Commercial real estate investment trends were positive in 2014, following on last year’s tail winds. Sales of large CRE transactions (LCRE)—over $2.5M—advanced 21 percent year-over-year in, totaling $438 billion, based on Real Capital Analytics (RCA) data. Investor demand for properties continued on an upward path, as economic fundamentals, broadening lending sources and capital followed returns.
In the first quarter 2015 sales volume rose 45 percent on a yearly basis, totaling $129 billion, according to Real Capital Analytics. Office investments comprised $33.5 billion in sales, while apartments made up an additional $33.0 billion. The largest yearly gain was recorded by the industrial sector, where volume shot up 95 percent compared to the first quarter 2014.
While secondary and tertiary markets remained on the list of investor destination during 2014—due to higher yields—top markets returned to the forefront as capital sources consolidated in pursuit of top-tier properties. In comparison to the high-end deals, 86 percent of commercial REALTORS® posted transactions below the $2.5 million threshold in 2014. Although many REALTORS® participate in transactions above $2.5 million per deal, they serve a segment of the commercial real estate market for which data are generally not as widely reported, which we term the small CRE transactions (SCRE).
Based on National Association of REALTORS® (NAR) data for the SCRE market, sales volume increased 35 percent on a yearly basis in 2014. The strong increase mirrored the renewed investor interest in stabile market and properties offering higher yields. Prices for REALTORS® commercial transactions advanced 8 percent year-over-year in 2014, a much slower pace than in LCRE transactions. The data underscore an important point about the recovery and growth in SCRE markets. The rebound in smaller markets was delayed by three years and the rate of price growth has been shallower.
With rising asset valuations and prices, the incidence of failed transactions due to financing has been declining. According to the REALTORS® Commercial Lending Trends 2015 report, the proportion of failed sales deals falling through due to lack of financing was 42 percent. The figure compares positively with the past five years, when failure rates exceeded 50 percent, reaching a high of 67 percent in 2012. However, in light of the broadening recovery in commercial markets, the numbers paint a picture of a market in which investors continue to be negatively impacted by lack of capital or overly stringent underwriting standards.
The lending survey highlights the marked differences in the LCRE markets versus the SCRE markets. Debt financing represents a much-larger portion of capital in SCRE markets, whereas LCRE deals benefit from significant equity contributions.
In the case of failed transactions on account of lack of financing, 54 percent of REALTORS® cited loan underwriting standards as the main culprit, pointing to an increased scrutiny from banks following regulatory requirements. The other major reasons cited were appraisal/valuation and financing availability, each accounting for 17 percent and 16 percent of responses, respectively.
For more information and the full report, access NAR’s Commercial Lending Trends 2015.
- The best state for job creation is Utah, which sped at 4.0 percent. The West region is doing well with Washington, Nevada, Oregon, California, and Idaho making the top-ten list. The South was also doing well with Florida, Georgia, South Carolina, and North Carolina in the top-ten.
- Even though 49 of the 50 states are creating jobs (West Virginia was the sole exception with fewer jobs over the past 12 months), more states are weakening in job creation compared to the month before: 29 states showed slower pace of job creation while 20 states had stronger pace.
- Not surprisingly, the real estate market is most vibrant in the states with fast job creations. More people working means more income and more potential homeowners. More jobs also entail more office leasing and increased rental housing demand. Nothing like jobs to support real estate.
- At the metro level, the jobs were plentiful in the following cities:
- The current U.S. residential mobility rate is one of the lowest in history. There are many reasons for it. However, low residential mobility is presumably implying less economic mobility as well since in a dynamic economy like the U.S. there would always be job destructions there and job creations here. With on-going complaints of sluggish job market, why are Americans less willing to move to where the jobs are? In the worst economic period of the U.S. during the Great Depression, as depicted in the Grapes of Wrath, people moved West in search of work … and dignity. Americans did not drop out of the labor force back then. There is today solid job growth in America in the West and South, yet the labor force participation rate is very low.
In the monthly REALTORS® Confidence Index Survey, NAR asks REALTORS® about the characteristics of their last sale for the month. For reported sales for April 2015, distressed sales accounted for 10 percent of sales (10 percent in March 2015; 15 percent in April 2014). About 7 percent of reported sales were foreclosed properties, and about 3 percent were short sales.
