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Homes Typically Sold in 30 Days Under Tight Supply Conditions in August 2017

Fri, 09/22/2017 - 11:19

Amid strong demand and tight supply, REALTORS® reported that  properties that sold in June–August 2017 were typically on the market for less than 31 days in 29 states and in the District of Columbia, according to the August 2017 REALTORS® Confidence Index Survey.[1] Properties sold quickly in states such as Washington (19 days), Utah and D.C. (20 days) Minnesota, Nevada, and Tennessee (21 days), California, Colorado, and Kansas (22 days). Only in seven states did properties typically stay on the market for two months or more: Wyoming, Louisiana, Mississippi, Alabama, West Virginia, Vermont, and Connecticut.

Nationally, properties typically stayed on the market for 30 days in August 2017 days (30 days in July 2017; 36 days in August 2016).[2]  For comparison, properties were typically on the market for 97 days in 2011.  Nationally, 50 percent of properties that sold in August 2017 were on the market for less than a month (51 percent in July 2017; 46 percent in August).[3] Only five percent of properties were on the market for six months or longer.

At the end of August 2017, the inventory of homes for sale stood at 1.88 million homes, which is equivalent to 4.2 months of the current monthly sales pace.  Month’s supply has been falling since January 2015, 27 consecutive months now. With falling inventory, home prices have increased. As of August 2017, the median price of existing homes sold was $253,500, surpassing the peak median price of $229,500 in June 2006.

[1] In generating the median days on market at the state level, NAR uses 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 fewer than 30 observations.

[2]The survey asks, “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market.

[3] Days on market usually refers to the time from listing date to contract date.

Potential First-time Buyers Still on the Sidelines

Thu, 09/21/2017 - 15:09

First-time buyers accounted for 31 percent of  buyers who closed a sale in August 2017, according to the August 2017 REALTORS® Confidence Index Survey.[1]  The share of first-time buyers has been improving, although slowly, from less than 30 percent in 2013. Many potential first-time buyers are still on the sidelines, evidenced by the share of households who own a home. As of 2017Q2, the homeownership rate for the under 35 years old age group showed only a slight increase to 35.3 percent (34.3 percent in 2017Q1), while the homeownership rate for the 35-44 years old age group showed a slight decrease to 58.8 percent (59 percent in 2017Q1). In absolute numbers, there are six million fewer households who own homes among these age groups in 2016 compared to 2005.[2]

What might account for this trends?  On the positive side, employment has been growing and interest rates have been at historic lows. On the negative side, difficulties in obtaining credit, steep price growth compared to income growth, and other factors such as student debt and delayed marriage account for why potential buyers have remained on the sidelines.

Sustained employment growth. The share of first-time buyers has been on a modest uptrend since 2014 amid sustained job growth and a low interest rate environment. Since February 2010, the economy has generated 16.2 million non-farm jobs, which has now offset the 8.7 million jobs lost during the Great Recession of 2008-2009. Over the past 12 months, 2 million jobs were created.

 Low interest rates. Interest rates remain at an all-time low, amid a supportive monetary policy stance. The 30-year fixed home mortgage rate has stayed below four percent for the most part since 2015 and averaged 3.77 percent in August 2017. The Federal Reserve Board has raised the federal funds rate target four times starting in December 2015 which raised rates from 0-0.25 percent to 1.00-1.25 percent, but mortgage rates have not kicked up correspondingly. Economists do see interest rates moving up as the Federal Reserve winds down its $4.5 trillion of investments in mortgage-backed securities and Treasury securities starting in October 2017 at the rate of $10 billion a month. NAR’s Chief Economist Lawrence Yun forecasts 30-year fixed mortgage rates to average 4.2 percent in 2017 and 4.6 percent in 2018.[3]

Strong house price appreciation, lagging income growth. Although employment has been rising, incomes have not increased much, and income growth has lagged behind house price growth. Since January 2012, the year which can be considered as a breakout year for the housing market, home prices have increased by 68 percent as of July 2017, a four-fold increase compared to the 15 percent gain in median household income.

Lack of inventory of homes for sale because inadequate new construction explains in part why home prices have increased at a fast pace. Housing starts, although improving, have not kept pace with the 1.5 million estimated demand for units coming from net household formation (about 1.2 million) and units needed to replace obsolete or destroyed homes. With falling inventory, home prices have increased. As of August 2017, the median price of existing homes sold was $253,500, surpassing the peak median price of $229,500 in June 2006.

 Financing Constraints. Although interest rates are low, putting in a downpayment appears to pose as a constraint to interested homebuyers. FHA insures mortgages with 3.5 percent downpayment, with corresponding borrower credit scores of as low as 580. However, borrowers pay a mortgage insurance premium for the life of the loan (85 basis points for loans less than or equal to $625,500 with mortgage term of more than 15 years[4]), which may pose as deterrent in obtaining an FHA loan for some borrowers. Fannie Mae and Freddie Mac have started offering 3 percent downpayment loans, but borrowers who put in five percent or less and who have less than 620 FICO score pay an additional 3.75 percent. According to Fannie Mae’s 2017 First Quarter Credit Supplement report[5], the share of single-family business acquisitions with loan-to-value ratio of more than 90 percent has in fact declined from nearly 20 percent in 2013—2014 to 15 percent in 2015–2017.

