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Updated: 59 min 25 sec ago

Illusive Single-Family Construction

Thu, 09/10/2015 - 13:40

By Ken Fears, Director of Housing Finance and Regional Economics, and LaShawn Skeete, Research Intern

Summary:

  • Supply constraints persist
  • Construction has not kept pace with long-term demand
  • Prices are likely to continue to rise in markets with inadequate supply in relation to job creation

After a rocky start to 2014, home sales finished the year strong and have been averaging above 5.3 million units at an annualized pace since March of this year.  Sales notched 5.49 million in July and are forecast to total 5.3 million for 2015 before rising to 5.5 million in 2016. While sales have boomed, the months supply of homes for sale has remained grudgingly below a neutral 6 to 7 range since August of 2012. As a result, prices continue to rise at an above trend pace and entry-level buyers are having trouble finding available properties.

Typically there are two drivers of supply: trade-up or trade-down buyers selling their property and new construction.  In recent years, short sales and foreclosures have also created a channel for inventory, but steady price appreciation and a strengthening economy has reduced the share of distressed sales to a fifth of their peak and closer to historic norms. While slow employment growth, student debt, and tight credit have hampered entry level construction in recent years, millennial employment has improved along with their confidence according to the Federal Reserve.

One means of measuring the sufficiency of supply is to look at the volume of new construction relative to the number of newly employed workers.  Historically, the US averaged 1.2 for the annual change in total workers to total permits. For single family permits this ratio was 1.6.  Since 2011, both ratios have been above their historic averages. In 2014, the ratio of single family permits to employment jumped to 3.7, while the ratio for total permits increased 50% to 2.4.

 

To remove annual volatility, one can look at the same ratio over a 3-year horizon through 2014.  As depicted above, the 3-year change in employment to permits is historically high for both single family (3.7) and total permits (2.3).  At the metro level this imbalance can be even more extreme.  37% of the metro areas for which NAR tracks median home prices had a single-family ratio equal to or greater than the national average of 3.7, while 17% had a ratio greater than 5.0.

The markets with the largest ratio are widespread.  While three of the markets are in California and have averaged annual employment growth of 3.6% between 2012 and 2014, the rest are spread across the Midwest, New York, and Miami and averaged a more modest 1.9%.  This pattern suggests that limited construction is a widespread issue.  At the opposite end of the spectrum, the ratio was negative for 13 of the markets tracked including Decatur, Danville, Binghamton, and Shreveport, all markets where total employment fell between 2012 and 2014.

 

Looking forward, the high employment-to-permits ratios in 2014 combined with steady employment gains in the first half of 2015 and improved, but muted gains in permits suggest sustained price growth.   A decline in negative equity or improved credit access could drive nascent supply from trade-up or trade-down buyers that could ameliorate price growth, but the net impact is more likely a zero sum change.  In the long-term, more supply is needed.

A New Mortgage Product Balancing Equity and Affordability

Wed, 09/09/2015 - 12:01

 

In a presentation at a REALTOR® University Speaker Series held recently[1], Ken Fears, NAR’s Director of Housing Finance and Regional Economics, discussed his proposal for a new mortgage product that helps homeowners build up equity faster while keeping loan payments still affordable. The blended product also improves financial intermediation by providing a better match of the maturity of some investors’ short term assets and long term liabilities.

Fears’s proposed mortgage product- the Blended Rate Equity Driver (BRED) – is a blended rate product composed of the existing conventional 30-year fixed rate mortgage, the 15-year fixed rate mortgage, and the 5/1 adjustable rate mortgage.  Currently, the most common mortgage product is the 30-year fixed rate mortgage product. Although this product has the attractive features of a fixed payment and no upside risk from rising mortgage rates, it also leads to a slow buildup in equity for the borrower. Blending in the 15-year FRM enables the homeowner to build up more equity than under the pure 30 year FRM, with the 5/1 ARM component working to offset some of the increase in payment from blending in the 15-year FRM. The ultimate result is a product that remains affordable for homeowners while allowing for a faster buildup in equity. Fears calculates that on a $200,000 loan, the 30-year BRED yields about 40% more equity over five years compared to the 30-year FRM.

BRED can be customized to the buyer’s needs and risk preference. For example, a borrower who wants more payment stability can opt for a 80/20 blend of the 30-year FRM and 15-year FRM blend. Another borrower who has a higher risk tolerance but wants to build up equity faster can have more of the 5/1 ARM and 15-year FRM in the BRED blend.  Finally, a person interested in more equity than a 15-year but lower payment might prefer a 40/60 blend of 30-year FRM and 15-year FRM.