With rising home values and a declining foreclosure inventory (except for states with judicial foreclosures such as NY, NJ, CT), sales of foreclosed properties have declined as well. The decline in foreclosed properties on the market may help to explain to some degree why investment sales have generally been on the decline.
Foreclosed property sold at an average 20 percent discount, while short sales sold at an average 14 percent discount. For the past 12 months, distressed properties in “above average” condition were discounted by an average of 9-11 percent, while properties in “below average” condition were discounted at an average of 15-20 percent. Having fewer foreclosures creates further pressure for prices to move up in the coming months.
 The survey asks respondents to report on the characteristics of the most recent sale for the month.
Commercial fundamentals continued on an upward trend in the first quarter 2015, despite a slumping economy, however the pace moderated. Net absorption rose across the property types, driving rents higher. As employment gains are expected to continue into 2015, demand for commercial space is expected to advance.
Office absorption is projected to total 51.8 million square feet in 2015, leading vacancy rates on a gradual decline to 15.5 percent by the end of the year. Office rents are forecast to rise 3.4 percent in 2015.
Industrial markets—anticipating the opening of the Panama Canal—have seen high warehouse demand. Industrial net absorption is expected to total 108.8 million square feet in 2015, driving availability rates to 8.2 percent by the fourth quarter. Industrial rents should experience a 3.1 percent gain for the year.
With rising consumer confidence, the outlook for retail markets is looking up. Absorption is expected to reach 15.7 million square feet nationally in 2015, lowering vacancies to 9.5 percent by the last quarter of the year. Rents are projected to rise 2.6 percent this year.
Multifamily demand is expected to benefit from growing household formation, with net absorption is estimated to reach a little over 172,500 units in 2015, while new apartment completions will add 230,200 units. Apartment vacancies are expected to rise throughout the year, and close the fourth quarter at 4.4 percent. Rent growth is projected to slow from above 4.0 percent over the past few years to 3.6 percent in 2015.
Underpinning these improving fundamentals, commercial asset cash flow is certainly on the rise. Based on the REALTORS® Commercial Lending Trends 2015 report, net operating income (NOI) increased in 48 percent of markets. For 17 percent of REALTORS®, NOI increased in the 1 – 4 percent range. For 14 percent of respondents, NOI rose between 5 – 9 percent, while for 17 percent of commercial practitioners, the increase in NOI occurred in the 10 – 15 percent range.
According to the 2015 data, the increase in NOI moderated from the accelerating trends of the past few years. The percentage of REALTORS® who reported “No Change” in NOI rose from an average of 25 percent during 2012 – 2014 to 32 percent in 2015. The figure indicates a broadening in the patterns of CRE fundamentals recovery.
For more information and the full report, access NAR’s Commercial Lending Trends 2015 at http://www.realtor.org/reports/commercial-lending-trends-survey.
Most REALTORS® are not familiar with the nuances of mortgage regulation … they are busy brokering real estate deals. However, many noticed that it became more difficult to find funding for special clients two to three years ago. The housing finance market appears to be thawing, but in the meantime it is important to seek out a special lender, for your special client.
Regulations introduced in 2014 made it tricky to find funding for some clients with special characteristics:
- Borrowers with high debt to income ratios in high cost areas
- Borrowers who use interest only loans
- Borrowers who use some ARM products, and
- Borrowers who may have trouble documenting their income but who earn enough to qualify by traditional standards.
These borrowers fall into a group who don’t qualify for an exemption to a new set of lending rules. The exemption is called a qualified mortgage (QM) and the rule is the ability to repay (ATR), which is intended to protect consumers. The exemption is for the lender who originates the loan and it helps them to reduce their legal liability in case something goes wrong with the loan. Hence, lenders prefer to stick with mortgages that fall within the QM exemption to the ATR rule.
Things appear to be improving, though. In NAR’s 6th Survey of Mortgage Originators, lenders indicated that their willingness to originate non-QM loans improved in the 1st quarter of 2015 for the first time in 5 quarters. As depicted below, willingness to originate these loans plunged in the 3rd quarter of 2014, shortly after the new rule was implemented.