NAR’s survey among its REALTORS® also shows that the share of first-time borrowers who put down 0 to 6 percent has declined from about 70 percent in 2009 to 57 percent in August 2017.

Most studies indicate that those who are educated are more likely to have higher incomes and to become homeowners own a home. Student debt, when applied wisely, is a good investment and pathway to a higher standard of living and homeownership. However, student debt has delayed a home purchase for many non-homeowners. According to NAR’s 2017 Student Loan Debt and Housing Report 2017, 83 percent of non-homeowners reported that their student debt has delayed them from buying a home. The median years of delay is seven years among non-homeowners.

Delayed marriage. Due to a host of factors, including economic reasons, men and women are postponing marriage. The median marrying ages for both men and women have been increasing since the 80’s, but the rate of increase appears to have accelerated after 2005. In 2005, the median marrying age for women was 25.3 years, while the median marrying age for men was 29.5 years. Everything else remaining the same, the delay in marriage has delayed homeownership by two years.

In summary, solid employment growth and a slow rise in interest rates provide a hospitable environment for potential first-time buyers. Income-based repayment for student loans will also ease the burden for potential first-time borrowers. Increasing supply and easing the access to financing are the key challenges facing potential homeowners.

[1]The survey asks about the characteristics of the respondent’s most recent sale. These sales can be considered as a random sample of the closed sales for the month.

[2] U.S. Census Bureau Housing Vacancy Survey, Table 4SA downloaded from Haver Analytics.

[3] NAR’s U.S. Economic Outlook: August 2017,  https://www.nar.realtor/sites/default/files/reports/2017/embargoes/phs-07-31/forecast-08-2017-us-economic-outlook-07-31-2017.pdf

[4] Mortgage Letter 2017-07FHA.com, https://portal.hud.gov/hudportal/documents/huddoc?id=17-07ml.pdf

[5] http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2017/q12017_credit_summary.pdf

Student Loan Debt Adversely Affecting Millennials

Thu, 09/21/2017 - 09:30

In NAR’s first report on student loan debt in 2016, survey respondents were among a wide age range, from Millennials to Generation X to Baby Boomers and the Silent Generation. This year, the Student Loan Debt and Housing Report 2017 focuses exclusively on younger millennials (born 1990 to 1998) and older millennials (born 1980 to 1989). The report findings are staggering: millennials as a whole made a median of $38,800 in annual income in 2016 and have a median student loan debt of $41,200 in the same year. They have also been delayed from buying a home for a median of seven years.

Let’s examine these two groups in more depth. Fifty-two percent of survey respondents were younger millennials and 48 percent were older millennials. For all respondents, 84 percent are working full-time. Older millennials were more likely to have defaulted or have forbore on a student loan debt at 35 percent, compared to younger millennials at 27 percent. Two-thirds of all millennials have never defaulted or forborne (67 percent for younger and 62 percent for older millennials).

For younger millennials, student loan debt influenced their ability to purchase a home (76 percent), take a vacation (72 percent), continue with education (71 percent), and rent on their own or change living arrangement (66 percent). For older millennials, student loan debt influenced their ability to purchase a home (78 percent), take a vacation (74 percent), purchase a car (67 percent), and continue with education (57 percent). If the millennials did not have to make payments on their student loan debt, respondents noted that they would put the extra money towards savings (71 percent), investments (65 percent), and buying a home (63 percent).

Younger millennials most frequently live with roommates (35 percent), followed by live with family or friends without paying rent (20 percent). Older millennials more frequently own a home (29 percent), followed by live with roommates (23 percent). Older millennials have been able to make the jump from renting to owning a home of their own. Of the older millennials that own a home, 27 percent were delayed from selling their home because they felt it was too expensive to move or upgrade to a new home. Nearly a quarter of younger millennials were delayed two to five years from moving out of a family member’s home (24 percent), compared to 15 percent of older millennials.

Eighty percent for younger millennials and 86 percent for older millennials that are non-homeowners said that student loan debt delayed them from buying a home. The main reason cited for the delay was that they could not save for a downpayment because of the student loan debt (86 percent for both millennial groups). Younger millennials cited more frequently than older millennials that they did not feel financially secure enough because of existing student loan debt. Whereas older millennials cited more frequently than younger millennials that they could not qualify for a mortgage because of debt-to-income ratio. Fifty-three percent of younger millennials and 45 percent of older millennials said they were delayed three to eight years from purchasing a home due to student loan debt.

August 2017 Existing-Home Sales

Wed, 09/20/2017 - 15:37
  • NAR released a summary of existing-home sales data showing that housing market activity this August slipped 1.7 percent from last month but modestly improved 0.2 percent from last year. August’s existing-home sales reached 5.35 million seasonally adjusted annual rate.
  • The national median existing-home price for all housing types was $253,500 in August, up 5.6 percent from a year ago. This marks the 66th consecutive month of year over year gains as prices push higher.
  • Regionally, all four regions showed growth in prices from a year ago, with the West leading all regions with an incline of 7.7 percent. The Northeast had a gain of 5.6 percent followed by the South with a gain of 5.4 percent. The Midwest had the smallest gain of 5.0 percent from August 2016.

