result in increased demand for FHA insurance, while 20% felt that it would help, but could be stronger and 40% felt that they were not. Ten percent of respondents indicated that the upfront costs of the education program were too high for consumers.

In its press release for the HAWK program, the FHA cited research that shows a reduction in serious delinquency rates of up to 30% for counseled borrowers compared to similar borrowers without counseling. Survey participants were asked whether, given the evidence of reduced risk, the HAWK program would affect lenders’ credit overlays on loans originated for the FHA. A 55% majority indicated that there would be no change in access, while 20% indicated that it would ease credit tightness somewhat and an additional 20% indicated that it would reduce overlays significantly.

Finally respondents were asked about FHA’s program for earlier reviews of mortgage files. The program is intended to reduce the risk to lenders of problems in loan files that could lead to subsequent costly put-backs. FHA’s intent is to ameliorate concerns about buy-back risk and to reduce lender overlays in turn. Participants were asked whether the early reviews would impact credit overlays on loans originated for the FHA. Sixty percent indicated that there would be no change, while 15% indicated that the reviews would both somewhat and significantly reduce overlays. Ten percent defer to their investors’ rules.

Survey responses suggest that the changes the FHA is implementing will help. However, while consumer education will help to alleviate overlays, more incentive is needed to attract consumers to the program.

Employment Growth

Fri, 10/03/2014 - 13:19
  • After faltering in August, headline payroll employment growth snapped back in September with the addition of 248,000 jobs.  What’s more, the August figure was revised upward by 38,000 jobs.
  • The unemployment rate eased to 5.9% as a result, the first time under 6.0% since July 2008.  This figure is derived from a different survey, which queries households about their employment position. Consequently, non-payroll jobs are counted.  This survey also measures labor participation, which is a gauge of the share of persons employed or actively looking for work and provides insight into discouraged workers and underutilization.  This measure slipped further to 62.7% in September.  Studies suggest that the low participation could reflect an increase in early retirements, while others argue it is suggestive of slack in the labor market.
  • The strongest gains in employment came in the professional and business services, retail trade, and health care sectors.
  • Wage growth was revised slightly upward in August, while the September reading was flat.  Tepid wage growth is a negative for home purchase affordability and could act as a headwind for price growth.  However limited wage growth removes the specter of inflation giving the Fed more room to maneuver without raising mortgage rates, a more immediate threat to affordability.  Prices will still grow given an expanding buyer base relative to limited supply.
  • This month’s reading of the labor market was a strong reversion back to the recent storyline of steady economic expansion.   Modest wage growth and labor underutilization could create an opening for improved employment and confidence without a near-term spike in mortgage rates as many have feared.  However, recent weakness in manufacturing figures and consumer confidence suggest softening in October.

 

Sales to Investors Decline in Most States in August 2014

Fri, 10/03/2014 - 07:42

As reported in the August 2014 REALTORS® Confidence Index (RCI) Report, the share of sales for investment purposes in August 2014 was estimated at 12 percent, down from the average of about 18-20 percent in 2010-2013.

The chart below shows the share of sales for investment purposes to total existing home sales based on RCI data for which there was a large enough sample of REALTOR® respondents [1]. The smaller the circle, the fewer the incidence. The share of sales to investors declined in August 2014 in most states (red) compared to the shares in July 2013-July 2014 (blue). Among the states, the highest share of investor sales are TX (21 percent), CT (21 percent), FL (18 percent), AZ (17 percent), CA (15 percent), and NV (15 percent). Prices in CT, FL, AZ, and NV still generally remain significantly below peak prices, creating profit opportunities for investors. In CA and TX, strong economic growth is fueling the demand for investor interest in homes and rentals.

[1] The combined sample size for the period July 2013-July 2014 was large enough for all states, but we included in the charts only states that had at least 30 respondents in the August 2014 survey.

