Either way you look at it, buyers know that commuting costs are high. Some buyers need to be closer to their job while others need to be closer to school districts. The National Association of REALTORS® released its 2016 Profile of Home Buyers and Sellers report to understand the trends of buyers and sellers. One trend we found fascinating that continued in 2016 was the importance of commuting costs. Twenty-nine percent of buyers found commuting costs as being very important to them, and another 39 percent said it was somewhat important to them.
We segmented this group further to learn the main factors that influence a buyer’s neighborhood choice. We found that 65 percent of this group choose a neighborhood as it was convenient to their job. Twenty-three percent of this group compromised on the price of the home. What is also interesting to note is that this group was also made up of 46 percent first-time home buyers, compared to the 35 percent of all buyers that purchased their first home this year.
Of this group, the median age was 38 years old; they bought homes with three bedrooms, two bathrooms, and were typically 1,800 square feet. The median income was $83,900 and the median home price purchased was $215,000.
So how does this compare to other buyers? We segmented married couples that had children under 18 living at home because it was similar in size as a subgroup, which comprised 31 percent of all buyers. Forty-two percent of this group cited that the distance to schools was the most important factor in selecting a neighborhood. Thirty-two percent (up from 27 percent) were first-time buyers, closer to the overall median, and these homes were typically larger with four bedrooms and two bathrooms at 2,200 square feet. The median age for this group was 37 years old; they bought homes with median income of $100,000 and the median home price purchased was $277,000 (up from $260,000 last year).
For unmarried couples, which comprise only eight percent of all buyers, 57 percent said that convenience to a job was the most influential factor when selecting a neighborhood.
The data also indicates that once families had kids, living closer to schools took priority over living closer to work. When segmented for children living at home, respondents reported that they actively compromised on the distance from their jobs more than any other group (16 percent with kids at home, compared to 14 percent of all buyers and 12 percent with no kids at home).
We are in a digital age and home buyers use the internet at various stages in their home search process. NAR data from the 2016 Profile of Home Buyers and Sellers shows that the first step in the buying process is to look online for properties—44 percent of buyers started here (up from 42 in 2015) and 13 percent of buyers looked online for information about the home buying process in the effort to educate themselves. Seventeen percent (up 14 percent last year) contacted a real estate agent right out of the gate.
In 2016, 51 percent of all buyers found the home they ultimately purchased on the internet and 34 percent found their home through a real estate agent. In comparison, in 2001, only eight percent of buyers found the home they purchased on the internet and 48 percent found their home through an agent. The use of the internet to find the home has increased over the years.
Buyers also indicated that finding the right property was the most difficult step in the home search process (52 percent), and more so for first-time buyers (56 percent). For all buyers, the paperwork (24 percent), understanding the process (17 percent), and saving for the downpayment (13 percent) were listed as difficult steps as well.
For buyers that looked online for properties, they also visited 10 homes over the course of 10 weeks before they purchased. For buyers that went straight to a real estate agent and did not look online, they visited four homes over only four weeks before they made their purchase, indicating that they likely know the neighborhood already where they want to buy.
As a result of using the internet to search for homes, buyers took the following actions: they walked through the home they viewed online (67 percent), saw exterior of homes and neighborhoods without walking through a home (44 percent), and found the agent used to search for or to buy a home (33 percent).
When it was time to finally close on a home, the majority of buyers work with a real estate agent. In fact, nine in 10 buyers signed with the help of an agent, which is the same as last year.
- NAR released a summary of pending home sales data showing that October’s pending home sales are up 0.1 percent from last month and also up 1.8 percent from a year ago.
- Pending sales are homes that have a signed contract to purchase on them but have yet to close. They tend to lead existing-home sales data by 1 to 2 months.
- All regions showed increases from a year ago, the Northeast led all regions with an increase of 3.9 percent. The West followed with an increase of 2.5 from a year ago. The Midwest had an increase of 1.2 and the South had the smallest incline of 0.8 percent.
- From last month, the Midwest had the largest increase at 1.6 percent. The West followed with a modest increase of 0.7 percent and the Northeast had an incline of 0.4 percent. The South had the only decline of 1.3 percent.
- The pending home sales index level was 110.0 for the US. This is the pending index’s 30th consecutive month over the 100 index level. September data was revised down to 109.9.
- The 100 level is based on a 2001 benchmark and is consistent with a healthy market and existing home sales above the 5 million mark.
- Existing home sales rose 2.0 percent in October from one month prior while new home sales decreased 1.9 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, 446,000 existing homes were sold in October while new home sales totaled 45,000. These raw counts represent an 8 percent decrease for existing home sales from one month prior while new home sales were unchanged. What was the trend in recent years? Sales from September to October decreased by 2 percent on average in the prior three years for existing homes and increased by 10 percent for new homes. So this year, existing homes outperformed to their recent normal while new home sales underperformed.
