The new TRID regulations continue to dog the market, but the impact moderated slightly in January. With the spring market beginning to heat up in February, lenders will be pressed to streamline their settlement procedures while REALTORS® will need to search out those lenders best able to close on time.
The average time-to-close as measured in days rose from 40.9 in February to 43.3 in January. Relative to the same time in January of 2015, the time-to-close was 5.3 days higher reflecting TRID-related delays. However, this year-over-year increase was a decline from the 5.7 additional days registered in December and suggests an improvement or at least stabilization.
The distribution of these delays also reinforces the trend seen in December. The share of settlements that took more than 45 days rose from 46.9 percent in December to 50.1 percent in January. This monthly uptick in January at the long-end of the distribution appears to be seasonal, but the increase relative to last year is wholly new and depicts a shift of 8.8% of market share to the 46+ day’s portion of the distribution under TRID, roughly the same as in December.
While delays due to TRID are potent and continue to impact the market, their impact is isolated to roughly 9 percent of settlements. Lenders will be tested in the months ahead as they attempt to streamline their processes and reduce delays in the face of higher volumes in the spring market. REALTORS® should seek out lenders who are collaborative and who have successfully navigated TRID without delays to assure smooth settlements in 2016.
This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.
You probably know that home listings go up most often on Thursdays and Fridays. Here is the data to back up your intuition:
- As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2014 holds for 2015. While December 2015 is still preliminary, we can get a good sense of the year by looking at the data we currently have for the past 12 months. In our first posts, we looked at popular and least common closing dates. Here, we’ll take a look at listings.
- Below, we see the most popular listing days of 2015. Note the strong preponderance of spring dates and obvious lack of weekends.
- The biggest months for new listings are April, May, and June, followed by March and July. These months alone accounted for roughly half of all new listings in this analysis.
- While not devoid of new listings, the weekends are obviously not popular days to list. Among weekdays, Fridays and Thursdays are the most common days for new listings to go up, with Mondays and Wednesdays trailing a bit and Tuesdays not too far behind. Tuesdays and weekends are the only days of the week absent in the top 25 days for listings.
- While home closings exhibit a strong tendency to get done at the end of the month, listings are much steadier throughout the course of the month with a slight tendency to be posted earlier rather than later.
 This analysis considers data from January 1, 2015 to December 31, 2015.
The share of non-QM and rebuttable presumption loans rose in the 4th quarter as reported by respondents to NAR’s 9th Survey of Mortgage Originators. While these loans are riskier than standard, prime loans, they are still at subdued levels, and in the case of non-QM loans they are entering the market in places where private capital can absorb the risk. This trend suggests a modest expansion of credit.
The Ability to Repay (ATR) rule martialed in a new set of lending rules in the spring of 2014. Lenders’ are now required to be able to prove the ability of all borrowers to repay their loans or face significant penalties. This concept sounds obvious, but definitively proving the soundness of a loan isn’t. As a result, lenders were given two standards that if met provided either clear or nearly full exemption from the ATR; a qualifed mortgage standard or a rebuttable presumption standard. Qualified mortgages enjoy the fullest legal protection for lenders and tend to be standard prime loans, while rebuttable presumption have less protection and tend to be standard loans but for lower credit scores or low down payments. Loans outside of these two definitions pose more legal risk for lenders and include interest only loans, those with points and fees greater than 3 percent of the balance, and jumbo loans with debt-to-income ratios greater than 43 percent.
Respondents in the 4th quarter survey indicated a sharp increase in the share of non-QM loans from 0.3 percent in the 3rd quarter to 1.5 percent in the 4th. The non-QM share peaked at 5.0 percent in the 3rd quarter of 2014 before pulling back sharply on weak investor demand. The share of rebuttable presumption loans increased as well, reaching 10.4 percent in the 4th quarter, not far from its peak of 12.8 percent in the 2nd quarter of 2014.
Banks tended to have the highest share of non-QM loans in the 4th quarter of 2015, while mortgage bankers drove the share of rebuttable presumption. These results likely reflect the business models of the various originators. Since there is little investor appetite for non-QM loans, non-QM loans must be held in portfolio putting bank capital at risk, while non-banks lack the capital for this type of lending. Conversely, banks have shown little interest in lending down the credit spectrum, while non-bank lenders have moved into this market both in the conventional and FHA spaces. Research by the Federal Reserve has shown that non-bank lenders tend to charge slightly higher than average rates, a trend that likely reflecting their capital structure and appropriate pricing of risk. Finally, survey respondents indicated that investor interest in non-QM loans slowed in the 4th quarter relative to the 3rd quarter, though it was expected to increase modestly over the next six months.
