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Updated: 49 min 8 sec ago

Housing Starts: Spring May Bring Tight Supply Conditions

Wed, 12/16/2015 - 10:09
  • Here is a look at the latest housing starts for November 2015.
  • New home construction rose significantly in the latest month and is on track for most activity since 2007. Still, significantly more construction is needed to relieve the housing shortage that is developing and will become very visible once the spring home buying season returns.
  • Numerically, housing starts reached 1.17 million in November, an increase of 10.5 percent from the prior month and up 16.5 percent from 12 months ago. Multifamily activity continues to be solid at 405,000 units at an annualized rate and single-family construction at 768,000 broke to its highest mark since early 2008.
  • The gains are partly reflecting a low base comparison point. Housing starts, particularly of single-family units, have been very sluggish for multiple years. Overall housing starts need to reach 1.5 million just to reach the historical annual average. Considering that there is an inventory shortage of homes for sale and historically low apartment vacancy rates, a figure of 1.7 million may be needed to fully return to balanced market. This year, even with good gains in November, looks to hit only 1.1 million new housing units. That’s grossly inadequate.
  • Homebuilders do not have many problems finding a buyer. It is taking less than 3 months to find a buyer. Yet they are not aggressively building. The reasons are twofold. First, many small mom-and-pop builders are having difficulty obtaining construction loans from local lenders because of new financial regulations. Second, even if a construction loan can be found, finding skilled construction workers have been very difficult.
  • REALTORS® in many markets across the country should brace for tight supply conditions once the spring buying season returns. The affordability issue will heighten as a result.

Latest Consumer Price Inflation (November 2015)

Tue, 12/15/2015 - 10:44
  • There was a slight uptick in the broad consumer inflation measure in November. More interesting is the housing components, which continue to show high figures. Housing shortage still persists and this condition will jack-up the broad inflation rate in 2016. The Fed then will have to raise interest rates few additional times.
  • Numerically, the broad CPI inflation rose 0.4 percent from one year ago, though less than one percent it is the highest of the year. Directionally therefore some upward shift could be developing. One key contributor to the rise is that renters’ rents are rising at 3.6 percent and homeowners equivalence rents are rising at 3.1 percent. This high rate is a reflection of housing shortage. Homebuilders are still sluggish in putting up new homes so the shortage and high housing costs will likely continue into 2016.
  • Based on trends and assumption of no further price declines in gasoline prices in 2016, the overall CPI could surpass 2 percent and possibly reach 3 percent. That means, the Federal Reserve will likely raise interest rates two or three times in 2016.
  • On other matters, don’t smoke. Smoke products are rising by 3.7 percent. Those who have suffer smoke related illness, doctor fees are accelerating, now rising by 3.1 percent. For more serious issues, hospital fees are rising even faster at 4.7 percent.
  • For holiday shopping, women’s apparel prices are lower this year by 3 percent (no price discount on men’s clothes); while electronic products where prices have fallen by 6 percent.

October Housing Affordability Index

Fri, 12/11/2015 - 10:04

At the national level, housing affordability is down from a year ago and up for the month of October as both mortgage rates and home prices declined modestly.

•Housing affordability is down from a year ago in October as the median price for a single family home in the US is up from a year ago. Regionally, the West had the biggest increase in price at 8.3 percent while the Northeast experienced the slowest price growth at 1.5 percent. The Midwest had a price gain of 5.7 percent while the South had a price gain of 6.4 percent.

•The median single-family home price is $221,200 up 6.3 percent from October 2014. October’s mortgage rate is 4.05, down 24 basis points (one percentage point equals 100 basis points) from last year. Nationally, affordability is down from 168.6 in October 2014 to 166.3 in October 2015.

•Affordability is up from one month ago in all regions, and the Northeast had the largest jump of 4.4 percent while the West was flat at 0.6 percent. From one year ago, affordability is up in the Northeast 3.1 percent but down in all other regions. The West saw the biggest decline in affordability at 2.4 percent and the South had the smallest decline of 0.9 percent.

•Despite month to month changes, the most affordable region is the Midwest where the index is 209.9. The index is 176.0 in the South, 169.6 in the Northeast, and 119.8 in the West. For example, it is very easy to buy a home in Indianapolis and Cincinnati.

•Some markets are seeing dips in affordability due to prices outpacing incomes and previous unhealthy price gains. This maybe a favorable time for those who want to get into the market as home price growth slows and mortgage rates remain low.  Return buyers can discover opportunities to use equity to position themselves to make another home purchase. If home prices continue to mature at 5 percent growth rate next by October next year, the median home price could be around $224,000. With mortgage rates expected to rise to the 4 percent range and fewer properties to choose from the cost of purchasing a home could become more expensive.

•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.

E-Commerce Drives Warehouse Space Demand in Q3.2015

Fri, 12/11/2015 - 09:47

Economic activity slowed in the third quarter of this year. Real gross domestic product (GDP) advanced at a recently revised annual rate of 2.1 percent, according to the Bureau of Economic Analysis’s estimate. In comparison, second quarter growth measured 3.9 percent, while the third quarter 2014 rate of growth was 4.3 percent.

International trade took a milder pace in the third quarter, as slower growth in the Chinese economy and higher global economic volatility coupled with a stronger dollar impacted exporters. Real net exports totaled a negative $536.2 billion during the quarter, virtually unchanged from the prior quarter.

Retail e-commerce sales totaled $87.5 billion in the third quarter of the year, a 15.1 percent annual growth rate, according to the Census Bureau. Consumers have embraced the on-line platforms, placing distribution centers in a central role fulfilling orders.