- 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 that 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 slower activity in November while activity will get busier in December. For example, in the past 3 years, November sales dropped by 15 percent to 21 percent from October while December sales increased by 7 to 24 percent from November. New home sales market tends to follow the same trend in the following two months. For example, in the past 3 years, raw home sales in November decreased by 8 to 18 percent from October while December sales typically rose by 6 to 13 percent from November.
The 2016 Profile of Home Buyers and Sellers survey is the second year we have collected data on the difficulty of saving for a down payment to buy a home and whether student loans were an impediment.
In years past, the down payment had been cited as one of the most problematic steps in the home buying process. In the 2016 report, the number grew slightly to 13 percent of buyers that had difficulty saving for the down payment and, of those, the number that reported student loan debt made saving the most strenuous step in the buying process jumped to 49 percent. For first-time buyers in the 2016 report, who are predominantly Millennials under the age of 34 years, 26 percent said saving for the down payment was the most arduous step in the process and, of those, 55 percent stated that student loan debt delayed them from buying a home.
For all buyers this year, a little more than a quarter (27 percent) reported having student loans with a median of $25,000 in debt. For first-time buyers, 40 percent cited still having student loans with a median amount of $26,000 in debt.
What’s more interesting is the amount of student loan debt that respondents cited around the country by subregion. The median student debt was the lowest at $20,000 in the Pacific states of Washington, Oregon, California, Alaska, and Hawaii, as well as the West South Central states of Texas, Oklahoma, Arkansas, and Louisiana. The median student loan debt was the highest at $40,000 in the East South Central states of Kentucky, Tennessee, Mississippi, and Alabama.
A majority of the regions reported student loan debt delaying buyers from purchasing a home. On the low end, debt delayed the South Atlantic and East South Central subregions for a median of two years. On the high end, debt delayed New England and Pacific states for a median of five years and the Mountain and West South Central subregions for a median of four years.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales: For single-family homes? For townhomes? For condominiums?” NAR compiles the responses for each property market into a REALTORS® Confidence Index.
The REALTORS® Confidence Index—Six-Month Outlook for single-family homes and townhomes registered above 50, indicating that more REALTORS® expected market conditions to be “strong” than “weak” over the next six months. The index for condominiums was at 50, above the 44 level registered at this time in 2015. The approval of H.R. 3700, the “Housing Opportunity Through Modernization Act of 2016,” is expected to boost purchase activity in the condominium market. Among other measures, the law eases access to FHA condominium financing by reducing the FHA condo owner occupancy ratio from 50 percent to 35 percent, directing the FHA to streamline the condominium re-certification process, and providing more flexibility for mixed-use buildings.
In the single-family homes market, the outlook in the next six months is “moderate” in many states to “very strong” in the states of Washington and Rhode Island. In the townhomes and condominiums markets, the outlook is more mixed, ranging from “very weak” in West Virginia to “very strong “in the District of Columbia.
 Respondents were asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?” The responses for each type of property are compiled into an index. An index of 50 indicates a balance of respondents having “weak” (index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is not adjusted for seasonality.
The bill, which was championed by NAR, passed the House of Representatives 427-0 and the Senate under unanimous consent on July 14, 2016 and was signed by President Obama on July 29, 2016. See http://www.realtor.org/articles/president-obama-signs-hr-3700
 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 fewer than 30 observations. Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. A diffusion index greater than 50 means that more respondents rated conditions as “Strong” than “Weak.” For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 48 are labeled “Weak,” values greater than 48 to 52 are labeled “Moderate,” values greater than 52 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very strong.”
In 2016, first-time home buyers made up 35 percent of all home buyers, an increase over last year’s near all-time low of 32 percent where it had remained for the previous three years, according to The National Association of REALTORS® 2016 Profile of Home Buyers and Sellers report released in October 2016. From 2011 to 2016, the share of first-time buyers was well below the historical norm of 40 percent with buyers facing tight inventory as well as higher home prices and rent costs. In the South, it was as low as 31 percent and the highest in the Northeast region at 44 percent.
What’s more interesting is the fact that the percent of first-time home buyers varies largely across the country. In the Mountain region of Montana, Idaho, Wyoming, Nevada, Utah, Arizona, Colorado, and New Mexico, first-time home buyers were only 28 percent of the total number of buyers in 2016 (up from 21 percent in 2015), the lowest of any other region. They were also a low of 30 percent in the South Atlantic. The share of first-time home buyers was booming, on the other hand, at 45 percent in the Middle Atlantic states of New York, Pennsylvania, and New Jersey, as well as at 42 percent in the New England states of Vermont, New Hampshire, Maine, Massachusetts, Rhode Island, and Connecticut, similar to 2015.
