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Hidden Demographics of First-Time Home Buyers

Thu, 01/28/2016 - 13:13

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.

 

Applications for Purchase Mortgages

Wed, 01/27/2016 - 12:36
  • Applications for purchase mortgages rose 4.6 percent for the week ending January 22nd after a 1.6 percent decline in the prior week. Despite recent volatility, the 4-week moving average remains 21.3 percent stronger than the same time last year.
  • Applications to purchase homes swung dramatically in wake of the implementation of TRID, but have since gained traction. More recent end-of-year volatility has also given way to steady growth relative to last year.

  • The 4-week moving average, a means of smoothing this weekly volatility, sat at 21.3 percent stronger than a year earlier. While this was a decline from the 25.7 percent year-over-year gain from a week earlier, the measure is robust relative to last year’s late January strength.
  • The gains were concentrated in the conventional sector which jumped 5.5% compared to a 2.7% gain in the conventional space.
  • The average contract rate on a 30-year fixed slipped 4 basis points higher to 4.02 percent. Rates have fallen steadily from 4.20 percent just four weeks ago, but are 19 basis points higher the 3.83 percent average this time last year. Despite the increase rates remain historically low and FHA’s fees are much lower aiding affordability.

  • This week’s improvement is likely to concede ground next week due to snow-related delays in the South, Mid-Atlantic, and southern New England regions. However, purchase applications should pick up thereafter.
  • Buyer sentiment suggests sustained interest and a drop in actual doors opened isn’t necessarily contradictory. Rather, this pattern likely reflects the sharp drop in available inventory in December. Price growth and withering negative equity will help to generate nascent trade up activity, but additional inventory is needed to maintain turnover and to arrest strong price growth.

 

 

Latest New Home Sales (December 2015)

Wed, 01/27/2016 - 11:19
  • Home sales of newly constructed homes rose solidly in December. The latest tally is the second highest monthly sales pace in nearly eight years. The annual total is the best in nearly a decade. The gain also affirms the continuing housing recovery and one key reason as to why the U.S. economy will avoid recession in 2016.
  • Specifically, new home sales rose 10.8 percent from the prior month after accounting for seasonal adjustments. Moreover, the sales were higher by 9.9 percent from one year ago. The sales pace of 544,000 is the second highest monthly tally since 2008. Despite the seemingly impressive figures, it is also worth noting that new homes of 800,000 to 900,000 had been the norm before the housing market bubble and crash. Therefore, there is still a plenty of room to grow.
  • The median price of newly constructed homes was $288,900. This is lower than a year ago, but reflects not depreciation in home price but rather homebuilders’ focus in recent months on the starter home market. The price for the year as whole set a new record of $293,600 in 2015, a gain of 3.8 percent from one year ago.
  • The price of existing home has been rising faster in recent months, but the gap between new home price and existing home price still remains wider than normal. Since homebuilders have to account for the cost of labor, materials, lot purchase, and some profits there is not much room for the newly constructed home price to fall. This means, existing home prices need to rise at a faster rate for the foreseeable future to narrow the price gap back to historical normal.
  • Homebuilders are finding buyers fast – about 3 months. Yet, the puzzle remains as to why the homebuilders cannot quickly ramp up production. The accessibility of construction loans from community banks continues to be a struggle because of many new financial regulations. Also, even for those who are able to get the loan, finding qualified construction workers have been very difficult despite the high wages. This trend begs the question as to why there are so many people of working age not in the labor force when the construction industry needs them.

Case Shiller Housing Price Index

Tue, 01/26/2016 - 09:40
Tuesday, January 26, 2016 ·         Today, Case Shiller released their housing price index data for November 2015.  Case Shiller data showed that house prices rose more than 5 percent in all three indices since November 2014.  The 10-city composite and national indices gained 5.3 percent, while the 20-city composite rose 5.8 percent year over year.  Each index’s November year over year gain was higher than the October year over year gain. ·         After growing at a fairly steady pace earlier in 2015, the Case Shiller indices have begun to show acceleration or faster growth in prices in the last 4 to 9 months, depending on the specific index used.  ·         Last week the Federal Housing Finance Agency (FHFA) and the National Association of Realtors® (NAR) reported price data.  ·         FHFA data showed that prices were up 5.9 percent in November from one year ago, slightly slower than the 6.1 percent year over year growth seen in September and October, but faster than growth rates seen in the earlier part of the year. ·         NAR data showed that prices grew at a 6.2 percent pace from November 2014 to November 2015.  NAR also reported on new December data which showed a bump up to a 7.6 percent growth from one year ago. ·         Recent housing price data at the national level suggests that home prices continue to increase at a strong pace and the pace of increase may be accelerating. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets. ·         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 Portland (11.1%), San Francisco (11.0%), and Denver (10.9%) in the year ending November 2015. By contrast, Chicago (2.0%), Washington DC (2.1%), and Cleveland (2.2%) were the slowest growing markets. 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. How does your market compare to the national price trends? ·         NAR reports the median price of all homes that have sold while Case Shiller and the Federal Housing Finance Agency report 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 November prices include information from repeat transactions closed in September, October, and November. For this reason, changes in the NAR median price tend to lead Case Shiller and may suggest that additional strong price growth could be on the horizon. The current strong pace is a reflection of continued demand from buyers in an economy where jobs are still being created and a low supply of homes for sale. While affordability is a concern in an environment where home price growth is outpacing income growth and mortgage rates are expected to rise, demand has generally been strong enough to shake off this concern.    