  • From July, two of the four regions experienced gains in sales. The Northeast inclined 10.8 percent. The Midwest rose 2.4 percent. The South had the biggest drop of 5.7 percent. The West had the smallest decline of 4.8 percent.
  • Three of the four regions showed an increase in sales from a year ago. The Northeast had a gain of 1.4 percent. The Midwest and West both had a gain of 0.8 percent. The South was the only region to have a drop in sales of 0.9 percent. The South led all regions in percentage of national sales, accounting for 40.2 percent of total, while the Northeast had the smallest share at 13.5 percent.

  • August’s inventory figures are down 2.1 percent from last month to 1.88 million homes for sale. Inventories are down 6.5 percent from a year ago, marking 27 months of year over year declines. It will take 4.2 months to move the current level of inventory at the current sales pace. Transactions are moving faster and it takes approximately 30 days for a home to go from listing to a contract in the current housing market, down from 36 days a year ago.

  • In August, single-family sales decreased 0.8 percent and condominiums sales improved 1.7 percent compared to last month. Single-family home sales inclined 0.4 percent and condominium sales were down 1.6 percent compared to a year ago. Both single-family and condominiums had an increase in price with single-family up 5.6 percent at $255,500 and condominiums up 5.4 percent at $237,600 from August 2016.

July 2017 Housing Affordability Index

Fri, 09/15/2017 - 15:00

At the national level, housing affordability is up from last month but down from a year ago. Mortgage rates increased to 4.14 percent this July, up compared to 3.77 percent a year ago.

  • Housing affordability declined from a year ago in July moving the index down 8.1 percent from 160.6 to 147.6. The median sales price for a single family home sold in July in the US was $260,600 up 6.3 percent from a year ago.
  • Nationally, mortgage rates were up 37 basis points from one year ago (one percentage point equals 100 basis points) while median family incomes rose 2.2 percent.
  • Regionally, the West recorded the biggest increase in price at 7.9 percent. The South had an increase of 6.6 percent while the Midwest had a gain of 6.0 percent. The Northeast had the smallest incline in price of 4.0 percent.
  • Regionally, all four regions saw a decline in affordability from a year ago. The West had the biggest decline of 9.7 percent. The South followed with a decline of 9.3 percent. The Midwest had a decline of 7.9 while the Northeast had the smallest decline of 4.9 percent.
  • On a monthly basis, affordability is up from last month in all four regions. The Midwest had the biggest incline of 2.7 percent followed by the South, which had an incline of 2.1 percent. The West had an increase of 2.0 percent. The Northeast had the smallest incline in affordability of 1.5 percent.
  • Despite month-to-month changes, the most affordable region was the Midwest, with an index value of 183.4.  The least affordable region remained the West where the index was 107.2. For comparison, the index was 147.7 in the South, and 152.7 in the Northeast.

  • Mortgage applications are currently up. New home construction is on the decline and yet the sales pace is moving fast in new home sales. Inventory demands remain high. Mortgage rates are still historically low.
  • 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 (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

Raw Count of Home Sales (July 2017)

Wed, 09/13/2017 - 11:27
  • Existing-home sales dropped 1.3 percent in July from one month prior while new home sales declined 9.4 percent.  These headline figures are seasonally adjusted figures and are reported in the news.  However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures.  The raw count determines income and helps better assess how busy the market has been.
  • Specifically, 513,000 existing-homes were sold in July while new home sales totaled 49,000.  These raw counts represent a 15 percent decrease for existing-home sales from one month prior while new home sales dropped 16 percent.  What was the trend in recent years?  Sales from June to July declined by 6 percent on average in the prior three years for existing-homes and decreased by 1 percent for new homes.  So this year, existing and new home sales underperformed compared to their recent norm.
  • 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 August and September. For example, in the past 3 years, August sales dropped by 2 percent on average from July while September sales decreased by 8 percent on average from August. For the new home sales market, the raw sales activity is expected to diminish in August while sales typically drop in September as well.  For example, in the past 3 years, sales in August dropped by 6 percent on average from July while September sales decreased by 5 percent on average from August.

July 2017 Pending Home Sales

Fri, 09/08/2017 - 11:04
  • NAR released a summary of pending home sales data showing that July’s pending home sales pace is down 0.8 percent from last month and also down 1.3 percent from a year ago.
  • Pending sales represent 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.
  • Three of the four regions showed declines from a year ago. The Northeast had the only gain of 2.4 percent. The South had the smallest dip of 0.2 percent followed by the Midwest with a decrease of 2.8 percent. The Midwest had the biggest decline of 3.4 percent. The West had the biggest drop of 4.0 percent.
  • From last month, three of the four regions showed declines in sales. The West was the only region to show an increase of 0.6 percent. The South had the biggest dip of 1.7 percent. The Midwest had a decline of 0.7 percent. The Northeast had the smallest decline of 0.3 percent.
  • The U.S. pending home sales index level for the month was 109.1. June’s data was revised down slightly to 110.0.

  • In spite of the decline, this is the pending index’s 39th consecutive month over the 100 level.
  • 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.

Foot Traffic Picks Up

Thu, 09/07/2017 - 15:22

A week ago we introduced a new measure of foot traffic, the foot traffic volume index. This week we provide an update on the August trend in traffic. Foot traffic rose on a seasonally adjusted basis for the second consecutive month suggesting an end to the downward trend posted this summer.

