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Updated: 58 min 38 sec ago

Rent Trends

Thu, 04/03/2014 - 14:04
  • Rents continue to rise but may no longer be accelerating.  As measured by the Consumer Price Index component on the renters’ rent, the annual growth rate appears to have stabilized at near 3 percent after rapidly rising from 2010.
  • According to REIS, private sector data covering only the large metro markets, rents are rising by 3.2 percent, a bit faster than the government data.  With apartment vacancy rates falling to the lowest rate in over a decade, now at 4.0 percent vacancy rate from 4.4 percent a year ago, rents could easily start to accelerate again.
  • According to a survey of REALTORS®, nearly half reported rising rents while less than 10 percent reported falling rent.  But the sizable rent increases of 6 percent or higher are now less prevalent than several months ago.
  • Permits to build new apartments are rising.  Perhaps, this new supply will put the lid on rent growth.  But the recent increases in supply appear to be only of returning to normal and certainly not an oversupply.
  • Rents, therefore, are likely to rise by at least 3 percent this year on a nationwide basis, with 4 percent not out of the realm of possibility.  With wage growth barely scratching 2 percent growth, the renters are getting their life squeezed out.


REALTOR® Comments on Housing Market Issues in Latest RCI Survey

Thu, 04/03/2014 - 10:48

Every month REALTORS® provide a variety of comments on the state of the market when responding to the RCI survey. In general, REALTORS® noted in the February report that uncertainty about economic conditions, rising prices, weather, the limited inventories of available homes, and flood insurance were negatively impacting the home sales markets:

Lack of Inventory: The lack of available homes on the market seemed to be the most pressing problem mentioned by REALTORS®. In some cases potential sellers holding off from listing were mentioned as having unrealistic expectations. The lack of new construction and the inability of potential sellers to find a more suitable home in a time of limited supply were cited as contributing to the problem.

Uncertainties: A number of respondents essentially commented “people are waiting,” in reference to the overall state of the economy, concern about home affordability and rising prices, a lack of consumer confidence, etc. Put differently, a significant number of comments basically indicated that some people are in a stall mode. REALTORS® noted continued strong demand, but potential buyers were reported as being increasingly demanding in terms of expected home condition. The importance of realistic, accurate pricing was noted.

Weather: Continued difficult weather conditions were prominently mentioned by many REALTORS®. There seemed to be general agreement that there had been a significant negative impact on sales in many parts of the country.

Flood Insurance: The availability and cost of flood insurance were cited in a number of cases as having a negative impact on home sales.

Loan Availability: REALTORS® continued to cite problems for potential buyers in getting loans. There was a continued feeling that credit is unrealistically tight.

Highlights: 2014 Investment and Vacation Home Buyers Survey

Thu, 04/03/2014 - 09:55

On Wednesday, NAR released its annual Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2013. The press release can be found here, with highlights and select charts from the report below:

  • Vacation home sales rose strongly in 2013, while investment purchases fell below the elevated levels seen in the previous two years.
  • Vacation-home sales jumped 29.7 percent to an estimated 717,000 last year from 553,000 in 2012.
  • Investment-home sales fell 8.5 percent to an estimated 1.10 million in 2013 from 1.21 million in 2012.
  • Owner-occupied purchases rose 13.1 percent to 3.70 million last year from 3.27 million in 2012.
  • The sales estimates are based on responses from households and exclude institutional investment activity.
  • Vacation-home sales accounted for 13 percent of all transactions last year, their highest market share since 2006, while the portion of investment sales fell to 20 percent in 2013 from 24 percent in 2012.
  • The median investment-home price was $130,000 in 2013, up 13.0 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012.
  • All-cash purchases remained fairly common in the investment- and vacation-home market: 46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home buyers.