First-time Buyers: 32 Percent of Residential Sales in December 2015

Tue, 01/26/2016 - 09:34

The share of first-time home buyers increased slightly to 32 percent of residential sales in December 2015 (30 percent in November 2015; 29 percent in December 2014), according to the December 2015 REALTORS® Confidence Index Survey.

Nationally, sales to first-time home buyers were 31 percent of residential sales in calendar year 2015, essentially unchanged since 2012, the breakout year of the housing market recovery. First-time buyers made up a larger share of the residential market in New York (49 percent), Pennsylvania (41 percent), Illinois (40 percent), New Jersey (40 percent), Massachusetts (38 percent), and Georgia (37 percent). Compared to 2012, first-time homebuyers accounted for a smaller share of the market in California (32 percent) and Washington (31 percent) in 2015, likely on account of the steep price increases since 2012 as well as the preference to rent among young workers who tend to be more professionally mobile early in their careers.

Sustained job creation and the low interest rate environment are sustaining housing demand, but lack of supply, decreased affordability, and difficulty in qualifying for a mortgage are keeping many first-time homebuyers off the market.[1]

[1] 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

 

Highlights of December 2015 REALTORS® Confidence Index Survey

Tue, 01/26/2016 - 09:14

Market conditions vary across local markets and states, but the REALTORS® confidence and traffic indices indicate generally unchanged market activity in December 2015 compared to November 2015. Compared to December 2014, market activity slightly improved, according to the December 2015 REALTORS® Confidence Index Survey Report.

Sustained job creation and the low interest rate environment appear to be sustaining housing demand, even as the lack of inventory and tight underwriting standards are constraining market activity. However, in oil-producing states, homebuying demand appears to be easing. The TILA/RESPA Integrated Disclosure (TRID) regulations, commonly known as “Know Before You Owe,” which came into effect on October 3, 2015, appear to have lengthened the closing period: about 53 percent of respondents reported longer closing times compared to a year ago, up from 37 percent in the October 2015 survey. It typically took 40 days to close a sale, up from 36 days in July 2015 when NAR started collecting this information in the survey.

The share of first-time home buyers rose slightly to 32 percent of sales. Purchases for investment purposes accounted for 15 percent of sales, while distressed properties made up eight percent of sales. Cash sales accounted for 24 percent of sales. Properties were typically on the market 58 days nationally compared to 66 days a year ago, an indication that supply remains tight relative to demand.

Tight inventories, decreased affordability, and more stringent credit standards continued to be reported as key issues affecting sales, especially to first-time homebuyers. The collapse in oil prices is also a concern among REALTORS® in oil-producing states. Still, respondents were broadly “strongly” confident about the overall outlook for the next six months, especially in the single-family homes market, with the confidence index registering at 72 (50 indicates a “moderate” outlook). Local conditions differ, but respondents typically expected home prices to increase 3.3 percent.

Fewer Workers Filing Unemployment Insurance Claims, But Layoffs Increase in Oil-Producing States

Fri, 01/22/2016 - 10:12
  • Job losses continue to decline in 2016. The number of unemployment insurance claims filed in the first three weeks of January 2016 averaged 284,410, a decrease compared to previous years. The average number of jobless claims filed is also below 300,000, a level that is indicative of the normal churning of the job market.

  • But although job losses have declined nationally, states that are being buffeted by the drop in oil prices are experiencing job losses and net job declines. Based on the latest available data from January-November 2015 (Table 1), the number of workers filing unemployment insurance claims rose in Louisiana, Oklahoma, North Dakota, New Mexico, Texas, West Virginia, and Wyoming. The number of claims rose to 1.24 million in January-November 2015, or 139,562 more claims compared to the number of filings in the same period in 2014.  Nationally, the number of claims filed decreased by 1.46 million.