Foot traffic has a strong correlation to future sales, leading the latter by two to three months. NAR Research collects information on foot traffic from Sentrilock, Inc. which manufactures lock-boxes for the industry.

The foot traffic volume index (SAAR) rose 3.4 percent in August relative to a month earlier, the second consecutive increase. More significantly, the trend rose 1.7 percent relative to August of last year, the second consecutive increase following a six-month string of year-over-year declines. This month’s measure appears to have cemented a shift away from withering foot traffic.

At the local level, raw traffic rose in roughly half of markets. Honolulu for instance has seen a sharp increase in interest over the last two months. Traffic in August was up 16.0 percent relative to the same period in 2016.

Conversely, foot traffic was 12.0 percent lower than a year ago in San Diego, a trend that has held since January. Local inventory conditions in San Diego are very tight with days on market roughly 10 percent lower as of August, limiting the number of potential views of a home and weighing on traffic. The downward trend is thus a reflection of limitations rather than consumer interest.

Foot traffic rebounded nicely in August establishing a resurgent trend. The recent drop in mortgage rates combined with a steady secular improvement in employment and consumer confidence will continue to bring consumers out to shop. However, inventory, or the lack of it, will bind foot traffic until new construction ramps up.

Home Staging Could Pay for Itself and Increase Seller Equity

Tue, 09/05/2017 - 11:40

According to 31 percent of REALTORS® who work with buyers, staging a home before listing it for sale on the market could have a price increase of up to five or 10 percent. On a $300,000 home, that could add between $15,000 and $30,000, paying for the cost of home staging and increasing a seller’s equity.

In a new NAR report 2017 Profile of Home Staging, 59 percent of REALTORS® who work with sellers said that staging a home could increase the dollar value buyers offer. Twenty-nine percent said it can increase the dollar value offered by one to five percent and 21 percent said it could increase the dollar value offered by six to 10 percent. If there is no impact on dollar value, home staging can help speed up the time it takes to sell a home, 62 percent said it slightly or greatly decreased a home’s time on market.

How to Stage a Home

Forty-nine percent of agents representing home buyers said that home staging positively impacts their view of the home. Seventy-seven percent of agents said that home staging made it easier for buyers to visualize the property as their future home. The living room was listed at the top as rooms that are very important to stage (55 percent), followed by the master bedroom (51 percent), and the kitchen (41 percent). Thirty-eight percent of seller’s agents suggest that sellers stage all homes for sale and 37 percent recommend that if a seller does not stage that they should declutter and fix property faults.

Paying for Home Staging

Most often, the seller pays before they list their home on the market, said 25 percent of agents. In some cases, the REALTOR® personally offers to stage a home (21 percent). A REALTOR® can also offer to recommend a reliable and affordable home staging service (14 percent).

In Which States Did Properties Sell Most Quickly in July 2017?

Fri, 09/01/2017 - 12:29

Amid strong demand and tight supply, REALTORS® reported that  properties that sold in May–July 2017 were typically on the market for less than 31 days in 29 states and in the District of Columbia, according to the July 2017 REALTORS® Confidence Index Survey.[1] Properties sold quickly in states such as Washington (20 days), Colorado and Kansas (21 days), and California (22 days). Only in seven states did properties typically stay on the market for two months or more: Wyoming, Louisiana, Mississippi, Alabama, West Virginia, Vermont, and Connecticut.

Nationally, properties typically stayed on the market for 30 days in July 2017 days (28 days in June 2017; 36 days in July 2016).[2]  For comparison, properties were typically on the market for 97 days in 2011.

Nationally, 51 percent of properties that sold in July 2017 were on the market for less than a month (54 percent in June 2017; 47 percent in July 2016).[3] Only nine percent of properties were on the market for six months or longer.

[1] In generating the median days on market at the state level, NAR uses 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 fewer than 30 observations.

[2]The survey asks, “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market.

[3] Days on market usually refers to the time from listing date to contract date.

Labor Day 2017: Celebrating Hard-Working REALTORS®

Fri, 09/01/2017 - 11:53

Looking at data from the 2017 Member Profile we recognize REALTORS® for their hard work and successes this Labor Day.

  • Sixty-five percent of REALTORS® are licensed as sales agents, 22 percent as brokers, 15 percent as broker associates, and two percent as appraisers.
  • The majority of REALTORS® specialize in residential brokerage at 70 percent, with commercial brokerage making up two percent.
  • The typical member has been in the real estate industry for a median of 10 years, and has been at their present firm for a median of four years.
  • Ninety-five percent of REALTORS® were certain that they will remain active as a real estate professional during the next two years.
  • In 2016 the typical member had a median of 12 transactions, and a median sales volume of $1.9 million.
  • REALTORS® worked a median of 40 hours per week in 2016, with 65 percent working 40 or more hours per week.
  • Only four percent of members cite real estate as their first career, prior full-time careers include:
    • Management/Business/Financial: 17 percent
    • Sales/Retail: 16 percent
    • Office/Admin support: 9 percent
    • Education: Seven percent
    • Healthcare: Five percent
    • Homemaker: Four percent
  • For 74 percent of REALTORS® real estate is their only occupation. This percentage increases with experience. Eighty-four percent of members with 16 years or more of experience cited real estate as their only occupation.