After contracting sharply in recent years, credit availability has slowly expanded. Unlike the heady years a decade ago, this riskier credit appears to be limited and concentrating in the portions of the market best suited to sustain it, protecting the broader market from a repeat of the subprime crisis.
This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.
You probably know that home closings slow down during the holidays and the earlier part of the week. Here is the data to back up your intuition:
- The sales data for December 2015 is still preliminary, but we can get a good sense of the year by looking at the data we currently have for the past 12 months. In our first post, we looked at top closing days of 2015.
- In this list, we see the slowest closing days of 2015. The resulting list depends very much on how you define the eligible days.
- Very few closings happen on weekends and federal holidays. Excluding these days as well as Christmas Eve, we find that the slowest closing day was Tuesday, January 13, 2015. Last year’s slowest day—January 2, 2014—again made the list, but was number four instead of number one this year, likely because it fell on a Friday which tends to boost sales. In fact, it was the only Friday to make this list.
- While in 2014 there were a few weekend days that performed at least as well as these slow business days, this was not the case in 2015. All weekend days and holidays were slower than the slow business days listed below.
- Because this ranking was compiled with data that was not seasonally adjusted, we see that winter days figure prominently in the list of slowest days for home closings.
- Those who have been in business a few years can probably expect these seasonal fluctuations, but for those who are new to real estate, take note and plan your vacations accordingly.
 This analysis considers data from January 1, 2015 to December 31, 2015.
This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.
You probably know that home closings predominate on Fridays and the end of the month. Here is the data to back up your intuition:
- As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2015 holds for 2016. The last sales data for December 2015 is in, and we can get a good sense of the year by looking at the data we currently have.
- A list of top closing days of 2015 shows that the last business day of a month and Fridays are the most popular days to complete a home sale transaction. In fact, these days are so popular that the top 25 closing days accounted for roughly a quarter of all home sale closings for the year.
- The top 7 closing days were the last business days of April, May, June, July, September, and October. The next 18 most popular days were all Fridays except for four dates, all of which were at or near the end of the month: Monday, November 30; Monday, August 31; Tuesday, March 31; and Thursday, July 30.
- Because this ranking was compiled with data that was not seasonally adjusted, we see that spring and summer days figure prominently in the top of the list, but all seasons are represented.
- This day by day data confirms the preliminary unadjusted monthly EHS data which shows that June and July were the top months for home sales in 2015, followed by August and May. In fact, June and July alone account for more than 20% of sales for 2015.
- It is expected that spring and summer months will be strong from a home sales perspective. This is why NAR Research reports seasonally adjusted home sales data each month, so we can see how sales are performing relative to what we might typically expect given the season.
- By this metric, the second half of 2015 was stronger than the first half of the year with the notable exception being November, when TRID implementation dampened closed sales. We expect the strength in the second half of 2015 will carry through into 2016.
- What was your busiest day in 2015?
 This analysis considers data from January 1, 2015 to December 31, 2015.
 Revisions to seasonal adjustment factors that will be made in February 2016 when 2015 data is finalized are likely to shift the precise magnitude of this figure but unlikely to change the broad trend.
New rules governing the settlement process were introduced in the 4th quarter of 2015. NAR Research surveyed its members to gauge the impact of the new regulations and found a modest, but significant impact on volumes, but more insidious problems with REALTORS® ability to support their clients.
On October 3rd 2015, the Know Before You Owe or TILA-RESPA Integrated Documentation (TRID) rules went into effect. The rules were intended to better protect consumers, while streamlining the documentation required for settlement. One of the principle changes was the replacement of the HUD-1 form with the closing document or “CD”. The closing document describes the fees, charges, and APR the consumer faces. In the past, REALTORS® often aided their clients by answering questions about the HUD-1. 54.5 percent of REALTORS® who were surveyed indicated that they had problems getting the CD for transactions and half found errors when they did get access.
When REALTORS® did get access to CDs, they frequently found missing concessions and incorrect names or addresses, but incorrect fees, commissions, and taxes were also reported. Finally, REALTORS® were more likely to have issues getting access to the CDs, when settlement was delayed.