Latest Mortgage Applications Data

Wed, 04/02/2014 - 10:39

  • Seasonally adjusted applications to purchase homes ticked upward 0.9% for the week ending March 28th, the 3rd consecutive increase. The purchase index is 17.3% lower than the same time in 2013. Purchase applications appear to have hit or are nearing a plateau in terms of decline from last year.
  • The average rate for a 30-year fixed rate mortgage as reported by the Mortgage Bankers Association was unchanged from the prior week at 4.56%. The average rate a year ago this week was 3.76%.
  • The bulk of the improvement came in the conventional space which rose 1.7% following a 4.0% increase in the prior week. Applications for government financing eased 1.1% following a modest 0.1% increase in the prior week. Recent announcements by some lenders suggest that credit overlays on the FHA program should ease, but that trend has not developed in the data, yet. Furthermore, the cost of FHA insurance remains high relative to private financing, but for those borrowers with high LTVs and credit scores less than 680. The high cost of FHA MI combined with the rise in rates is crimping affordability on this portion of the market…particularly first-time borrowers and some minority groups.
  • Purchase applications continue to stabilize, but remain well off of last year’s pace. Affordability has suffered over the last twelve months due to rising rates and prices. Sales and applications will pick up as we move towards summer in the typical seasonal pattern, but may remain muted relative to last summer until credit overlays ease and pricing improves.

Lenders Reserved on Some QM Lending

Tue, 04/01/2014 - 11:32

The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.

With respect to the maximum back-end debt-to-income ratio of 43%, 68.4% of respondents indicated that they would not have a buffer in advance of that restriction to protect themselves. However, 15.8% indicated that they would impose a modest buffer at 42.5%, while an additional 10.6% of respondents indicated that they would impose buffers of 41% or 42%.

What does this change mean for REALTORS and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers, but lenders might impose buffers on both. Your client could work to pay down debts or if your client falls into this or other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes. For the full survey, click here.

Housing Wealth Recovery

Tue, 04/01/2014 - 08:01
  1. In just a short two years, the nation’s property owners have accumulated nearly $4 trillion in housing wealth.  During the harsh downturn, $7 trillion was wiped out.  As a result, the housing market is still in recovery mode and not an expansion mode.  There are still underwater homeowners, but those who bought from 2009 and onwards are enjoying positive net worth.
  2. While property values have been rising, the overall mortgage debt outstanding has been falling.  At the end of 2013, there was $9.3 trillion in mortgage debt.  Several years ago, the total mortgage debt was $10.5 trillion.
  3. Higher real estate values combined with falling mortgage debt has raised the overall equity portion in real estate to 52 percent of the total real estate value, a substantial increase from the 36 percent of a few years ago.
  4. Given that the total number of renters has been rising while that of homeowners has not over these periods, one may say that the housing wealth train has already left the station without young first-time homebuyers.  Has Washington’s fiddling over new federal mortgage rules, which has confused many small lenders, and major lawsuits against big banks to some degree unwittingly backfired?

Fewer First-time Buyers Obtaining Mortgages With Low Down Payment

Mon, 03/31/2014 - 13:59

NAR’s REALTORS® Confidence Index Survey data shows that fewer first-time buyers are obtaining mortgages with down payment of 6 percent or less [1]. In 2009, among REALTORS® who reported a sale to a first-time home buyer, 74 percent of these buyers put down 6 percent or less as down payment [2]. As of February 2014, this has fallen to 61 percent.

Along with the re-emergence of private mortgage insurance since 2011, REALTORS® have reported several factors driving this trend: tight competition for available properties, stricter underwriting standards, the higher cost of mortgage insurance at the FHA, as well as a reduction in the high-cost loan limits at which FHA can finance. With demand still stronger than supply across many states, a higher down payment enhances the likelihood of winning the bid and of obtaining a loan from the bank.

For buyers who can put down a higher down payment, doing so lowers the monthly mortgage insurance premium. For example, a house valued at the median price of $189,000 financed with an FHA-insured 30-year fixed mortgage at 3.5 percent down payment will require an upfront mortgage premium (UPMIP) of $3,191 and a monthly mortgage insurance premium (MIP) starting at $209 dollars [3]. A higher down payment of 22 percent will lower the UPMIP to $2,580 and the monthly MIP to $163. For conventional GSE-eligible loans, borrowers don’t typically pay mortgage insurance once the LTV reaches 80 percent. Combined with the lower monthly mortgage payments, the monthly savings from putting down a 20 percent D/P is about $226.