View the Labor Day infographic and find out more about REALTORS® in the 2017 Member Profile.

A Breakdown of NAR Commercial Members’ Income

Fri, 09/01/2017 - 11:18

Half of all members are brokers (47 percent) and a third are sales agents (30 percent). The median gross income for brokers in 2016 was $154,900 compared to sales agents at $81,300. The median annual gross income for all commercial members was $120,800 in 2016, an increase from $108,800 in 2015, but slightly below 2014 when it was $126,900—the highest recorded since 2006.

Eighty percent of all commercial members work more than 40 hours a week and 23 percent work more than 60 hours. Despite the income difference, brokers and sales agents work comparably the same amount of hours per week. More than half of brokers and sales agents work 40 to 59 hours a week (56 and 55 percent respectively) and one-quarter work more than 60 hours a week (25 and 23 percent respectively). For those members that worked 40 to 59 hours per week, the median annual gross income was $126,900; for those that worked 60 hours or more, the median annual gross income was $171,300.

Seventy-two percent of commercial members are compensated by percentage commission split (39 percent) and 100% commission (33 percent). However, 41 percent of brokers are compensated on a 100% commission basis and 54 percent of sales agents are compensated by a percentage commission split basis. Compensation by a percentage commission split basis decreases with experience and 100% commission basis increases with experience.

The median share of annual income that commercial members receive from all types of commercial activity is 75 percent. Sixty-three percent of commercial members derived 50 percent or more of their income from all commercial real estate in 2016. A quarter of women (26 percent) derive one to 25 percent of their income from commercial activities, compared to 16 percent of men. As years of experience increases, so does the median share—the median share for those with less than two years of experience is 14 percent compared to 80 percent for those with 26 or more years of experience.

The median share of annual income that commercial members derive from commercial sales is 71 percent, 61 percent for women and 75 percent for men. The median share of income from leasing activity is 23 percent and seven percent from property management.

Appraisers make up only five percent of NAR members. While this is a small subset of the commercial real estate industry, the median gross annual income for appraisers in 2016 was $115,400. The median share of annual income that appraisers receive from all types of commercial activity is 80 percent. Sixty percent of appraisers work between 40 and 59 hours per week. More than other license types, 41 percent of appraisers receive their income from a straight salary compensation basis. Appraisers derive a median of 13 percent of their income from commercial sales activity and the majority receive no income from leasing or property management.

REALTORS® Reported More Home Tours but Fewer Offers in July 2017

Thu, 08/31/2017 - 11:27

One indicator of the strength of homebuying demand is the number of client home tours. REALTORS® reported that, on average, they took about six clients on a home tour in July 2017, up from four clients one year ago, according to NAR’s July 2017 REALTORS® Confidence Index Survey.

However, even as more clients went on a home tour, REALTORS® wrote on average 2.2 offers per client taken on a home tour, which appears to be slightly lower than the 2.5 written offers per client taken on a home tour in the same period last year. Higher price appreciation that have made homes less affordable may explain why fewer offers were written per client. Home prices have been appreciating in the face of tight supply of homes for sale.

The desire to buy a home remains strong as mortgage rates have fallen to below four percent again since February 2017 and 16.2 million jobs created since October 2010. However, inventory remains woefully low, with inventory of existing and new homes for sale as of the end of July 2017 equivalent to 4.4 months of the monthly pace of sales. Inventory has been tight for the last 12 years (4.5 months’ supply in May 2005).

Tracing the Beaten Path

Wed, 08/30/2017 - 09:25

Foot traffic, the number of times a property is shown to potential homebuyers, is a strong indicator of housing demand and future home sales. Each month NAR Research publishes a diffusion index for foot traffic, but recent efforts have expanded on this work to create other indexes. NAR Research is likely to continue to exploit this rich source of information.

Tracking Home Showings

Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Lockboxes made by SentriLock, LLC. are used in roughly a third of home showings across the nation. This data has been culled for several years to create NAR’s diffusion index of foot traffic.

The diffusion index aggregates the number of markets that have experienced traffic that is stronger, weaker, or unchanged from a year earlier. A reading of “50” indicates that on average markets are unchanged from a year earlier, while a reading greater than that indicates that on average markets experienced stronger traffic than a year earlier. While useful, this measure provides no insights as to the magnitude of any change.

Something New

A new volume index for foot traffic was created by aggregating the total traffic each month from a panel of REALTOR® boards from across the United States. The aggregate volume data is then seasonally adjusted and annualized (SAAR). By seasonally adjusting the volume data, typical fluctuations from winter to summer are accounted for so that one month can be compared to the next. Annualizing the data allows one to compare the trend over a longer period.

Foot traffic based on the volume index rose 4.1 percent in July compared to June. Relative to July of 2016, traffic was up just 1.2 percent, but that was the first year-over-year gain in nearly six months. The steady downward trend in inventory has taken a toll on foot traffic.

As depicted above, a one-period lag of the foot traffic index (SAAR) tracks the trend for existing home sales (SAAR) closely. In fact, a simple regression of foot traffic from the current and prior two periods on existing homes sales shows a high degree of explanatory power with an r-square near 0.9, or nearly 90 percent of the variation in sales accounted for by variation in current and past foot traffic.