Diving into the demographics of first-time home buyers, we see that over time the median age held steady at 31 years for five years in a row from 2011-2015. In 2016, the median age increased slightly to 32 years for first-time buyers. Buyers aged 18-34 years have comprised the largest share of first-time home buyers at roughly 50-60 percent in the last few years. In 2016, buyers aged 25-34 years accounted for 56 percent of first-time home buyers, compared to 50 percent ten years earlier in 2005. By way of comparison, repeat buyers were almost spread evenly around 20 percent in most age groups except Millennials (accounting for only 12 percent in 2016) and those over 75 years old.
The share of first-time home buyers grew for both buyers aged 35-44 years and aged 45-54 years. Buyers aged 35-44 years accounted for more of the first-time buyers’ share this year at 21 percent, up from 19 percent in 2015. Similarly, buyers aged 45-54 years also accounted for more first-time buyers this year at 10 percent, up from eight percent in 2015.
Buyer demographics also saw huge differences between household compositions for first-time buyers. Of the unmarried couples that bought a home last year, 60 percent (up from 57 percent in 2015) were first-time home buyers. In comparison, of the married couples that purchased a home, 32 percent were first-time buyers in 2016 (up from 27 percent in the previous year). Of the single males and single females that bought a home, 37 and 36 percent respectively (both down from 39 percent in 2015) were first-time home buyers.
- NAR released a summary of existing-home sales data showing that housing market activity rose for the second straight month. October’s existing-home sales reached the 5.60 million seasonally adjusted annual rate and existing-home sales are up 5.9 percent from a year ago which is the highest pace since February 2007.
- The national median existing-home price for all housing types was $232,200 in October, up 6.0 percent from a year ago.
- Regionally, all four regions showed growth in prices from a year ago, with the West leading at 7.8 percent. The South had an increase of 7.4 percent, and the Midwest followed with a 5.8 percent increase. The Northeast had the smallest gain of 2.9 percent from October 2015.
- From September, all four regions experienced inclines in sales with the South having the biggest increase of 2.8 percent. The Midwest followed with a gain of 2.3 percent. The Northeast had a gain of 1.4 percent while the West had the smallest gain of 0.8 percent.
- All four regions showed an increase in sales from a year ago with the West leading all regions with a 10.4 percent gain. The Midwest followed with a 6.3 percent gain. The South had a gain of 4.7 percent and the Northeast had the smallest increase of 1.4 percent. The South led all regions in percentage of national sales at 39.6 percent while the Northeast has the smallest share at 13.4 percent.
- October’s inventory figures are down 0.5 percent from last month to 2.02 million homes for sale and the level remains below historical averages. Inventories are considerably down, 4.5 percent, from a year ago. It will take 4.3 months to move the current level of inventory at the current sales pace. It takes approximately 41 days for a home to go from listing to a contract in the current housing market, down from 57 days a year ago.
- Single family sales increased 2.3 percent while condos remained flat compared to last month. Single family home sales inclined 6.6 percent and condo sales were also flat compared to a year ago. Both single family and condos had an increase in price with single family up 5.9 percent at $233,700 and condos up 6.2 percent at $220,300 from October 2015.
For the first time since 2006, the conforming loan limit will rise in 2017. This change is important in today’s housing market as it allows the financing market to expand to meet the growing needs of strong consumer demand and rising home prices. Furthermore, while the conforming limits will rise, it is unlikely to adversely impact private financing.
Fannie Mae and Freddie Mac (the GSEs) as well as the Federal Housing Administration (FHA) are limited in the size of loans that they can help finance. The maximum loan size that the GSEs can finance, also known as the conforming loan limit, is determined by the Federal Housing Financing Agency (FHFA), while the FHA determines its own limit. Loans made above the limit are called jumbo or non-conforming and are either held in bank portfolios are packaged into private mortgage backed securities (PLS) and sold to investors.
The current conforming loan limit at the GSEs will rise from $417,000 to $424,100, while the super confomring limit which governs 238 counties, will increase from $625,500 to $636,150. The super confomring limit applied to 234 counties in 2016, but will impact 2038 in 2017 as 4 counties migrated above the $424,100 threshold including Solano county in California along with Lincoln, Logan, and McPherson in Nebraska. However, nine fewer counties are at the super conforming limit. The FHA limit is expected to be raised as well from $271,050 to $275,665. A full list of the new limits is available on the FHFA’s website.
Geographically, the higher conforming limit will have an impact on every county in the United States. As depicted in the map below, the high cost areas remain most prevelant on the coast, in large metro areas, and in mountain areas like Denver and Boulder. Furthermore, while the national conforming limit rose by $7,100 and the super confomring rose by $10,650, 49 counties have limits between these levels and will experienced larger changes. Denver for instance will see an increase of $34,500 to $493,350, while Boston will see the largest increase of $74,750 to $589,000. 87 counties were unchanged. A list of counties with the largest changes is included at the end of this article.