REALTORS® advise their clients on many aspects of the home purchase process. With TRID changes causing issues for some transactions, REALTORS® can seek out lenders who are up-to-speed on the TRID rules and who are attentive to the long-term relationship between these transaction partners.
The mortgage lending process underwent a major regulatory overhaul in the 4th quarter. NAR Research surveyed its members to gauge the impact of the new regulations and found a modest impact to the market, but significant impact for those settlements that were delayed.
The TILA-RESPA Integrated Documentation (TRID) or Know Before You Owe rules went into effect on October 3rd 2015. The rules are intended to streamline the documentation process and to add protections for consumers. REALTORS® who were surveyed indicated that 10.4 percent of transactions were delayed, but less than 1 percent cancelled. When settlement was delayed, the average delay was 8.8 days.
The share of closings that were delayed and the magnitude of the delay are very similar in scope to those found in an earlier analysis. Typically, a homebuyer locks their mortgage rate 30 days in advance of settlement. Locking the rate insures against fluctuations in the rate, but the buyer must pay for this insurance. Typically, a buyer pays a premium for each 15-day increment added to the base lock (e.g. 45 or 60 day rate lock). Or, if the buyer does not have a long enough rate lock and the settlement takes longer, they may need to pay for a rate extension, which is more expensive than a rate lock. For those home buyers impacted by the TRID-related delays, they may face higher costs due to longer rate locks or extensions. It is unclear whether lenders are absorbing these costs or passing them onto consumers. However, lenders would not absorb the costs of delayed moves and scheduling for both the buyer and seller.
Delays weighed on the market in the 4th quarter, but cancellations are low. As a result, the TRID impact shifted total monthly sales volumes roughly one period. This shift in the aggregate sales volume may mask the impact on impacted borrowers though.
At the national level, housing affordability is down from a year ago as higher home prices and only slightly lower mortgage rates mean that monthly payments are rising faster than incomes.
Housing affordability declined from a year ago in December pushing the index from 171.0 to 161.7. The median sales price for a single family home sold in December in the US was $226,000, up 8 percent from a year ago. For year as a whole, the median price for a home in the US 2015 was 223,900, 7.2 percent higher than 2014 price which was 208,900.
- Growing incomes and easing mortgage rates from a year ago helped to nearly offset the increase in home prices. Nationally, mortgage rates were down 2 basis points from one year ago (one percentage point equals 100 basis points) while incomes rose approximately 2 percent. The reduction in mortgage rates from one year ago saves the median home buyer $2 per month on principal and interest payments at the current home price while income growth means the median family earns $106 more per month than December 2014.
- Regionally, all four regions saw declines in affordability from a year ago. The Midwest had the biggest decline in the affordability index of 6.5 percent followed by the West, South, and Northeast with the smallest at 2.7 percent.
- The West had the biggest increase in price at 8.6 percent while the Northeast experienced the slowest price growth at 6.1 percent. The Midwest and the South fell in between with 7.8 percent and 7.0 percent, increase in single family home prices, respectively.
- By region, affordability is down in all regions from last month. The South (5.0 percent) and West (3.0 percent) had the biggest dip while the affordability decreased the least the Midwest (2.1 percent) and Northeast (0.9 percent).
- Despite month to month changes, the most affordable region is the Midwest where the index is 209.5. This means that in the Midwest in December 2015, the median income family earned roughly 2 times the income that would be needed to qualify to purchase the median-priced home that sold in the same month. For comparison, the index is 167.3 in the South, 165.1 in the Northeast, and 118.5 in the West.
- Price growth for potential home owners remains unhealthy especially in certain metro markets where inventory is an issue. Mortgage rates are currently stable and have exhibited a tendency to move lower as a result of financial market turmoil in spite of the Fed’s move to raise short-term rates. Homebuyers looking to get into the market can still lock in a low rate which helps make homes more affordable and enables new owners to participate in the equity build up that results when home prices rise.
- 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.
In the spirit of President’s Day we can use data from the 2015 Profile of Home Buyers and Sellers to see how the typical home differs from the White House.
Typical Home Purchased in the U.S.
- 84% of buyers purchased a previously owned home, with 83% of buyers choosing a detached single-family home.