Paths Diverge, and Come Back Together

However, the foot traffic measure does not always track existing home sales well. When inventories are high, an individual consumer may view a property multiple times. In a tighter market with quick offers and a short time-on-market, she may only view a property once, while in an extreme case, a homebuyer may not even view the property before making an offer. Thus, shifts in the relationship of supply to demand can cause the trend in these two measures to diverge temporarily. Periods that cause a sudden increase in demand, like a sharp drop in mortgage rates or the homebuyer tax credits of 2009 and 2010, are examples of this phenomenon.

Finally, another factor that could cause a divergence is the makeup of the two indexes. Different panels are used to construct each series and thus they will include different local markets. Likewise, the existing home sales series is much older and the seasonal factors may differ as a result.

NAR Research has used foot traffic to gauge market trends for several years even at the local level. The new foot traffic volume index will add more color and understanding of current market dynamics. It also has potential for use in forecasting and providing insights at the local level. Foot traffic will continue to provide new measures, insights, and analytics in the years ahead.

 

Nearly 20 Percent of Sellers Move Out After Leaseback Period

Tue, 08/29/2017 - 10:34

Selling a home and simultaneously purchasing another property can be agitating. Ideally, the seller of the property will also have found another residence by the time the buyer is moving in, but this may not always happen because of delays in contract settlement.[1] In these cases, a seller may request to enter into a leaseback with the buyer. NAR’s monthly REALTORS® Confidence Index Survey finds about 20 percent of sellers vacated the property after the end of the leaseback period.

A seller leaseback, also called a sale leaseback or rent back, is a transaction in which the seller sells the property and then leases back the property from the new owner.[2] Both seller and buyer may benefit from this transaction if the leaseback clearly delineates the rights and responsibilities of the buyer and seller. Obviously, sellers benefit because they have more time to move out after selling their property and they get the proceeds from the sale which they can then use at closing of their new property purchase. But buyers who do not need to move in right away also benefit because by closing now, they can lock in their mortgage rate, which is beneficial especially when mortgage rates are on the uptrend. Buyers also start getting some returns from the rental payments from the leaseback, assuming the rent covers all costs (principal, interest, mortgage insurance, home insurance, real estate taxes).

Because buyers may also need to move in right away and because the risks of the leaseback are borne by the buyer (e.g.  the property will not be in the same condition at the end of the leaseback as at the time of closing), buyers who are most likely to agree to a leaseback are those don’t have to move in immediately or who may have purchased the property for investment or vacation use. According to the REALTORS® Confidence Index Survey, about 13 percent of homebuyers are non-primary residence buyers.

The leaseback transaction will generally consider the following aspects so that the buyer’s interests are protected during the leaseback period:[3]

1)     Drawing up the legal agreement that clearly stipulates the date the seller will vacate the property and the rights and responsibilities of the buyer and seller. Common stipulations pertain to property maintenance (usually seller’s responsibility), the right of the buyer to enter the property and make repairs, subletting (usually, seller may not sublet), uses of the property (not for illegal purposes, etc.), property insurance (seller insures his own property), payment of utilities (seller pays until move out), and payment of late charges in the event of late payment. The form of the agreement can be a purchase agreement addendum or a rental agreement, depending on the duration of the leaseback. For example, in California, leasebacks of less than 30 days only require a purchase agreement addendum while leasebacks of more than 30 days require a residential lease. To note, a purchase addendum will likely be the preferred form because a rental agreement creates rights for landlords and tenants that may complicate the process for the buyer in case the seller (tenant) fails to fulfill his responsibilities. For example, in California, a tenant can only be evicted if the landlord files a lawsuit.[4]

2)     Requiring the seller to pay a security deposit to be held in escrow until the buyer approves refunding back the deposit to the seller at the end of the escrow period.

3)     Stipulating a lease amount that covers the buyer’s total expenses, such as mortgage payment, taxes, insurance, utilities (or the utilities remain in the seller’s name until he moves out).

4)     Stipulating late charges in the event of late payment by the seller.

5)     Conducting a walk-through before closing and a final walk-through at the end of the leaseback period to verify the property condition before and after the leaseback period.

What this Means to REALTORS®: A leaseback may be necessary when the seller needs more time to move out. In a leaseback, the buyer bears the risk that the property will not be in the same condition at the end of the leaseback as it was at the time of closing/settlement. REALTORS® need to work closely with their buyer clients in crafting an agreement that minimizes this risk and protects their ownership rights.

[1] According to NAR’s monthly REALTORS® Confidence Index Survey, 25 percent of contracts that closed or terminated during April through July 2017 were delayed for a variety of reasons relating to obtaining financing, appraisal, inspection, and other issues

[2] Roxanne Minot, “What is a Seller Leaseback?”, Legal Match, https://www.legalmatch.com/law-library/article/what-is-a-seller-leaseback.html. Downloaded April 8, 2017.

 

[3] Realtor.com Team, “Can We Lease Back the Property at Closing?”, Realtor.com, http://www.realtor.com/advice/sell/can-we-lease-back-a-property-at-the-closing/, date of publication on Dec 30, 2011.