Credit conditions in the jumbo market have been tight for several years requiring high down payments, high credit scores, and low debt-to-income ratios. The FHA and GSEs allow for down payments as low as 3 percent and for higher back-end debt-to-income ratios than the strict 43 percent limit that is maintained in the jumbo sector.
At the same time, it is cheaper to borrow in the jumbo space, so those borrowers who qualify tend to choose jumbo loans. As home prices rise, borrowers without pristine credit could be forced to put down larger down payments, take out piggy-back loans, or they could get pushed out of the market all together. Consequently, the FHFA’s actions will allow the housing finance market to accommodate an expanding housing market and expand access to some borrowers.
The change to the confomring limit could expand access to additional buyers, though. One group estimates that a $10,000 increase in the limit could result in an additional 40,000 sales based on historic market shares.
The FHFA’s change marks the first new conforming limit in a decade. It puts an exclamation mark on housing market’s recovery, but more importantly it paves the way for continued expansion.
 Reproduced from the FHFA – http://www.fhfa.gov/DataTools/Tools/Pages/Conforming-Loan-Limits-Map.aspx
While local conditions vary, the REALTORS® buyer traffic index and the confidence index for single-family homes remained above 50 in October 2016, indicating that more respondents reported “strong” than “weak” conditions, according to the October 2016 REALTORS® Confidence Index Survey Report. Both indices were higher than their levels one year ago, but both indices were lower than the previous month’s levels, in part due to seasonality effects. The seller traffic index rose slightly from one year ago, but it has remained below 50 since October 2008, indicating that seller activity is still “weak.”
First-time homebuyers accounted for 33 percent of sales, up from 31 percent one year ago. This is the fifth straight month that the share registered above 30 percent. Sustained job creation and continued low mortgage rates continue to create a more favorable environment for homebuyers, but they are facing a lack of supply and mortgage rate increases in early November may test buyers in the months ahead. With fewer new foreclosures, distressed properties accounted for five percent of sales, purchases for investment purposes made up 13 percent of sales, and cash sales accounted for 22 percent of sales. Nationally, amid tight supply, half of properties that sold in October 2016 were on the market for 41 days or less compared to 57 days one year ago. With demand for properties outstripping supply, 40 percent of properties sold at or above the original listing price.
Lack of supply, especially at the lower price range, and appraisal delays due to a shortage of appraisers were the main issues reported by REALTORS®. Respondents in areas affected by Hurricane Matthew also noted a slowdown in their areas. Still, most respondents were confident about the outlook over the next six months for the single-family homes, townhomes, and condominiums markets, with the six-month outlook confidence indices for these markets registering at 50 and above. REALTOR® respondents typically expected prices to increase by about three percent in the next 12 months.
 An index greater than 50 indicates the number of respondents who reported “strong” (index=100) outnumbered those who reported “weak” (index=0). An index equal to 50 indicates an equal number of respondents reporting “strong” and “weak” market conditions. The index is not adjusted for seasonality effects.
 NAR’s 2016 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 35 percent were first-time home buyers, up from 32 percent in 2015. The HBS surveys primary residence home buyers, while the monthly RCI Survey surveys REALTORS® and also captures purchases for investment purposes and vacation/second homes.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members “How do you rate the past month’s traffic in the neighborhood(s) or area(s) where you make most of your sales?” NAR compiles the responses on buyer traffic into a REALTORS® Buyer Traffic Index and the responses on seller traffic into a REALTORS® Seller Traffic Index.
Local conditions vary in each state, but the REALTORS® Buyer Traffic Index indicates that buyer traffic conditions can be characterized as “moderate” to “very strong” in all states except in Mississippi and Connecticut, where buyer traffic was “weak.” Buyer traffic conditions were “very strong” only in the state of Washington.
Seller traffic conditions were “weak” to “moderate”, measured by the REALTORS® Seller Traffic Index REALTORS® reported more widespread selling activity in states that had benefited from the oil boom but are now facing job cutbacks or weak job growth because of lingering lower oil and natural resources prices—namely Alaska, North Dakota, Wyoming, New Mexico, Oklahoma, and West Virginia. Seller traffic conditions were also “moderate” in the District of Columbia and in states with robust homebuying demand such as Washington, Texas, Iowa, Arkansas, Tennessee, Alabama, Georgia, and South Carolina, indicating that supply constraints are somewhat easing in these areas.
Employment conditions affect the supply and demand for housing. The chart that follows shows the change in non-farm employment in from September 2015 to September 2016 by state. Non-farm employment contracted in the oil-producing states of Alaska, North Dakota, Wyoming, Kansas, Oklahoma, New Mexico, Louisiana, and West Virginia. In some of these states, the job cutbacks or slower job growth has led to more home selling. Texas has been more resilient than other oil-producing states, with employment growing slightly above the national average. Employment growth was strongest in Oregon, Idaho, and Florida, and buyer traffic was “strong” to “very strong” in these states.