What’s driving the change in originators attitudes? Most lenders in the Survey of Mortgage Originators do not have portfolios, which means that they need investors to buy the loans that they originate. Thus, investor takeout is critical. As shown below, the share of respondents reporting an improvement in investor demand surged to 37.5%, nearly doubling the 19% from the 4th quarter.
Furthermore, as depicted by the blue bars in the right side of the chart below, the lenders who responded to the survey expected investor demand to rise over the next six months for the non-pristine types of credit which have had issues in recent years: non-QM, rebuttable presumption, and lower FICO prime borrowers. As a result, originators expect access to credit for these same borrowers to improve over this time frame. Improvements in investor demand appear to be loosening up the log jam in non-pristine lending.
However, while willingness to lend these non-pristine loans among those lenders who offered the products has improved, only about 40% of respondents indicated that they offered non-QM mortgages and 75% would originate QM loans with a rebuttable presumption designation.
Confidence among lenders who specialize in non-pristine financing appears to be gaining steam, driven by improvements in the investor space. It may take time for a robust expansion of non-QM lending, but REALTORS should be aware of the option and maintain multiple lending contacts to meet their special clients’ needs.
- Existing home sales dropped 3.3 percent in April from one month prior while new home sales increased 6.8 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 compared to the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Specifically, 445,000 existing homes were sold in April while new home sales totaled 49,000. These raw counts represent a 10 percent gain for existing home sales from one month prior while new home sales increased 9 percent. What was the trend in the recent years? Sales from March to April rose by 16 percent on average in the prior three years for existing homes and by 2 percent on average for new homes. So this year, existing homes underperformed compared to their recent norm while new home sales outperformed.
- 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 busier activity in May and even better activity in June for existing home sales. For example, in the past 3 years, May sales rose by 12 to 13 percent from April, and we saw more gains in June where sales typically rose by 3 to 7 percent from May. For the new home sales market, the raw sales activity in May and June tends to be only modestly better compared to those occurring in April. All in all it’s no time to be thinking of vacation at these months of the year for REALTORS®.
- Construction spending kicked higher in April to its highest level in over 6 years. Everything real estate is coming alive. More gains are in the cards for later in the year since home construction will no doubt increase from the shortage of housing inventory. Commercial real estate construction is also needed since vacancy rates across all property types have been inching down.
- Specifically, the total construction spending dollars rose for the third consecutive month and is now higher by 4.8 percent from one year before. Moreover, it crossed the $1 trillion (on an annualized basis) for the first time since 2008.
- The recovery has been primarily in the private construction sector. Spending for public construction projects has not recovered, attesting to careful budget spending plans at all levels of the government. Of the public spending, spending for highways and streets are rising. But spending for public water supply plants are not. With the news of droughts and floods becoming more common, the lack of spending for water treatment plants is discomforting.
- With housing inventory very low – few homes for sale and falling rental vacancy rate – housing starts will be rising meaningfully over the next few years. This trend nearly assures greater construction spending in the months ahead and more hiring of construction workers.
- Too small to be in national statistics, it is unclear what new construction is being done related to housing people with mental illness. This past month, economists and society lost a “beautiful mind” of Professor John Nash, whose life brought topic of mental illness to the general public via the Oscar-winning movie. Another brilliant mind who likely had undiagnosed similar illness was Jonathan Swift, the author of Gulliver’s Travels. His contemporaries thought him as the worst possible misanthrope who hated life and human beings. With no friends but some financial success from writing, his will revealed all his money going towards building homes for the mentally ill. A beautiful final act from another person with a beautiful mind.
During 2014, commercial real estate capital availability continued growing, building on the tail winds from 2013. Major capital providers found new energy in revitalized commercial markets and competed for deals, leading to steep acceleration in prices for some property sectors, especially apartments and CBD office buildings.
On the debt side, national banks accounted for the bulk of capital providers, riding the wave of low interest rates and offering low cost floating rate lending. According to CBRE Research, national banks increased their market share to 37 percent in 2014 from 32 percent in 2013. Government-sponsored enterprises (GSEs) were the second largest debt originator, dominating the financing in the multi-family segment. CMBS conduits and life insurance companies also increased their originations. Life insurance companies accounted for 26 percent of the debt universe, while CMBS originators represented 24 percent of debt financing.
