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Economic and Forecast Update (July 1, 2015)

Wed, 07/01/2015 - 08:59

The Economy

  • GDP growth was slightly negative in the first quarter but will pick up in the second half.  For the year as whole, GDP will expand at 2.1 percent.  Not bad but not great.  A slow hum.
  • Consumer spending will open up because of lower gasoline prices.  Personal consumption expenditure grew at 2.1 percent rate in the first quarter.  Look for 3 percent growth rate in the second half.
    • Auto sales dropped a bit in the first quarter because of heavy snow, but will ramp up nicely in the second half.
    • Spending for household furnishing and equipment has been solid, growing 6 percent in the first quarter after clocking 6 percent in the prior.  Recovering housing sector is the big reason for the nice numbers.
    • Spending at restaurants was flat.  That is why retail vacancy rates are not notching down.
    • Online shopping is up solidly.  That is why industrial and warehouse vacancy rates are coming down.
    • Spending for health care grew at 5 percent in the first quarter, marking two consecutive quarters of fast growth.  The Affordable Care Act has expanded health care demand.  The important question for the future is will the supply of new doctors and nurses expand to meet this rising demand or will it lead to medical care shortage?
  • Business spending was flat in the first quarter but will surely rise because of large cash holdings and high profits.
    • Spending for business equipment rose by 3 percent in the first quarter.  Positive and good, but nothing to shout about.
    • Spending for business structures (building of office and retail shops, for example) fell by 18 percent.  The freezing first-quarter weather halted some construction.  This just means pent-up construction activity in the second half.
    • In the past small business start-ups spent and invested.  It was not uncommon to experience double-digit growth rates for 3 years running for business equipment.  Not happening now.  But business spending will inevitably grow because of much improved business financial conditions of lower debt and more profits and rising GDP.
    • What has been missing is the “animal spirit” of entrepreneurship.  The number of small business start-ups remains surprisingly low at this phase of economic expansion.
  • Residential construction spending increased 6 percent in the first quarter.  Housing starts are rising and therefore this component will pick up even at a faster pace in the second half.
  • Government spending fell by 1 percent.  At the federal level, non-defense spending grew by 2 percent, while national defense spending fell by 1 percent.  At the state and local level, spending fell by 1 percent.
    • The federal government is still running a deficit.  Even though it is spending more than what it takes in from tax revenue, the overall deficit level has been falling to a sustainable level.  It would be ideal to run a surplus, but a falling deficit nonetheless does provide the possibility of less severe sequestration.
    • U.S. government finances are ugly.  Interestingly though, they are less ugly than other countries.  That is why the U.S. dollar has been strengthening against most other major currencies.  It’s like finding the least dirty shirt from a laundry basket.
  • Imports have been rising while exports have been falling.  The strong dollar makes it so.   Imports grew by 7 percent while exports fell by 6 percent.  The net exports (at minus $548 billion) were the worst in seven years.  Fortunately, with the West Coast longshoremen back at work, the foreign trade situation will not worsen, which means it will help GDP growth.
  • All in all, GDP will grow by 2.5 to 3 percent in the second half.  That translates into jobs.  A total of 2.5 million net new jobs are likely to be created this year.
    • Unemployment insurance filings have been rising in oil-producing states of Texas and North Dakota.
    • Unemployment insurance filings for the country as a whole have been falling, which implies a lower level of fresh layoffs and factory closings.  That assures continuing solid job growth in the second half of the year.
  • We have to acknowledge that not all is fine with the labor market.  The part-time jobs remain elevated and wage growth remains sluggish with only 2 percent annual growth.  There are signs of tightening labor supply and the bidding up of wages.  Wages are to rise by 3 percent by early next year.  The total income of the country and the total number of jobs are on the rise.