  • Job losses (reflected in the number of unemployment insurance claims filed) can be offset by job creation. But as the latest November 2015 data indicates, payroll employment also declined in the oil-producing states except in Texas and New Mexico (Table 2). The hardest-hit state is North Dakota, where payroll employment contracted by 14,000 in November 2015 compared to a year ago. Only Texas appears to be weathering the oil prices collapse, with the economy gaining 179,000 net new jobs. Nationally, the economy generated 2.5 million more jobs in 2015 compared to 2014.

  • Given the headwinds coming from falling oil prices, NAR projects that the economy will grow at a modest pace that will support 5.34 million of existing home sales in 2016, an increase from the forecasted 5.2 million existing homes sold in 2015.

Sales Normalize, but TRID Lingers

Fri, 01/22/2016 - 09:54

While final sales stumbled in November, foot traffic and pending home sales suggested strength. Existing home sales have since recovered. The main impact of TRID on final sales has been to add several days to the settlement process, shifting sales to the next period. Final sales may benefit in the coming months as these diverted sales revert back. [1]

The median time-to-close rose again in December to 40.9 from 39.7 in November, 5.7 days higher than December of 2014. This year-over-year difference is an increase from 4.7 days in November. Despite the increase in time-to-close, the unadjusted pending home sales index rose to 84.1 in November compared to 80.0 a year earlier, suggesting consistent demand.

The sharp increase in time-to-close is not representative of the entire market, though. In December of 2015 21.7 percent of sales took less than 30 days for settlement, down sharply from 32.0 percent a year earlier. This share was roughly consistent with November’s reading. However, in November 33.6 percent of sales were in the 30 to 45 day range, an increase of 2 percentage points from November in the the prior two years (not shown). Likewise, the share of sales with settlements that took 46 or more days rose by roughly eight percentage points in November 2015 to 43.3 percent. Thus, roughly 10 percent of the distribution was shifted from under 30 days and spread over the other two ranges.

There was a notable shift in December, though, as the share of loans in the middle tire declined two percentage points to 31.2 percent and the share taking 46 or more more days rose by nearly the same amount to 46.9 percent. This shift in distribution suggests that the majority of producers have not been affected, but nearly 10 percent of production is taking significantly longer than normal and skewing the average and median settlement time. These delays could be caused by specific producers or by particular loan issues.

While existing home sales are back in line with pre-TRID levels the median time-to-close remains elevated. A small but significant portion of the market is driving this effect and roughly 10 percent of home buyers are paying more for rate locks and lock extensions as a result. As the process improves settlement times may shorten, causing roughly 10 percent of the market to close sooner. As a result, existing home sales could receive a modest boost.

[1] Special thanks to Danielle Hale for her thoughtful comments and to Hua Zong for his excellent analytical support.

 

December Housing Market Preview

Thu, 01/21/2016 - 10:28

The official Existing-Home Sales are released tomorrow, Friday, January 22, 2016. However, savvy REALTORS® and real estate analysts know that some real estate data is already available from local sources.

What do these early December numbers tell us? In most of these areas, prices and sales were up for December (from one-year ago). For more details, visit the original source at the link listed below.

Are early stats available in your area? What does the market look like?

Source Link:

Colorado http://www.coloradorealtors.com/wp-content/uploads/2016/01/CAR-Colorado_MMI_2015-121.pdf Greater Seattle (NWMLS) http://www.northwestmls.com/index.cfm?/News–Information Metro District CO http://www.coloradorealtors.com/wp-content/uploads/2016/01/CAR-Colorado_Metro_MMI_2015-122.pdf Charlotte http://apps.carolinarealtors.com/files/Local%20Market%20Update%20Dec%202015.pdf Oklahoma City http://www.okcmar.org/wp-content/uploads/2016/01/Dec_2015_Press_Release.pdf Ada County Idaho http://publicstats.intermountainmls.com/static/Reports/Ada/2015/December-2015-Ada.pdf Spokane http://www.spokanerealtor.com/mls/market-snapshot

Martin Luther King, Jr. Day

Fri, 01/15/2016 - 13:33

Martin Luther King, Jr. Day is observed on the third Monday of January and marks the birthday of Rev. Dr. Martin Luther King, Jr. This holiday is also recognized as a day of service, and is an opportunity to serve your community. Based on the 2015 Member Profile we can see how REALTORS® are volunteering in their community.