On the equity side of CRE financing, private equity accounted for 44 percent of capital, followed by listed and non-listed REITs, which made up 34 percent of financing in 2014, according to Situs RERC. Pension funds, both domestic and cross-border were the third largest capital provider group, representing 15 percent of the equity market. The remainder groups comprised of corporations, commercial banks, foreign investors and others.
Based on NAR’s 2015 survey data, the capital picture displays a fundamentally different landscape. Local and community banks were the largest lending group in REALTORS®’ commercial markets in 2014, accounting for 32 percent of transactions. Local and community banks gained market share from 2013, when they made up 30 percent of the market.
The second largest capital source in 2014 comprised of regional banks, which captured 26 percent of REALTORS®’ commercial deals, a slight increase from the 23 percent in 2013.
Private investors were the third main capital providers, accounting for 11 percent of deals during 2014. National banks came in fourth place, with 7 percent market share. The Small Business Administration and credit unions made up 6 percent and 5 percent, respectively, of transactions. Life insurance companies were much less active in REALTOR® markets, representing 3 percent of deals, while CMBS conduits accounted for only 1 percent of funding, tied with REITs and public companies.
For more information and the full report, access NAR’s Commercial Lending Trends 2015 at http://www.realtor.org/reports/commercial-lending-trends-survey.
REALTORS® who responded to the April 2015 survey expected prices to increase at a slightly faster pace in the next 12 months compared to the expectation a month ago, according to the April 2015 REALTORS® Confidence Index Survey. The median expected price growth in the next 12 months is 3.9 percent (3.5 percent in March 2015; 4.0 percent in April 2014).
The map below shows the median expected price change in the next 12 months for each state based on the Feb 2015 –April 2015 surveys. REALTOR® respondents from Colorado had the most upbeat price expectations, with the median expected price growth at 6 percent, followed by the District of Columbia at 5 percent. Price expectations were also upbeat in Washington, Oregon, Nevada, Florida, Georgia, Michigan, Hawaii, and New Hampshire with the median expected price growth at 4 to 5 percent. With oil prices still at a slump, REALTORS® expected prices to increase more modestly at a median price growth of 2 to 3 percent in North Dakota, Oklahoma, Wyoming, and Louisiana. In Texas, where the economy is more diversified, the median expected growth in prices in the next 12 months is about 4 percent.
 A comparison of the expected price growth for the next 12 months compared to the actual price growth shows the expected price growth to be more conservative than the actual price growth, but in the same direction.
 In generating the median price expectation 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 the D.C. may have less than 30 observations.
- An abysmal first quarter as GDP shrank 0.7 percent. Because a large portion of the decline was attributed to a one-off adjustment, GDP should move to positive growth from the second quarter. The job gains will continue and reach over 2 million this year and thereby support real estate activity. Still, the negative first quarter GDP implies inconsistency and on-going subpar performance in relation to America’s potential.
- Specifically, GDP declined 0.7 percent in a standardized measurement of annualized basis during the first quarter. Personal consumptions by consumers increased at a respectable pace of 1.7 percent. But businesses held back with private sector investment in spending for equipment and software mildly contracting. Government spending overall fell principally as state and local government reduced expenditure and also from cuts to federal defense spending. Federal non-defense spending rose.
- Exports fell and hurt GDP. The strong dollar makes selling of U.S. manufactured products more difficult. Imports meanwhile grew and hurt GDP. The strong dollar makes foreign goods cheaper for Americans. One positive impact of the strong dollar is that it keeps interest rates lower. The housing sector, always sensitive to interest rates, rose.
- Going forward, GDP should turn positive. The housing sector, particularly related to new home construction, is poised for further rise. Businesses have an abundance of profit and cash reserves. Small entrepreneurs are enticed with low interest rates. Therefore, it would be completely out of character for business spending to not rise given these conditions. Finally, the cuts to defense spending are bound to end. The second quarter GDP is forecasted to rise by 2.2 percent and then reach closer to the cruising speed of 3 percent in the second half. For the year as a whole, GDP will growth by 2.0 percent.
- The long-term average rate of GDP expansion in America has been 3 percent. Sadly, the annual GDP growth has been less than 3 percent for nine consecutive years. Hypothetically, had the GDP growth been 3 percent, matching the historical average, a typical American would have additional $5,000 in their pocket. Home sales are expected to rise this year to 5.2 to 5.3 million from 4.9 million last year. But a faster GDP expansion would have correlated to home sales reaching closer to 6 million. There are meaningful consequences to prolonged sub-par economic activity.