The number of net new jobs increased in the third quarter of 2015, but at a slightly slower pace compared with the same period in 2014. During the quarter, 501,000 net employees were added to payrolls nationwide, bringing the total for the January to September period to 1.8 million. Average weekly earnings of private employees—adjusted for inflation—rose by 2.3 percent in the third quarter of this year. With demand for industrial properties rising, transportation and warehousing employment gained 23,700 new positions, while wholesale trade employment rose by 4,000 jobs.

The industrial sector posted a strong third quarter, with rising demand and declining vacancies. Industrial net absorption totaled 61.9 million square feet in the third quarter, bringing the total for the first nine months of 2015 to 164.8 million square feet, according to JLL. Warehouse and distribution centers accounted for the lion’s share of demand, followed by manufacturing. Supply picked up as well, with new completions ringing at 50.2 million square feet in the third quarter. Demand continued outpacing supply, driving industrial vacancies down to 6.7 percent, a 14-year low, according to JLL. With a tight market, industrial rents rose 6.0 percent, to an average of $4.89 per square foot in the third quarter.

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.

Commercial fundamentals continued improving during the third quarter 2015. Leasing volume during the second quarter rose 3.8 percent compared with the second quarter 2015. Leasing rates advanced at a steady pace, rising 2.5 percent in the third quarter, compared with the 2.7 percent advance in the previous quarter. Industrial vacancies reached 11.5 percent during the third quarter.

Tenant demand remained strongest in the 5,000 square feet and below, accounting for 72 percent of leased properties. However, demand for space in the 5,000 – 7,499 square feet more than doubled during the third quarter, comprising 13 percent of total. Lease terms remained steady, with 36-month and 60-month leases capturing 64 percent of the market.

To access the Commercial Real Estate Outlook: 2015.Q4 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

Buffers for TRID’s Learning Curve

Thu, 12/10/2015 - 15:47

The new Know Before You Owe or “TRID” closing process could help consumers, but it could also create issues for consumers in the short-term. According to the 3rd Quarter Survey of Mortgage Originators, lenders are recommending longer rate locks and are hesitant to extend pre-approval letters in some cases. Lenders and Realtors® are currently working to address these issues while closing sales at a steady clip.

On October 3rd, the new Know Before You Owe disclosure process and rules, also known as the TILA RESPA Integrated Documentation (TRID), were implemented. Under TRID the current closing documentation is streamlined and features are added to help consumers better understand their financial commitment. The new set of rules includes stricter tolerances for changes in fees and introduces new time lines for the process.

When asked their degree of confidence in their own preparations for the new TRID rules, 95.0 percent indicated a score of “3” or better, but only 20.0 percent indicated they were fully confident.

Because of potential delays under the new process, some lenders are counseling their clients for longer rate locks than the standard 30-day. At the implementation of TRID, 60.0 percent of respondents in this survey recommended the addition of 15 days to the standard rate lock (45 days total), while 25.0 percent recommended no change. The extension of a rate lock would add expense to the transaction. On a $200,000 mortgage, adding 15 or 30 days to the standard 30-day rate lock could garner of a fee of $100 to $300.

Another potential issue is reluctance on the part of some lenders to offer pre-approval letters. 35.0 percent of respondents indicated that the new rules would moderately affect their willingness to extend pre-approval letters, while 5.0 percent indicated the effect would be significant. Originators’ reluctance arises from two issues: misconceptions about the new definition of an application (versus a pre-approval), which triggers disclosures under TRID, and the prohibition of lenders from requiring information like income verification that would be used in an application for a pre-approval. The lending industry is actively discussing and seeking clarification and consensus on these issues.

The Know Before You Owe rule is just a month old and the industry faces a steep learning curve. Luckily these changes come during the normal seasonal slowdown. Furthermore, anecdotal evidence from Realtors® suggests few issues to date. Lenders’ preventative measures such as longer lock periods and limits extending pre-approvals may ease over time as they gain more clarity on the rule.

 

FHA Limits Expand for 2016; More Likely in 2017

Thu, 12/10/2015 - 11:34

The Department of Housing and Urban Development (HUD) announced the 2016 maximum loan limits for the Federal Housing Administration (FHA) yesterday. While the maximum loan limit will not change, limits will rise in 188 counties around the country.

Every year, HUD establishes the maximum mortgage amounts which the FHA can insure. HUD sets limits based on the median home price at the local level. However, the local limit is restricted to a maximum and minimum level. The maximum FHA limit is 115 percent of the local median price up to 150 percent of the national conforming loan limit of $417,000. No county can has a limit less than 65 percent of the conforming limit or $271,050. A limit is not reduced if the local median price declines.

For calendar year 2016, 188 counties will see an increase in their FHA loan limit. While many of these areas are the same that received increases in their conforming loan limits, many are new. Areas concentrated in Colorado, California, Seattle, and North Dakota will see some of the largest increases, but Catron County, NM will jump $115,350 while Tuscaloosa, AL will rise $60,150 (see table at the end for a full list). No county will experience a decline in its limit.

The number of counties with limits at the floor will fall by 21 from 2015 to 2016 to 2,597, while the number of markets at the $625,500 maximum will increase by one to 77. The number of markets in between the minimum and maximum limits will rise by 20 to 560.

The limits for many counties will not change in 2016 either because their median price has not eclipsed a previous high mark and has been “frozen” or 115 percent of the 2015 local median price was below $271,050. However, based on the FHA’s methodology a 2.5 percent increase in the local median price for 2016 would move 115 of these markets above their current limits. Of these counties, one is below the $271,050 threshold and has not seen an increase in its median price while an additional seven had their medians rise in 2015, but were still below the $271,050 mark. A 5.0 percent increase would draw an additional 39 counties over their current limits. Atlanta, Baltimore, Columbus, Philadelphia, Albany, Kansas City, and Reno would all benefit from such an increase. This table does not include the 188 markets where limits rose in 2016 and may rise as well with price gains. NAR Research is currently forecasting 4.6 percent growth in the national median home price in 2016.