[4] “How to Evict a Tenant in California”, upcounsel, https://www.upcounsel.com/how-to-evict-a-tenant-in-california

 

Instant Reaction: June Owners’ Gains Forecast

Tue, 08/29/2017 - 08:49

The S&P CoreLogic Case-Shiller National Index shows that U.S. prices of single-family homes continue to rise. The national index level in June reached a new high and is up 5.8 percent from a year earlier.  But what does this mean for homeowners?

Home prices affect the wealth of homeowners. As the price of housing increases, the wealth of homeowners increases as well. Based on the above increase of home prices, it is estimated that value of owners’ household real estate was increased by 1.3 trillion in the last year and 107 billion came from home price increases in June. That means that 75 million homeowners each gained $17,070 on average in June 2017 from a year earlier.

Fed’s Change Means Higher, More Volatile Rates

Mon, 08/28/2017 - 14:59

Major changes are coming to housing finance. The Federal Reserve is about to unwind a program that has held mortgage rates low for several years. How will this change impact housing? Lenders weighed-in in NAR’s most recent Survey of Mortgage Originators.

Operation Twist

In the wake of the great recession, the housing market hit historic lows with prices falling roughly 30 percent and home sales falling by more than half. To stimulate the economy, the Fed launched a new policy tool to buy government and private assets dubbed the large asset purchase program (LSAPs). In particular, the Fed began buying long-term Treasuries and agency (Fannie Mae, Freddie Mac, and Ginnie Mae) mortgage backs securities. The Fed’s final round of LSAPs, called “operation twist” was solely focused on buying long-term assets.

The rate on a mortgage is inversely related to its price, so the idea behind the program was for the Fed to buy and hold long-term mortgage debt, thereby driving up MBS prices and down mortgage rates. The plan worked and analysts estimate that mortgage rates fell 30 to 65 basis points as a result. By the end of the program, the Fed held roughly $4.5 trillion in Treasuries and agency MBS.

In late 2013, the then Fed Chairman Ben Bernanke ended the program, but the Fed held onto its massive stockpiles.  To prevent a jump in rates, the Fed bought new MBS and Treasuries with monies it received when loans in its stockpile of MBS were refinanced or repaid. In this way, the Fed was still an avid player in the market, even though it was just maintaining its $4.5 trillion in holdings.

At its peak, the Fed was buying roughly 77 percent of all agency MBS. Even after the Fed’s buying program ended, maintaining its massive holdings required it to buy up nearly a fifth of the market. While mortgage rates remain historically low, they have risen nearly 50 basis points from the lows of 2016. As a result, there are fewer persons for whom refinancing makes sense. The decline in refinancing means that the Fed has fewer dollars to reinvest each month and its role in the market has shrunk. At the same time, private demand for Treasuries and agency MBS has increased. Any further increase in private demand for these assets would help to moderate rate increases.

If It Isn’t Broken…

Why would the Fed end the program that is keeping mortgage rates low? In order to give itself room to respond to the next crisis.

The Fed’s purview is the entire banking system and all of the many industries it supports. In the next crisis, it may need to extend additional support. If the Fed has to repurchase $30 to $50 billion dollars of Treasuries and agency MBS each month, then it may be hamstrung and unable to provide that support. Furthermore, the Fed must be careful not to overstimulate a particular sector, thereby fomenting the next crisis. Allowing market forces to buy and sell these assets based on perceived risks and returns may curb any excess risk taking.

How Much Will Affordability Bite?

Academic research suggests that rates improved 30 to 65 basis points because of the Fed’s purchase program. If the Fed’s exit from the market were symmetric, one might expect an equal increase in rates. However, the Fed has indicated that it favors to end its reinvestment program and then to allow its stockpile of Treasuries and agency MBS to slowly decline over time as current homeowners refinance, pay off their mortgage, or sell their homes.

According to Freddie Mac, the current average rate for a 30-year fixed rate mortgage is 3.89 percent. Thus, rates might rise to between 4.19 percent and 4.49 percent…roughly the range they were at the begging of 2017. On a $200,000 mortgage that would cost an extra $35 to $42 each month. Affordability would fall, but sales did not moderate when rates reached this level in early 2017. Mortgage rates are expected to rise further, though, as economic growth solidifies and they could rise sharply if the President’s proposed tax cuts, infrastructure spending, and regulatory relief programs take hold.

What are Lenders Saying?

Lenders were asked about the end of the Fed’s reinvestment program and the potential impact on housing in NAR’s most recent Survey of Mortgage Originators. 28.6 percent of lenders felt that the change would cause rates to rise. An additional 42.9 percent indicated that rates would rise and become more volatile.  Only 7.1 percent thought that the change would not have an impact on rates.

When asked about an end to the Fed’s reinvestment program, 40 percent of respondents thought the impact from the end of the FED’s reinvestment program would be felt in advance of implementation. However, 30 percent felt that the full impact would take 6 to 12 months to be absorbed and another 20 percent thought it would take up to two years. A 50 basis point increase to rates was the most frequently cited impact.

The Fed is about to end a program that has helped to keep mortgage rates low for several years. Mortgage rates are likely to rise as a result, but roughly in line with levels that the market has seen in recent months. However, mortgage rates are likely to rise further in the coming years weighing on affordability and with the Fed’s pullback, rates will become more volatile as market forces play a stronger role.