The Housing Market

  • Existing-home sales in May hit the highest mark since 2009, when there had been a homebuyer tax credit … remember, buy a home and get $8,000 from Uncle Sam.  This tax credit is no longer available but the improving economy is providing the necessary incentive and financial capacity to buy.  Meanwhile new home sales hit a seven-year high and housing permits to build new homes hit an eight-year high.  Pending contracts to buy existing homes hit a nine-year high.
  • Buyers are coming back in force.  One factor for the recent surge could have been due to the rising mortgage rates.  As nearly always happens, the initial phase of rising rates nudges people to make decision now rather than wait later when the rates could be higher still.
    • The first-time buyers are scooping up properties with 32 percent of all buyers being as such compared to only 27 percent one year ago.  A lower fee on FHA mortgages is helping.
    • Investors are slowly stepping out.  The high home prices are making the rate of return numbers less attractive.
  • Buyers are back.  What about sellers?  Inventory remains low by historical standards in most markets.  In places like Denver and Seattle, where a very strong job growth is the norm, the inventory condition is unreal – less than one month supply.
  • The principal reason for the inventory shortage is the cumulative impact of homebuilders not being in the market for well over five years.  Homebuilders typically put up 1.5 million new homes annually.  Here’s what they did from 2009 to 2014:
    • 2009: 550,000
    • 2010: 590,000
    • 2011: 610,000
    • 2012: 780,000
    • 2013: 930,000
    • 2014: 1.0 million
    • Where is 1.5 million?  Maybe by 2017.
  • Building activity for apartments has largely come back to normal.  The cumulative shortage is on the ownership side.
  • Builders will construct more homes.  By 1.1 million in 2015 and 1.4 million in 2016.  New home sales will follow this trend.  This rising trend will steadily relieve housing shortage.
  • There is no massive shadow inventory that can disrupt the market.  The number of distressed home sales has been steadily falling – now accounting for only 10 percent of all transactions.  It will fall further in the upcoming months.  There is simply far fewer mortgages in the serious delinquent stage (of not being current for 3 or more months).  In fact, if one specializes in foreclosure or short sales, it is time to change the business model.
  • In the meantime, there is still a housing shortage.  The consequence is a stronger than normal home price growth.  Home price gains are beating wage-income growths by at least three or four times in most markets.  Few things in the world could be more frustrating and demoralizing than for renters to start a savings program but only to witness home prices and down payment requirements blowing by past them.
  • Housing affordability is falling.  Home prices rising too fast are one reason.  The other reason is due to rising mortgage rates.  Cash-buys have been coming down so rates will count for more in the future.
  • The Federal Reserve will be raising short-term rates soon.  September is a maybe, but it’s more likely to be in October.  The Fed will also signal the continual raising of rates over the next two years.  This sentiment has already pushed up mortgage rates.  They are bound to rise further, particularly if inflation surprises on the upside.
  • Inflation is likely to surprise on the upside.  The influence of low gasoline prices has been bringing down the overall consumer price inflation to essentially zero in recent months will be short-lasting.  By November, the influence of low gasoline prices will no longer be there because it was in November of last year when the oil prices began their plunge.  That is, by November, the year-over-year change in gasoline price will be neutral (and no longer a big negative).  Other items will then make their mark on inflation.  Watch the rents.  It’s already rising at near 8-year high with a 3.5 percent growth rate.  The overall CPI inflation could cross the red line of above 3 percent by early next year.  The bond market will not like it and the yields on all long-term borrowing will rise.
  • Mortgage rates at 4.3% to 4.5% by the year end and easily surpassing 5% by the year end of 2016.
  • The rising mortgage rates initially rush buyers to decide but a sustained rise will choke off as to who can qualify for a mortgage.  Fortunately, there are few compensating factors to rising rates.
    • Credit scores are not properly aligned with expected default rate.  New scoring methodology is being tested and will be implemented.  In short, credit scores will get boosted for many individuals after the new change.
    • FHA mortgage premium has come down a notch thereby saving money for consumers.  By the end of the year, FHA program will show healthier finances.  That means, there could be additional reduction to premiums in 2016.  Not certain, but plausible.
    • Fannie and Freddie are owned by the taxpayers.  And they are raking-in huge profits as mortgages have not been defaulting over the past several years.  The very high profit is partly reflecting too-tight credit with no risk taking.  There is a possibility to back a greater number of lower down payment mortgages to credit worthy borrowers without taking on much risk.  In short, mortgage approvals should modestly improve next year.
    • Portfolio lending and private mortgage-backed securities are slowly reviving.  Why not?  Mortgages are not defaulting and there is fat cash reserves held by financial institutions.  Less conventional mortgages will therefore be more widely available.
  • Improving credit available at a time of likely rising interest rates is highly welcome.  Many would-be first-time buyers who have been more focused about getting a mortgage (even at a higher rate) than with low rates.
  • All in all, existing and new home sales will be rising.  Combined, there will be 5.8 million home sales in 2015, up 7 percent from last year.  Note the sales total will still be 25 percent below the decade ago level during the bubble year.  Home prices will be rising at 7 percent.  For the industry, the business revenue will be rising by 14 percent in 2015.  The revenue growth in 2016 will be additional 7 to 10 percent.

