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Economist's Outlook

REALTORS® Confidence Dipped in April 2014

Wed, 05/28/2014 - 08:50

REALTOR® confidence in current market conditions dipped in April 2014 compared to March 2014, according to the latest REALTORS® Confidence Index. Many REALTORS® reported problems with “tight financing” and “extremely low inventory,” and some reported the lingering negative effects of the unusually harsh winter on spring sales (IN, NC, VA, NJ).

Confidence about the outlook for the next six months also edged down in April. REALTORS® remained concerned about the low levels of inventory, difficult credit conditions, and in some states the effect of higher property taxes (TX) and the uncertainty about flood insurance regulation and costs (FL, NH, HI).

Latest Home Price Data from Case-Shiller

Tue, 05/27/2014 - 14:49
  • Home prices continue to rise quite strongly according to the Case-Shiller home price index. In March, prices rose 12.4 percent from one year ago. Prices have been increasing at a double digit rate of appreciation for the past 12 months.
  • The latest data, however, is outdated. The purported March figure is not for a single month but rather a 3-month average covering January, February, and March. With the month of June only a few days away, the freshest information from Case-Shiller incorporates what had happened in January – a rearview mirror into the deep past.
  • Even though Case-Shiller price information is not reflective of what is happening right now, the data is highly useful in confirming what had already occurred several months ago. The NAR median price, by contrast, showed a price gain of 5.2 percent in April. REALTORS® have even better information on the local market and all the idiosyncratic neighborhood factors. Therefore, it is critical for REALTORS® to lower home sellers’ expectation about the true value of their homes.
  • Of the 20 metro markets covered by the Case-Shiller index, the strongest price increases were in Las Vegas and San Francisco, both with over 20 percent gain in one year. Also worth noting, but not placing too much weight, is the annualized growth in prices. This measure computes what the price growth would be over the one year period if the latest data change were to continue at the same pace. Chicago, Detroit, and Minneapolis show heating trend. Charlotte and Tampa are showing a marked decelerating trend.
  • One lesson of home prices is that they will rise even after a severe fall. That’s because land is limited. The typical single-family home price was less than $20,000 in the mid-1960s. Now it is ten times higher. One can even go all the way back to the time of Thomas Jefferson. Understanding the importance of the port city New Orleans, President Jefferson offered to buy the city from Napoleon. Known for doing things only on a grand scale, Napoleon countered by offering not only the city but the vast “worthless” land of Louisiana (spanning Oklahoma to Montana) at a 2-cent per acre price. As proven frequently, buying real estate for the long haul has been a good bet.

The Latest on New Home Sales

Fri, 05/23/2014 - 10:37
  • Contract signings for newly built homes bounced back in April after suffering two consecutive months of decline. A total of 443,000 new homes went under contract in the past month, an increase of 6 percent.
  • New home sales (which are only contract signing and not closings) represent a small share of the total housing market.  Currently, the existing home sales market covers over 90 percent of all sales.  It was reported that existing home sales (closings) also rose in April.
  • The inventory of newly built homes has been slowly rising.  Still, the inventory conditions are at historic lows.  Whatever the homebuilders build, it is being sold quite quickly.  It took on average 3.4 months to sell a newly built home.  A few years ago, it took over 10 months.  This sounds like a clear signal for homebuilders to produce more homes.
  • The median price of a new home in April was $275,800.  Though a slight decline, the newly built home is currently carrying a hefty premium over the existing home price.  Since new home prices must cover the cost of construction there is a little room for a price decline.  That means existing home prices are a better bargain compared to new home prices by historical standards.
  • Unlike automobiles where some consumers will only consider a new car without the old smell, Americans understand the unique value of location, location, location that existing homes are currently situated.  That is why far more existing homes are sold compared to new in America.  By contrast, in Japan, where people are obsessed with cleanliness (hot cleansing towels before every meal, for example), newly built homes with no history of past owners are preferred.  Perhaps related to cleanliness and probably not to newly built homes, the Japanese have the highest life expectancy in the world.


Latest Mortgage Purchase Applications

Wed, 05/21/2014 - 10:58


  • The number of people applying for mortgages for a home purchase fell in the latest week by 3 percent from the prior week. From a year ago, activity is down by 12 percent. A negative hit to housing affordability from rising home values and from higher mortgage rates has damped home buyer enthusiasm.
  • Fortunately, all-cash sales are still going strong, consistently hovering at about one-third of all transactions.
  • Refinancing activity is on the rise for the 3rd consecutive week as mortgage rates inched lower. However, this business line will feel great pain for much of the year. Refis are off by more than 60 percent this year. There are just not that many mortgages that can be refinanced, particularly as mortgage rates will inevitably rise.
  • An announcement last week by the new boss (Mel Watts) of Fannie and Freddie regulators could meaningfully open up mortgage credit. He has expressed displeasure at the too-stringent mortgage market and seems open to lowering the guarantee fees since Fannie and Freddie are continuing to make good profits after having paid back all of taxpayer bailout money. Depending on how mortgage standards are dialed down, a boost of 5 to 10 percent additional mortgage approvals are a possibility.
  • Opening mortgage credit without an increase in inventory could reignite a bidding war of more buyers without more sellers. It is therefore critical to ramp up housing starts via more accessible construction loans to bring housing supply in line with expected rise in housing demand.