Fears noted that there are some potential issues with BRED such as the possible higher cost of origination and its seeming complexity which would require more education on the part of borrowers.

For questions or comments relating to BRED and to request the slides, please email Ken Fears at kfears@realtor.org.

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.

[1] The REALTOR®  University Speaker Series on “Mortgage Design Proposal: A Better Balance Between Building Home Equity and Affordability” with Ken Fears, Director of Housing Finance and Regional Economics, NAR Research Department, was held on September 8, 2015.

 

Like-Kind Exchanges: Highlights from Florida

Wed, 09/09/2015 - 11:51

Based on the latest data from the Bureau of Economic Analysis[1], the real estate industry accounted for $139.5 billion in Florida. The figure accounted for 16.6 percent of Florida’s Gross State Product. The figure includes real estate transactions—sales, leasing, property management, etc.

For a significant proportion of real estate market participants in Florida, like-kind exchanges (LKE) provide an important vehicle to sell and acquire property. The Internal Revenue Code (IRC) Section 1031 codifies that the tax owed on any gain after a sale may be deferred as long as the proceeds are reinvested in a similar property through a like-kind exchange.  The Internal Revenue Service (IRS) makes note of the fact that while the gain “is tax-deferred […] it is not tax-free.”[2]

Like-kind exchanges can be utilized by individuals, partnerships, corporations, limited liability companies, and trusts. IRC Section 1031 allows investors to defer taxes when disposing of property, as long as the proceeds are reinvested in another property of like kind within 180 days. This tax deferral feature allows increased investment in properties and encourages a more active real estate market.

The Like-Kind Exchanges: Real Estate Market Perspectives 2015 report provides information about LKEs and their impact on real estate markets. The report is based on a national survey of REALTORS. In Florida, 81 percent of respondents indicated that they engaged in 1 – 6 LKE transactions during 2011-14. An additional 15 percent indicated that they closed more than 12 transactions during the same timeframe.

Like-kind transactions were especially important to small businesses and investors in Florida. Individuals or sole proprietorships comprised 45 percent of all LKE transactions. S-corporations made up 35 percent of exchanges, with C-corporations and REITs accounting for 21 percent of all transactions.Just as importantly, LKE transactions in Florida involved properties held for a longer duration. Sixty-six percent of LKEs featured properties held for 5 – 14 years. An additional 23 percent comprised properties held for 15 – 29 years.

Like-kind exchange transactions lead to additional investment in real estate properties, as all the respondents from Florida’s sample indicated. The majority—71 percent—indicated that the average capital investment in property improvements was between 10% – 49% of the property’s fair market value. The additional capital investment translated into additional jobs, leading to increases in Florida’s Gross State Product.

Respondents to the survey were asked how the repeal of IRC Section 1031 would change the real estate market. Highlighting the importance of LKE transactions for Florida, 38 percent of respondents indicated that, without the tax deferral provision, their LKE transactions would not have occurred. In addition, 73 percent of the state’s respondents also pointed out that without IRC Section 1031 the holding period would increase by “Greater than 50% of [a property’s] useful life.”

To access the Like-Kind Exchanges: Real Estate Market Perspectives 2015 report, visit http://www.realtor.org/reports/like-kind-exchange-survey.

[1] Bureau of Economic Analysis, Regional Data: GDP & Personal Income. http://www.bea.gov/iTable/index_regional.cfm.

[2] Internal Revenue Service, Like-Kind Exchanges Under IRC Code Section 1031, FS-2008-18, February 2008.

Issues in Housing Finance Reform

Wed, 09/09/2015 - 11:38

At a REALTOR® University Speaker Series held on August  12, 2015, Dr. Ed DeMarco shared his thoughts on housing finance reform for the secondary mortgage market, including the role of appraisals and reforms that will help borrowers achieve true homeownership through equity-building. Dr. DeMarco discussed the administrative progress to repair the housing market and attract private capital while reducing the risk the government bears in the housing finance market. He cited measures such as the standardization of loan appraisal data, strengthening underwriting and pricing, credit risk transfer transactions to capital market investors, and the development of a Common Securitization Platform that aligns the business and investment disclosure practices of Fannie Mae and Freddie Mac. Notwithstanding the progress made administratively, Dr. DeMarco noted the need to move the reform at the legislative level to attract back private capital and reduce the government’s risk in the housing market.