Nationally, the REALTORS® Buyer Traffic Index registered at 56 (59 in September 2016; 52 in October 2015), indicating that more respondents viewed buyer traffic conditions as “strong” rather than “weak,” The index is slightly higher compared to one year ago, but it is lower compared to the previous month, possibly due to seasonal slowdown and the impact of higher prices on demand. The REALTORS® Buyer Traffic Index has held at 50 or higher since January 2015.
Nationally, the REALTORS® Seller Traffic Index registered at 41 (44 in September 2016; 40 in October 2015), indicating that more respondents viewed seller traffic conditions as “weak” rather than “strong.” Supply conditions have remained, by and large, tight in many areas, with the index registering below 50 since September 2008.
 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 fewer 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?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 48 are labeled “Weak,” values greater than 48 to 52 are labeled “Moderate,” values greater than 52 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very strong.”
 Respondents were asked “How do you rate the past month’s seller traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. A value of 50 indicates a balance of respondents who reported “Strong “and “Weak” markets. For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 48 are labeled “Weak,” values greater than 48 to 52 are labeled “Moderate,” values greater than 52 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very strong.”
 For a review of states in which oil has an outsized economic impact, see this blog: http://economistsoutlook.blogs.realtor.org/2016/03/21/is-california-an-oil-producing-state/
The Buyer Traffic Index provides information on the level of homebuying demand or interest which may materialize as a contract to purchase or closed sale after two or three months.
This Thanksgiving we look at how recent buyers are choosing their homes, and how their friends and family can influence their decision. While we don’t all get to see our families every day, for many home buyers having the option to do so can impact the home they purchase. Based on data from the recently released 2016 Profile of Home Buyers and Sellers, we can see how multi-generation homes are becoming more common and the importance of living close to friends and family.
- This year, 11 percent of all buyers purchased a multi-generational home, and buyers were typically 52 years old. Eight-six percent of the multi-generational homes purchased were single-family homes.
- Homes were typically 2,100 square feet and were purchased for $251,000. These multi-generational homes typically had four bedrooms and two bathrooms. Thirteen percent of buyers desired a larger home.
- Among all multi-generational buyers, the desire to own a home of their own was the primary reason for purchasing (26 percent). The majority of multi-generational buyers were married couples (67 percent), and single females (17 percent).
- The main reasons for purchasing a multi-generational home were for the health and caretaking of aging parents (19 percent), cost savings (18 percent), children or relatives over 18 moving back into the house (14 percent), to spend more time with aging parents (eight percent), and wanting a larger home that multiple incomes could afford (seven percent).
- Seven percent of all buyers purchased their home to be closer to friends and family. Single females (nine percent) and married couples (eight percent) recently purchased their homes to be close to friends and family.
- The convenience to friends and family for single females (49 percent) and unmarried couples (36 percent) was an influencing factor of their neighborhood choice.
For over three decades, the National Association of REALTORS® has collected data on the size of homes purchased, most notably the square feet of detached single family homes, in its flagship Profile of Home Buyers and Sellers report. Since 1981, the median size of homes purchased has increased rapidly in the first decade and then remained relatively similar and steady over the last 15 years.
Single-family homes have been the number one type of home purchased across the country over the decades. In 2016, detached single-family homes accounted for 83 percent of the share of total homes purchased by all buyers. In 1981, buyers purchased detached single-family homes that were a median of 1,700 square feet. In 1985, the size dipped to 1,650 square feet, the lowest recorded in over three decades of the report. The size increased back up to a median of 1,793 square feet in 1987 and saw a huge jump to a median of 2,000 square feet in 1993.
Throughout the majority of the 2000’s, the median size for detached single-family homes hovered around 1,920 to 1,940 square feet. With the rise in the share of first-time home buyers due to government-sponsored first-time home buyer tax credit, the median home size for detached single-family homes fell in 2010 to 1,850 square feet but bounced back up to 2,000 square feet in 2011 where it remained for five years before hitting 1,950 in 2016.
The median size for all homes purchased had a similar trajectory over the course of the last 30 years. In 1987, the median size for all homes was 1,720 square feet and climbed steadily to 2,000 square feet by 1995. From 2003 to 2009, the median size of all homes purchased remained roughly the same between 1,800 and 1,882 square feet. That median size also took a dip in 2010 corresponding to market conditions to its lowest point in recent years of 1,780 square feet, but climbed back up to 1,900 square feet in 2011 where it remained until 2016, with the only exception of it dropping to 1,870 in 2014 for one year only.
To follow this series as we discuss the findings of 35 years of profile data, check out the hashtag #NARHBSat35 on your social channels. NAR Research will be releasing trend line data since 1981 to celebrate 35 years of home buyer and seller demographic research.
Over three decades, the number of homes viewed during buyers’ home search process has decreased while the number of weeks that buyers search has increased. The Profile of Home Buyers and Sellers has collected data since 1987 on the length of the home search process and the number of homes viewed. This year, NAR celebrated its 35th anniversary of the profile report and to commemorate we take a look back at the data to compare how searching for a home has changed over time.