[1] This blog benefited from the comments of Dr. Jed Smith, Managing Director for Quantitative Research, and Ken Fears, Director of Regional Economics and Housing Finance Policy.
[2] NAR’s REALTOR® Confidence Index Survey asks respondents about the characteristics of the last sale for the month. The sample of last sales is assumed to be representative of the sales for the month.
[3] Assuming the UPMIP is also borrowed. FHA’s upfront mortgage insurance premium is 1.75% of the loan amount. For mortgages availed after April 1, 2013, the monthly insurance premium is 1.35% for a 30-year loan with loan-to-value of over 95 percent. http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf

Metro and Regional Price Data

Fri, 03/28/2014 - 08:31
  • Earlier this week, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional and city or MSA level.
  • Monthly FHFA releases data at the Census division level and quarterly it releases state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
  • At the regional level: the most robust home price gains from a year ago were in the West. NAR reported price change of 14.1% in January and 18.0% in February. According to FHFA year over year prices in January 2014 rose 14.0 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 11.0 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
  • Likewise, NAR data showed the smallest price gains from a year ago in the Northeast (6.6% for the year ending in January and 1.5% for the year ending in February), and FHFA showed a similar pattern. Prices rose 3.7 percent in New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut) and 3.2 percent in the Middle Atlantic states (New York, New Jersey, Pennsylvania) from January one year ago.
  • Among cities, Case-Shiller reported the biggest year over year gains in Las Vegas and San Francisco. Each had more than 20% year over year gains. They were followed closely by San Diego and Las Angeles, metro areas with more than 18% year over year gains. The smallest gains in Case Shiller’s cities were Cleveland at 4.0 percent and New York at 6.7 percent.

New Home Sales

Wed, 03/26/2014 - 12:33
  • Contracts for new home sales slipped 3.3% from January to February to a seasonally adjusted annualized rate of 440,000. This decline reverses last month’s improvement, but new home sales remain in a relatively strong level by recent standards. A decline in affordability nationally and weather in the Northeast and parts of the Southeast have had an impact.
  • Inventories improved steadily throughout 2013 and were 24.3% from a year ago in February and increased a modest 0.5% between January and February. However, the months supply is still 5.2 suggesting an imbalance that favors price growth.
  • Low inventories combined with low mortgage rates pressed up on the median sale price in 2013. The median price for a new home under contract eased a modest 1.1% over the 12-month period ending in February to $261,800. The median existing home price was 38.4% lower at $189,200, more than three times the historical average spread of a 12.3%, suggesting that existing homes are a bargain by historical standards.
  • Mortgage rate and price increases in 2013 had a strong impact on affordability. However, new home sales remain roughly where they were last spring when mortgage rates were a full percentage point lower and prices were lower by 10% or more. Weather has constrained new production to an extent, but that will abate resulting in more inventory coming on line in six to nine months. Rates will continue to rise through the year, so a sustainable increase in inventory that resulted in a moderate waning in price growth would provide a welcome relief.

A deeper look at the latest Existing Home Sales data

Wed, 03/26/2014 - 08:56
  • Last week, NAR released a summary of existing home sales data showing that existing home sales declined again for the sixth time in seven months. February showed a decrease in sales of 0.4% from last month and 7.1% from a year ago.
  • The national median existing-home price for all housing types was $189,000 in February, up 9.1% percent from February 2013.
  • All regions showed growth in prices, but the West had the biggest gain at 18% from a year ago. The Northeast had the smallest price gain at 1.5% from a year ago.
  • February’s inventory figures increased by 5.3% from a year ago and it will take 5.2 months to move the current level of inventory. It marks the highest inventory level since April 2013. As the charting of months’ supply below shows, the condominium market tends to be undergoing larger swings than the single-family market.
  • With sales down this month, February has the slowest sales pace since July 2012. Change in seasons and a boost in inventory will help change the current sales trend even with rates on the rise. A boost in household formation will help improve the housing market. See the full NAR Existing Home Sales press release here and data tables here.
  • Find a full graphical summary of the data here.