- Looking at first-time and repeat buyers, both also purchased detached single-family homes more often with 80% of first-time buyers and 84% of repeat buyers.
- 52% of all buyers purchased their home in a suburb/subdivision. The typical detached single-family home purchased was 1,900 square feet.
- Homes purchased also had a median of 3 bedrooms, 2 bathrooms, and was built in 1991.
- Of all buyers, the expected length of tenure in the home purchased was 14 years.
The White House
- The White House was built in 1792, and in comparison is located in an urban or central area.
- The White House contains 6 levels, has 132 rooms, including 35 bathrooms.
- It also includes features such as: a tennis court, jogging track, swimming pool, billiard room, movie theatre, and bowling alley.
- While tenure in the median expected tenure in home lasts around 14 years, in the White House the expected tenure is between 4 and 8 years.
FHFA’s GSE Housing Goals are Targeting to Increase Affordable Housing Opportunities for Low-income Families in 2015-2017: A REALTOR® University Speaker Series
In a presentation in the REALTOR® University Speaker Series held recently, Dr. Paul Manchester presented the affordable housing goals for the government-sponsored enterprises, Fannie Mae and Freddie Mac, for 2015-2017. FHFA’s housing goals for the GSEs pertain to increasing credit to low-income borrowers and areas for single-family homes and increasing financing for multi-family units that are affordable to low-income renters, while maintaining the financial safety and soundness of the GSEs. Dr. Manchester is the Federal Housing Finance Agency’s lead economist for the preparation of FHFA’s Annual Housing Reports, submitted to Congress in October each year. The webinar can be accessed here.
Some highlights of the single-family home purchase/refinance and multi-family unit financing goals:
1) Share of single family loans to low income borrowers: pre-set benchmark. For 2015-2017, the GSEs have a pre-set benchmark that 24 percent of their single-family home purchase mortgages in each year should be for low-income borrowers, defined as borrowers with incomes of 80 percent or less of the area median income. This is slightly higher than the 2012-2014 target of 23 percent. Although representing only a slight increase, this will improve the access to credit for low-income borrowers.
2) Share of single-family loans to low-income borrowers: retrospective market comparison. A GSE meets this goal if its performance equals or exceeds this benchmark of 24 percent or if its performance equals or exceeds the low-income share of conventional home purchase mortgages originated in the primary mortgage market during the year. This latter figure is based on FHFA analysis of Home Mortgage Disclosure Act (HMDA) data. However, this HMDA data is not released until September of the subsequent year. Thus in addition to comparing performance with the pre-set benchmark, FHFA employs this “look back” procedure in determining goal compliance. An Enterprise fails a goal only if its performance falls short of both the pre-set benchmark level and the retrospective market goal-qualifying share of the primary market. In 2013-2014, Fannie Mae met its goals to provide financing for single-family home mortgages made to low-income borrowers (highlighted in green in Chart 1). Freddie Mac missed its goal (highlighted in red), since its performance (21.8 percent in 2013 and 21.0 percent in 2014) fell short of both the benchmark level (23 percent for both years) and the market level (24.0 percent in 2013 and 22.8 percent in 2014). Based on its shortfall on this goal and the very low-income goal in 2014, FHFA is requiring Freddie Mac to submit a housing plan that will enable it to meet targets for 2016 and 2017. 3) Multi-family low income goal – For each year, 2015-2017, the multi-family goal is that each GSE provide financing for at least 300,000 units that are affordable to low income families (600,000 total). This is higher than the targets in 2012-2014 (see Chart 2). The higher target will help ease the shortage of affordable rental units. Both Fannie Mae and Freddie Mac met their goals in 2012-2014. Together, they provided financing for 674,453 units affordable to low-income renters in 2012, 581,225 units in 2013, and 536,484 units in 2014.
4) Small multifamily sub-goal. To enhance the role of the GSEs in providing access to affordable rental housing, FHFA has established a new sub-goal for the agencies to provide financing for units in small (5- to 50-unit) multifamily properties that are affordable to low income borrowers. For 2015, the goal for each Enterprise was 6,000 units (12,000 combined); this increases to 8,000 units each in 2017 (16,000 combined), and to 10,000 units each in 2017 (20,000 combined) (Chart 3).
REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.
 The REALTOR® University Speaker Series on “Overview of the Final Enterprise Housing Goals in 2015-2017” was held on January 28, 2016 at the NAR Washington Office.