He outlined the areas for future reforms to ensure the flow of capital and create “true homeowners”:

  • Standardizing the data disclosed to investors about the credit characteristics underlying the loan.
  • Improving the appraisal and valuation methods that take greater account of economic factors in property valuation.
  • Policy reforms and products that help homeowners build equity faster.

Dr. Ed De Marco is currently a Senior Fellow in Residence at the Milken Institute Center for Financial Markets. From September 2009 to January 2014 DeMarco served as Acting Director of the Federal Housing Finance Agency (FHFA), the conservator for Fannie Mae and Freddie Mac and regulator of those companies and the Federal Home Loan Banks.

Sales to First-Time Buyers: 28 Percent of Sales in July 2015

Wed, 09/09/2015 - 11:24

First-time home buyers accounted for 28 percent of existing home sales in July 2015 (30 percent in June 2015; 29 percent in July 2014), according to the July 2015 REALTORS® Confidence Index Survey report.12 REALTORS® reported that homes are increasingly becoming unaffordable and that sellers are reluctant to move because they can’t find affordable homes. Home prices have been rising faster than the annual growth in median household income of about two percent annually. As of June 2015, home prices were up at six percent annually.

Buyers age 34 and under, a group that covers first-time buyers, accounted for 27 percent of sales. The share of this age group to total sales has been essentially unchanged since last year.

12 First-time buyers accounted for about 33 percent of all home buyers based on data from NAR’s 2014 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence home buyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.

Rising Household Formation and Employment Boost Apartment Demand

Wed, 09/09/2015 - 11:16

Economic performance for the second quarter of this year was upwardly revised this past week by the Bureau of Economic Analysis. Real gross domestic product (GDP) totaled $16.3 trillion, an advance of 3.7 percent at an annual rate, up from the initial estimate of 2.3 percent.

Payroll employment continued rising, with 678,000 new employees having joined payrolls nationwide during the second quarter. The total number of new jobs in the first half of 2015 reached 1.3 million. Median weekly earnings of private employees—adjusted for inflation—rose by 2.1 percent in the second quarter of this year, a significant improvement compared to 2014. The unemployment rate declined from an average 5.6 percent in the first quarter 2015 to 5.4 percent in the second quarter.

Just as importantly, household formation trends continued upward. Looking at historical trends, household formation averaged 1.3 million every year over the 1958-2007 period. Between 2008 and 2013, the average number of new households dropped to 579,000 per year, underscoring the severity of the Great Recession and ensuing slow recovery. In 2014, net household formation jumped to 2.2 million, as employment growth encouraged more young people to strike it on their own. In the second quarter of 2015, household formation continued the upward trends with the addition of 480,000 new households.

Demand for multifamily properties continued on an upward path. Renter occupied housing units totaled 42,9 million units in the second quarter of 2015, a 4.9 percent advance from the second quarter of 2015, based on U.S. Census Bureau data. National vacancy rates averaged 6.8 percent for rental housing during the second quarter, 70 basis points lower than the same period in 2014. Median rents for rental units averaged $803 in the second quarter of this year, 6.2 percent higher than the previous year.

Fundamentals in REALTORS® CRE markets moved in tandem with the broad markets during the second quarter 2015. Leasing volume during the second quarter rose 5.0 percent compared with the first quarter 2015. Leasing rate growth remained steady, rising 3.0 percent in the second quarter, compared with the 3.0 percent advance in the previous quarter. With rising new supply, apartments experienced availability increases, as the national average rose from 6.0 percent in the second quarter of 2014 to 6.6 percent in the second quarter of this year.

Lease concessions in REALTORS® CRE markets declined 8.0 percent.  Tenant improvement (TI) allowances averaged $10 per square foot per year nationally. Apartments posted the lowest TI rates—$3 per square foot per year.

To access the Commercial Real Estate Outlook: 2015.Q3 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

REALTORS® Price Expectation in Next 12 Months, By State as of July 2015

Tue, 09/08/2015 - 15:34

REALTORS® projected prices to increase by 3.6 percent over the next 12 months (3.4 percent in June 2015; 3.4 percent in July 2014), according to the July 2015 REALTORS® Confidence Index Survey Report.9

The map shows the median expected price change in the next 12 months for each state based on the May–July 2015 RCI surveys.10 REALTOR® respondents from Colorado and Florida had the most upbeat price expectations, with a median expected price growth in the range of five to six percent. In Washington, Oregon, Nevada, Texas, and Georgia, the median expected price growth was four to five percent. Prices are expected to increase at a modest pace of less than three percent in many Northeast states.