FHFA, S&P/Case-Shiller Home Price Measures

Tue, 03/25/2014 - 12:00
  • Last week NAR released existing home sales and median home price information that showed gains of 9.1 percent in prices in February 2014 compared to February 2013, notably slower than trends in early summer/fall 2013 when price growth topped a double-digit pace.
  • Today, both the FHFA and S&P/Case-Shiller released their housing price index data. Both data series showed continued gains in home prices with some deceleration, suggesting that the pace of home price increase should fall back into a more normal range in the next few months.
  • Case-Shiller reported gains of 13.5 and 13.2 percent for the 10- and 20-city indexes in the year ending January 2014, while FHFA reported home price gains of 7.4 percent.
  • NAR reports the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price had risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
  • Case-Shiller’s reported price growth currently exceeds NAR’s, likely as a result of the data lag. 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 January prices include information from repeat transactions closed in November, December, and January. For this reason, the changes in the NAR median price tend to lead Case Shiller. In the graph below, it is quite clear that NAR first showed rising prices. As NAR shows deceleration in prices, expect Case Shiller data to follow suit.
  • FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government-backed transactions such as those using VA or FHA financing.

REALTORS® Generally Expect Prices to Increase Modestly in the Next 12 Months

Mon, 03/24/2014 - 14:50

REALTORS® generally expect prices to increase over the next 12 months at a modest pace with the median expected price increase at 3.9 percent, according to the latest REALTORS® Confidence Index. Demand has slowed somewhat because of the increase in home values and the cost of borrowing from higher mortgage rates and mortgage insurance premiums for FHA loans. The modest pace of economic growth has also kept the lid on price growth.

The states with the most upbeat expected price change of 5 to 7 percent are California, Florida, and Hawaii, where tight inventory has boosted home values (red). In states with booming economies like Washington, North Dakota, Texas, Michigan, and the DC-Metro Area, the expected price increase is about 3 to 5 percent (orange). In the rest of the states, the expected price growth is less than 3 percent (blue).

REALTORS® Confidence Index Shows Unchanged Market Conditions

Sun, 03/23/2014 - 11:42

Residential sales market conditions were essentially the same in February as in January 2014, according to the latest REALTORS® Confidence Index.

Demand has been dampened by the erosion in home affordability due to price increases and higher interest rates which have kept first–time homebuyers out of the market.  However, inventory is also generally tight across many states–the Western region (CA, NV, WA, OR, AZ), the Midwest (MO, IL, WI, MN, ID), the Northeast (NJ, MA, ME, PA) and the Southern states (MD, VA, SC, and TN).

Lenders Leary of non-QM Lending

Thu, 03/20/2014 - 11:17

The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.

When asked about their willingness to lend to particular borrower types, the majority of originators indicated that they would be “much less likely” to make loans with non-QM product features as compared to 2013. Similar to results shown earlier, originators indicated that they would be much less likely to lend to borrowers with lower credit scores in the non-QM space and this reticence increased as credit quality diminished. Finally, more than half of originators indicated that they were either “less likely” or “much less likely” to originate QM loans that fell under the rebuttable presumption definition of compliance with either the QM standard or the FHA’s QM standard. In contrast, 85% and 95% of originators indicated that they would be “as likely” or more likely to originate mortgages that met the safe harbor definition of the standard QM rule and the FHA’s QM definition, respectively.

What does this change mean for REALTORS and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers. However, if your client falls into the other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes. For the full survey, click here.

10 Things to Know About the Latest International Trade Data

Wed, 03/19/2014 - 10:50

Summary of the Latest Data

  • U.S. exports punched ahead after stalling a bit. Faster export growth means faster job creation for Americans. Many tech companies like Apple do more businesses abroad than at home.
  • Imports are not rising. America’s energy boom has led to less need for imported oil. A foreign company like Airbus desires to produce in the U.S. (Mobile, AL), which also helps to limit imports.
  • On net, the trade deficit as a percentage of GDP is near 15-year lows. That’s a good trend.