View the full U.S. Economic Outlook on the Research & Statistics page.

April 2015 Case Shiller Housing Price Index

Tue, 06/30/2015 - 13:32
  • Today, Case Shiller released their housing price index data for April 2015 which showed that house prices rose 4.6 percent from April 2014 for the 10-city composite and 4.9 percent for the 20-city composite.  The national index showed a gain of 4.2 percent year over year.
  • Last week NAR reported rising prices in April and May.  Price growth in the year ended May 2015 was 7.9 percent after an 8.5 percent rise in April 2015.  FHFA also showed price gains of 5.3 percent for the year ended April after a gain of 5.3 percent for the year ended in March.
  • Today’s release from Case Shiller provides evidence that in many areas home prices are not accelerating, but still continue to grow at a strong pace.
  • Strong buyer demand and low inventories coupled with relatively low levels of new construction are helping prices continue to grow and to keep the housing market tipped in favor of sellers.
  • Of course, 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 were seen in Denver (10.3%), San Francisco (10.0%), Dallas (8.8%), and Miami (8.5%) in the year ending April 2015—a repeat of last month’s top markets.  By contrast, Washington DC (1.1%), Cleveland (1.3%), and Boston (1.8%) had the slowest year over year growth.  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.
  • NAR reports the median price of all homes that have sold while Case Shiller reports the results of a weighted repeat-sales index.  Case Shiller uses public records data which has a reporting lag.  To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported April prices include information from repeat transactions closed in February, March, and April.  For this reason, changes in the NAR median price tend to lead Case Shiller and may suggest that continued strength in prices will be seen in the next few months.  The current strong pace needs to slow somewhat to keep housing prices in line with job and wage fundamentals.

Lawrence Yun to Give Economic Update at 2015 REALTOR® Broker Summit in Seattle, WA

Tue, 06/30/2015 - 10:10

NAR Chief Economist Lawrence Yun has joined the August Broker Summit program lineup. The REALTOR® Broker Summit will focus on a variety of management topics for broker/owners and managers to come together and learn from peer panels and industry leaders, offering fresh insights on current conditions while looking to the future of real estate. The economic update from Dr. Yun is on Monday, August 17 and will cover recent developments in the housing market, the direction of home prices in the next 12 to 24 months, comparisons with past housing cycles, and a forecast of the economy and housing market.

NAR worked closely with the Washington state and the Seattle-King County associations to understand the climate and specific regional issues most impacting their markets. The REALTOR® Broker Summit will focus on a variety of management topics affecting broker/owners and managers, including the economic update from Dr. Yun.

The economic update will center on inventory trends and predictions and happen on Monday, August 17 in the afternoon.

Visit realtor.org/BrokerSummit to learn more about the program, speakers, and to register.

May Pending Home Sales

Mon, 06/29/2015 - 15:34
  • NAR released a summary of pending home sales data showing that May’s pending home sales index is up for the fifth consecutive month. May’s pending sales are up 0.9% from last month and improved 10.4% from a year ago which is a solid gain.
  • Pending sales are homes that have a signed contract on them but have yet to close. They tend to lead Existing-Home Sales data by 1 to 2 months.
  • All regions showed increases from a year ago. The West saw the biggest gain from a year ago at 13.0% while the Midwest had the smallest gain at 7.8%.
  • From last month only two regions had an increase; the Northeast had the largest gain at 6.3% while the South had a modest decline in pending sales at 0.8%.
  •  The pending home sales index level was 112.6 for the US. This marks the highest level since April 2006.  The pending index has now been higher 100 for more than a year (13 months). The 100 level is based on a 2001 benchmark and is consistent with a healthy market and sales above the 5 million mark. Job creation, income growth and reasonable mortgage rates are going to help sustain housing activity.