Lenders Optimistic on Access to Credit

Wed, 10/01/2014 - 15:34

Mortgage lending standards have been tight in the wake of the Great Recession. But recent survey work of mortgage originators points to softening in the 2nd half ot 2014. In NAR’s 3rd Survey of Mortgage Originators, nearly half of respondents expected improved access to credit for prime borrowers with FICO scores between 620 and 720 in the 2nd half of 2014. A smaller share, nearly 20%, expect access for rebuttable presumption borrowers, a rough proxy for well-underwritten subprime borrowers, to ease. Respondents were mixed with respect to non-QM lending. While roughly 30% expected improvement 10% expected weakening.

However, respondents were more sanguine about investor demand for all types of mortgage products, a change that could expand the flow of capital to these home buyers. More than 40% of respondents expected improved investor demand for both rebuttable presumption QM and prime borrowers with credit scores between 620 and 720. Interest in non-QM lending was also expected to improve, roughly in line with that of high FICO, prime lending.

A Deeper Dive Into Last Week’s Existing Home Sales Release

Wed, 10/01/2014 - 08:28
  • Last week, NAR released a summary of existing home sales data showing that August’s existing home sales declined despite having the second fastest sales pace of the year. August marks the first dip after four consecutive months of increased sales, with figures dropping 1.8% from last month and 5.3% from one year ago.
  • The national median existing-home price for all housing types was $219,800 in August, up 4.8% percent from August 2013.
  • All regions showed growth in prices except the Northeast, which had a slight drop of 1.8% from last year. The West had the biggest gain in median price at 5.4% from a year ago.
  • August’s inventory figures increased by 4.5% from a year ago and it will take 5.5 months to move the current level of inventory, slightly below the six months typically seen in a balanced market. It takes approximately 53 days for a home to go from listing to contract in the current housing market.
  • There are still several positive factors: less investor activity, job creation, low rates, and slower price gains are key components to stabilizing the housing market.

The Latest Case-Shiller Home Prices

Tue, 09/30/2014 - 10:33
  • The home prices of 20 large metro markets measured by Case-Shiller increased 6.7 percent over the past 12 months to July.  However, there is a marked deceleration in the price growth.  Price gains were in the double-digits for most of 2013 and as recently as April of this year.    Increased inventory and lower home sales are factors slowing home price appreciation.
  • Las Vegas, Miami, and San Francisco are the only markets to experience double-digit price appreciation in the past 12 months.  At the other end, prices have slowed to less than 4 percent in Charlotte, Chicago, Cleveland, New York, and Washington, D.C.
  • All markets are in a recovery mode of trying to get back to the prior peak, except for two.  Dallas and Denver have blasted through the past peak prices and are still appreciating at a good 7 percent from one year before.
  • Case-Shiller methodology is such that price appreciation has been stronger compared to other price measurements.  But given the prominence of the professors, with the latter winning the Nobel Prize in economics, its price data gets heavily talked about.  For comparison, the NAR median price rose 4.8 percent to August and FHFA repeat price index rose 4.4 percent to July.
  • What is the outlook?  At this week’s meeting of the National Association of Business Economists, there was an unusual consensus among the panel of housing economists on this topic, for which this author moderated.  Home prices are projected to rise at around 4 percent in 2015 according to Ken Simonson, Ivy Zelman, David Crowe, and Lawrence Yun.
  • This author further believes that prices will likely rise a bit faster in the next five years in states where Californians move and retire to.  That is, the western states of Oregon, Washington, Utah, and Colorado will experience a better price growth because the Californians will sell their expensive homes (after having paid off their mortgages) and therefore can easily bid-up home prices in the new states.  Anecdotal observations say many REALTORS® who help buyers from California are delighted with the cash they bring, though not necessarily with new residents’ personalities.

REALTORS® Expect Modest Price Growth in Next 12 Months, as of August 2014 Survey

Tue, 09/30/2014 - 09:18

REALTORS® expected home prices to increase modestly in the next 12 months, with the median expected price increase at 3.5 percent, according to data gathered from the August 2014 REALTORS® Confidence Index Survey. [1] Local conditions vary with expectations anchored on factors such as the level of inventory, the state of the local job market, and credit conditions.

