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Reach of New Risky Loans Still Modest

Thu, 06/15/2017 - 11:17

Despite reports of a rise in non-QM lending, participants in NAR’s 1st quarter Survey of Mortgage Originators indicated that the non-QM share of the market was anemic. While the non-QM market shrank the share of loans that fall under the “rebuttable presumption” rose modestly. As originators retool in the wake of a declining refinance market, analysts will monitor the market for signs of increased risk taking.

The Dodd-Frank regulations created the Ability to Repay (ATR) rule in which a lender must prove or verify a borrower’s ability to repay their mortgage. Lenders argued that doing so might prove difficult and costly in court, so lenders were granted two levels of legal protection or assumed compliance with the ATR. The first known as the Qualified Mortgage (QM) rule provides the highest level of protection to lenders. Among other things, the QM rule requires originators to verify incomes, limits the fees that a lender can charge, sets a maximum back-end debt-to-income ratio of 43 percent, and prohibits certain loans products like interest-only loans, negative amortization loans, or amortizations longer than 30 years.

A second category of loans, dubbed “rebuttable presumption”, is less safe for lenders. A rebuttable presumption mortgage is the same as the standard QM, but allows for the rate charged by lenders to be as much as 150 basis points above the average prime offer rate (APOR). When a loan has a risk factor like a low down payment or low credit score, the lender will increase the rate to compensate for that risk. By capping how much they can add to the rate, regulators hoped to reduce how much risk lenders would take-on.

In the 1st quarter of 2017, the share of non-QM lending fell to 0.1 percent from 1.0 percent in the 4th quarter. Nearly 56 percent of respondents in the survey offered non-QM loans, but as depicted below by a net decline of 10.6 percent lenders grew less willing to extend these loans in the 1st quarter, wiping out the gains from the 4th quarter. Willingness to extend rebuttable presumption credit also moderated in the 1st quarter, but the share of originations that were rebuttable presumption rose to 8.4 percent.

The bulk of risky loans originated from 2001 to 2006, were sold to investors through private label mortgage backed securities. While non-banks in this survey originate more of the total market for non-QM loans, on an individual lender basis portfolio lenders have a higher weighted average share at 0.7 percent compared to 0.1 percent for non-bank lenders. The CFPB has argued that lenders who hold risky loans in portfolio are directly incented to maintain strong underwriting, to use compensating factors to reduce risk, and to maintain robust capital levels…all factors that declined during the run-up to the last crisis.

While the share of risky loans rose modestly in the 4th quarter of last year, that trend appears to have retrenched in the 1st quarter of 2017. However, as refinance-oriented lenders retool their operations towards the purchase market due to rising rates they may be enticed by profits in riskier loans. Consequently, this trend should be monitored and evaluated alongside potential changes to the QM rule as the market shifts closer to its historic “norm” of modestly higher default rates and looser lending standards.

Smaller Banks Are Main Lending Providers in REALTORS®’ Commercial Markets

Wed, 06/14/2017 - 15:33

Commercial real estate investment trends mirrored the global economic slowdown and broader uncertainty in 2016.  Sales of global large capitalization (cap) transactions—over $2.5M—declined 15 percent year-over-year, with volume totaling $826 billion, based on data from Real Capital Analytics (RCA).  Investors took a pause from the strong pace of investments recorded in 2015, ascertaining the impact of economic and geopolitical changes upon markets. Commercial investments in the U.S. echoed the global trends, with sales volume in large cap markets closing the year at $489 billion, an 11 percent decline on a yearly basis.

In comparison to the high-end deals, 83 percent of REALTORS® who specialize in commercial investments reported transactions below the $2.0 million threshold in 2016.  Although many REALTORS® participate in transactions above $2.0 million per deal, they serve a segment of the commercial real estate market for which data are generally not as widely reported—small cap investments.

The investment environment for commercial markets remained well-diversified, totaling $6.6 trillion in 2016. Debt investments accounted for 57 percent of total, with equity comprising the rest.

Based on RCA data, the financing landscape in large cap markets remained diverse during 2016. Government agencies (Fannie Mae and Freddie Mac) captured 22 percent of total lending during the year, a larger share than in 2015, positioning them as the most active lender. The change was not surprising considering that apartment properties accounted for the largest sales volume across all property types.

Regional and local banks comprised 20 percent of total lending during the year, an increase from the prior year. CMBS originators accounted for 13 percent of lending at the high end of the market, a marked shift considering that they were the dominant player in commercial financing for several years. Life insurance companies were the fourth most active lenders for commercial transactions, accounting for 12 percent of transactions during 2016, according to RCA. They were followed by financial companies, which captured eight percent of lending deals. Private lenders were a smaller part of the funding sources, comprising only two percent of financing transactions.