There has been a gradual move towards the midpoint in the home search process. Meaning, tightened inventory in recent years means there are less homes on the market and buyers must search longer for the right home. With fewer homes available, buyers also look a fewer homes that suit their needs.
In 1987, buyers searched for a median of seven weeks and looked at a median of 12 homes before ultimately purchasing a home. This is the shortest period of time buyers reported searching for a home, other than in 2001 when the length of the search was also a median of seven weeks. Throughout the late 1980’s, 1990’s, and early 2000’s, buyers searched for a steady median of eight weeks. In 2008, the number of weeks that buyers searched for a home bumped up to 10 weeks and up again to 12 weeks in 2009 where it remained until 2013. The median number of weeks that buyers searched went back down to 10 weeks in 2014 where is has remained for the last three years.
In 1987, buyers looked at a median of 12 homes before finally purchasing. The median number of homes dipped to 11 homes in 1989, but bumped back up to 12 homes where it remained until 1995. The number of homes viewed in the process slowly comes down to a median of 10 homes in 1997, then down to nine homes from 2004 to 2006, the fewest homes viewed in the timeline. The number of homes viewed jumped back up to 10 weeks in 2007 and to 12 weeks in 2009 through 2011, but fell again to a median of 10 homes in 2012 where it has remained for the last five years.
To follow this series as we discuss the findings of 35 years of profile data, check out the hashtag #NARHBSat35 on your social channels. NAR Research will be releasing trend line data since 1981 to celebrate 35 years of home buyer and seller demographic research.
The housing finance market continues to normalize in the way of TRID and Brexit related delays. The average delay in time-to-close (TTC), the time from when a sale goes under contract to settlement, eased from 3.4 days in September to 2.8 days in October. Furthermore, the moderation was driven by a shift from settlements that took more than 45 days to those that took less than 30.
Delays jumped following Brexit as the decline in mortgage rates spurred a refinance boom relative to a fixed number of lenders, underwriters, appraisers, and closing agents. At the same time, the sharp drop in rates interacted with the new TRID or Know Before You Owe rules. Under the new rules, a rate change greater than 0.125 percent that occurs within three days of closing can force lenders to re-issue the closing disclosure (the new document that replaced the HUD-1) and wait an additional three days.
Even though rates remained low through the end of summer, lenders adjusted to the work load and the number of potential refinances declined. As a result, delays continued to ease in October. Rates rose sharply following the election which will likely cause a further drop in refinances allowing lenders more time and resources to devote to the purchase market. Consequently, delays should continue to trend downward through winter.
The numbers are in for 2016—selling your home with a REALTOR® could get you $60,000 more on your home sale. From the recently released 35th anniversary edition of the Profile of Home Buyers and Sellers report, homes sold with an agent or broker received a median of $245,000 in 2016 compared to the median selling price of $185,000 for For-Sale-By-Owner (FSBO) home sales. That number drops even lower to $168,300 when the FSBO seller knew the buyer, that’s $76,700 less than what sellers are getting with the help of a REALTOR®.
The top reasons that sellers decided to sell their homes without the assistance of an agent was that they did not want to pay a commission or fee (39 percent), they sold to a relative, friend or neighbor (33 percent), or the buyers contacted the seller directly (14 percent). Of the FSBO sellers that did not know the buyer, 61 percent (up from 59 percent last year) simply did not want to pay a commission or fee. Not only are FSBO sellers losing money in the transaction, they end up doing all the work.
Do you have a lot of extra time to market your home and do all the work to meet and greet properly? Are you versed in local trends on the housing market and know the latest regulations for closing a sale? Do you have a list of potential buyers ready to view your home? Eighty-nine percent of all homes sold in 2016 were sold with the assistance of an experienced real estate professional, according to the 2016 report and consistent with the year prior. Most leave it to the professionals, yet there is still a small group of people who prefer to do it themselves.
Of all FSBO sellers, 33 percent used yard signs to market their homes, 21 percent open houses, 21 percent third party aggregators, 16 percent to friends, neighbors, and relatives, 13 percent listed on the Multiple Listing Service (MLS) website, and 41 percent said they did not actively market their homes.
The 2016 Profile of Home Buyers and Sellers report has the added value of reporting 35 years’ worth of reliable data on FSBOs. In 1981, the market share of FSBO sales was 15 percent and those that sold with the assistance of an agent was 85 percent. FSBO sales peaked in 1985 at 21 percent of all sales (in the same year 75 percent were agent-assisted sales). Since 1981, FSBO sales have steadily declined over the last three and a half decades, dropping below double digits by 2010 to just nine percent of all sales and hitting an all-time low in 2015 and 2016 at eight percent. Of that eight percent of all FSBOs, four percent of sellers knew the buyer—selling to a friend, neighbor, or family member—and four percent sold by the owner to someone they didn’t know.