How REALTORS® Get Leads on International Buyers

Mon, 06/29/2015 - 11:09

Contacts and referrals were the most important source of leads of purchases by international buyers, accounting for about 56 percent of responses, according to NAR’s 2015 Profile of Home Buying Activity of International Clients.  Website/online listings accounted for 20 percent. Among those who found their client through online sources, approximately 37 percent of the respondents reported that the agent/firm/franchise’s website was client’s source of information. Most transactions generally have two sides.  On the buyer’s side, REALTORS® frequently have a common language and cultural heritage with the client; on the seller’s side a match-up between the client and the REALTOR® tends to be more random.

Mortgage Application Data (June 24th, 2015)

Fri, 06/26/2015 - 13:51

This blog post was written by La Shawn Skeete. La Shawn is a Summer Research Intern, and is currently studying at The University of Maryland, College Park pursuing a degree in Economics.

  •  Seasonally adjusted mortgage loan applications increased 1.6% from the week ending June 12th and 10.5% when compared to this time last year.
  • Seasonally adjusted applications for purchase increased slightly over the week by 1.2% and are 1.0% higher than the 4-week average and 17.8% higher than this time last year.
  • Applications for refinance also increased over the week by 1.9% and volumes are higher than this time last year by 4.3%. Government refinance applications are notably higher than this time last year (34.3%); likely due to the FHA fee reduction in late January 2015.
  • 30-year FRM rates remain affordable at 4.19%, a 3 basis points decrease over the week, and less than in 2014 by 14 basis points. Fixed rate mortgage applications volumes are higher since last year by 11.4%, while adjustable rate mortgage applications are lower.

  • Low housing supply continues to obstruct growth in the housing market; current unsold inventory will be depleted in 5.1 months at the current sales pace.
  • Low inventory also means near double digit appreciation in home values in many markets.

Mortgage application data serves as an indicator to homes sales and other home related expenditures such as appliances and furniture.

State Unemployment Claims Decrease in Most States

Fri, 06/26/2015 - 13:20

This blog post was written by Erin Fitzpatrick. Erin is a Summer Research Intern and is currently studying at George Washington University pursuing a B.S. in Economics and a B.A. in Political Science.

  • Initial claims for unemployment insurance increased slightly in the week ending June 20 by 3,000. However, the 4-week moving average has continued to decrease to 273,750. Analysts consider a level below 300,000 to be indicative of a healthy job market marked by fewer layoffs and greater job stability.
  • State-level data from January-May 2015 shows that claims have dropped significantly across most states compared to the same time frame last year. Claims have only increased in Texas (37,092), Louisiana (9,703), Oklahoma (8,465), North Dakota (4,726), West Virginia (3,660), and Wyoming (2,248). The increase in claims is likely associated with the drop in oil prices, given the significance of the oil-gas industry in these states.
  • With the overall improvement in the job market, NAR expects over 2 million net new jobs in 2015 and 5.3 million in existing home sales.

In What States Did Properties Sell Quickly in March-May 2015?

Fri, 06/26/2015 - 13:05

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

Properties typically sold within 30 days in Colorado, the District of Columbia, California, Texas, Oregon, Washington, Idaho, North Dakota, Kansas, and Texas (red).  On the other hand, properties were typically on the market for more than 90 days in Maine, New Hampshire, West Virginia, Alabama, Mississippi, and Arkansas (green). All real estate is local. State-level data is provided for REALTORS® who may want to compare local markets against the state and national summary.

Meeting the International Client’s Needs

Fri, 06/26/2015 - 11:08

Based on survey information, not all client interactions lead to a purchase of an existing home.  About 43 percent of REALTORS® who had international clients reported they had at least one client who did not purchase a property, according to NAR’s 2015 Profile of Home Buying Activity of International Clients.  “Could not find property”, “could not obtain financing”, “cost of property”, and “other reasons” accounted for many of the cases.

For example, “Could not find property” accounted for 17 percent of the cases of clients not making a purchase and may represent a case in which the REALTOR® had trouble connecting with the needs, desires, culture, or objectives of the potential purchaser.  REALTORS® have reported that meeting the needs of the international customer frequently requires an additional level of skills beyond those normally used by REALTORS®, i.e., special training regarding cultural issues, the informational needs of individuals not familiar with U.S. practices, and experience with regulations as regarding international purchases.   For example, potential foreign buyers may also be unfamiliar with U.S. practices in regards to condo and other fees and property taxes.

This may be an opportunity for the REALTOR® to educate the potential purchaser and to reduce buyer concerns. NAR can provide extensive information related to facilitating real estate transactions with foreign purchasers.  NAR’s Commercial & Global Services Group has extensive information on the NAR website concerning business practices and approaches for dealing with potential foreign purchasers, including information on the Certified International Property Specialist designation.