Small Cap Capital

Based on NAR’s 2017 survey data, capital markets displayed a fundamentally different landscape. Local and community banks were the largest lending source in REALTORS®’ commercial markets during 2016, accounting for 32 percent of transactions.  Local and community banks maintained their market share over the past several years. The second largest capital source in 2016 were regional banks, which captured 26 percent of REALTORS®’ commercial deals, on par with the previous year.

Private investors were the third main capital providers, accounting for 10 percent of deals during 2016.  National banks came in fourth place, with eight percent market share, the same level as a year ago.  The Small Business Administration and credit unions shared an equal proportion, with six percent of the market each.  Life insurance companies were much less active in REALTOR® markets, representing three percent of deals. REITs and CMBS conduits accounted for only two and one percent of funding, respectively. Government agencies were responsible for one percent of lending in REALTOR® markets. Public companies and international banks made up less than 1.5 percent of all sales.

The lending survey highlights the marked differences between the large cap versus the small cap commercial markets.  Debt financing represents a much-larger portion of capital in small cap markets, whereas large cap deals benefit from significant equity contributions.

For more information and the full report, access NAR’s Commercial Real Estate Lending Trends 2017.

REALTORS® Expect “Strong” Market Conditions in the Next Six Months

Tue, 06/13/2017 - 16:01

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® 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?

With spring and summer rolling in, REALTORS® expect the conditions in the single-family homes market outlook in the next six months to be “strong” to “very strong” in all states and “moderate” in the District of Columbia, based on the April 2017 REALTORS® Confidence Index Survey Report. [1]

In the townhomes market, the outlook is “moderate” to “very strong” except in Oklahoma and West Virginia where the outlooks are “weak.”

The outlook in the condominiums market is more mixed, with a “very weak” outlook in West Virginia, a “weak” outlook in eight states and the District of Columbia, and a “moderate” to “very strong” outlook in the other states.[2]

 With spring and summer rolling in, the REALTORS® Confidence IndexSix-Month Outlook for single-family homes, townhomes, and condominiums each registered above 50, indicating that more REALTOR® respondents expected market conditions to be “strong” than “weak” over the next six months compared to current conditions.[3]

The index for condominiums was at 59 in April 2017 (61 in March 2017; 53 in April 2016). The approval of H.R. 3700, the “Housing Opportunity Through Modernization Act of 2016,” appears to be bolstering homebuying in the condominium market.[4] Among other measures, the law eases access to FHA condominium financing by reducing the FHA condominium owner occupancy ratio from 50 to 35 percent, directing the FHA to streamline the condominium re-certification process, and providing more flexibility for mixed-use buildings.

[1] To increase the number of observations for each state, the index is based on data for the last three months. 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).” NAR compiles the responses 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 45 are labeled “Weak,” values greater than 45 to 55 are labeled “Moderate,” values greater than 55 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very Strong.” The range of +/-5 around 50 approximates the historical margins of error at the 95 percent confidence level for small states.

[2] See for example this review: http://economistsoutlook.blogs.realtor.org/2016/10/05/do-elections-affect-the-housing-market-in-washington-dc/

[3] The survey asks, “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?” NAR compiles the responses into a diffusion 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.

[4]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

County Median Home Price: First Quarter 2017

Tue, 06/13/2017 - 13:05

A couple of weeks after the release of the Housing Price Index for the first quarter of 2017, we updated the median home price per county[1]. Applying the price change in the related metropolitan areas to every county, it seems that, compared to a year earlier, home prices continue to rise in 98 percent of counties. Counties in the following metro areas experienced price gains higher than 12 percent:

Sebring, FL

Bremerton-Silverdale, WA

Grants Pass, OR

Palm Bay-Melbourne-Titusville, FL

Longview, WA

Homosassa Springs, FL

Sebastian-Vero Beach, FL

Punta Gorda, FL

Seattle-Bellevue-Everett, WA

Meanwhile mortgage rates fall back. After a four-month spike following the elections, mortgage rates have started to move the other direction. Based on Freddie Mac, the average rate for a 30-year fixed mortgage was 4.2 percent in March while it decreased to 4.05 percent in April and it dropped further to 4.01 percent in May. Mortgage rates are still historically low, but crossing over from the 3 percent range to 4 percent range might concern some potential homebuyers.

We calculated the monthly payment by county based on the mortgage rate in October (3.5 percent), the rate as of March (4.2 percent) and a higher rate likely to be seen within the next two years (5.0 percent).

Nationwide, it is estimated that the rise of mortgage rates from 3.5 to 4.2 percent increased the monthly payment by $76 to the amount of $928 while a rise from 4.2 to 5.0 percent will increase the monthly payments by $91[2] (to $1,019 per month).

But the effect depends on the location. At the high end, San Francisco homebuyers have seen a nearly $384 increase in monthly payments so far, and if rates were even higher now, financing the same-priced home would cost an extra $459 per month.  At the low end, in Cochran County, TX, home buyers are paying an extra $13 per month on account of the mortgage rate rise since November, and they could see an extra $16 per month as rates rise to 5 percent. At this end of the spectrum, the change in monthly payments seems much more manageable.