 Under the 2008 Housing and Economic Recovery Act, all regulation of the Enterprises, except fair housing, was transferred from HUD and OFHEO to the Federal Housing Finance Agency. FHFA is also the regulator for the Federal Home Loan Banks.
 FHFA sets the prospective target based on six factors: specified in Housing Economic and Recovery Act which transferred all regulation, except on fair housing, from HUD to FHFA: (1) national housing needs; (2) economic, housing, & demographic conditions; (3) past goal performance and effort; (4) ability of Enterprises to lead the industry in making mortgage credit available; (5) projected size of relevant primary conventional, conforming market; and (6) the need to maintain the sound financial condition of the Enterprises.
 For more information about the GSEs’ performance, see FHFA’s 2015 Annual Housing Report at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Annual_Housing_Report_2015.pdf).
In reporting on their last contract that went into settlement or was terminated over the period October–December 2015, REALTORS® reported that 33 percent of contracts had delayed settlement, according to the December 2015 REALTORS® Confidence Index Survey Report.
Among contracts that had a delayed settlement (33 percent), 45 percent had financing issues, an increase compared to the share of about 40 percent in the first half of 2015. REALTORS® reported that the “Know Before You Owe”/TRID regulations have led to longer closing periods. In the December 2015 survey, 53 percent of respondents reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in the October 2015 survey when NAR first gathered this information.
Among contracts that were terminated (seven percent), 29 percent had financing issues and 29 percent had home inspection issues.
 The “Know Before You Owe”/TRID regulations that took effect on October 3, 2015, were intended to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage for which they are applying.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “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?”
Nationally, properties sold in December 2015 were typically on the market for 58 days compared to 66 days one year ago (54 days in November 2015; 66 days in December 2014, according to the November 2015 REALTORS® Confidence Index Survey Report.
Fewer days on the market are an indication that inventory remains tight. Short sales were on the market for the longest time at 86 days, while foreclosed properties typically stayed on the market for 68 days. Non-distressed properties were typically on the market for 57 days.
Properties typically sold within a month in the District of Columbia, Utah, and Colorado. In the oil-producing states of North Dakota, Montana, Kansas, and Louisiana, which are undergoing slower job growth following the collapse of oil prices, properties stayed on the market longer at 60 days. In Wyoming, properties typically sold after 90 days on the market. Texas appears more resilient to the oil price collapse, as properties typically sold after 45 days on the market. Diversity in the Texas economy may explain this phenomenon. Local conditions vary, and the data is provided for REALTORS® who may want to compare local markets against the state and national summary.
11 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 is the number of days at which half of the properties stayed on the market. In generating the median days on market at the state level, we use data for the last three surveys to have close to 30 observations. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations.
- The number of workers starting a period of unemployment is on the rise. The U.S. Department of Labor reported that in the week ended January 30, 2016 285,000 claims were filed, an increase of 8,000 from the previous week’s level. Some of the increase may be due to weekly volatility, but even four-week moving average which strips out the weekly volatility shows an increase in jobless claims (Chart 1). In the four weeks of January 9 – 30, an average of 284,750 workers filed unemployment insurance claims, an increase compared to 263,000 claims filed in October 2015.
- The uptick in the number of claims filed appears to be associated with the steep fall in oil prices, plunging from about $100 per barrel in 2012-2014 to about $32 in January 2016. This has led to a cutback in jobs and investment spending in the oil-producing states of Texas, Oklahoma, Louisiana, North Dakota, West Virginia, Wyoming, and New Mexico (Charts 2). In the fourth quarter, the economy expanded at a slower pace of 0.7 percent as spending across most sectors declined, save for residential investment which grew at a healthy pace of 8.1 percent (Chart 3).
- Given the headwinds coming from falling oil prices, NAR projects existing home sales of 5.34 million in 2016, a modest increase from the 5.26 million existing homes sold in 2015.
 West Texas Intermediate, spot price.
Buyers who are 34 years old and under accounted for 27 percent of home sales in December 2015, according to the December 2015 REALTORS® Confidence Index Survey Report.
The participation of buyers who are 34 years and under has remained essentially unchanged since the housing market’s breakout recovery in 2012. Income growth has lagged behind the increase in house prices, making it harder to qualify for a mortgage and save for a downpayment, especially for someone with student loans. Buyers 35 to 55 years old accounted for nearly half of sales, while buyers 56 and over represented 24 percent of home sales. Older buyers are more likely to have better credit profiles and the savings or home equity to use as downpayment than younger buyers.