  • Seventy percent of all REALTORS® volunteer in their community, and the typical REALTOR® who volunteers is 56 years old.
  • Twenty-four percent of REALTORS® aged 65 and older volunteer in their community.
  • Fifty-nine percent of the REALTORS® volunteering are females, and 41 percent are males.
  • The South showed the highest percentage of volunteers at 39 percent, followed by the West at 31 percent, the Midwest at 17 percent, and the Northeast at 14 percent.
  • Thirteen percent of volunteers were fluent in a language other than English.
  • REALTORS® who previously had a career in the management, business, or financial field were more likely than any other previous career to volunteer (19 percent).

Find more information on Martin Luther King, Jr. Day and opportunities to volunteer in your area at: http://www.nationalservice.gov/mlkday

View the Martin Luther King, Jr. Day infographic.

For more highlights on REALTORS® view the 2015 Member Profile.

 

November 2015 Housing Affordability Index

Thu, 01/14/2016 - 10:34

In spite of higher prices, housing affordability is down only slightly from a year ago as lower mortgage rates and higher incomes almost offset higher home prices.

  • Housing affordability declined slightly (2.6 percent), from a year ago in November in spite of a notable increase in prices. The median sales price for a single family home sold in November in the US was $221,600, up 6.6 percent from a year ago. This pushed the affordability index from 171.9 to 167.4.
  • Growing incomes and easing mortgage rates from a year ago helped to nearly offset the increase in home prices. Nationally, mortgage rates were down 15 basis points from one year ago (one percentage point equals 100 basis points) while incomes rose 2 percent. The reduction in mortgage rates from one year ago saves the median home buyer $16 per month on principal and interest payments at the current home price while income growth means the median family earns $111 more per month than November 2014.
  • Regionally, all four regions saw declines in affordability from a year ago. The West had the biggest decline in the affordability index of 2.9 percent followed by the Midwest and South. The affordability index in the Northeast slipped only 0.4 percent from one year ago.
  • Price movements were the biggest driver of affordability changes. The West had the biggest increase in price at 8.6 percent while the Northeast experienced the slowest price growth at 3.6 percent. The Midwest and the South fell in between with 5.2 percent and 6.5 percent, increase in home prices, respectively.
  • Seasonal fluctuations in price tend to drive month to month changes in affordability, but in November, a slight decrease in mortgage rates in most regions also had a role. Affordability is up 0.4 percent from one month ago in the US and increased slightly in the Midwest (1.4 percent) and West (1.8 percent). Affordability decreased slightly in the Northeast (1.9 percent) and South (0.1 percent).
  • Despite month to month changes, the most affordable region is the Midwest where the index is 213.7. This means that in the Midwest in November 2015, the median income family earned roughly 2.1 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 176.1 in the South, 166.6 in the Northeast, and 121.6 in the West.
  • While the affordability index indicates that the median-priced home is affordable to the median family across the US, there is some room for concern. Price increases are great for owners who build up equity to use in subsequent home purchases, but rising rents make it difficult for potential new buyers to save for a down payment. Lending options from the Federal Housing Agency (FHA) and the Government Sponsored Enterprises (GSEs) enable would-be homeowners to make a home purchase with down payments as low as 3 to 3.5 percent, but many potential buyers are unaware of these programs. Realtors can play a valuable role in advising and educating potential clients about the options that are available to them.
  • 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.

REALTORS® Expect Moderate Price Growth in Next 12 Months

Mon, 01/11/2016 - 15:24

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”

REALTORS® who responded to the November 2015 survey expected prices to increase by 3.2 percent over the next 12 months (3.2 percent in October 2015; 3.0 percent in November 2014).9 REALTORS® expect the recent strong price growth to moderate as rising prices have made homes “unaffordable” for many, according to the November  2015 REALTORS® Confidence Index Survey Report.10

The map shows the median expected price change in the next 12 months for each state based on the September – November 2015 RCI surveys.10 REALTOR® respondents from Washington, Oregon, Wyoming, Colorado, and Florida were the most upbeat, with a median expected price growth in the range of four to five percent. Compared to expectations in previous months, no state had a median expected price growth of over five percent, an indication that prices are expected to rise at a modest pace in the next 12 months.

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.

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.

Supply Conditions Continue to be “Weak” Across Most States in November 2015

Fri, 01/08/2016 - 10:22

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “How would you rate the past month’s traffic where you make most of your sales?”