Return Buyers Prefer Safe, Affordable Financing

Thu, 06/25/2015 - 14:34

The share of homes purchased by return buyers or “boomerang” buyers, those who formerly short sold a home or were foreclosed on, increased significantly in recent years.  NAR Research estimates that 8% or nearly 350,000 home sales were to return buyers in 2014.  It’s important to note though, that the majority of these borrowers according to NAR Research were likely of prime quality before entering foreclosure and that they prefer safe, affordable financing for their return purchase.


According to NAR’s 2014 Profile of Home Buyers and Sellers, 41% of return buyers financed their home with FHA backing, while 30% used conventional financing like Fannie Mae or Freddie Mac and another 25% used VA.  The VA and FHA allow for shorter time-out periods when a buyer is not eligible for financing and for smaller down payments which likely accounts for their large share of return buyers.  That left just 2% for “other” forms of financing that may include riskier products with high interest rates and fees like non-QM and subprime loans…roughly the same share of non-QM loans as for the full market.  However, respondents indicated in the 6th Survey of Mortgage Originators that both lenders and investors remain pensive about non-QM loans, favoring higher quality and holding them in portfolio limiting the risk to the market.


Return buyers also favor stable products for their return purchase.  A 92% majority of return buyers used a fixed rate mortgage product in 2014, while 5% used a mortgage with a fixed period followed by an adjustable rate.  Only 1% of return buyers used a fully adjustable product.

Nearly 9.3 million former homeowners went through a foreclosure or short sold between 2006 and 2014.  Many have returned, but many more will come over the next few years.  Luckily, there is safe, sound financing waiting for these credit-worthy borrowers.

REALTORS® Outlook in the Next Six Months, By State

Thu, 06/25/2015 - 10:44

In May 2015, REALTORS® were confident about the outlook in their local markets in the next six months, according to the May 2015 REALTORS® Confidence Index Survey.[1] This report is based on the responses of 3,805 REALTORS®.

Sustained job creation at a pace of 220,000 jobs per month in 2015, lower FHA monthly mortgage insurance premium rates (resulting in a 0.5 percentage point reduction since January 2015), and the availability of three percent downpayment for loans backed by Fannie Mae and Freddie Mac since early this year are likely underpinning the improved market confidence.

The following maps show the REALTOR® Confidence Index-Six-Month-Outlook across property types by state.[2] In the case of single family homes, all states registered an index greater than 50 for the third month in a row, which means that the number of respondents who had a “strong” outlook outnumbered those with a “weak” outlook. Despite the slump in oil prices, REALTORS® generally expect the real estate market to be “strong” in North Dakota, Texas, and Oklahoma.

In the case of townhomes and condominiums, confidence is most upbeat in Colorado. Homebuying activity for condos and townhomes is also generally strong in California, Oregon, and Washington where a technology boom is fueling demand. REALTORS® are also broadly upbeat about their local markets in Texas, Florida, New York, and Massachusetts. Homebuying is expected to be generally weak in other states. REALTORS® have reported that FHA’s and the GSE’s (Fannie Mae and Freddie Mac) financing eligibility regulations make condominium financing difficult to obtain.[3]

[1] Respondents were asked “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?”

[2]  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 the D.C. may have less than 30 observations.

[3] These regulations pertain to ownership occupancy requirements, delinquent dues, project approval process, and use for commercial space. Read the Statement of NAR Submitted for the Record to the Senate Committee Housing and Banking Affairs on December 9, 2014 at http://www.ksefocus.com/billdatabase/clientfiles/172/1/2180.pdf

The Chinese Existing Home Buyer

Wed, 06/24/2015 - 11:43

Over the 12 months ending March 2015, buyers from China purchased U.S. properties estimated at $28.6 billion in total value, an increase from $22 billion a year ago, based on information from NAR’s 2015 Profile of Home Buying Activity of International Clients. Purchases by Chinese buyers accounted for approximately 28 percent of total international sales in dollar volume.  About half of Chinese purchasers were resident buyers. About 35 percent of reported purchases by Chinese buyers were in California. Other major destinations included Washington, New York, Massachusetts, Illinois, and Texas.  About 39 percent of purchases were for residential purposes, and another 7 percent of purchases were for residences for students while studying in the U.S.  Approximately 86 percent of properties purchased were in the central city or suburban area. Approximately 62 percent of purchases were single family detached homes. On average, Chinese buyers purchased a property valued at $831,761, the highest among the top 5 buyers. Approximately 69 percent of purchases were reported as all-cash purchases.