The map below shows the median expected price change in the next 12 months by the state of REALTOR® respondents in the June – August 2014 surveys. Respondents from Florida, Texas, Hawaii, and the District of Columbia expected prices to increase in the range of 5 to 6 percent. These states are experiencing strong job growth from the technology and oil industries. Respondents in the Great Lakes area where manufacturing (led by the automotive sector) has made a comeback also expect respectable price growth of 3 to 5 percent.

[1] The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state. The graph shows the range of these state median expected price change. To increase sample size, the data is averaged from the last three survey months.

Change Could Ease Lender Restrictions

Mon, 09/29/2014 - 10:58

The Dodd-Frank act requires that originators make a good faith effort to verify a borrower’s ability to repay their mortgage and imposes stiff penalties if they do not (ATR and QM rules). This makes sense for the safety of the borrower and the market. Some originators have expressed concern, though, pointing to a need for more clear rules that define a borrower’s ability to repay. For example, a borrower may have outsized obligations that are not reflected in a debt-to-income ratio.

One suggestion is a residual income test, which has been used successfully by the VA for years. A residual income test measures how much after-tax income remains after all debt (e.g. car, house, and student debts) and non-debt obligations (e.g. childcare, alimony, utilities, and maintenance etc.) are paid. This measure provides a better estimate of how much funds a borrower would have at his or her disposal to handle regular expenditures like food, clothing, and entertainment as well as unforeseen expenditures.

Under the ability to repay rule (ATR), a residual income test can be used as supporting evidence of a borrower’s ability to repay a loan, but it is not a definitive “bright line” proof of compliance with the rule. Participants in NAR’s 3rd Survey of Mortgage Originators were asked whether the addition of a “bright line” residual income test to the QM/ATR would improve their willingness to originate in the rebuttable presumption and/or non-QM spaces. Respondents who offered these products indicated that a residual income test would be most helpful in the rebuttable presumption space, roughly the well underwritten subprime sector, with 53.0% indicating that they would be either more likely or much more likely to originate. A definitive residual income test would also help in the non-QM space, but even there, lenders displayed a reluctance to originate products of lower quality.

New regulations have helped to restore traditional underwriting. However, regulators should remain amenable to financial innovations that could help to expand credit.

Sales of Homes for Investment Purposes On the Decline

Mon, 09/29/2014 - 07:31

As reported in the August 2014 REALTORS® Confidence Index Report, sales to investors fell to 12 percent of home sales in August, from the average of about 18-20 percent in 2010-2013. One reason for the decline is that as foreclosures have eased there are now fewer available distressed properties for sale. Distressed sales (foreclosed property and short sales) have steadily declined from about 16 percent of existing home sales in 2010 to only 8 percent as of August 2014 (Chart 1).

Another reason is that home prices have been rising more rapidly than rents since 2012 (Chart 2), creating fewer opportunities for a quick profit recovery. Since 2012, the median home price of all existing homes rose by an average of 9 percent annually, while rents rose at an annual average of about 3.2 percent. As of August 2014, the median home price of all existing homes was at $ 219,800, just a few thousand shy of the peak price of $229,000 in June 2007. Although about 50 to 70 percent of investors pay all cash, rising home prices have also made it more difficult to put up only cash to purchase a home.

As investors will increasingly retreat from the market, the continued recovery of the housing market will need to be taken up by first-time buyers (e.g., the millennials) and those buying property to trade up (also millennials) or down (baby boomers).