Latest Housing Affordability Index Data

Tue, 05/20/2014 - 10:35

  • At the national level, housing affordability is down for the month of March, as the median price for a single family home in the U.S. increased due to a continued lack of housing inventory. The median single-family home price is $198,200, up 7.4 % from a year ago.
  • Mortgage rates are up 72 basis points (one percentage point equals 100 basis points) from last year; nationally, affordability is down from 195.3 in March 2013 to 170.3 in March 2014.
  • Income levels are up 2.1% from last year. An increase in inventory along with price stabilization will improve affordability.
  • From one year ago, affordability is down in all regions. The West saw the biggest decline in affordability as a result of having the largest price gain at 12.5%.
  • Interest rates are the lowest they have been since November of 2013. This break in increases should help potential homebuyers.
  • What does housing affordability look like in your market? View the full data release here.
  • The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

Increase in Tenure in Home: Due to Increased Buying Power?

Tue, 05/13/2014 - 07:50

I remember giving my mom a hard time when I was kid saying we moved too much (we did), to which she retorted “Everyone moves every six years. It’s a fact.” It was only many years later that I did find out it was indeed a fact. Looking at data from the Profile of Home Buyers and Sellers, the median tenure from 2000-2008 was six years. From 2009 to 2013 the number has incrementally increased to its present figure, a median of nine years.

There has been much discussion about the reasons why tenure has increased. It is a multifaceted issue:
• There are still underwater home sellers
• The lock in rate of first-time buyers being able to skip the starter home and jump right into their trade-up/family home
• The lock in rate of low mortgages

I’d like to address the first two issues with time series data from the annual Profile of Home Buyers and Sellers report. This year in the profile sellers were asked if they wanted to sell earlier but waited or stalled because their home was worth less than their mortgage—13 percent of recent sellers (who went on to purchase another home) were in this situation. This was most common among those who bought their home six to 10 years ago—about one in five sellers were in this situation. Those sellers who sold at that nine-year mark could have really wanted to sell after six years.

As home prices dropped, interest rates hit record lows, and housing affordability hit record levels, buyers were able to buy more home than they could in the past. This phenomenon increased the expected tenure in home. First-time buyers were buying homes that were 1,516 square feet in 2006 – this figure jumped to 1,670 square feet in 2013. Their desire to move sooner also decreased. The expected tenure in home for first-time buyers in 2006 was just six years in the home – in 2013, the expected tenure in home increased to 10 years. The difference of only 154 square feet could be the difference in having a room for a den that could transform into a room for a child in the future, making the need and desire to move less certain and pushing the idea farther into the future. Interestingly, over the same time period the age of first-time home buyers did not change, staying within a range of 30 to 32 years old.

It will be interesting to see in coming years if tenure in home stays at nine years, and a new normal is created, or if tenure will go back to the historical median of six years.

For more information on data from the Profile of Home Buyers and Sellers, visit: http://www.realtor.org/reports/highlights-from-the-2013-profile-of-home-buyers-and-sellers

Highlights: 2014 NAR Commercial Member Profile

Thu, 05/08/2014 - 11:00

The 2014 NAR Commercial Member Profile, released earlier this week, reports that Realtors® who practice commercial real estate saw an increase in sales transaction volume and medium gross annual income last year. NAR commercial members who were surveyed conduct all or part of their activity in commercial sales, leasing, brokerage and development for land, office and industrial space, multifamily, and retail buildings, as well as property management. Highlights from this year’s report can be found below:


  • Fifty-eight percent of commercial members reported having a broker license and 26 percent reported having a sales agent license.
  • Thirty-four percent of respondents are members of any of several commercial affiliated institutes, councils or societies.
  • Investment sales are the most cited primary specialty of commercial members and is the top ranked secondary specialty area. Land sales are the second most common primary and secondary specialty area.
  • Commercial members typically have been in real estate 25 years, in commercial real estate 15 years, and members of NAR 18 years.


  • Commercial members completed a median of eight transactions in 2013.
  • The median sales transaction volume in 2013 for members who had a transaction was $2,554,700—an increase from $2,507,700 in 2012.
  • The median gross leasing volume was $431,600 in 2013—a decrease from the $476,400 in 2012.


  • The median gross annual income of commercial members was $96,200 in 2013, an increase from $90,200 in 2012. The median gross annual income of commercial members has increased for the past four years.
  • Eighty percent of commercial members work at least 40 hours a week.
  • Sixty-two percent of commercial members of NAR derived 50 percent or more of their income from all commercial real estate in 2013.
  • Fifty-seven percent of members work for a local commercial real estate firm.


  • The median age of commercial members is 59-years-old.
  • Seventy-seven percent of the practitioners are male.
  • Sixty-four percent of commercial members have a bachelors’ degree or higher.

For more information on the latest Commercial Member Profile, visit: http://www.realtor.org/reports/commercial-member-profile

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”.