July 2017 Existing Home Sales

Fri, 08/25/2017 - 11:26
  • NAR released a summary of existing-home sales data showing that housing market activity this July fell 1.3 percent from last month but improved 2.1 percent from last year. July’s existing home sales reached 5.44 million seasonally adjusted annual rate.
  • The national median existing-home price for all housing types was $258,300 in June, up 6.2 percent from a year ago. This marks the 65th consecutive month of year over year’s gains as prices reach an all time high.
  • Regionally, all four regions showed growth in prices from a year ago, with the West leading all regions with an incline of 7.6 percent. The South had a gain of 6.7 percent followed by the Midwest with a gain of 5.9 percent. The Northeast had the smallest gain of 4.1 percent from July 2016.

 

  • From June, two of the four regions experienced gains in sales. The West inclined 5.0 percent. The South rose 2.2 percent. The Northeast had the biggest drop of 14.5 percent. The Midwest had the smallest decline of 5.3 percent.
  • Two of the four regions showed an increase in sales from a year ago. The West had a gain of 5.0 percent. The South had an incline of 3.6 percent. The Midwest had a drop in sales of 1.6 percent followed by the Northeast with a decline of 1.5 percent. The South led all regions in percentage of national sales, accounting for 41.9 percent of total, while the Northeast had the smallest share at 11.9 percent.

 

  • July’s inventory figures are down 1.0 percent from last month to 1.92 million homes for sale. Inventories are down 9.0 percent from a year ago, marking 26 months of year over year declines. It will take 4.2 months to move the current level of inventory at the current sales pace. Transactions are moving faster and it takes approximately 30 days for a home to go from listing to a contract in the current housing market, down from 36 days a year ago.

 

  • In July, single-family sales decreased 0.8 percent and condominiums sales were down 4.8 percent compared to last month. Single-family home sales inclined 1.7 percent and condominium sales were up 5.3 percent compared to a year ago. Both single-family and condominiums had an increase in price with single-family up 6.3 percent at $260,600 and condominiums up 5.3 percent at $239,800 from July 2016.

 

 

 

 

 

 

 

Lenders Optimistic on DTI Change

Thu, 08/24/2017 - 09:19

Fannie Mae recently raised the cap on its maximum debt-to-income (DTI) ratio to 50 percent. Will it help?  NAR Research queried lenders about this change in the Survey of Mortgage Originators for the 2nd quarter of 2017. Lenders were optimistic about the change, but some will maintain overlays to mitigate potential risks.

In July, Fannie Mae began buying and insuring loans with DTIs up to 50 percent. This change was an increase from the DTI cap of 45 percent maintained by Fannie Mae in recent years. Some analysts pointed to this change as a potential expansion of the credit box which would result in more home sales in the face of rising home prices and student debt. Others have panned it as simply taking loans from the Federal Housing Administration (FHA) or other channels.

57.1 percent of lenders in the survey indicated that the change would result in a modest increase in total originations as more borrowers take advantage of the change. Only 21.4 percent felt that this market segment was already served by the FHA, while 7.1 percent felt that the risk was too great to originate.

When asked whether they or the investor/aggregator with whom they work would impose an overlay or charge on loans these new loans with DTI>45 percent, only 14.3 percent indicated that they would impose an overlay with an average fee of 0.5 percent.  However, 75.1 percent of respondents were still uncertain suggesting that the share with overlays could rise.

In the wake of the great recessions, lenders pulled back from the risky products, underwriting, and lending practices that helped to foment the market’s downturn. More recently, this pattern has reversed with lenders taking on incremental risks, first with declines in down payments, declines in credit scores, and now modestly higher DTIs. This change may only have a marginal impact on overall lending, but it points to continued recovery in one of the last vestiges of the great recession: tight lending.

 

More Foreign Buyers Purchased in Cities/Suburbs Than in Resort Areas

Fri, 08/18/2017 - 11:18

An increasing share of foreign buyers[1] are purchasing property in a central city/suburban area, while fewer foreign buyers are purchasing property in a resort area, according to NAR’s recently released 2017 Profile of International Activity in U.S. Residential Real Estate. The percentage of foreign buyers purchasing property in a resort area has declined, while only six percent of resident foreign buyers purchased in a resort area. Among non-resident foreign buyers, only 13 percent purchased in a resort area compared to one percent among resident foreign buyers.

 The declining percentage of foreign buyer purchases in resort areas can be traced to the decline in the share of Canadian and U.K. buyers who tend to purchase property for vacation use and/or to rent out.

Meanwhile, most Chinese, Indian, and Mexican foreign buyers, who are typically resident foreign buyers, tend to purchase property in a central city/urban or suburban area.

Among all major foreign buyers, Mexican and Canadian buyers were the most likely to purchase property in a rural area.

[1] The term international or foreign client refers to two types of clients: Non-resident foreigners (Type A) who are non-U.S. citizens with permanent residences outside the United States, and who typically purchase property as an investment, for vacations, or other visits of less than six months to the United States; Resident foreigners (Type B) who are non-U.S. citizens who are recent immigrants (in the country less than two years at the time of the transaction) or temporary visa holders residing for more than six months in the United States for professional, educational, or other reasons.

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