Impact on the Market

  • International trade requires warehouse facilities so the demand for commercial industrial spaces will be rising a bit. SIOR members should get ready for more business. Vacancy rates of industrial buildings, however, are elevated so the ability to extract higher rent will be difficult.
  • Increased international trade means more demand for housing by foreigners. For example, both rental and home purchase demand in Nashville, TN is being driven partly by Japanese managers of the Nissan plant in the area. REALTORS® should engage the human resource division of foreign companies regarding housing matters.
  • The top exporting destinations for American exports are Canada and Mexico. Growth is faster to Mexico than to Canada in recent years. Interestingly, exports to the EU have not been growing, while exports to Russia have been growing. Therefore, economic sanctions on Russia will hurt.

Data Details

  • Exports were 4 percent higher from a year ago while imports grew by just 1 percent.
  • But overall imports are still larger than exports, so the trade deficit continues even as the deficit gap is narrowing. The latest quarterly deficit was $81 billion, compared to $102 billion a year ago.

As an Aside

  • International trade will grow and grow. Some are worried that international trade means jobs will be lost. Others see it as an opportunity to expand market not only to U.S. consumers but to the whole world.
  • One way to prepare for the world is to learn the language for the purpose at hand. The global business language today is English. But Americans should not simply relax but expand and perfect the language skill. Everyone in Singapore and the Netherlands speaks English very well (as a second language) and their income is one of the highest in the world.  Long ago, a minor German princess studied through the wee hours to learn a key second language of her day: Russian. She wanted to be powerfully influential. The Tsarina Catherine the Great then expanded Russian territory by defeating the Ottoman Turks in Crimea. That is why most people of Crimea seem to indicate a closer connection to Russia than to Ukraine.

REALTORS® Confidence Index Stays Flat in February 2014

Tue, 03/18/2014 - 15:04

Confidence about current and future real estate market conditions was essentially unchanged in February 2014 compared to January 2014, according to the REALTORS®  Confidence Index: http://www.realtor.org/reports/realtors-confidence-index.

Across the Northeast, Midwest, and Southern states, the adverse wintry weather had more than the usual seasonal effect on the market[1].  Fundamental factors such as low inventory[2], the erosion in home affordability from the previous month’s rapid price growth and uptick in interest rates, and tighter underwriting continued to weigh down the market recovery. Flood insurance issues were reported to be depressing activity in flood zone areas.

[1] Comments from REALTORS® in NJ, NY,  CT, ME, MA, PA, DE, MD, MI, OH, IL

[2] Comments from REALTORS® in  CA, NV, WA, OR, AZ, TN, MO, IL, WI, MN,  ID, NJ, MA, ME, PA, MD, VA, SC, and TN.

Are Big Investors a Big Problem?

Tue, 03/18/2014 - 11:31


  • The recent securitization of more than 3,000 single family homes has alarmed some housing analysts who fear that these properties could be dumped back on the market simultaneously causing prices to tumble.
  • The structure of the security allows for flexibility in managing costs for the landlord, reducing the likelihood of an untimely sale of properties.
  • A stress test scenario in one local market with active investors suggests that the return of the limited number of properties currently securitized would not have a significant downward impact on prices
  • Because of the potential for growth in the securitization of single family rentals, this industry should be monitored for sustainability and the impact on the single-family for-sale market.

For a more detailed analysis, read on:

Investors have played an important part in the housing recovery, but recently concern has grown over their role.  In particular, the first ever securitization of single family rentals by Wall Street investors spawned fears that the large number of properties packaged into this type of security could be dumped on the market sending prices downward.  Current conditions are stable, but this nascent industry will need to be monitored.

Prior to the great recession, investors played a much smaller role in the market.  What’s more institutional investors were virtually non-existent.  The share of homes purchased by all investors was closer to 14% in 2003 and 2004 well below the 24% recorded in 2012.   In the most concentrated local markets, institutional investors who hold properties in excess of 200 made up roughly 6% to 7% of purchases in 2012.  Small mom-and-pop investors who hold only a handful of properties and a comparative advantage about local conditions are the majority.