With mortgage rates set to rise in the coming quarters, access to credit still limited in the private sector, and FHA terms and pricing more favorable to many first-time and marginal borrowers, changes to these local limits are gaining importance. However, limited supply remains a stout headwind to entry level homebuyers.

 

Rising Poverty in the American Suburbs: A Presentation by Dr. Katrin Anacker in the REALTOR® University Speaker Series

Thu, 12/10/2015 - 11:20

In a presentation at a REALTOR® University Speaker Series held recently,[1] Dr. Katrin Anacker, Associate Professor of Public Policy at George Mason University’s School of Policy, Government, and International Affairs, presented the major findings of her recently published edited book, “The New American Suburb: Poverty, Race, and the Economic Crisis.” The book looks at the economic transformation of American suburbs, which have increasingly seen rising poverty in the wake of slow recovery after the housing downturn and the Great Recession.

According to Kneebone and Nadeau, suburban poverty increased from 2000 to 2005-2009 (Chart 1).  In the 100 largest metropolitan areas, the total population in suburban extreme poverty tracts, where 40 percent or more of the population is poor, increased by 36 percent (from about 907,000 in 2000 to about 1.24 million in 2005-2009). The poor population living in these suburban extreme poverty tracts rose 40.6 percent (from about 400,000 to about 570,000). The fastest growth in poverty occurred in exurban extreme poverty tracts, where the total population and the number of poor people more than doubled from 2000 to 2005-2009.

Chart 1.

Lee, Green Leigh, and McMillan analyzed longitudinal data and also found rising poverty in the inner-ring suburbs from 1970 to 2007 (Chart 2). Here, the poverty rate increased from less than 10 percent in 1970 to about 15 percent in 2007. Rising poverty in the inner-ring suburbs is correlated with although not necessarily caused by the decline in college-educated population (Chart 3).

As these studies show, suburban poverty has increased sharply after the housing market collapse in 2006 and the slow economic recovery after the recession, which technically ended in June 2009. One of the reasons for the slow recovery in the suburbs is that many of them are less able to draw from public resources to deal with the aftermath of the crises in subprime lending, foreclosure, and possible long-term economic decline. According to the Keating, who conducted three case studies of foreclosures in the Cleveland metropolitan area, suburban stakeholders have faced a more severe lack of municipal resources to address the current economic situation.  At the same time, many suburban municipalities have found themselves in dire straits during a time of increasing needs yet decreasing revenues, for example through the local property tax. Roth and Allard show that the suburban infrastructure lags behind the somewhat well-established infrastructure in central cities, indicating the need for improvements by the public and private sectors, and possibly philanthropy.

Chart 2.

Chart 3.

For more information on the book “The New American Suburb: Poverty, Race, and the Economic Crisis”, please contact kanacker@gmu.edu.

REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.

[1] The REALTOR® University Speaker Series on “The New American Suburb: Poverty, Race, and the Economic Crisis” was held on December 7, 2015 at the NAR Washington Office.

 

Raw Count of Home Sales (October 2015)

Wed, 12/09/2015 - 11:16
  • Existing-home sales decreased 3.4 percent in October from one month prior while new home sales increased 10.7 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, 447,000 existing-homes were sold in October while new home sales totaled 41,000.  These raw counts represent a 5 percent loss for existing-home sales from one month prior while new home sales increased 21 percent.  What was the trend in the recent years?  Sales from September to October increased by 3 percent on average in the prior three years for existing-homes and 5 percent for new homes.  So this year, existing-homes underperformed compared to their recent norm while new home sales outperformed.
  • Why are seasonally adjusted figures reported in the news?  To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate have an effect on data around the same time each year.  For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity.  Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends.  That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month.  When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
  • What to expect about home sales in the upcoming months in terms of raw counts?  Independent of headline seasonally adjusted figures, expect less activity in November for existing-home sales. For example, in the past 3 years, November sales slipped by 4 to 21 percent from October. In contrast, existing-home sales typically rose in December by 7 to 18 percent. For the new home sales market, the raw sales activity in November tends to be less than that occurring in October, and activity gets better in December. For example, in the past 3 years, November sales dropped by 3 to 18 percent from October while December sales rose 13 percent last year.

Surprising Performers in the Latest State and Metro Employment Conditions

Tue, 12/08/2015 - 09:24
  • There are plenty of new jobs in the states in the Mountain and Pacific Time Zones and in a few southern states. Idaho, Utah, and Nevada are leaders. The Pacific states of California, Oregon, and Washington as well as the southern states of Florida, Georgia, and South Carolina are among the top ten job creating states.
  • Indiana is the best performer from the Midwest, while Massachusetts is the only state from the Northeast doing better than average.   Energy producing states are suffering. Low oil prices have led to job cuts in Louisiana and North Dakota. West Virginia coal mining jobs are vanishing.
  • In terms of “momentum,” there are 36 states with stronger job conditions in the latest data compared to the prior month. This is good news regarding strengthening support for real estate in more states.
  • As would be expected the states with consistent and fast job gains will be the ones experiencing stronger housing market conditions. The national forecast of existing home sales is expected to rise by about 2 percent in 2016. Idaho and Utah can easily expect to surpass that national growth figure.
  • As for metros, the Silicon Valley in San Jose is still on fire with a 5.1 percent job growth rate. Cape Coral-Ft. Myers and Orlando are creating a bunch of jobs, possibly implying more retirees moving into Florida. Hard to explain, but Grand Rapids, Michigan has been a consistent outperformer with the latest growth rate of 3.8 percent.
  • As an aside, with Idaho now at the top position, the state is not only about potatoes. Though job creation is in the cities and towns, a visitor will absorb the vast empty land with many cows roaming the open range. At times, one can spot a cowboy herding cattle. One cowboy recalled his days moving the herd from Texas to Colorado and further beyond, involving steady circling to squeeze the herd into a tight space for the night, traveling through steady rain for days, cooking over an open fire, etc. He said these were the happiest days of his life. Somehow, we know this statement to be true yet most of us cannot get ourselves out of the city to live that life.
Rank State Net New Jobs (over 12 months) Job Growth Rate               (12-month % change ) Stronger or Weaker compared to the prior month