During the period September-November 2015, buyer traffic, measured by the REALTORS® Buyer Traffic Index, was “strong” in 24 states and “very strong” in the District of Columbia.[1]

Meanwhile, seller traffic, measured by the REALTORS® Seller Traffic Index, was broadly “weak” across most states.[2] The gap in demand and supply has led to strong price growth against modest gains in income, making a home purchase increasingly less affordable.  NAR median existing home sale prices were up 6.3 percent in November 2015 from a year ago, while median weekly earnings rose by 1.5 percent in Q3 2015 from the same period a year ago.

The construction of new privately owned housing units has been improving, reaching 1.2 million units in the third quarter of 2015. However, roughly 35 percent of recent new construction has been multi-family structures which are typically for rental occupancy. Historically, multi-family structures accounted for only 20 percent of new construction, so the availability of single-units for purchase among recently constructed properties is lower than is historically normal. REALTORS® reported low inventory of properties in the lower price range and for those that are move-in ready.

[1] The index for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have less than 30 observations. Respondents were asked “How do you rate the past month’s buyer traffic in the neighborhood(s) or area(s) where you make most of your sales?” The responses were “Strong (100)”, “Moderate (50),” and “Weak (0).” Respondents rated conditions or expectations as “Strong (100)”, “Moderate (50)”, and “Weak (0).” The responses are compiled into a diffusion index. Values 25 and lower are considered “very weak”, values greater than 25 to 49 are considered “weak”, a value of 50 is considered “moderate”, values greater than 50 to 75 are considered “strong”, and values greater than 76 are considered “very strong”.

 

[2] Respondents were asked “How do you rate the past month’s seller traffic in the neighborhood(s) or area(s) where you make most of your sales?” The responses were “Strong (100)”, “Moderate (50),” and “Weak (0).” Respondents rated conditions or expectations as “Strong (100)”, “Moderate (50)”, and “Weak (0).” The responses are compiled into a diffusion index. Values 25 and lower are considered “very weak”, values greater than 25 to 49 are considered “weak”, a value of 50 is considered “moderate”, values greater than 50 to 75 are considered “strong”, and values greater than 76 are considered “very strong”.

 

Veteran Ownership Outpaces Non-Veterans

Thu, 01/07/2016 - 15:24

Historically, the homeownership rate for veterans of the United States military has outpaced that of non-veterans. At the peak of the market in 2006, the ownership rate for veterans was 79.5 percent[1], 12.3 percentage points higher than that of non-veterans. Like non-veterans, the ownership rate for veterans fell sharply in the subsequent years and stood at 76.0 percent in 2014, but the gap between the two groups grew to 13.5 percentage points.

The ownership rate for active duty veterans tells a different story. The ownership rate for active duty veterans has on average been lower than that of non-veterans. This difference likely reflects lower median age and job mobility. However, the ownership rate for active duty military personnel fell sharply from 47.7 percent at its peak in 2005 to a low of 32.9 percent in 2013. Active duty homeownership bounced to 34.7 percent in 2014, but remains historically low.

The Veterans Administration offers excellent mortgage products and terms and remains a strong source of funding for veterans seeking to purchase a home. Still, the decline in homeownership among active duty personnel over the last decade may reflect underlying demographic, mobility, and geographic changes that will take time to normalize. More research on this topic is necessary.

[1] Defined as any level of service, active or not.

Highlights of November 2015 REALTORS® Confidence Index Survey

Wed, 01/06/2016 - 11:24

Market conditions vary across local markets and states, but the REALTORS® confidence and traffic indices indicate no substantial change in market activity in November 2015 compared to October 2015. However, compared to a year ago, market activity improved, according to the November 2015 REALTORS® Confidence Index Survey Report.

Sustained job creation, the low interest rate environment, and measures to reduce the cost of borrowing and make credit more accessible to responsible borrowers continue to bolster the housing market recovery. However, the implementation of the TILA/RESPA Integrated Disclosure (TRID) regulations on October 3, 2015 appears to be delaying the settlement of contracts and impacting sales. About 47 percent of respondents reported longer closing times compared to a year ago, up from 37 percent in the October 2015 survey.

First-time home buyers accounted for 30 percent of sales, essentially unchanged from the previous months’ figures. Cash sales rose to 27 percent of sales as purchases for investment purposes also increased to 16 percent of sales and distressed properties rose to nine percent of sales. Properties typically were on the market 54 days nationally compared to 65 days a year ago. It typically took another 40 days to close a sale, up from 35 days in August 2015.

Tight inventories, decreasing affordability, and more stringent credit standards continued to be reported as key issues affecting sales, especially of first-time homebuyers. “Late” and “low” appraisal valuation, tighter inspection guidelines, and difficulty in obtaining financing for condominium purchases were also reported as factors weighing down the market recovery.