It is estimated that institutional investors accounted for roughly 200,000 single family homes purchased between 2011 and 2013…a small sliver of the 12.4 million single family homes sold over that period.  However, institutional investor purchases are more concentrated in certain markets.  Furthermore, in the fall of 2013 one institutional investor borrowed to finance the purchase of a pool of more than 3,000 homes.  This loan was turned into a bond that was securitized and sold as shares to investors who would benefit from the underlying rental stream as the institutional investor repaid the loan.  This phenomenon raises questions as to the implications for the housing market.

The successful securitization of single family rental properties and the strong demand for the security suggests that both the institutional investor and buyers of the security believe in the strength of this instrument and the single family rental market supporting it.  However, as this is a new type of investment, the long-term sustainability is not clear.  In particular, this structure will require the institutional investor to have strong capacity to maintain the properties at a low cost and to fill them with renters.  Fluctuations in either costs or revenues might undermine the model and there is little historical data for analysis.  Furthermore, the bond that backs the securitization comes due and must be renegotiated every 3 to 5 years.  What might happen if this business model becomes unprofitable, the entity goes into default, or if the security is not rolled over?  Would the investor unload their properties on the market simultaneously sending prices downward?

In the short term, if particular properties become less profitable due to rising costs, the sponsor can sell off less than 10% of the properties from the pool so long as it returns 105% of the original allocated loan amount.  However, the amount that must be repaid rises to 120% of the original allocated loan amount if the properties make up more than 20% of the pool…a disincentive to sell properties that appreciate in value.  What’s more, there is a cap on how high the interest rate on the bond supporting the securitization can rise, which creates a buffer so that the interest that must be paid to purchasers of the security won’t eclipse the institutional investor’s margin on rental income.

In the long-term, the institutional investor can extend the deal like rolling over a commercial loan.  Alternatively, it may decide that it does not want to continue for cost reasons or if the value of the underlying properties has risen significantly.  In this case the sponsor may sell part or all of the pool of properties.  These properties could re-enter the single family rental market in another securitization or with a different landlord or they could enter the single-family market for owner-occupants.  Profit is a strong incentive and investors in the single family rental market are unlikely to unload properties in unison for the impact that this would have on the liquidation price.

There is always the possibility that an entity might dispose of a large volume of properties at a single time potentially destabilizing the market.  Phoenix has roughly 13,700 institutional investor owned single family rentals, one of the largest investor markets, making it a good model.  Of these, 1,090 were included in the Invitation Homes, LP single family rental securitization in November of 2013.  If the homes wrapped in the Invitation Homes deal (32% of the deal…the highest share by far of any metro area or state) were returned to the Phoenix market simultaneously, the months supply would rise from 5.5 in February to 5.7, likely not having an impact on prices (6-7.5 months supply is considered a neutral market, lower than that would cause price appreciation and conversely for greater).  If all institutionally owned properties re-entered the market, the rate would jump to 8.6 months…roughly half of what it was in 2008 near the peak of the Phoenix market’s correction.

A months’ supply of 8.6 would weigh on price growth, but investors are unlikely to sell all their holdings at once and that level is improbable to cause prices to drop like they did in 2007 and 2008.  What’s more, a rise in supply and moderate drop in prices would likely create owner occupied demand in the current tight market, absorbing some of the new inventory.  On the rental front, the current months supply for single-family rentals is 2.8 in Phoenix.  A measured increase in the rental supply would help to ameliorate the strong rent growth.  However, a large number of securitized properties might return to the market when conditions are less advantageous than today creating a more serious problem.  What’s more market analysts indicate that the volume of single family rental securitization could increase significantly in the coming years and that securitizers are considering pooling homes managed by groups of smaller investors-landlords, a trend that could expand the number of securitized properties dramatically and introduce new risks.

Investors have played an important role in stabilizing the national and many local housing markets.  The recent creation of securities backed by single family rentals should be regarded with caution and monitored.  At present, the volume of securitized properties would not destabilize even the most concentrated local market, but as this industry grows that balance could change.