Nationally, buyers 34 years and under accounted for 28 percent of all buyers in calendar year 2015. Younger buyers comprise a larger portion of the residential market in Utah (39 percent), Pennsylvania (38 percent), New York (36 percent), Ohio (35 percent), Illinois (36 percent), and Colorado (33 percent).
 Federal Reserve Board, Survey of Households and Economic Decision-making, October 2014. Among renter respondents, 50 percent reported they do not have the downpayment to purchase a home, and 28 percent reported they cannot qualify for a mortgage. See http://www.federalreserve.gov/econresdata/2014-report-economic-well-being-us-households-201505.pdf
Either way you look at it, buyers know that commuting costs are high. Some buyers need to be closer to their job while others need to be close to school districts. The National Association of REALTORS® releases its annual report Profile of Home Buyers and Sellers Report to understand the trends of buyers and sellers. One trend we found fascinating in 2015 was the emerging importance of commuting costs. We cut the data and found 30 percent of respondents purchased homes this year to reduce commuting costs as they cited this factor as being very important to them.
We segmented this group further and found that 64 percent of buyers purchased their home so that it was convenient to their job, which was the most important factor in selecting a neighborhood. Of this group, 23 percent cited that they compromised on the price of their home to be geographically closer to work and thus have more free time for friends and family. What is also interesting to note is that this group was also made up of 40 percent first-time home buyers, compared to the 32 percent of all buyers that purchased a home this year.
The median age for this group was 39 years old; they bought homes with three bedrooms, two bathrooms, and were typically 1,900 square feet. The median income was $82,000 and the median home price purchased was $212,000.
So how does this compare to other buyers? We segmented married couples that had children under 18 living at home because it was similar in size as a subgroup, which comprised 34 percent of all buyers. Forty-three percent of this group cited that the distance to schools was the most important factor in selecting a neighborhood. Twenty-seven were first-time buyers, closer to the overall median, and these homes were typically larger with four bedrooms and two bathrooms at 2,200 square feet. The median age for this group was 36 years old; they bought homes with median income of $100,000 and the median home price purchased was $260,000.
The data also indicates that once families had kids, living closer to schools took priority over living closer to work. When segmented for children living at home, respondents reported that they actively compromised on the distance from their jobs more than any other group (18 percent with kids at home, compared to 13 percent of all buyers and 10 percent with no kids at home).
This year marks the 130th anniversary of Groundhog Day, and this morning Punxsutawney Phil did not see his shadow at the annual celebration. This means that an early spring is predicted this year. Looking back at existing-home sales in 2015, sales in March showed the first significant increase month-to-month. Starting in March of 2015 existing-home sales stayed above 5,000,000 through the end of October. With an early spring to come this year can we expect this home sales trend to continue?
Note: These headline figures are seasonally adjusted figures.
- Existing-home sales increased 14.7 percent in December from one month prior while new home sales rose 10.8 percent. These headline figures are seasonally adjusted figures and are reported in the news. However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Specifically, 438,000 existing-homes were sold in December while new home sales totaled 38,000. These raw counts represent a 25 percent gain for existing-home sales from one month prior while new home sales increased 12 percent. What was the trend in the recent years? Sales from November to December increased by 7 percent on average in the prior three years for existing-homes and 3 percent for new homes. So this year, both existing and new home sales outperformed compared to their recent norm.
- Annual figures show that existing-home sales increased 6.5 percent in 2015 from a year ago while new home sales dropped 14 percent. In raw counts, 5,256,000 existing-homes and 499,000 new homes were sold in 2015.
- Why are seasonally adjusted figures reported in the news? To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate have an effect on data around the same time each year. For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity. Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends. That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month. When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
- What to expect about home sales in the upcoming months in terms of raw counts? Independent of headline seasonally adjusted figures, expect slower activity in January for existing-home sales. For example, in the past 3 years, January sales typically dropped by 22 to 32 percent from December. However, activity gets better in February and existing-home sales typically increased by 4 to 5 percent from January. For the new home sales market, the raw sales activity in January tends to be better than that occurring in December, and activity gets even better in February. For example, in the past 3 years, January sales rose by 6 to 14 percent from December while February sales rose by 6 to 15 percent from January.