- The number of people claiming unemployment insurance has fallen to its lowest level since 2000. Over the past 4 weeks that ended May 23, 2015, the average number of unemployment claims totaled 271,500, the lowest level since April 2000 (Chart 1). The number of claims filed has trended below 300,000 for the past 12 weeks, a level that analysts consider as part of normal job transition. A decline in the number of unemployment claims indicates fewer layoffs and greater job stability which paves the way for future job hires.
- Based on May 2-16 data, claims have dropped across most states compared to their year-ago levels except for the states with greater reliance on the oil-gas industry wherein the number of claims increased (Chart 2): Texas (2,005), Oklahoma (1,325), Louisiana (1,273), North Dakota (595), West Virginia (414), and Wyoming (213). Other states that had an increase in the number of unemployment insurance claims were: Nevada (129), Colorado (98), and Vermont (26).
- The decline in the number of claims filed is another indicator that the job market continues to strengthen, a plus factor for the housing market in 2015. NAR expects over 2 million net new jobs in 2015, and, as a result, 5.3 million in existing home sales, given the continuing improvement in jobs and the economy.
In the 6th Survey of Mortgage Originators, several important trends are highlighted that took shape in the 1st quarter of 2015 and bode well for the second half of 2015. In addition, a number of policy issues loom on the horizon and were examined in the survey. Lenders discussed their expectations for implementation of new closing documents as well as the impact of FHA’s indemnification and condo rules on their willingness to lend and the lingering impact of the QM rule’s 3% cap on points and fees.
Here are some highlights from the survey:
- The non-QM share of originations shrank to just 1.2% of production in the 1st quarter from 1.8% in the 4th.
- However, willingness to originate non-QM loans rose for the first time in a year while willingness to originate high quality prime mortgages grew at a slower rate and rebuttable presumption slid. The share of lenders offering high quality, prime was little changed while those offering non-QM and rebuttable presumption eased modestly.
- The share of respondents that indicated an improvement in investor demand for non-QM loans surged to 37.5%.
- Over the next six months, respondents expect better access to credit for non-QM, rebuttable presumption and lower credit score borrowers as well as increased demand from investor for these same mortgages. Little change was expected for high quality prime loans.
- The share of respondents that indicated having had an issue closing a loan due to some facet of the ATR/QM rule fell to 33.3%, its lowest on record. However, the share of respondents utilizing overlays ahead of the 3% cap peaked at 33.3%, while overlays on other facets of the QM rule eased.
- Survey participants reported that 4.5% of their lending was impacted by the 3% cap. The bulk of issues were created by including LLPAs and affiliated services (e.g. title insurance) in the 3% calculation.
- Roughly 90% of respondents reported spending time and money to implement the new TRID documentation, while 60% have unanswered questions.
- Two thirds expect the TRID implementation to delay some closings and 26.7% expect delays and some deals not to close at all.
- Finally, while roughly half of lenders report being asked to indemnify the FHA for a loans since 2009, two thirds indicate that this policy impacts their willingness to originate lower FICO loans and that their concern about indemnifications is on par with their concern about GSE buy backs.
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 Feb 2015-April 2015. California and North Dakota were the fastest-selling markets with properties typically sold by 30 days. Properties also sold quickly, typically at 45 in Oregon, Washington, Nevada, Colorado, Texas, Louisiana, and the District of Columbia. Strong demand amid low inventory has caused properties to sell quickly and driven up prices, especially in the West Coast states. 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.
- New home sales surged in April and they are selling quickly. The only problem is we are not yet building enough to fully satisfy the demand.
- Specifically, new home sales rose 26 percent from one year ago in April to 517,000 annualized pace – which would be the third highest monthly activity in eight years. On average it took 4 months to find a buyer. The median price was $297,300, which is 8.3 percent above last year’s price.
- The gap between new home price and existing home price still remains very wide. It implies that existing homes provide a relatively better bargain in relation to newly constructed homes.
- Even though new home sales are rising strongly in percentage terms, they are only at about 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.