9 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 both are generally headed in the same direction.

10 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 D.C., may have less than 30 observations.

Like-Kind Exchanges: Highlights from Colorado

Tue, 09/08/2015 - 09:44

Based on the latest data from the Bureau of Economic Analysis[1], the real estate industry accounted for $41.3 billion in Colorado. This comprised 13.5 percent of Colorado’s Gross State Product. The figure includes real estate transactions—sales, leasing, property management, etc.

For a significant proportion of real estate market participants in Colorado, like-kind exchanges (LKE) provide an important vehicle to sell and acquire property. The Internal Revenue Code (IRC) Section 1031 codifies that the tax owed on any gain after a sale may be deferred as long as the proceeds are reinvested in a similar property through a like-kind exchange. The Internal Revenue Service (IRS) makes note of the fact that while the gain “is tax-deferred […] it is not tax-free.”[2]

Like-kind exchanges can be utilized by individuals, partnerships, corporations, limited liability companies, and trusts. IRC Section 1031 allows investors to defer taxes when disposing of property, as long as the proceeds are reinvested in another property of like kind within 180 days. This tax deferral feature allows increased investment in properties and encourages a more active real estate market.

The Like-Kind Exchanges: Real Estate Market Perspectives 2015 report provides information about LKEs and their impact on real estate markets. The report is based on a national survey of REALTORS. In Colorado, 81 percent of respondents indicated that they engaged in 1 – 6 LKE transactions during 2011-14. An additional 13 percent indicated that they closed more than 12 transactions during the same time frame.

Like-kind transactions were especially important to small businesses and investors in Colorado. Individuals or sole proprietorships comprised 40 percent of all LKE transactions. S-corporations made up 36 percent of exchanges, with C-corporations and REITs accounting for 19 percent of all transactions.

Just as importantly, LKE transactions in Colorado involved properties held for a longer duration. Sixty-five percent of LKEs featured properties held for 5 – 14 years. An additional 26 percent comprised properties held for 15 – 29 years.

Like-kind exchange transactions lead to additional investment in real estate properties, as 83 percent of respondents from Colorado indicated. The majority—67 percent—indicated that the average capital investment in property improvements was between 10% – 49% of the property’s fair market value. The additional capital investment translated into additional jobs, leading to increases in Colorado’s Gross State Product.

Respondents to the survey were asked how the repeal of IRC Section 1031 would change the real estate market. Highlighting the importance of LKE transactions for Colorado, 33 percent of respondents indicated that, without the tax deferral provision, their LKE transactions would not have occurred. In addition, 46 percent of the state’s respondents also pointed out that without IRC Section 1031 the holding period would increase by “Greater than 50% of [a property’s] useful life.”

To access the Like-Kind Exchanges: Real Estate Market Perspectives 2015 report, visit http://www.realtor.org/reports/like-kind-exchange-survey.

[1] Bureau of Economic Analysis, Regional Data: GDP & Personal Income. http://www.bea.gov/iTable/index_regional.cfm.

[2] Internal Revenue Service, Like-Kind Exchanges Under IRC Code Section 1031, FS-2008-18, February 2008.

43 Percent of Properties Were on the Market for Less than a Month in July 2015

Fri, 09/04/2015 - 10:53

Properties that closed in July 2015 were typically on the market for at 42 days (34 days in June 2015; 48 days in July 2014), according to the July 2015 REALTORS® Confidence Index Survey Report11 Days on market typically increase after June due to seasonality effects.  Seasonality combined with a slightly slowing market resulted in properties staying on the market for a few more days.

Short sales were on the market for the longest time at 135 days, while foreclosed properties typically stayed on the market at 49 days. Non-distressed properties were on the market at 41 days.

Approximately 43 percent of properties were on the market for less than a month when sold (47 percent in June 2015; 40 percent in July 2014).

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.

REALTORS® Ready Themselves for TRID

Fri, 09/04/2015 - 10:48

REALTORS® are preparing for the October 3rd implementation of the new TILA RESPA Integrated Documentation (TRID) closing process.  Under TRID, the current closing documentation will be streamlined and reduced. In addition, features are added to the closing documents that are intended to help consumers better understand their financial commitment. To find out how REALTORS® are preparing for these changes, NAR Research surveyed members in early August of 2015.