Approximately 15 percent of REALTORS® reported that their last sale was for investment purposes (16 percent in November 2015; 17 percent in December 2014), according to the December 2015 REALTORS® Confidence Index Survey Report.
Nationally, sales for investment purposes comprised 14 percent of residential sales in calendar year 2015. Purchases for investment purposes made up a larger portion of sales in Florida (22 percent), South Carolina (19 percent), California (18 percent), and Nevada (17 percent).
Purchases for investment purposes have declined since 2012 as rising home values led to fewer sales of distressed properties. At their peak in 2012–2013, investment sales were approximately 20 percent of residential sales.
- Economic growth was feeble in the final quarter of 2015, rising only 0.7 percent. One bright spot, however, was the housing sector, which through new home construction and rising home sales drove housing investment to rise by 8.2 percent. It will be the housing sector growth that will keep the U.S. economy to avoid recession and growing, albeit, sluggishly in 2016.
- Breakouts by specific sectors are as follow:
- Consumer spending grew by 2 percent
- Business spending did not grow
- Residential investment grew by 8 percent
- Government spending rose by 1 percent
- Exports fell by 2 percent
- Imports rose by 1 percent
- Business inventory grew, reflecting more production than sold items
- The combined total GDP grew by 0.7 percent.
- For the year as a whole in 2015, GDP expanded by 2.4 percent. This would mark the 10th consecutive year of subpar economic expansion of being less than the historical normal growth rate of 3 percent. A direct financial consequence of multiple years of slow economic growth versus what the economy would be had the economy only been normal (rising 3 percent a year), is a $1.7 trillion shortfall in national income. With 320 million people living in the country, it translates into roughly a $5,000 per person per year shortfall. The resulting economic anxiety can fuel populist demand for outside-of-establishment political candidates to get traction and votes.
- Aside from the slow 2015 GDP growth, the economy woke up on the wrong side of bed in 2016. GDP growth is expected to be even slower, rising only 1.0 to 1.5 percent in 2016. Fortunately, it is the growth in new home construction and the resulting income generations that will keep the U.S. from avoiding a recession. Slow growth is still a growth and will lead to about 1.5 million net new job additions this year.
- As an aside, there are some activities that we consume for free that are not counted in GDP. Technology has permitted us to enjoy many free internet contents and YouTube videos. These free activities do not generate income and hence are not part of GDP accounting. Nonetheless, we can take some consolation that few additional enjoyments are added to life despite slow economic expansion.
For the third year in a row, the percent of first-time home buyers in the pool of all home buyers has decreased to a historical low number, according to The National Association of REALTORS® Profile of Home Buyers and Sellers Report released in November 2015. In 2012, the percent of first-time home buyers was 39 percent of all buyers and in 2015 it was down again to just 32 percent. In the western region of the United States, it was as low as 26 percent and highest in the Northeast region at 46 percent.
Diving into the demographics of first-time home buyers, we see that over time the median age has held steady at 31 years for five years in a row since 2011. Millennials aged 25-34 years have comprised the largest share of first-time home buyers at roughly 50-60 percent in the last decade. In 2015, Millennials accounted for 58 percent of first-time home buyers compared to 50 percent ten years earlier in 2005. By way of comparison, repeat buyers were almost spread evenly around 20 percent in most age groups except Millennials and those over 75 years old last year (see table below for comparison).
What’s more interesting is the fact that the percent of first-time home buyers varies largely across the country. In the Mountain region of Montana, Idaho, Wyoming, Nevada, Utah, Arizona, Colorado, and New Mexico, first-time home buyers were only 21 percent of the total number of buyers in 2015, the lowest of any other region. They were also a low 25 percent in the East South Central. First-time home buyers made up 43 percent in the Middle Atlantic in New York, Pennsylvania, and New Jersey; and 42 percent in New England.
Buyer demographics also saw huge differences between household compositions for first-time buyers. Unmarried couples made up the largest first-time home buyers at 57 percent compared to married couples who accounted for only 27 percent. Both single males and single females accounted for 39 percent of first-time home buyers as well, well above the 31 percent of all buyers.
*In NAR’s annual survey, the questionnaire asks respondents “Was this your first home purchase?” First-time home buyers are defined solely by answering yes to this question.