Student Loan Debt Hampering Home Buying: A Regional Perspective

Tue, 01/05/2016 - 15:39

In the 2015 Profile of Home Buyers and Sellers survey, we asked additional questions this year regarding the adversity to saving for a down payment to buy a home and whether student loans were an impediment. In years past, the down payment had been cited as one of the most problematic steps in the home buying process. In 2014, 12 percent of people said that saving for the down payment was the most difficult step and, among those, 46 percent reported having student loan debt.

In 2015, the number grew slightly to 13 percent of buyers that had difficulty saving for the down payment and, of those, jumped to 51 percent that reported student loan debt made saving the most strenuous step in the buying process. For first-time buyers in 2015 who are predominantly Millennials under the age of 34 year old, 25 percent said saving for the down payment was the more arduous step in the process and, of those, 58 percent stated that student loan debt delayed them from buying a home.

 

For all buyers this year, a quarter reported having student loans. For first-time buyers, 41 percent cited still having student loans with a median amount of $25,000 in debt.

What’s more interesting is the amount of student loan debt that respondents cited around the country by sub-region. The median student debt was the lowest at $15,000 in the South Atlantic states of Delaware, Maryland, Washington, DC, West Virginia, Virginia, North Carolina, South Carolina, Georgia, and Florida. The median student loan debt was highest at $70,000 in East South Central region of Kentucky, Tennessee, Mississippi, and Alabama.

A majority of the regions reported student loan debt delaying buyers from purchasing a home of a median of three years except for in the New England and West South Central, which reported a delay of five years, and the Middle Atlantic region, which was delayed four years.

It begs speculations whether jobs in the South Atlantic near the nation’s capital could be more abundant and that salaries are likely higher than other regions of the country. Thus, the amount of student loan debt reported is lowest in these states. In the East South Central region, jobs and wages are suppressed and thus the amount of student loan debt reported is nearly five times that of the South Atlantic. It also warrants further research into how the number of jobs and salaries on the market affect student loan debt thus delaying younger buyers from purchasing a home for three to five years.

Additional research shows that debt is lower where income is higher. For instance, a USA Today article that tracked the 10 states with the highest rate of student loan debt in 2014 and found that states student loan debt was higher in the Northeast where private schools are more expensive. The article further draws the conclusion that having higher debt due to student loans can dissuade people from purchasing homes, cars, and other goods that stimulate the economy. More research correlating student loan debt by state and incomes seems to be warranted in the near future.

REALTORS® Reported Slower Buyer and Seller Traffic in November 2015

Mon, 01/04/2016 - 15:19

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “How would you describe the past month’s housing market in the neighborhood or area where you make most of your sales?”

The responses are aggregated into a REALTORS® Buyer Traffic Index, with a value of 50 indicating an equal number of “strong” and “weak” responses. The November 2015 index eased down to 50 compared to its level of 52 in October 2015, but was higher compared to last year’s index of 43, according to the November 2015 REALTORS® Confidence Index Survey Report (http://www.realtor.org/reports/realtors-confidence-index).[1]

Sustained job creation, the low interest rate environment, and measures to reduce the cost of borrowing and make credit more accessible to responsible borrowers continue to bolster the housing market recovery. However, the implementation of the TILA/RESPA Integrated Disclosure (TRID) regulations on October 3, 2015 appears to be delaying the settlement of contracts and impacting sales. About 47 percent of respondents reported longer closing times compared to a year ago, up from 37 percent in the October 2015 survey.

[1] The index for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have less than 30 observations. Respondents were asked “How do you rate the past month’s buyer traffic in the neighborhood(s) or area(s) where you make most of your sales?” The responses were “Strong (100)”, “Moderate (50),” and “Weak (0).” Respondents rated conditions or expectations as “Strong (100)”, “Moderate (50)”, and “Weak (0).” The responses are compiled into a diffusion index. Values 25 and lower are considered “very weak”, values greater than 25 to 49 are considered “weak”, a value of 50 is considered “moderate”, values greater than 50 to 75 are considered “strong”, and values greater than 76 are considered “very strong”.

 

Raw Count of Home Sales (November 2015)

Mon, 01/04/2016 - 11:06
  • Existing-home sales decreased 10.5 percent in November from one month prior while new home sales increased 4.3 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, 351,000 existing-homes were sold in November while new home sales totaled 34,000.  These raw counts represent a 21 percent loss for existing-home sales from one month prior while new home sales decreased 11 percent. What was the trend in the recent years? Sales from October to November decreased by 13 percent on average in the prior three years for existing-homes and 11 percent for new homes. So this year, existing-homes underperformed compared to their recent norm while new home sales performed the average of the last three years.
  • 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 December for existing-home sales. For example, in the past 3 years, December sales typically increased by 7 to 18 percent from November. In contrast, existing-home sales dropped in January by 22 to 32 percent. For the new home sales market, the raw sales activity in December tends to be better than that occurring in November, and activity gets even better in January. For example, last year, December sales rose by 13 percent from November while January sales rose by 6 to 14 percent in the past 3 years.