When asked about their plans to deal with the new TRID rules, 55.9% of REALTORS® plan to change their purchase agreements to reflect a longer timeline, while 31.2% will add contingencies to the contract. 37.0% of respondents have developed plans with their lender or title company to help smooth the process, while a significant share plan to perform final inspections earlier or will provide contracts and amendments to the lender earlier.

The TRID changes don’t directly affect REALTORS® business but may affect closing deadlines and there are things REALTORS® can do to help ameliorate the impact. Most REALTORS® are aware of the changes, taking actions, and working with industry partners to smooth the transition.

Labor Day: Celebrating the Achievements of REALTORS®

Fri, 09/04/2015 - 09:38

Labor Day is an annual tribute to the achievements and contributions of American workers. Labor Day became a federal holiday in 1894 and was first celebrated in 1882 by the Central Labor Union. REALTORS® are hardworking individuals with diverse backgrounds, and Labor Day is a time to recognize their successes.

  • Fifty-eight percent of REALTORS® are licensed as sales agents, 26 percent as brokers, and 18 percent as broker associates.
  • The majority of REALTORS® specialize in residential brokerage at 80 percent, followed by commercial brokerage at four percent.
  • The typical member has been in the real estate industry for a median of 12 years, and has been at their present firm for 5 years.
  • Ninety-eight percent of REALTORS® are certain that they will remain active as a real estate professional during the next two years.
  • In 2014 the typical member had an average of 11 transactions, and a median sales volume of $1.7 million.
  • REALTORS® worked a median of 40 hours per week in 2014, with 59 percent working 40 or more hours per week.
  • Only five percent of members cite real estate as their first career, prior full-time careers include:
    • Management/Business/Financial: 19 percent
    • Sales/Retail: 16 percent
    • Office/Admin support: 9 percent
    • Education: Six percent
    • Healthcare: Five percent
    • Homemaker: Five percent
  • For 77 percent of REALTORS® real estate is their only occupation. This percentage increases with experience. Eighty-five percent of members with 16 years or more of experience cited real estate as their only occupation.

View the Labor Day infographic. For more information on the history of Labor Day visit the U.S. Department of Labor. Find out more about REALTORS® in the 2015 Member Profile.

Latest Metro Level Employment Conditions (July 2015)

Fri, 09/04/2015 - 09:33
  • Over 2.9 million net new jobs were added to the national economy over the past 12 months to July. Not surprisingly, 83 percent of metro markets added jobs while only 17 percent did not create jobs or suffered a net lost. This improving job trend will underpin growth in real estate transactions going forward.
  • Among the states, Utah is the clear leader with 4.5 percent growth. The next fastest growing states are Florida, Nevada, Washington, and Oregon. Only two states had fewer jobs compared to one year ago: North Dakota and West Virginia. The full list of state performance is in table below.
  • A solid majority of states (42) experienced a strengthening condition compared to the prior month. For example, the top state of Utah has picked up pace to 4.5 percent growth from 4.4 percent growth in the prior month. Only 8 states had weakening conditions. The state of Washington, for example, is moving along nicely with 3.5 percent year-over-year gain in jobs, but that is a slower than 3.9 percent pace the prior month.
  • Among the large metro markets, here are few outstanding performers.
    • Provo-Orem (7.2%)
    • San Jose (6.2%)
    • Grand Rapids (4.8%)
    • Salt Lake City (4.4%)
    • Orlando (4.1%)
    • Riverside-San Bernardino (4.0%)
    • Portland, OR (3.8%)
    • Seattle (3.8%)
    • Dallas-Ft. Worth (3.7%)
    • Austin (3.6%)
    • Charlotte (3.6%)
    • Nashville (3.6%)
  • It is pleasing to note of the recovery in markets along the shores of Lake Erie. That’s because they had suffered a lot and had consistently congregated near the bottom in job growth. The Detroit market, as one example, had lost 500,000 jobs before showing recovery of 300,000 in recent years. Currently, Detroit is coming around at a respectable speed of 2.5 percent. A similar trend can be observed in Toledo, Cleveland, and Buffalo. Perhaps, it’s time to ditch the label – the Rust Belt.