The Latest on Housing Starts

Tue, 03/18/2014 - 09:29
Summary of the Latest Data
  • Despite the housing inventory shortage, homebuilders are not building new homes in needed quantities.  New home construction activity remained depressed in February, below one year ago levels.  The weather cannot be the sole reason.  The West region with decent temperatures also experienced a decline.
  • On a positive note, the number of housing permits rose, indicating that new home construction will be rising a bit in the upcoming months.
Impact on the Market
    • The housing shortage in many markets is likely to persist.  Homebuilders need to increase production by at least 50 percent from current levels in order to meet the demand for newly constructed homes.  The latest permit increases are still insufficient.
    • Low new home construction means fewer future existing home inventories.
    • There is little chance of home price declines when there is a housing shortage.  Rents will continue to rise.
    Data Details
    • Housing starts in February of 907,000 (seasonally adjusted annualized rate) is below the average monthly figure of last year and below that of this time last year.  The 50-year average is right around 1.5 million a year.
    • Broadly speaking, the multifamily housing starts are back to where they need to be with 324,000 in the latest month.  But the single-family housing starts of 583,000 remain very depressed compared to the historical norms.  The trend reflects a surge in rental population in recent years and no increase in homeowner population.
    • NAR projects 1.15 million housing starts in 2014 and then rising to 1.4 million in 2015.
    As an Aside…
    • Texas has little to no regulation in regards to home building.  Therefore, when housing demand rises, builders construct more homes.  The supply response is the key reason why home prices are affordable in Texas.  By contrast, the difficulty of obtaining a housing permit in San Francisco has led to a housing shortage and very high home prices.  But now even Texas is sluggish in building new homes, clearly implying that the excessive federal banking regulation is hindering access to construction loans for small homebuilders.  Big publicly listed companies like Lennar and KB Homes can get money from Wall Street and therefore are not hampered like the small home builders.
    • In addition to their approach to home building, Texans are said to be very independent-minded.  Many do two pledges of allegiance: to the American flag and to the Texan flag.  The land once belonged to Mexico, but Texans declared independence and then asked America to protect them.  Later, they overwhelmingly voted to be part of the U.S.

    37 Percent of REALTORS® With Mortage Sales Reported Downpayment of 20+%

    Mon, 03/17/2014 - 07:05

    Based on data from the January 2014 REALTOR® Confidence Index survey, about 37 percent of respondents who reported a mortgage-financed sale reported a down payment of 20 percent or more. Under more cautious underwriting standards, buyers may have to put down larger downpayments to compensate for their credit score deficiencies.

    REALTORS® have reported that buyers who pay cash or put down large downpayments generally win against those offering lower downpayments. See the January REALTORS® Confidence Index Survey for more information.

    Top 10 Markets by Equity Appreciation since 4th Quarter 2010

    Fri, 03/14/2014 - 10:23

    Housing is not an investment like a stock or a bond, but over the long term it can be a great way to build equity. Even in the wake of the worst housing recession in modern history, a majority of homeowners who purchased at the national market’s peak in 2006 have positive equity today in their home. Homeowners who purchased since then and avoided the sharp price declines of the housing recession have fared much better. Interested in how your market has done? For insights on housing equity, price appreciation, employment trends and other local trends, see the 4th quarter 2013 Local Market Reports.

    • The national median home price fell 27.8% from $225,067 in the 4th quarter of 2006 to $162,333 in the 4th quarter of 2011.
    • Buyers who purchased at the 2006 4th quarter peak would have positive equity today in 58% of markets covered.
    • Buyers who purchased in the 4th quarter of 2010 would have positive equity today in 84% of markets covered.

    Many of the markets that have experienced the strongest improvement in equity are concentrated in the hardest hit areas, where prices rebounded since 2010. Los Angeles, Riverside, and Sacramento were all hard hit by the market decline, but have experienced sharp improvements since 2010 driven by relatively low prices, low mortgage rates, and investor demand. Notably, a number of other markets in the bottom 10 for 2006 did not experience this same strong appreciation including Reno, Las Vegas and several Florida markets. A number of factors contributed to this difference including employment trends, the judicial process for handling foreclosures, and investor interest.

    Several programs including HAMP and HARP exist to help underwater borrowers refinance into more affordable situations by lowering mortgage rates and in some cases, particularly through private lenders, reducing principle. These programs are currently under debate for potential changes, but there are tens of thousands of borrowers outstanding who could still take advantage of these programs while mortgage rates are low.