1

Idaho

25,300

3.8

Stronger

2

Utah

47,700

3.5

Weaker

3

Nevada

42,400

3.4

Stronger

4

Florida

239,900

3.0

Stronger

5

Washington

9,300

3.0

Stronger

6

California

463,800

2.9

Stronger

7

South Carolina

57,400

2.9

Weaker

8

Oregon

46,600

2.7

Stronger

9

Arizona

60,300

2.3

Stronger

10

Georgia

96,900

2.3

Stronger

11

Massachusetts

80,800

2.3

Stronger

12

North Carolina

91,600

2.2

Weaker

13

Colorado

51,700

2.1

Stronger

14

Indiana

60,300

2.0

Stronger

15

Maryland

51,900

2.0

Stronger

16

Hawaii

12,000

1.9

Stronger

17

South Dakota

8,000

1.9

Stronger

18

Michigan

79,600

1.9

Weaker

19

New York

164,000

1.8

Stronger

20

Tennessee

50,500

1.8

Stronger

21

Wisconsin

51,500

1.8

Weaker

22

Kentucky

31,700

1.7

Stronger

23

Texas

204,800

1.7

Weaker

24

Arkansas

19,700

1.6

Weaker

25

Connecticut

24,300

1.4

Stronger

26

Iowa

22,100

1.4

Stronger

27

New Jersey

54,200

1.4

Stronger

28

Ohio

77,300

1.4

Stronger

29

Virginia

47,900

1.3

Stronger

30

Nebraska

12,000

1.2

Stronger

31

Rhode Island

5,800

1.2

Stronger

32

Alabama

21,100

1.1

Weaker

33

Missouri

27,400

1.0

Stronger

34

New Hampshire

6,500

1.0

Stronger

35

Delaware

4,300

1.0

Weaker

36

Maine

5,800

0.9

Stronger

37

Montana

4,100

0.9

Stronger

38

Kansas

10,900

0.8

Stronger

39

Pennsylvania

48,700

0.8

Stronger

40

Vermont

2,600

0.8

Stronger

41

Minnesota

24,300

0.8

Weaker

42

Alaska

2,300

0.7

Stronger

43

Illinois

41,100

0.7

Stronger

44

Mississippi

8,300

0.7

Stronger

45

New Mexico

2,800

0.3

Weaker

46

Wyoming

500

0.2

Stronger

47

Oklahoma

1,300

0.1

Stronger

48

Louisiana

-8,800

-0.4

Weaker

49

West Virginia

-13,600

-1.8

Weaker

50

North Dakota

-9,600

-2.0

Weaker

 

REALTORS® Expect Moderate Price Growth in Next 12 Months

Mon, 12/07/2015 - 15:39

In the monthly REALTORS® Confidence Index Survey, NAR asks REALTORS® “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?” The map below shows the median expected price change in the next 12 months for each state, reported in the October 2015 REALTORS® Confidence Index Survey Report (http://www.realtor.org/reports/realtors-confidence-index) .10

REALTOR® respondents from Florida were the most upbeat, with a median expected price growth in the range of five to six percent. In Washington, Nevada, and Colorado, the median expected price growth among respondents was four to five percent.

Nationally, REALTORS® who responded to the October 2015 survey expected prices to increase by 3.2 percent over the next 12 months (3.2 percent in September 2015; 3.0 percent in October 2014). REALTORS® expect the recent strong price growth to moderate as rising prices have made homes “unaffordable” for many, with home prices almost at par with their levels prior to the housing downturn.

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.

REALTORS® Expect “Strong” Outlook Over the Next Six Months in Most States

Mon, 12/07/2015 - 15:29

In the monthly REALTORS® Confidence Index Survey, NAR asks REALTORS® “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood or area where you make most of your sales?” The map below shows the REALTORS® Confidence Index – Six-Month Outlook across property types by state based on responses from August-October 2015, reported in the October 2015 REALTORS® Confidence Index Survey Report. [1]

In the single-family homes market, all states, except for Vermont and Connecticut, had broadly “strong” to “very strong” markets. States with large oil-related sectors such as Texas, North Dakota, and Louisiana still had a broadly “strong” housing market despite the continuing slump in oil prices. Sustained job creation, the low interest rate environment, the offering of three percent downpayment conventional mortgages, and lower mortgage insurance premiums for FHA loans are likely sustaining the positive outlook for single-family homes.

In the townhomes market, 13 states had broadly “strong” markets, which included California, Oregon, Washington, Colorado, Texas, Florida, Maryland, and the District of Columbia.

The condominium market remains broadly “weak” except in nine states such as California, Washington, North Dakota, Colorado, Wyoming, Michigan, and Florida. REALTORS® have reported difficulty in accessing condominium unit purchase financing for both FHA-insured and GSE-backed loans. Only 20 percent of condominiums are eligible for FHA condominium unit financing because of strict eligibility criteria such as those pertaining to occupancy requirements and delinquency dues.[2]

[1] The market outlook 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 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] http://www.realtor.org/topics/condominiums/condominium-resource-book

Professional & Business Services Employment Drives Demand for Office Space in Q3.2015

Fri, 12/04/2015 - 13:15

Macroeconomic conditions downshifted in the third quarter of this year. Real gross domestic product (GDP) advanced at an annual rate of 2.1 percent, according to the Bureau of Economic Analysis’s second estimate. The gain remained below the long-run historical average of 3.0 percent.