FHFA Housing Price Index

Wed, 06/24/2015 - 11:08
  • FHFA released their housing price index data for April which showed that house prices rose 0.3 percent from March on a seasonally adjusted basis.
  • That rate of growth is the same that FHFA reported in March. If that rate were to continue for 12 months, it would translate into a very normal annual price growth of 3.7 percent.
  • Because month to month data can be somewhat volatile and we have recently had some very strong months of growth, the year over year data shows that home prices were up by 5.3 percent according to the FHFA.  This is somewhat similar to the 8.5 percent change reported in NAR’s median price in April.
  • Both FHFA and NAR data showed that the April year over year growth in prices was higher than March growth, though the FHFA measured somewhat less acceleration than NAR.
  • Monday, NAR reported May data that showed a slightly slower 7.9 percent year over year growth, however, both April and May rates of price growth regardless of source are stronger than would be considered normal (4 percent).
  • As long as tight housing inventory persists, we expect to see upward pressure on home prices.  Recent data on new home sales show that months supply—a measure of inventory relative to sales demand—drifted lower each month from March to May.
  • In addition to national data, FHFA releases data at the Census division level.  The most robust gains in FHFA data from a year ago were still in the West.  NAR data showed the strongest April growth in the Midwest with the South and West following closely behind.
  • According to FHFA year over year prices rose 7.5 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 7.0 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.  Divisions that make up the South region had growth in excess of 6.0 percent from a year ago.
  • NAR and FHFA data both showed the smallest price gains from April one year ago in the Northeast.  NAR showed that prices grew by 3.6 percent in the Northeast and FHFA showed that prices rose 3.7 percent in New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut) and 2.3 percent in the Middle Atlantic states (New York, New Jersey, Pennsylvania) from one year ago.
  • NAR reports the median price of all homes that have sold while FHFA reports the results of a weighted repeat-sales index.  For this reason, the trends in the NAR median price can differ from the trends in the weighted repeat sales index—which computes price change based on repeat sales of the same property, but they typically track very closely and the timeliness of the NAR median price data makes it a good early indicator of price conditions in the housing market.
  • 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 while NAR uses data reported from Realtor-assisted transactions in the MLS.

45 Percent of Properties Were on the Market for Less than a Month in May 2015

Tue, 06/23/2015 - 15:31

Approximately 45 percent of properties were on the market for less than a month when sold (46 percent in April; 41 percent in May 2014), according to the May 2015 REALTORS® Confidence Index Survey.

With tight inventory, properties that closed in May 2015 were typically on the market for a relatively short period of time at 40 days, about the same days as in May but shorter compared to last year’s (39 days in April 2015; 47 days in May 2014).[1]  Short sales were on the market for the longest time at 131 days, while foreclosed properties typically stayed on the market at 56 days. Non-distressed properties were on the market at 38 days.

[1] Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median days on market is the number of days such that half of the properties were on the market for those days and another half of properties were on the market for more than those days.

Latest New Home Sales (May 2015)

Tue, 06/23/2015 - 11:05
  • New home sales increased for the second straight month.  Homebuilders are now focusing on lower-priced and smaller-sized homes as evidenced by a lower median price.  But the supply is still short of demand.  Expect general push up to home prices in the upcoming months.
  • Construction of new homes was slightly below last year’s level.  But at $282,000, the new home carries a price premium of 23 percent above existing homes price.
  • Specifically, new home sales rose 2.2 percent in May from one year ago after having risen a solid 8 percent in April.  The latest pace of 546,000 annualized new home sales is the highest monthly tally since early 2008.
  • On average it took 3.9 months to find a buyer after constructing a spec home.  Moreover the all-important months-supply of inventory is at 4.5 months, implying tight market conditions.  The median price declined and was 1 percent below last year’s level.  This implies that builders are not cutting prices, but rather building smaller-sized and more affordable homes, possibly in light of the rise in first-time homebuyers.
  • The gap between new home price and existing home price still remains very wide.  It implies that existing homes provide better relative bargain in relation to newly constructed homes.
  • Even though new home sales are rising strongly in percentage terms, they are only about the half the activity as during the bubble years nearly a decade ago.  This implies, first, that today’s strong activity is not likely to be a bubble.  Second, there is more room to grow.
  • For the year as a whole, new home sales are projected to rise by about 30 percent in 2015.  It’s a good time to be a homebuilder.
  • As an aside, glass and windows are requested more often in the new home construction.  Long ago glass, because of impure materials, was never visually clear and people applied their creative skills in putting up stained glasses.  Also there was tax on the number of windows so many homes from the medieval period were dark with few natural lights.  Today, homes and condominiums have much glass and light, thereby providing the pleasant indoor-outdoor experience instantly and constantly.