This year, the demographics of FSBO and agent-assisted sellers were very similar, despite the large gap in between the final home sale price. Seventy-three percent of FSBO sellers were married couples with a median age of 59 years and a median income of $100,600. Seventy-six percent of agent-assisted sellers were also married couples, 53 years old, and had a median income of $101,300. Last year, FSBO sellers typically had lower incomes than those who worked with an agent.
Most FSBO homes sales were located in a suburban area (42 percent), rural area (27 percent), or small town (14 percent). Sixty-nine percent (down from 75 percent last year) of FSBO sales were detached single-family homes. Ten percent were mobile or manufactured homes, consistent with last year.
The time on market for agent-assisted homes was a median of four weeks to sell a home. When sellers knew the buyer, the median time on market was a mere one week, compared to two weeks for FSBO sellers that did not know the buyer. Forty-six percent of FSBO sellers noted that they needed to sell their home either somewhat or very urgently. FSBO sellers were also less likely to offer incentives to buyers at closing.
Three years after the ability to repay (ATR) rule was implemented, the risky mortgage products that became common during the last boom and helped fuel the unsustainable run-up in prices are rare. That is one of the key takeaways from the 12th Survey of Mortgage Originators (SMO) which covers lenders’ insights on trends and policy changes in the 3rd quarter of 2016.
Other insights from the 3rd quarter SMO include:
- Non-QM lending has not bounced back from the implementation of the risk retention rule, while rebuttable presumption lending continues to gain ground.
- Credit access for lower-credit prime borrowers is expected to rise while all other categories are likely to moderate.
- The share of transactions delayed due to TRID rose to 2.6 percent, but both TRID and non-TRID cancelations fell.
- More than half of lenders passed TRID-related costs to consumer with a weighted average increase of $220.
- Only 16.7 percent of participating lenders shared the closing disclosure (CD) unconditionally with REALTORS®, while 50 percent did not share under any circumstances.
- 83.3 percent of respondents indicated that the CFPB’s July clarification sharing did not impact their decision to share the CD. Several lenders indicated that more clarification was needed or that they were not aware of the CFPB’s statement.
- The majority of lenders in this survey sold their servicing rights and only 8.3 percent of respondents indicated that servicing was a factor in determining overlays.
Commercial sales transactions span the price spectrum, but tend to be measured and reported based on size. Commercial real estate (CRE) deals at the higher end—$2.5 million and above—comprise a large share of investment sales. Smaller commercial transactions tend to be obscured given their size. However, these smaller properties provide the types of commercial space where average Americans engage on a daily basis.
The National Association of REALTORS® Commercial Real Estate Outlook: 2016.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.
The U.S. economy picked up the pace in the third quarter of this year, boosted by positive consumer spending, as well as improved business investments and a jump in export activity. Employment continued growing during the third quarter, with a gain of 619,000 net new jobs. Over the January through September period, there were 1.6 million net new payroll positions, with 1.5 million in the private sector. Average weekly earnings of employees rose by 2.0 percent in the third quarter of this year, compared to one year earlier. The unemployment rate has been flat—at an average 4.9 percent—in the third quarter of 2016, at the same level for the first nine months of 2016.
The decline in large cap CRE sales volume which began at the beginning of 2016 continued into the third quarter of this year. The volume of commercial sales in LCRE markets totaled $114.8 billion, a two percent year-over-year decline, according to Real Capital Analytics (RCA). The decline curve moderated from the double-digit drop recorded in the first quarter. Given the preponderance of portfolio and entity-level transactions in 2015, their absence is casting a long shadow over this year’s activity.
The trend of diverging markets continued in the third quarter, with sales in the six major metros tracked by RCA posting an eight percent decline year-over-year. In comparison, sales in secondary markets declined only one percent, while volume in tertiary markets rose a noticeable 17 percent.
Commercial real estate in small cap markets found its path diverging at a higher rate, with sales volume accelerating during the third quarter of 2016. REALTORS® reported continued improvement in fundamentals and investment sales. Following on the first quarter’s 8.5 percent and second quarter’s 8.5 percent increases in sales volume, third quarter transactions advanced 11.0 percent on a yearly basis.
Underscoring investor approach to risk in the current markets, prices in LCRE markets rose. Based on preliminary data, prices in markets covered by RCA gained 8.9 percent during the third quarter of 2016. The advance was driven by strong appreciation in prices of apartment and industrial properties, which advanced 12.9 percent and 7.7 percent, respectively. Prices for retail properties increased 5.1 percent year-over-year, while office properties recorded a 4.4 percent rise.
Capitalization rate compression continued into the third quarter in LCRE markets. Based on RCA data, cap rates averaged 6.6 percent, 30 basis points lower compared with the prior year. The cap rate compression was registered across all property types, except hotels, but was more pronounced for apartment and office properties—down 60 and 40 basis points, respectively.