July Pending Home Sales

Thu, 09/03/2015 - 15:15
  • NAR released a summary of pending home sales data showing that July’s pending home sales index is up for the 11th consecutive month. July’s pending sales are up only 0.5% from last month but improved 7.4% from a year ago, a decent gain but the slowest gain of the year.
  • Pending sales are homes that have a signed contract on them but have yet to close. They tend to lead existing-home sales data by 1 to 2 months.
  • All regions showed increases from a year ago. The Northeast saw the biggest gain from a year ago at 12.1% while the Midwest had the smallest gain at 5.7%.
  • From last month only two regions had an increase; the Northeast had the largest gain at 4.0% while the South had the smallest gain in pending sales at 0.6%. While the Midwest was flat the West was the only region to have a decline in pending sales of 1.4%.
  •  The pending home sales index level was 110.9 for the US which is the third highest of the year.  The pending index has now been higher 100 for more than a year. The 100 level is based on a 2001 benchmark and is consistent with a healthy market and existing home sales above the five million mark.
  • Job creation and steady mortgage rates should help sustain housing activity during times of global market uncertainty. The increase in pending home sales shows continued interest in housing.

Higher Consumer Spending Leads to Declining Retail Vacancies

Thu, 09/03/2015 - 11:23

The economy performed better than expected in the second quarter of this year. Recently revised data show that real gross domestic product (GDP) advanced at an annual rate of 3.7 percent, to $16.3 trillion, according to the Bureau of Economic Analysis’s (BEA) second estimate.

Payroll employment continued rising, underpinning growing demand for commercial spaces. During the second quarter, 678,000 new employees joined payrolls nationwide, bringing the total for the first half of 2015 to 1.3 million. Median weekly earnings of private employees—adjusted for inflation—rose by 2.1 percent in the second quarter of this year, a significant improvement compared to 2014.

Consumer spending—along with stronger-than-initially-estimated business and government expenditures—provided fuel to the economic advance. Consumer spending rose at 3.1 percent annual rate, driven by strong growth in durable goods, according to the BEA. Consumers spend more on cars and auto parts, recreational vehicles, as well as furnishings and household equipment. In a separate report from the Census Bureau, retail sales rose at a 6.9 percent annualized rate during the second quarter.

Responding to broader economic improvement, retail demand has been outpacing supply over the first six months, but the pace lags the other property types. According to JLL, demand increased to 21.2 million square feet from the first quarter’s 15.4 million square feet of net absorption. The majority of space demand clustered in general retail properties, followed by shopping centers. Completions totaled 11.6 million square feet in the second quarter, bringing the total for the first half of the year to 21.0 million square feet. With completions lagging, national vacancies reached 5.9 percent in the second quarter of 2015, driving retail rents higher by 1.2 percent.

Fundamentals in REALTORS® CRE markets moved in tandem with the broad markets during the second quarter 2015. Leasing volume during the second quarter rose 5.0 percent compared with the first quarter 2015. Leasing rate growth remained steady, rising 3.0 percent in the second quarter, compared with the 3.0 percent advance in the previous quarter. Retail vacancies declined 137 basis points on a yearly basis, to 13.2 percent.

Lease concessions in REALTORS® CRE markets declined 8.0 percent.  Tenant improvement (TI) allowances averaged $10 per square foot per year nationally. As availabilities tightened with increased demand, retail properties recorded TI rates at $15 per square foot per year.

To access the Commercial Real Estate Outlook: 2015.Q3 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

Raw Count of Home Sales (July 2015)

Tue, 09/01/2015 - 15:43
  • Existing-home sales increased 2 percent in July from one month prior while new home sales increased 5.4 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, 552,000 existing-homes were sold in June while new home sales totaled 43,000. These raw counts represent a 3 percent loss for existing-home sales from one month prior while new home sales dropped 4 percent. What was the trend in the recent years? Sales from June to July dropped by 2 percent on average in the prior three years for existing-homes and decreased by 11 percent on average for new homes. So this year, existing-home sales underperformed compared to their recent norm while new home sale 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, August is a mixed month for existing-home sales.  Although last year existing-home sales dropped in August, we also commonly see increases in sales activity from July to August. In contrast, existing-home sales typically drop in September. For example, in the past 3 years, September sales typically decline by 9 to 21 percent from August. For the new home sales market, the raw sales activity in August and September tends to be almost the same compared to those occurring in July.