Home Sales to Foreigners—Down In Number but Up in Value

Mon, 06/22/2015 - 15:41

Existing-home sales (EHS) to foreign buyers were approximately 8 percent of the total U.S. existing-home sales market of $ 1.3 trillion for the 12 months ending March 2015 according to NAR’s recently released 2015 Profile of Home Buying Activity of International Clients. The reported 209,000 transactions—approximately 4 percent of total existing-home sales—were down from the 232,600 delineated in the previous report.  However, foreign buyers are an upscale group—purchasing homes well above the average market price.  During 2014/15 the average price foreign clients paid for a house was $500,000, compared to the overall U.S. average house price of $256,000.  Approximately $54.5 billion of sales was attributed to non-resident foreigners, with resident foreigners accounting for $49.4 billion of sales.

Number of Unemployment Claims Decreases as of June 6

Fri, 06/19/2015 - 14:07

This blog post was written by Erin Fitzpatrick. Erin is a Summer Research Intern and is currently studying at George Washington University pursuing a B.S. in Economics and a B.A. in Political Science.

  • Continuing claims for unemployment insurance filed during the week ending June 6 decreased from the previous week’s level to 2.2 million, a decrease of 50,000 claims from the previous week’s level and below the previous year’s level as well of 2.6 million. The data is consistent with other labor market indicators that show an improving job market. The number of people who claim unemployment insurance on a continuing basis has been on the downtrend from its peak of about 6.5 million in 2009.  Fewer continuing claims indicate fewer layoffs and that unemployed workers are re-entering the job market. Data for continuous claims lags a week.

  • For the week ending June 6, the largest increase in initial claims occurred in California (10,917) but this comes after a large decrease in claims the previous week (-7,891). This was followed by Pennsylvania (4,130), Texas (3,489), Illinois (3,008), and Florida (2,502). The largest decreases occurred in Missouri (-827), Nebraska (-195), New Mexico (-177), Kansas (-171), and North Dakota (-149). 

  • Claims for unemployment insurance have decreased as job openings have increased. The number of job openings increased to 5.4 million in April 2015, the highest level since job openings peaked to 4.5 million in 2006.  Given the continued improvement in the job market, NAR expects 5.2 million of existing home sales in 2015, up from 4.9 million in 2014.

Mortgage Application Data (June 17th, 2015)

Fri, 06/19/2015 - 12:17

This blog post was written by La Shawn Skeete. La Shawn is a Summer Research Intern and is currently studying at The University of Maryland, College Park pursuing a degree in Economics.

  • Seasonally adjusted mortgage loan applications decreased 5.5% from the week ending June 5th thus balancing that weeks’ swell due to Memorial Day. There were 7.7% more applications made when compared to this time last year.
  • Seasonally adjusted applications for purchase decreased slightly over the week by 4.2% but application volumes are still 0.6% higher than the 4-week average and 15.0% higher than this time last year.
  • Applications for refinance also decreased over the week by 6.9% and volumes are higher than this time last year by 1.6%. Government refinance applications are notably higher than this time last year (27.5%); likely due to the FHA fee reduction in late January 2015.
  • 30-year FRM rates increased 5 basis points over the week to 4.22% and remain less than they were in 2014 by 14 basis points. Fixed rate mortgage applications volumes are also higher since this time last year while adjustable rate mortgage applications are lower.
  • The FOMC meets today and while they are not expected to alter interest rates, uncertainty around this event may still cause fluctuations in long-term rates.

  • Single family housing starts fell 5.4% from April to May to total 680,000. However, this figure is 6.8% higher than 2014.
  • Buyer foot traffic increased 13.1% from April to May 2015.
  • An expansion of supply and moderation of price growth coupled with underlying demand could help to sustain sales momentum in the face of moderate increases in rates.