On the upside, employment gains—especially in the professional and business services sector—boosted demand for office space. Commercial lease space continued advancing in the third quarter of 2015. While construction has been ramping up across all property types, the gap between demand and supply continued to add downward pressure on availability.

Office net absorption totaled 14.6 million square feet in the third quarter of 2015, gaining strength with each consecutive quarter this year, based on data from JLL. New completions totaled 26.6 million square feet over the first nine months of this year, with the development pipeline gaining 8.5 million square feet in the third quarter. Overall office vacancies declined 20 basis points from the second quarter, to 15.1 percent in the third quarter. Rents for office properties rose 1.6 percent during the third quarter, bringing the 2015 cumulative gain to 4.3 percent.

Commercial fundamentals in REALTORS® markets continued improving during the third quarter 2015. Leasing volume during the third quarter rose 3.8 percent compared with the second quarter 2015. Leasing rates advanced at a steady pace, rising 2.5 percent in the third quarter, compared with the 2.7 percent advance in the previous quarter. Office vacancies increased 30 basis points to 16.0 percent compared with a year ago.

Tenant demand remained strongest in the 5,000 square feet and below, accounting for 72 percent of leased properties. However, demand for space in the 5,000 – 7,499 square feet more than doubled during the third quarter, comprising 13 percent of total. Lease terms remained steady, with 36-month and 60-month leases capturing 64 percent of the market.

 

To access the Commercial Real Estate Outlook: 2015.Q4 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

REALTORS® Reported “Strong” Buyer Traffic in Most States in August-October 2015

Thu, 12/03/2015 - 15:23

In the monthly REALTORS® Confidence Index Survey, NAR asks REALTORS® “How would you describe the past month’s housing market in the neighborhood or area where you make most of your sales?” The map below shows the traffic indices based on responses from August-October 2015, reported in the October 2015 REALTORS® Confidence Index Survey Report.[1]

Buyer traffic, measured by the REALTORS® Buyer Traffic Index, was “moderate” to “very strong” across most states. Sustained job creation, the low interest rate environment, the offering of three percent downpayment conventional mortgages, and lower mortgage insurance premiums for FHA loans are likely sustaining the strong demand for existing homes. 

Meanwhile, seller traffic, measured by the REALTORS® Seller Traffic Index, was broadly “weak” across most states, except in Montana, Wyoming, North Dakota, Texas, Maine, and Alaska. 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”.

 

Commercial Real Estate Sales Growth Moderates in Third Quarter

Thu, 12/03/2015 - 11:10

Commercial sales transactions span the price spectrum, but tend to be measured and reported based on size. CRE deals at the higher end—$2.5 million and above—comprise a large share of investment sales, and generally receive most of the press coverage. Smaller commercial transactions tend to be obscured given their size. However, these smaller properties provide the types of commercial space that the average American encounters on a daily basis—e.g. strip shopping centers, warehouses, small offices, supermarkets, etc.  These are the types of buildings that are important in local communities, and REALTORS® are active in serving these markets.

The National Association of REALTORS® Commercial Real Estate Outlook: 2015.Q4 report focuses on market performance in both large (LCRE) and small commercial (SCRE) sectors.  The report provides an overview of economic indicators, investment sales and leasing fundamentals.

Macroeconomic activity throttled back during the third quarter of 2015. Based on the second estimate from the Bureau of Economic Analysis, real gross domestic product (GDP) rose at an annual rate of 2.1 percent. In comparison, second quarter growth measured 3.9 percent, while the third quarter 2014 rate of growth was 4.3 percent.

Payroll employment rose by 501,000 positions in the third quarter, bringing total new jobs to 1.8 million from January through September of 2015. Professional and business services accounted for the bulk of new hires, followed by education and health, as well as leisure and hospitality. The retail trade, construction and manufacturing sectors also provided solid figures over the period. The unemployment rate declined from 5.4 percent in the second quarter to 5.1 percent in the third quarter.

Even with economic fundamentals softening, demand for commercial space continued improving across all property types. Vacancy rates in LCRE and SCRE markets converged, as the rebound has been broadening in secondary and tertiary markets.

Commercial investment sales have been riding a wave of global capital searching for yield, coupled with continuing low interest rates. The volume of commercial sales in LCRE markets during the third quarter of this year slowed noticeable, rising only three percent on a yearly basis, according to Real Capital Analytics.  The main driver in the slowdown was the decline in portfolio transactions. Prices increased by 14.2 percent in the third quarter, driven by strong appreciation of apartment and CBD office properties.

In comparison, sales in SCRE markets rose seven percent year-over-year during the third quarter, based on REALTORS® market data. With inventory shortage continuing as a main concern, price appreciation moved four percent higher compared with the third quarter of 2014.

Cap rates in SCRE markets were, on average, higher by 103 basis points compared with cap rates in LCRE markets. With the interest rate on 10-year Treasury Notes averaging 2.2 percent during the third quarter of 2015, the spread between cap rates and 10-year Treasury Notes ranged from 470 basis points in LCRE markets to 573 basis points in SCRE markets. The large spread indicates that CRE investors continue to enjoy healthy returns in rebounding markets.

The outlook for the last quarter of 2015 remains positive. With economic growth expected to remain moderately positive, demand for commercial properties will continue to provide downward pressure on vacancy rates. As funding sources increase, commercial real estate investments are projected to close over $500 billion by the end of the year.