- The median number of months to find a buyer of new homes remains near historic lows. In April, it took 4 months. Given the low supply of both existing and new home inventory, as evidenced by low months supply of inventory, there is zero concern over any over production.
- For the year as a whole, new home sales are projected to rise by about 30 percent in 2015 and then another 20 to 25 percent in 2016. It’s a good time to be a homebuilder. If only the banks would make more construction loans or, depending upon your point of view, if there were less financial regulations to permit banks to make more construction loans.
Amid tight inventory in most states, properties that closed in April 2015 were typically on the market for a relatively short period of time at 39 days (52 days in March 2015; 48 days in April 2014), according to the April 2015 REALTORS® Confidence Index Survey.
Short sales were on the market for the longest time at 180 days, while foreclosed properties typically stayed on the market at 50 days. Non-distressed properties were on the market at 38 days.
Approximately 46 percent of properties were on the market for less than a month when sold (40 percent in March 2015; 41 percent in April 2014).
 Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing to the time the seller accepted buyer’s offer?” A median of x days means that half of the properties were on the market for less than x days and another half of properties were on the market for more than x days.
- Today, Case Shiller released their housing price index data for March 2015 which showed that house prices rose 4.7 percent from March one year ago for the 10-city composite and 5.0 percent for the 20-city composite. The national index showed a gain of 4.1 percent year over year.
- Last week NAR reported growing prices in March and April. Price growth in the year ended April 2015 was 8.9 percent after rising 7.1 percent in March 2015 and 7.2 percent in February 2015. FHFA January data showed a gain of 5.2 percent for the year ended March after a gain of 5.3 percent for the year ended in February.
- Today’s release from Case Shiller provides mixed evidence on the acceleration or deceleration of home prices, but it unambiguously shows that home prices are growing at a strong pace.
- Looking at the seasonally adjusted Case Shiller data, price grew by 0.3 percent from January to February and only 0.1 percent from February to March—a sign of deceleration. Looking at the unadjusted data, however, Case Shiller shows an increase of 0.1 percent in January to February and 0.8 percent from February to March—a notable and somewhat expected acceleration.
- In other words, the seasonally adjusted data is showing a slight month to month deceleration while the unadjusted data is showing acceleration.
- For this reason, let’s look at acceleration or deceleration in the year over year data. Recent price measures have all showed a roughly steady pace of price increase in February and March, but recent NAR data suggests that this could be only a temporary reprieve as April data showed larger price gains than we saw in March. City by city in the Case Shiller data, half of the 20 cities saw acceleration in the pace of year over year price growth while half did not in March.
- Even without further acceleration, the pace of price growth remains too high. Strong buyer demand and low inventories coupled with relatively low new construction are helping to push prices up, keeping 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 San Francisco (10.3%), Denver (10.0%), Dallas (8.7%), and Miami (9.2%) in the year ending March 2015. By contrast, Washington DC (1.0%), Cleveland (1.0%), and New York (2.7%) 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 March prices include information from repeat transactions closed in January, February, and March. For this reason, the changes in the NAR median price tend to lead Case Shiller and may suggest that an additional pick-up in prices will be seen in the next few months. However, even if additional pick-up is not seen, the current pace is strong and needs to slow to keep housing prices in line with job and wage fundamentals.
In April 2015, more REALTORS® were confident about the outlook for all property types in the next six months than they were in March and a year ago, according to the April 2015 REALTORS® Confidence Index Survey. The April 2015 report is based on the responses of 2,012 REALTORS® about local market conditions in April.
For the third month in a row, the index rose above 50 for all property types. An index greater than 50 indicates that the number of respondents with “strong” outlook outnumbered those with “weak” outlook. In the single family market, the REALTORS® Confidence Index - Six-month Outlook rose to 76 (75 in March 2015; 68 in April 2014). The index for townhomes rose to 58 (56 in March 2015; 49 in April 2014), while the index for condominiums increased to 52 (51 in March 2015; 46 in April 2014).
The seasonal uptick in market activity during spring and summer, low interest rates and a sustained growth in jobs, and recent measures to lower the cost of borrowing and make credit more available (e.g, lower FHA mortgage insurance, 3 percent down-payment for GSE-backed loans) are likely underpinning the improved market confidence.
 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?”