Mortgage application data serve as an indicator to homes sales and other home related expenditures such as appliances and furniture.

Foot Traffic Points to Summer Strength

Fri, 06/19/2015 - 09:17

Foot traffic is a strong indicator of the demand for housing and is a leading indicator of home sales.  Every month, NAR publishes data on foot traffic as measured by the number of times SentriLock lock boxes are opened.  The data for May was the 6th consecutive month of expansion in the national foot traffic index.  Local trends bode well also with the vast majority in our sub-market panel showing expansion.

Despite a steady upward movement in mortgage rates in late April and May, demand for housing remains strong.  The diffusion index for foot traffic eased 1.8 to 59.0, 13.8 points higher than the same time in 2014.  A measure above the “50” mark indicates that more than half of the roughly 200 markets in this panel had stronger foot traffic in May of 2015 than the same month a year earlier.  But this index does not tell us how much stronger traffic is.


At a local level, NAR Research tracks a panel of 14 cities.  With this data, one can assess both the direction of the trend in foot traffic (up/down) and a rough magnitude of the change.  The table below depicts the change in foot traffic this year relative to the same time a year earlier, which eliminates the impact of seasonal variation:

  • Relative to last year, 10 markets expanded, while Salem, Boulder, Kingston, and Honolulu contracted.
  • With the exception of Salem, all of the markets that declined relative to last year, improved relative to last month’s year-over-year measure (not pictured).
  • The strongest improvements in traffic relative to last year were in San Diego, Iowa City, and El Paso.

While foot traffic is falling in some markets, that is not necessarily an indication of a decline in demand.  After nearly three years of low supply, traffic may fall in certain markets due to lack of opportunities for an open house.

Foot traffic continues to signal a positive summer trend for home sales.  Improvements to economic fundamentals like employment, access and pricing support current shoppers, but rising rates will create a headwind later this year.  Over the long-term, wage growth and expanded supply can help to ameliorate these factors.

Homeowner Equity as a Share of the Value of Real Estate Could Normalize Within the Year

Thu, 06/18/2015 - 15:33


  • Just as the rise in home prices had slowed in the middle quarters of 2014, the rise in owners’ equity in real estate slowed.  Now, however, as home prices are accelerating, owners’ equity in real estate is growing at the fastest quarterly rate since 2013.
  • Household owners’ equity—the value of real estate households own less any outstanding mortgage debt—rose by $443 billion (3.9 percent) from 2014Q4 to 2015Q1.  The total value of household equity is now $11.7 trillion or $5.6 trillion higher than the trough during the housing crisis.  This is roughly $63,000 per property[1].
  • Home owner equity is on the rebound as a result of construction, rising prices, and a continued decline in mortgages outstanding according to first quarter data from the Federal Reserve’s Flow of Funds. Mortgage debt outstanding fell by nearly $33 billion while the market value of household real estate rose $411 billion.
  • The total value of household real estate reached $21.1 trillion, still $1.4 trillion or 6 percent shy of its value in the first quarter of 2006, near the previous value peak[2].
  • One way of judging whether we are back to “normal” would be to look at the equity that is accumulated in real estate relative to the value of the real estate.  In total, home owners now have equity equal to slightly more than half of the total value of household real estate  (56%) compared to as little as 37 percent in the first and second quarters of 2009.
  • The chart below shows that the share of equity was roughly stable at just less than 60 percent from 1995 to 2005.  Holding the current level of mortgage debt outstanding constant, the value of household real estate would need to grow to about $22.3 trillion to reach that share of equity, or roughly a 6 percent gain from its current level.
  • At the growth rate seen in 2015Q1, the share of equity in real estate would be fully recovered by the end of the year, but if the growth rate slows to what we saw in mid-2014, the share of equity would be fully recovered by mid-2016.

[1] The Fed indicates that this includes owner-occupied housing, second homes that are not rented, vacant land,

and vacant homes for sale.  Using the Census Housing Vacancy Survey, housing units meeting this description have totaled roughly 88 million for the past 8 years. The experience of any particular owner may vary notably from the average.

[2] Because the data is not seasonally adjusted, we have compared first quarter 2015 to the first quarter of 2006 in an attempt to mitigate any seasonal effects.