Did you know? The Minimum Wage

Thu, 12/31/2015 - 10:33

On January 1, 2016 the minimum wage will rise in 14 states. What is the minimum wage in your area? How do minimum wage workers interact with the housing market in your area?

Regardless of one’s position on the minimum wage, it is helpful to learn more about it. The federal minimum wage is prescribed by the Fair Labor Standards Act (FLSA). Effective July 24, 2009, the federal minimum wage is $7.25 per hour. While there are provisions for some types of employees to be paid less than the minimum wage, (i.e. youth, some students, and tipped workers) the wage can generally be thought of as a national floor for wages.[1]

How many workers are affected by the minimum wage? According to research from the Bureau of Labor and Statistics (BLS) based on the Current Population Survey (CPS), there were 146.3 million workers in the United States in 2014. As shown in Figure 1, of these, 77.2 million were paid hourly wages. The other 69.1 million are either salaried, self-employed, or have some other non-hourly arrangement. Out of the 77.2 million who reported hourly wages, 3.0 million reported an hourly wage rate equal to or less than the Federal Minimum Wage, currently $7.25 per hour.[2] Other studies show that an additional 10 to 25 million workers earn “near-minimum” wages with the result varying with the specific definition of near-minimum.[3]

Some states already have wage laws that stipulate minimum wages above the federal minimum wage. On January 1, 2016, the minimum wage will rise in 14 states—in one dozen because of recent legislative action and in two because of automatic costs of living adjustments. Two additional states and the District of Columbia have increases scheduled for mid-2016 and Nevada has a cost of living increase which may occur in July. As of January 1, 2016, two states, California and Massachusetts, will have minimum wages of $10.00. They join a handful of localities, including the District of Columbia, with double-digit minimum wages.[4]

How does a minimum wage job translate into housing affordability? We converted each state’s minimum wage into an annual income assuming full-time work of 40 hours per week for 50 weeks per year.[5] We then computed the dollar amount that would represent an affordable monthly payment, no more than 25 percent of income for mortgage principal and interest.[6] From that monthly payment, we calculated an affordable loan amount, for a thirty-year fixed rate mortgage at a 4 percent interest rate.[7] To facilitate a broader housing market comparison, we also calculated an affordable monthly rent.[8] The data for each state and the District of Columbia is shown in the figure below. While we know that minimum wage workers come from families of all income levels, data from the EPI show that the average share of income earned by a near-minimum wage worker is just over half (54.3%).[9] Additionally, nearly one-quarter (23.7%) of these workers are the sole providers of family income.[10]

In Washington, DC, where the minimum wage is the highest, a minimum wage worker could make payments on a mortgage loan of $91,600 or qualify to rent an apartment with a monthly rent of $525. In the highest wage states, Massachusetts and California, a single minimum wage income could be sufficient to finance a mortgage loan of a little more than $87,200 or qualify to rent an apartment with a monthly rent of $500. By comparison, in areas where the federal minimum wage prevails, a minimum wage worker could make payments on a mortgage loan of just over $63,200 or qualify to rent an apartment with a monthly rent of $363.

Finding affordable homes is likely to be difficult as these amounts are well under the national median. While there are homes in these price ranges in some locations, they are getting harder to find. From recent Existing Home Sales data from the National Association of Realtors®, we know that sales of homes priced under $100,000 have been declining. In 2015 through November, sales under $100,000 were 8.5 percent lower than the same period in 2014. Given strong demand, limited supply, and continued low construction, these trends are likely to continue. What does affordability for minimum wage workers look like in your area?

For more information from NAR Research on affordability, visit realtor.org. For similar information on affordability for workers of specific occupations with an emphasis on Millennials and their occupations, see the National Housing Conference’s 2015 Paycheck to Paycheck report and data.