New Faces in Commercial Real Estate

Tue, 09/01/2015 - 15:36

Recently commercial membership has seen demographic changes. New members joining commercial real estate contrast some characteristics of typical commercial membership. While commercial real estate is male dominated, we see this trend shifting when looking at those members with 2 years or less of experience in commercial real estate. Based on data from the 2015 Commercial Member Profile, we can see who is joining commercial real estate and how they differ from the typical commercial member.

Commercial REALTORS® with two years or less of experience:

  • The majority of commercial members with two years or less of experience in commercial real estate are licensed as sales agents at 36 percent and brokers at 24 percent, compared to all commercial members who are typically licensed as brokers (59 percent) and sales agents (24 percent).
  • Commercial members with two years or less of experience have been in any field of real estate for three years, while all commercial members have been in real estate for 25 years.
  • The gender breakdown among commercial members is 75 percent male, but this changes when looking at commercial members with two years or less of experience. Females make up 51 percent of the newest members in commercial real estate. This is the only experience category which shows a larger percentage of women than men.
  • The newest members in commercial real estate are typically married (65 percent) and 54 years old, six years younger than the median age of all commercial members at 60 years old.
  • The median number of transactions by commercial members is 11, compared with two years or less of experience the median was three transactions in 2014. This number doubles to six transactions with three to five years of experience.
  • Among commercial members with two years or less of experience in commercial real estate, 58 percent worked between 40 and 59 hours per week, the same as all commercial members.
  • The newest members in commercial real estate are well educated. 40 percent have completed their bachelor’s degree, 31 percent have completed some college or hold an associate’s degree, and 19 percent have a graduate degree. Thirty-seven percent of all commercial members have completed their bachelor’s degree.
  • The most common compensation structures for members with two years or less of experience was percentage commission split (41 percent), 100% commission (22 percent), and straight salary (15 percent). The percentage receiving a straight salary is higher among newer commercial real estate agents, compared to the typical commercial member who only reports receiving a straight salary four percent of the time.
  • Less experienced commercial real estate agents receive a median of only 40 percent of their annual income from commercial activities. Whereas the typical member receives 76 percent of their salary from commercial activities.

For more information on commercial REALTORS®, members can view the full 2015 Commercial Member Profile, or download the report through the REALTOR® store.

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

Tue, 09/01/2015 - 15:20

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 May-July 2015, according to the July 2015 REALTORS® Confidence Index Survey Report.[1]

Nationally, properties that closed in July 2015 were typically on the market for at 42 days (34 days in June 2015; 48 days in July 2014).11 Properties typically sold within a month in Washington, Oregon, California, Utah, Colorado, North Dakota, Kansas, Texas, Michigan, Massachusetts, and the District of Columbia.

Days on market typically increase after June due to seasonality effects. Amid tight supply, properties stayed on the market for fewer days compared to a year ago.

All real estate is local. State-level data permits the comparison of local markets against the state and national summary.

[1] The median days on market is the value such that half of properties stayed in the market below the median days and half of properties stayed on the market above the median days.

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.

REALTORS® Train for TRID

Tue, 09/01/2015 - 11:21

On October 3rd, the new TILA RESPA Integrated Documentation (TRID) will be implemented.  Under TRID, the current closing documentation will be streamlined and reduced. In addition, features are added to the closing documents that are intended to help consumers better understand their financial commitment. To find out how REALTORS® are preparing for these changes, NAR Research surveyed members in early August of 2015.

In preparation for TRID, 82.2% of respondents had taken some form of training (webinar, class, etc.).  Firm or broker sponsored events were the most commonly attended at 35.4%, while events run by state and local associations were second at 26.9%. Training conducted by lending and title companies affiliated with the agent’s firm were the next most popular at 25.1%. Non-affiliated title and lenders were next at 21.2% and 18.1%, respectively.

While the TRID changes don’t directly affect REALTORS®, REALTORS® can help to ameliorate the impact. Most REALTORS® are aware of the changes, taking actions, and working with industry partners to smooth the transition.

View the full  REALTORS® and the New Closing Process report.

Increased International Trade and E-Commerce Lead to Industrial Demand Ramp Up

Mon, 08/31/2015 - 15:10

Economic activity rebounded in the second quarter of this year. Real gross domestic product (GDP) advanced at a recently revised annual rate of 3.7 percent, to $16.3 trillion, according to the Bureau of Economic Analysis’s estimate. The increase in GDP was driven by higher consumer spending, exports, residential fixed investment, and government spending.