 

To access the Commercial Real Estate Outlook: 2015.Q4 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

 

A Unique Home Buying Demographic: Active Military & Veterans

Wed, 12/02/2015 - 13:57

Active military and veterans comprised 21 percent of all home buyers in 2015 ̶ a sizable subset worth exploring their purchasing preferences, according to NAR’s 2015 Profile of Home Buyers and Sellers report released in November 2015.

Let’s take a quick look at the demographics for these two groups combined. The median age for this subgroup was 48, whereas active military was typically 34 years old and veterans were 61 years. The median price of a home they purchased was $223,000, which is consistent with all buyers. Twenty-eight percent were first-time home buyers and 81 percent bought previously owned homes. Active military and veterans were most likely to buy single-family homes at 86 percent. However, only 85 percent worked directly with an agent or broker, slightly down from 88 percent compared to all buyers.

Unique Facts about Active Military and Veterans:

  • 18 percent bought multigenerational homes compared to 13 percent for all buyers
  • 21 percent were relocated due to a job compared to only eight percent for all buyers
  • Median income for active military and veterans is $79,500, which is lower than $86,100 for all buyers
  • Median home size purchased was 2,100 square feet whereas the median for all buyers was 1,900
  • 41 percent of this group used virtual tours to help them purchase their home, more than any other demographic group

Veterans relocated to three areas of the country more often than any other region, including the West North Central, East South Central, and the Mountain region. These three regions combined encompass the central part of the United States where the states are less densely populated and away from large metropolitan cities on either the east or west coast.

Softening the Credit Choke Hold

Wed, 12/02/2015 - 09:29

By all credible measures, access to credit has been constrained in recent years. The market appears to have loosened in the spring of 2015 though, followed by another modest improvement in the late summer. However, credit remains tight by historical standards and there are storm clouds on the horizon.

Starting in 2012, there was a steady decline in the average FICO on accepted FHA applications as the FHA increased its mortgage insurance fees, private mortgage insurers recapitalized and recovered, and borrowers migrated into the cheaper conventional space. However, the average FICO score for rejected applications in both the conventional and FHA spaces, 725 and 668 respectively, were relatively unchanged and significantly above levels on accepted applications from 2001 suggesting that overlays were limiting downward movement in these measures.

The average FICO score on rejected FHA applications began to fluctuate in the summer of 2014, but in the 4th quarter of 2015 the average FICO scores on a rejected application fell in both the conventional and FHA space. This pattern accelerated in the spring of 2015, following overhaul of the representation and warranties framework for the GSEs, changes in FHA pricing, renewed confidence among consumers with lower credit scores, and clarification of the FHA’s defect taxonomy. Conversely, the average accepted FICO in the FHA space rose reflecting the migration of some borrowers from the GSEs to the FHA as a result of the FHA’s 50 basis point reduction in its mortgage insurance premium in January of 2015.

 

The reduction in the average FICO score on a rejected application is a signal of an important change. Some lenders including Wells Fargo indicated that they would reduce overlays on FHA mortgages in early 2014. The eventual decline in the average rejected FICO suggests that this did in fact occur, but it was not widely signaled to consumers, consumers were constrained in other ways, or that there were only a limited number of lenders willing to make these loans until later in 2014. More recently, though, lenders have indicated concern about the FHA’s proposed changes to its certification policy and Wells Fargo along with a number of other lenders indicated that they would reinstitute overlays on FHA loans. The average FICO on a rejected application rose from 627 to 630 from September to October. This measure can be volatile and the FHA’s policy would not explain why the average FICO on rejected conventional applications rose as well, so time will tell whether the reemergence of overlays will have a persistent impact. Regardless of recent trends, the average FICO on an accepted application remains nearly 40 points higher on conventional loans and 20 points higher on FHA mortgages.

Credit scores are not the only dimension for overlays though. Loan-to-value ratios or down payments can also be used to limited access to credit, but as evidenced by the chart above low down payment loans were available at the FHA. The steady rise in the average LTV on accepted conventional loans from 2011 to 2013 reflects the renewed health and return of private mortgage insurers as well as excessive pricing by the FHA.

The average front-end debt to income ratio (DTI) climbed through the middle of 2013 for both conventional and FHA accepted applications as mortgage rates jumped following the taper tantrum. International instability drove rates lower in early 2015 and caused the average front end DTI in both channels to moderate, but this pattern was reversed by mid-summer. Meanwhile, the average for rejected FHA applications fell sharply and remains below its average from 2011 to 2014, a sign that the FHA’s 50 basis point reduction improved affordability for the marginal borrower.

The average back-end DTI ratio on an accepted FHA or conventional loan has changed little in the last four years at roughly 41 percent and 36 percent, respectively. This pattern suggests that despite the GSEs having an exemption on the back-end DTI requirements of the Ability to Repay (ATR) rule while in conservatorship, the bulk of originations are observing the 43 percent back-end DTI restriction. The same is true in the FHA space. However, the average back-end ratio on a rejected application has climbed to 50 percent in October of 2015 from 47 percent in the summer of 2014.

The recent trend of overlay relief suggests that mortgage originators and investors have become more comfortable with regulatory and legal risks in the post-Great Recession paradigm. However, overlays on credit scores remain historically high, while the current environment does not resemble the extreme risk taking behavior from 2001 to 2005. Lenders and insurers regularly impose compensating factors on borrowers who have risky elements in their credit profile. Furthermore, regulators have imposed significant increases in capital requirements and lenders price risk appropriately. While not complete, signs point to significant strides in healing the mortgage market.

 

 

Highlights of October 2015 REALTORS® Confidence Index Survey

Tue, 12/01/2015 - 15:46

REALTORS® generally reported improved housing market conditions in October 2015 compared to a year ago, according to the October 2015 REALTORS® Confidence Index Survey Report.