CHART 1

CHART 2

Latest GDP and Forecast

Fri, 09/26/2014 - 14:37
  • The economy grew solidly in the second quarter, expanding at a 4.6 percent annualized rate. Business spending and residential investment from new home construction are leading the way. Such a fabulous growth rate, if it can be sustained, will mean fast-paced job creation and meaningful wage growth. Unfortunately, the latest pop in GDP looks to be an one-off event.
  • The quarterly GDP growth rates have been choppy and inconsistent. What looks to be impressive second quarter GDP growth is coming on the heels of a 2 percent contraction in the first quarter. Furthermore, the annual GDP growth rate has been subpar, at less than 3 percent (long-term historical average) for nine straight years. The uneven growth rate has therefore translated into about a $1.5 trillion shortfall in economic output versus economic potential. In other words, on average, every American would have $4,700 extra in their pocket today if GDP had been growing at the 3 percent historical average rate rather than at subpar rates.
  • The latest GDP figure was lifted by very strong growth rates in business spending (9.7 percent growth) and residential investment (8.8 percent). The all-important consumer spending component expanded at a more subdued 2.5 percent. International trade deteriorated a bit with imports rising faster than exports. Government spending was a drag due to on-going sequestration, falling 0.9 percent.
  • For upcoming quarters, the momentum is suggesting GDP growth of 3.3 percent in the third quarter and 2.8 percent in the fourth quarter. Such growth rates will mean about 2.5 million net new job creations over the 12-month period. Jobs in turn will be critical in supporting housing demand, as well as pushing up net absorption of commercial real estate spaces.
  • GDP growth has helped raise tax revenue. More jobs mean more people who are able to pay taxes. That is why the federal budget deficit has been shrinking. Some states are running a budget surplus.
  • A detailed explanation of the forecast is here.
  • GDP stands for Gross Domestic Product and intends to measure total production in a country. Interestingly, EU countries now want to modify the definition so that GDP figures get an additional boost. More specifically, they want to add to the economy the dollar volume from prostitution since money gets exchanged. This new methodology would make it easier to meet various EU countries’ fiscal budget targets. This new method, however, would appear nonsensical since romance between married and other committed couples would not be included since dollars are not being exchanged. Moreover, the most beautiful as well as the most woeful experiences, as Shakespeare would easily observe in people, are unrelated to money exchanges. Let’s hope government bureaucrats never try to tally up this emotional value of what humans feel.

Signs Suggest Looming Opportunity for First-time Buyers

Fri, 09/26/2014 - 07:48
  • CoreLogic reported Thursday that the number of underwater homes, properties worth less than what is owed on them, fell from 6.3 million to 5.3 million between the 1st and 2nd quarters of 2014. This change is large and important for the health of the housing market.

  • The decline in negative equity reduces the number of owners that are susceptible to foreclosure in the case of a health issue or loss of work. Distressed sales damage their owner’s credit scores and can weigh on local home prices and confidence as well as banks’ willingness to lend.
  • According to the report, negative equity and “near negative equity”, those with less than 5% equity in their home, are heavily concentrated at the lower end of the price spectrum. This trend holds back supply from potential entry-level buyers who have competed with well-healed investors for several years. Tight lending conditions, weak labor markets, and student debt issues have compounded the issue for first-time buyers.

  • The majority of states have negative equity of 10% or less, but a stronger majority have a near negative equity share of 2% to 4%. Steady price appreciation in a historic range of 3-5% should push more owners into a position where they could trade up, unlocking inventory that is disproportionately entry-level. This would help to alleviate supply conditions at the lower end, while providing support at the upper end of the market where investors have not been as active.
  • Investors’ share of sales in August, as measured by NAR’s Realtor Confidence Survey, fell from 16% in July to 12%. As investors pull back and inventory comes on line, an opportunity opens for potential owner occupants, a change that could help to stabilize the downward trend in homeownership.

Market Outlook in the Next Six Months for Single Family Homes

Thu, 09/25/2014 - 14:08

REALTORS® who responded to the monthly RCI survey were still generally optimistic about conditions in their local markets for single family homes in the next six months, according to the August REALTORS® Confidence Index Survey.

The map shows by state the outlook of respondents regarding the market for single family homes in the next six months, based on data from the June-August 2014 surveys [1]. Except for a few states (blue), respondents reported strong markets. REALTOR® respondents from Texas and North Dakota, which are experiencing strong economic and employment growth, were the most upbeat.

[1] An index greater than 50 indicates that the number of respondents who had a “strong” outlook outnumbered the respondents who had a “weak” outlook for the next 12 months. The higher the index, the more respondents there are with “strong outlook” who outnumber those who view market conditions to be “weak” in the next 12 months. Three months of data are used to generate enough data points for all states.