International trade provided uplift to GDP during the second quarter, as export growth outpaced import activity. Exports totaled $2.1 trillion in the second quarter, a 5.2 percent increase on an annual basis. In comparison, imports rose at an annual rate of 2.8 percent, totaling $2.7 trillion. While the balance of trade improved slightly, real net exports remained negative. However, trade activity proved beneficial in boosting demand for industrial space.

Retail e-commerce sales totaled $83.9 billion in the second quarter of the year, an 18.1 percent annual growth rate. As more consumers shift to on-line purchases, distribution centers play a greater role in fulfilling orders—including higher volume of perishable goods, such as groceries.

Payroll employment continued rising, underpinning growing demand for commercial spaces. During the second quarter, 678,000 new employees joined payrolls nationwide, bringing the total for the first half of 2015 to 1.3 million. As industrial leasing has been gearing up to meet the higher demands from increased imports and stronger electronic commerce distribution volume, transportation and warehousing employment gained 39,000 new positions, and wholesale trade employment rose by 9,000 jobs during the second quarter.

Industrial space net absorption continued rising, totaling 102.9 million square feet in the first half of this year, based on JLL data. Warehouse and distribution account for the bulk of the demand (87.8M sq. ft.), followed by manufacturing (13.5M sq. ft.). Supply also rose, with new industrial completions adding 83.6 million square feet to total stock. With demand outpacing supply, industrial vacancies declined to 6.9 percent, a 14-year low, according to JLL. With a tight market, industrial rents rose 5.1 percent.

Fundamentals in REALTORS® CRE markets moved in tandem with the broad markets during the second quarter 2015. Leasing volume during the second quarter rose 5.0 percent compared with the first quarter 2015. Leasing rate growth remained steady, rising 3.0 percent in the second quarter, compared with the 3.0 percent advance in the previous quarter. Industrial availability posted the largest year-over-year decline—246 basis points—to 10.8 percent.

Lease concessions in REALTORS® CRE markets declined 8.0 percent. Tenant improvement (TI) allowances averaged $10 per square foot per year nationally. As availabilities tightened with increased demand, industrial properties recorded the second-lowest TI rates at $6 per square foot per year.

To access the Commercial Real Estate Outlook: 2015.Q3 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

 

July 2015 Existing-Home Sales Over Ten Years

Mon, 08/31/2015 - 10:58

View the July 2015 EHS Vs Ten Year Average slides.

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

The data below shows what our current month’s data looks like in comparison to the last ten July months and how that might compare to the “ten year July average” which is an average of the data from the past ten July months.

  • The total number of homes sold in the US for July 2015 is higher the ten year July average. Regionally, the Northeast was slightly below the ten year July average all other regions showed stronger sales. The Midwest and South was above the average by more than 15%, the West was also up 9% while Northeast was essentially level with the July average.
  • Comparing July of 2005 to July of 2015 fewer homes were sold in 2015 in the US and all regions, the Northeast undergoing the biggest decline of 41.7%. The South, still leading all regions in home sales had the smallest drop in sales at 15.8% over the ten year period.
  • This July the median home price is higher than the ten year July average median price for the US and all four regions.
  • Comparing July of 2015 to 2005 the median price of a home was higher only in the US, Midwest and South. The Northeast had a slight decline in price while the West experienced a 6% decline in price. While the US had an increase in price of 3% the price of homes in the South jumped 9%.
  • The median price year-over-year percentage change shows that home prices began to fall in 2006 in some regions and 2007 nationally, but did not fall considerably in most areas until around 2009. The trend for median home prices turned around completely in 2012, all regions including the US showed price gains. Because of this, all regions and the US saw their lowest July median price in 2011. The West had the largest gain in price of 26%, while the Northeast had the smallest gain at 4% from 2011 to 2012. This July the West (8.4%) had the highest year over year price percentage change over the US and the other three regions.
  • There are currently fewer homes available for sale in the US this July than the ten year July average. In 2005 the US had the fastest pace of homes sold relative to the inventory taking 4.6 months. In 2010 the US had the slowest pace taking 11.9 months to sell the supply of homes on the market. Relative to all supply, the condo market had the biggest challenge in 2010 when it would have taken a little more than 16 months to sell all available inventory at the prevailing sales pace, but now, the condo market is actually tighter than it was in 2005, nearly on par with tight single-family inventories.
  • The ten year July average national months supply is 7.7 and this July we are at 4.8 months supply. The ten year average month supply for July for condos is 10.0 months and the single family supply is 7.4 months.

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