The confidence and traffic indices all increased compared to a year ago. Compared to September 2015, market activity eased, in part due to the seasonal slowdown across many local markets at this time of the year. Sustained job creation, the low interest rate environment, the availability of three percent downpayment conventional mortgages, and the reduction of mortgage insurance premiums for FHA-insured loans are likely sustaining the housing market recovery.

First-time home buyers accounted for 31 percent of sales, essentially unchanged from the previous months’ figures. Cash sales made up 24 percent of sales, purchases for investment purposes accounted for 13 percent of sales, and distressed properties dropped to six percent of sales. Properties typically sold within 57 days nationally compared to 63 days a year ago.

The Profile of Homeowners and Renters by Metro Area

Tue, 12/01/2015 - 09:36

Based on the American Community Survey 2014, the typical homeowner is 45-54 years old, married, and lives in a single-family detached unit. In contrast, the typical renter is 25-34 years old living alone in multi-unit structures (mostly with 5-9 units).

Identifying specific characteristics of homeowners and renters can help us understand an individual’s tenure choice: whether they decide to rent or to own. Households locate across the country based on individual’s preferences for certain neighborhoods, walkability, access to public transport, social characteristics and many other factors. This means that the homeownership rate vary from metro area to metro area. Indeed, the homeownership rate is less than 50% in the following four metro areas: College Station-Bryan, TX (47.7%), Los Angeles-Long Beach-Anaheim, CA (48.3%), Hinesville, GA (48.5%), Merced, CA (49.8%). Demographics may give an answer to why those metro areas had more renters than owners.

Let’s examine the demographics for both owners and renters at the metropolitan level.

Age

Homeowners: The largest share of homeowners falls within the age bracket between 45-54 years old in 2014. However, there are metro areas where the largest share of homeowners is in a younger age bracket. In our recent study “Best Purchase Markets for Aspiring Millennial Homebuyers”[1], we identified the top metro areas where millennials move to and we concluded that these markets are well-positioned to experience a rise in first-time home buyers. Indeed, we see that in most of those metro areas the largest share of homeowners is in the 35-44 year age-group instead of the 45-54 year age-group. This seems to occur because of the influx of millennials who increase the share of younger owners. Here is the list of metro areas with largest shares of homeowners in the age-range 35-44 years:

On the other hand, baby boomers seem to move to sunnier metro areas to retire. Here is the list of some metro areas where the largest share of homeowners is 65-74 years old (above the typical age):

Renters: A typical renter is 25-34 years old. However, the largest share of renters rises to the 35-44 year age range in the following areas. Those metro areas seem to experience an increase in homeownership as renters get closer to the typical age of owners.

Race:

Homeowners: There are metro areas which are more diverse than other areas. Diversity is higher in California, Hawaii and the metro areas in the South. The smaller the share of the largest group, the more diverse metro area is. For instance, in San Jose, CA that is 58% White (the largest group), 34% Asian, 1% Black owners is more diverse than Atlanta, GA that is 68% White, 25% Black owners and 5% Asian.

Based on the second axiom of urban economics, change is self-reinforcing, thus it is expected that the diversity of the following areas will continue to increase. Here is a list of the most diverse metro areas in homeowners:

Washington, DC is also one of the most diverse metro areas with 66% White, 21% Black, 9% Asian owners.

Let’s see which metro areas had the highest concentration of home owners of each race in 2014:

White (including Hispanic or Latino origin)

Metro Area Share of Owners Dubuque, IA

98.6%

Pittsfield, MA

98.4%

Fond du Lac, WI

98.3%

La Crosse-Onalaska, WI-MN

98.0%

Bangor, ME

97.8%

 

Black (including Hispanic or Latino origin)

Metro Area Share of Owners Pine Bluff, AR

42.0%

Hinesville, GA

39.7%

Jackson, MS

37.1%

Albany, GA

36.9%

Memphis, TN-MS-AR

34.7%

 

Asian (including Hispanic or Latino origin)

Metro Area Share of Owners Urban Honolulu, HI

56.4%

San Jose-Sunnyvale-Santa Clara, CA

33.8%

San Francisco-Oakland-Hayward, CA

24.6%

Los Angeles-Long Beach-Anaheim, CA

17.4%

Vallejo-Fairfield, CA

13.9%

 

Renters: While the national homeownership rate decreased for every race group from 2013 to 2014, the gap between the ownership rates for Blacks and Whites slightly increased from a year ago. Specifically in 2014, at national level, 41% of Black householders own a house versus 59% who rent. In contrast, 69% of White householders own a house while 31% who rent.

Here are the metro areas with the highest concentration of renters of each race in 2014:

White (including Hispanic or Latino origin)

Metro Area Share of Renters Brownsville-Harlingen, TX

94.8%

Bend-Redmond, OR

93.8%

Coeur d’Alene, ID

93.8%

Eau Claire, WI

93.5%

Kingsport-Bristol, TN-VA

93.5%

 

Black (including Hispanic or Latino origin)

Metro Area Share of Renters Albany, GA

68.1%

Pine Bluff, AR

66.9%

Jackson, MS

66.6%

Florence, SC

63.3%

Montgomery, AL

60.9%

 

Asian (including Hispanic or Latino origin)

Metro Area Share of Renters Urban Honolulu, HI

31.0%

San Jose-Sunnyvale-Santa Clara, CA

29.7%

Ithaca, NY

25.8%

San Francisco-Oakland-Hayward, CA

19.6%

Champaign-Urbana, IL

13.8%

 

Household Type:

Homeowners: Homeowners are most commonly married couples. However, there are many people living alone who own a place as well. The metro areas below attract the most single owners:

Renters: In contrast, renters are more likely to be single. Here are the metro areas that buck the trend with the highest share of married couples who rent a house:

Units of structure:

Homeowners: While the vast majority of owners buy single family homes, housing units in multi-unit structures or essentially condominiums are their second choice. In some metro areas, the share of multi-unit owners is significantly high (28% of the total owners). Geographically, people tend to buy housing units in multi-unit structures in coastal and urban areas where density is high, affordability is low, and the gap between the price of a single family home and a condo is big. Here is the list of the metro areas with the highest share of owners of a housing unit in a multi-unit structure:

Metro Area Share of Ownersliving in multi-unit structure Naples-Immokalee-Marco Island, FL

27.8%

Urban Honolulu, HI

26.6%

New York-Newark-Jersey City, NY-NJ-PA

24.1%

Miami-Fort Lauderdale-West Palm Beach, FL

23.6%

Boston-Cambridge-Newton, MA-NH

18.1%

Renters: On the other hand, the typical renter lives in a housing unit in multi-unit structure. However, in the following metro areas there are more individuals that rent a single family home than a housing unit in multi-unit structure.

Metro Area Share of Renters living in single family home Madera, CA

62.7%

Merced, CA

57.5%

Modesto, CA

55.6%

Visalia-Porterville, CA

55.6%

Lawton, OK

52.2%

 

Note: If the estimates do not sum to 100% this indicates that data for this geographic area for certain racial groups cannot be displayed because the number of sample cases is too small.

[1] http://economistsoutlook.blogs.realtor.org/2014/07/24/release-nar-identifies-best-purchase-markets-for-aspiring-millennial-homebuyers/

 

October Existing-Home Sales

Mon, 11/30/2015 - 14:44
  • NAR released a summary of existing-home sales data showing that the housing market sales pace slowed down from last month, as October’s existing-home sales reach the 5.36 million seasonally adjusted annual rate. October existing-home sales marks 13 consecutive months of year over year gains, and sales are up 3.9 percent from a year ago.
  •  The national median existing-home price for all housing types was $219,600 in October, up 5.8 percent from a year ago, October 2014.
  • Regionally, all four regions showed growth in prices from a year ago. The West had the largest gain at 8.0 percent while the Northeast had the smallest gain at 1.3 percent from last October.
  • From September, no region saw gains in sales. The West had the biggest decrease at 8.7 percent while the Northeast was flat.  All regions showed gains in sales from a year ago. The Northeast had the biggest increase of 8.6 percent while the South had the smallest gain of 0.5 percent. The South leads all regions in percentage of national sales at 38.6 percent while the Northeast has the smallest share at 13.7 percent.
  • October’s inventory figure decreased 2.3 percent from last month and is also down 4.5 percent from a year ago. It will take 4.8 months to move the current level of inventory at the current sales pace. It takes approximately 57 days for a home to go from listing to a contract in the current housing market compared to 63 days a year ago.
  • Single family sales decreased 3.7 percent while condos also fell 1.6 percent compared to last month. Single family home sales increased 4.6 percent and condo sales are down 1.6 percent from a year ago. Both single family and condos had an increase in price with single family up 6.3 percent and condos up modestly at 1.6 percent from a year ago, October 2014.

 

Modest Improvements in Conventional Loan Limits

Wed, 11/25/2015 - 12:59

The Federal Housing Finance Agency (FHFA) announced the conforming loan limits for 2016 today. Limits will rise in a 39 counties around the country. The national conforming limit remains unchanged, but could rise in the near future.

Every year, the FHFA evaluates home price growth at the national level in order to adjust the national conforming loan limit. That limit currently stands at $417,000 and will not change in 2016 despite several years of strong price growth. However, the loan limit in certain high-cost areas will rise. The high cost limit is defined as the lesser of 1.15 times the local median home price or 1.5 times the national conforming limit or $625,500. Thus, for an area with a median price of $400,000, the conforming limit in that county would be $460,000 as its median times 115 percent is greater than the national conforming limit and below the high-cost limit.

For fiscal year 2016, the FHFA announced an increase in limits for 39 counties, most of which are concentrated in Denver, Boston, Seattle, and Nashville, and four markets in California that include San Diego (see bottom table). No counties will see a decline in their limit.

New Methodology

In 2007, the national conforming loan limit was frozen at $417,000 as the economy entered the great recession. As home prices fell, the limit was held constant until subsequent price growth could justify raising it above the 2007 level. Earlier this year the FHFA requested public comment on which measure of home price growth to use to adjust the national conforming loan limit. A new price index was chosen to adjust the conforming limit, but of significance was the implication that the FHFA was anticipating an imminent increase in the loan limit. Based on the new methodology chosen, the current price level remains roughly 3.7 percent below the seasonally adjusted level from the third quarter of 2007 when the limit was frozen. NAR is currently forecasting quarterly annualized price growth of nearly 4.7 percent for the four-quarter period ending in the 3rd quarter of 2016 suggesting that the conforming limit may rise in 2017 based on the new methodology. As depicted below, the FHFA’s seasonally adjusted purchase index, an alternative measure of price growth comprised only of data from mortgages backed by the GSEs, is 0.3% higher than the 3rd quarter of 2007.

FHFA’s Decision Impacts FHA Borrowers

The conforming loan limit is doubly important as it also defines the maximum loan amount that can be financed through the Federal Housing Administration (FHA). The FHA’s national limit is 65 percent of the conforming limit of $417,000 or $271,050, but it too rises to as much as $625,500 in high cost areas based on the local median price. Given the FHA’s sharp 50 basis point reduction in its annual mortgage insurance premium last January, a higher local limit allows more consumers to access lower cost home financing or to get access at all.

With mortgage rates set to rise in the coming quarters and access to credit for some home buyers limited in the private sector, a change to the conforming and local limits is gaining importance. However, limited supply remains a heavy headwind to entry level home buyers.

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