Latest Trend in Repeat Price Index

Thu, 09/25/2014 - 13:25
  • Home prices appreciated 4.4 percent on average across the country. This increase reflects a genuine price growth for a typical home as it reflects a constant quality repeat-price measurement. Such a gain would translate into about $900 billion in wealth gain for property owners in the past 12 months.
  • Specifically, in the 12 months prior to the July figures, the FHFA home price index rose 4.4 percent. Though an increase, this latest gain is softer. The increases had been 7 to 8 percent in recent prior months. But moderating price growth should be viewed as a welcoming trend for longer-term sustainable health since wages and incomes have not gained much.
  • This repeat price index provides a better measure of true home price appreciation then the median price. That’s because if only larger expensive homes get sold then the median price will get a boost, though not necessarily due to price appreciation of homes. But the repeat price index computes appreciation by examining the same property after it gets transacted twice and examining the price change over that time. And FHFA, a government agency, does that by reviewing Fannie- and Freddie-backed mortgages along with their corresponding home values.
  • From the low point in 2010, the repeat price index has recovered 18 percent. It is now off by only 6 percent from the past peak.
  • All regions of the country are experiencing price gains. But the New England states are recovering at the slowest pace. Home prices in the West South Central region (Arkansas, Louisiana, Oklahoma, and Texas) are doing the best and have been setting new highs with each passing month.
  • An influx of new people to a city can greatly boost home values. Austin, TX has consistently seen more people come to the city over the past 25 years, though not sure if they are all of the “weird” type the city prides itself in welcoming. Due to the influx, Austin did not even experience a price drop during the Great Recession and prices have steadily marched upwards.
  • Home prices in Geneva spiked during the times of European religious wars as the followers of John Calvin flocked to the city. A sudden housing shortage led to multiple bidding. Though no data are present, it is likely that home prices in Baghdad spiked during years when the city’s House of Wisdom was the top learning center of the world and drew many scholars. Algebra, astronomy, and the very erotic stories of 1001 Arabian Nights were the outcomes of that age. The ancient Greek plays were preserved in Baghdad when books were getting burned in Europe. How times have changed.

Unemployment Insurance Claims Below 300K Benchmark for Week of Sept 20

Thu, 09/25/2014 - 11:16
  • Initial claims for unemployment insurance filed in the week ended September 20 increased slightly to 293,000. The increase of 12,000 can be considered as normal volatility and does not fully wipe out the gains of the previous week, when claims fell by 35,000. Overall, claims have been on the downtrend in September, averaging 298,500 for the last four weeks, which is below the benchmark of 300,000 that most analysts consider as an indicator of normal economic activity. Fewer claims for unemployment insurance means greater job stability for workers. A solid job history is an important criteria lenders look at when evaluating a loan application.

  • With generally fewer claims filed every week, the number of insured unemployed has also been on the decline. As of the week of September 13, there were 2.4 million claiming unemployment insurance, down from about 6.6 million at the height of the housing crisis in 2009.
  • Overall, the insurance claims data indicates an improving job market in September and portends a continuing decline in the unemployment rate. About 2 to 2.5 million net new jobs are likely to be added over the next 12 months. NAR expects that the sustained improvement in the job market can support 5 million existing home sales in 2014.

REALTORS®’ Confidence Held Steady in August 2014

Wed, 09/24/2014 - 20:30

The assessment of REALTORS® about their local real estate markets was broadly unchanged in August 2014 compared to July 2014, according to data from the August REALTORS® Confidence Index Survey.

In the single family market, the REALTORS® Confidence Index – Current Conditions for single family homes stayed at 60, which indicates that there were more respondents who viewed their markets as “strong” compared to those who viewed them as “weak.” [1] There were reports that in some areas market activity fell in August, which respondents attributed to seasonal factors such as school openings. Inventory was reported to be improving although still generally tight, especially for “affordable” homes. Obtaining credit was the main concern reported by REALTORS®.

The indexes for townhouses/duplexes and condominiums continued to be generally weak with the indexes below 50. REALTORS® have reported that the condominium market has not recovered as strongly as single family homes because of FHA financing and occupancy regulations.

[1] An index of 50 delineates “moderate” conditions and indicates a balance of respondents having “weak”(index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is calculated as a weighted average using the share of respondents for each index as weights. The index is not adjusted for seasonality effects.

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