[1] Department of Labor, http://www.dol.gov/whd/minimumwage.htm

[2] Per the BLS report, this figure is based on the hourly wage only and does not include overtime pay, tips, or commissions. For details, see: Characteristics of Minimum Wage Workers, 2014. http://www.bls.gov/opub/reports/cps/characteristics-of-minimum-wage-workers-2014.pdf

[3] A review of CPS data by the Economic Policy Institute (EPI) estimates that a total of 13 million workers earn hourly wages of $10 or less and 28 million earn $12 or less. The EPI study uses a different methodology than the BLS for estimating worker wage rates and does include salaried workers (which the BLS excludes). However, the EPI estimate for workers at or below the current federal minimum wage (2.5 million – 2016) is consistent with the BLS estimate (3.0 million – 2014). See appendix table 1: http://www.epi.org/publication/raising-the-minimum-wage-to-12-by-2020-would-lift-wages-for-35-million-american-workers/. A review of 2014 CPS data by the Pew Research Center found 20.6 million “near-minimum” wage workers. This review examined workers making more than the minimum that applies in their state, but less than $10.10 per hour. http://www.pewresearch.org/fact-tank/2014/11/05/making-more-than-minimum-wage-but-less-than-10-10-an-hour/

[4] For information on local minimum wages see the Society of Human Resource Management, http://www.shrm.org/hrdisciplines/compensation/articles/pages/minimum-wage-state-local-2016.aspx

[5] For areas where there is no minimum wage or where there is a lower minimum wage than the federal minimum wage, we used the highest applicable wage (i.e. the federal minimum wage).

[6] Other affordability calculations make an estimate for property insurance and taxes. Generally, when mortgage principal, interest, taxes, and insurance are included, the threshold for affordability is 28 percent. Because we exclude consideration of taxes and insurance, we use a 25 percent threshold here. Put another way, our estimation is comparable to a 28 percent affordability ratio when taxes and insurance are 3 percent of income.

[7] This calculation makes no adjustment to the interest rate for mortgage insurance which is likely required for those making down payments for home purchase of less than 20 percent. This calculation also does not adjust for borrower characteristics such as credit score or other debt outstanding which may raise the interest rate at which a borrower can secure a loan and/or reduce the total amount that can be borrowed.

[8] Affordable monthly rent assumes that 30 percent or less of monthly income can go toward rent.

[9] The EPI figure is for “affected” workers, those who earn $13 or less by 2020 and would be directly or indirectly impacted by an increase in the federal minimum wage to $12 by 2020. http://www.epi.org/publication/raising-the-minimum-wage-to-12-by-2020-would-lift-wages-for-35-million-american-workers/

[10] Ibid. The figures in the table best approximate the situation for workers who are sole providers, but given the average share of family income earned by these workers, doubling the affordable loan and rent amounts may be the best representation of what is “typical.”

Case Shiller House Prices

Tue, 12/29/2015 - 10:41

•Today, Case Shiller released their housing price index data for October 2015.  Case Shiller data showed that house prices rose roughly 5 percent in all three indices since October 2014.  The 10-city composite gained 5.1 percent, the 20-city composite rose 5.5 percent, and the national index showed a gain of 5.2 percent year over year.  Each index’s October year over year gain was higher than the September year over year gain.

•After growing at a fairly steady pace earlier in 2015, the Case Shiller indices have begun to show acceleration or faster growth in prices in the last 3 to 8 months, depending on the specific index used.

•Last week the Federal Housing Finance Agency (FHFA) and the National Association of Realtors® (NAR) reported price data.

•FHFA data showed that prices were up 6.1 percent in October from one year ago, the same rate of change seen in September but faster than the 5.4 to 5.6 percent year over year growth seen in the earlier part of the year.

•NAR data showed that prices grew at a 5.6 percent pace from October 2014 to October 2015, in between the Case Shiller and FHFA measures.  NAR also reported on new November data which showed a bump up to a 6.3 percent growth from one year ago.

•Recent housing price data at the national level suggests that home prices continue to increase at a strong pace and the pace of increase may be accelerating. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets.

•Of course, potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. The fastest overall growth rates were seen in Denver, San Francisco, and Portland in the year ending October 2015 with each market showing 10.9 percent increase over October 2014. By contrast, Washington DC (1.7%), Chicago (1.3%), and Cleveland (2.2%) were the slowest growing markets. 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. How does your market compare to the national price trends?

•NAR reports the median price of all homes that have sold while Case Shiller and the Federal Housing Finance Agency report 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 October prices include information from repeat transactions closed in August, September, and October. For this reason, changes in the NAR median price tend to lead Case Shiller and may suggest that additional strong price growth could be on the horizon. The current strong pace is a reflection of continued demand from buyers in a steady economy and the still low supply of homes for sale. While affordability is a concern in an environment where home price growth is outpacing income growth, demand has generally been strong enough to shake off this concern.

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