REALTORS® remained generally confident about the outlook for all property types in the next six months, according to the April 2015 REALTORS® Confidence Index Survey . The April 2015 report is based on the responses of 2,012 REALTORS® about local market conditions in April.
Low 30-year fixed mortgage rates holding to below 4 percent in April, continued job creation (3.5 million net new jobs since 2014), and measures to ease credit tightness and affordability (lower FHA mortgage insurance premiums, 3 percent down payment for GSE-backed loans) are likely underpinning the improvement in confidence.
The following maps show the REALTOR® Confidence Index-Six-Month-Outlook by state based on data gathered from February-April 2015.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 “weak” outlook. Despite the slump in oil prices, the real estate market remained broadly “strong” in North Dakota, Texas, and Oklahoma where the indexes were above 50. Colorado had the hottest market for townhomes, but demand was also strong in many states in the West(CA, NV, OR,WA), Midwest (ND SD,NE,KS,TX ) and the East Coast (FL,SC,VA,PA,NY,MA,NH).
 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?”
 The market outlook for each state is based on data for the last 3 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.
- There is no inflation. The Federal Reserve can therefore relax and not hurry in raising rates. However, housing costs continue to rise above the comfort level.
- Specifically, the Consumer Price Index declined 0.1 percent in April over the past 12 months. Food prices are up by 2 percent and shelter prices are up by 3 percent. But the large decline in energy prices, down 19 percent, is helping the broad consumer inflation to be zero.
- The shelter costs as computed by the government are a bit different than what ordinary consumers may think. Rent payments are a straight forward calculation and they rose 3.5 percent, which is very close to the fastest pace since 2008. Homeowner mortgage payments would be considered to have not risen at all by most homeowners since nearly all have either 30-year fixed rate mortgages or own it out-right with no balance. Or for would-be homebuyers, the median national home price rose by 8.9 percent in April. But this is not how government statisticians compute homeownership costs. It computes something called owner-equivalent rent, which is a hypothetical rent a homeowner would pay to rent out their home. And this owner-equivalent rent rose by 2.8 percent, the fastest growth rate since 2007. Meanwhile, wages are rising by only 2 percent, so the housing costs squeeze is becoming acute.
- For monetary policy, the Federal Reserve is keener on the “core” inflation by not factoring the volatile price movements of food and energy components. The core inflation rose at 1.8 percent. The Fed likes to see this at near 2 percent but not greatly over, so it should be fine with the current interest rate policy. Furthermore, GDP growth for the first quarter is likely to be revised to a mild negative and the second quarter GDP growth will be sub-par at around 2 percent. Therefore, I have revised the timing of the Fed policy to delay the rate hike to October (from what I previously thought to be in September).
- As an aside, how to beat consumer price inflation when going out. First, never order the most expensive item. It is there only as a decoy to make other menu items look reasonably affordable. Only the professional sports athletes or celebrities order this item, thinking it impresses their friends. Second, we all know to avoid restaurants with heavy tourist traffic since these hungry visitors do not know where to go. In neighborhood restaurants, avoid places where there are too many mini-skirts. Young men are willing to pay high prices for even lousy meals just to be near them. Knowing this, these types of restaurants have no incentive to improve on their cooking skills.
A monthly survey of REALTORS® about their transactions in April 2015 indicated a pickup in market activity and more widespread confidence compared to the situation in March 2015 and a year ago. The April 2015 report is based on the responses of 2,012 REALTORS® about local market conditions in March.
The seasonal uptick in market activity in spring and summer, low 30-year fixed rates of below 4 percent, continued job growth, and recent measures to make credit more accessible and cheaper (e.g., lower FHA mortgage insurance, 3 percent downpayment for GSE-backed loans) appear to be having a positive market impact.
For the third month in a row, the REALTOR® Confidence Index-Six-Month Outlook was above 50 across all property types (single family townhomes, condominiums), indicating that the number of respondents who viewed the market as “strong” outnumbered those who viewed the market as “weak.” Inventory remained tight as indicated by the Seller Traffic Index which stayed below 50. With stronger demand and tight supply, homes sold realtively quickly, typically within 39 days. First-time homebuyers continued to account for 30 percent of existing home sales, while investors accounted for 14 percent. Given the decline in sales to investors, cash sales accounted for 24 percent of sales.