As investors across the value spectrum broadened their search for yield into secondary and tertiary markets, the shortage of available inventory remained the number one concern for commercial REALTORS®. Prices for CRE properties accelerated, posting a 7.7 percent yearly advance in the third quarter of this year. The pricing gap between sellers and buyers remained the second highest ranked concern. With banks continuing to tighten underwriting standards for commercial loans in the wake of increased regulatory scrutiny, financing availability was a concern in REALTORS®’ markets—14.0 percent of members ranked it as a main challenge in the third quarter.
Capitalization rates in SCRE markets continued compressing, to an average 7.2 percent across all property types, a 70 basis point compression on a yearly basis. Apartments posted the lowest cap rate, at 6.4 percent, followed by office properties with average cap rates at 6.8 percent. Retail and industrial transactions recorded cap rates of 7.1 percent and 7.6 percent, respectively. Hotel transactions posted the highest comparative cap rates—8.3 percent.
Commercial fundamentals are expected to continue on a positive trend, with three of the four core sectors favoring landlords. On the investment side, while financial markets’ volatility left a mark on the sales volume in large cap CRE markets during the first half of 2016, volume is expected to rebound slightly in the latter half of the year. In small cap CRE markets, increased scrutiny from banking regulators has tightened lending conditions, leading to more cautious capital flows into CRE transactions.
While the U.S. CRE markets have experienced diverging trends in 2016, the U.S. economy’s comparative strength coupled with low global yields translate into enduring appeal for commercial assets. While investors are approach risk from a defensive position, investment performance retains safety buffers even as the Federal Reserve is weighing acting on rates. Properties in secondary and tertiary markets remain well-positioned for growth.
To access the Commercial Real Estate Outlook: 2016.Q4 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.
Bond Yields and Mortgage Rates are Moving Up
This week has been an eventful one for bond markets. Just before the election, ten-year yields began to increase from the 1.8 percent yield they had held somewhat consistently in the second half of October. As of yesterday’s close, ten-year yields are now over 2.2 percent.
Mortgage rates, which generally track the ten-year bond yields closely, have responded in kind. If one is looking at a daily source, such as from the Wall Street Journal or New York Times, mortgage rates were near 3.9 percent as of yesterday, up from 3.5 percent as recently as three weeks ago. Other industry publications show that the most prevalent rate has hit 4 percent. The most widely quoted mortgage rate, a weekly rate from Freddie Mac that is released each Thursday registered 3.57 percent last week, and is anticipated to show a notable jump when it is released on Thursday.
It’s too soon to know whether these increases will stick, but tightening from the Federal Open Market Committee either later in 2016 or early 2017 and anticipated infrastructure spending both tend to suggest higher rates are in the future. Home shoppers will likely have to adjust to these new rates. While incomes will grow and home price growth will undoubtedly slow, neither will adjust as quickly as mortgage rates. But what will that mean for home shoppers?
How Will These Moves Affect Potential Home Buyers’ Budgets?
Looking at how NAR’s Affordability Index would change in a higher rate scenario gives an idea of what may be in store. At the national level, moderate home prices relative to incomes give the market space to accommodate a rate increase. The monthly payment increases by $11 per month per 10 basis point increase in the mortgage rate, and the income needed to qualify to purchase the median priced home increases by just over $500. The current median income family household earns nearly 1.7 times the income needed to qualify to purchase the median priced home. If rates were to rise to 4.2 percent and prices and incomes were to stay steady, the median family income would be just less than 1.6 times the income needed to qualify to purchase the median priced home.Certain groups however are more likely to notice the interest rate increases. Those who live in the West, where home prices tend to be higher, will see the monthly payment increase by $16 per 10 basis point rise in the mortgage rate, and the qualifying income increases by just less than $800.
Another group more likely to notice the interest rate increases are those who put smaller down payments. Those putting only five percent down to purchase a median-priced home will see the monthly payment increase by $13 per 10 basis point rise in the mortgage rate, and the qualifying income increases by just over $600.
While the recent changes are notable given the steadiness in rates prior to the last few weeks, data suggest that the typical family budget will be able to handle this rate increase. If you are working with potential buyers who are near the threshold for qualifying based on their income and shopping price range, recent changes in mortgage rates may mean a new shopping strategy is required.
 See for example Mortgage News Daily’s tracking survey of mortgage rates: http://www.mortgagenewsdaily.com/data/30-year-mortgage-rates.aspx
 In the summer of 2013, mortgage rates rose rapidly in response to anticipated Fed policy changes in what has come to be known as the “taper tantrum.” From May to July rates rose sharply and while they declined from September to October, they turned back up in November and December before starting a longer-lasting decline in January 2014 that has lasted (with a few hiccups in 2015) through the summer of 2016.
 These calculations assume a 20 percent down payment.