However, these examples only use the current price of homes to see the difference.  In the years ahead, NAR expects that the 30 year fixed-rate will increase to 4.3 percent in 2017 and 5.0 percent in 2018 while home prices are expected to rise 5.0 and 3.5 percent, accordingly. Rising prices in addition to rising mortgage rates will push the monthly cost of housing up even higher for new homebuyers. Existing homeowners who took out fixed rate mortgages will have the same monthly principal and interest payment.

Select a County from the dropdown and see how much monthly payments change over the different mortgage rates:

Lastly, please take look at which counties will be affect mostly from the increase of mortgages rates:

 

Data by State: click here

Data by Price: click here 

Methodology: click here 

 

 

 

 

 

 

 

 

[1] There is data available for 3,119 counties.  For counties in Metropolitan Statistical Areas (MSAs), the growth rate is assumed to be the same as the MSA.  For counties outside of MSAs, a non-MSA growth rate for each state is applied.

[2] The U.S. median home value matches the county prices calculations. For comparisons purposes, the calculated median home value reflects all homes while NAR’s U.S. median price represents home sales. Thus, the calculated price ($210,817) is expected to be lower than NAR’s home value ($230,700 in Q1 2017). Please see Methodology for more details.  Also note that the impact of rate changes by in each MSA is estimated on current quarter prices.

Apartment Supply Outpaces Demand in Q1.2017

Tue, 06/13/2017 - 11:38

Economic activity slowed in the first quarter of 2017, despite a milder-than-usual winter. Based on the second estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis (BEA), the United States economy rose at an annual rate of 1.2 percent.

Payroll employment advanced in the first quarter of 2017, with a net gain of 527,000 new jobs, according to the Bureau of Labor Statistics (BLS). Private service-providing industries continued as the growth engine during the quarter, with 341,000 net new jobs.

The unemployment rate remained flat at 4.7 percent compared with the last quarter of 2016, based on data from the BLS. However, on a monthly basis, the unemployment rate declined with each successive month from 4.8 percent in January 2017 to 4.5 percent in March.

In the wake of employment gains, consumer confidence strengthened. The Conference Board’s Consumer Confidence index advanced 22.4 percent year-over-year, to 117.5, the highest value since the fourth quarter of 2000. The value for April 2017 was 120.3, indicating growing optimism about the 2017 outlook.

The improvements in the employment landscape have been leading to rising household formation, and solid demand for multifamily properties. Net absorption of multifamily units totaled 30,500 in the first quarter of 2017, according to CBRE. In tandem with rising demand, development of multifamily properties also advanced, with 44,600 units delivered to market during the quarter. The national vacancy rate averaged 4.9 percent, flat compared with the prior quarter, but 20 basis points higher from the same period in 2016. With increasing supply and rising vacancies, rent growth was unchanged, posting an annualized 4.1 percent growth rate.

Commercial fundamentals in small cap commercial markets remained positive during the first quarter of 2017, but the pace of growth moderated. Leasing volume advanced 2.3 percent from the prior quarter. New construction rose by 2.3 percent from the prior quarter, the slowest pace since the first quarter of 2015. Leasing rates rose by 3.8 percent, as concessions declined 11.1 percent.

To access the Commercial Real Estate Outlook: 2017.Q2 report visit https://www.nar.realtor/reports/commercial-real-estate-outlook.

April 2017 Housing Affordability Index

Mon, 06/12/2017 - 16:09

At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.11 percent this April, up compared to 3.89 percent a year ago.

  • Housing affordability declined from a year ago in April moving the index down 6.0 percent from 166.1 to 156.2. The median sales price for a single family home sold in April in the US was $246,100 up 6.1 percent from a year ago.
  • Nationally, mortgage rates were up 22 basis point from one year ago (one percentage point equals 100 basis points) while incomes rose 2.4 percent.
  • Regionally, the Midwest had the biggest increase in price at 7.8 percent. The South had an increase of 7.7 percent while the West had a 6.9 percent gain in price. The Northeast had the smallest incline in price of 1.1 percent.
  • Regionally, all four regions saw a decline in affordability from a year ago. The Midwest had the biggest decline of 7.9 percent. The South followed with a decline of 7.5 percent. The West had a decline of 7.3 while the Northeast had the smallest decline of 2.1 percent.
  • By region, affordability is down from last month except in the Northeast where there was a modest increase of 0.6 percent. The Midwest had the biggest decline of 4.0 percent followed by the South who had a decline of 1.2 percent. The West had the smallest decline in affordability of 0.9 percent.
  • Despite month-to-month changes, the most affordable region is the Midwest where the index is 193.7.  The least affordable region remains the West where the index is 111.8.  For comparison, the index is 155.9 in the South, and 162.9 in the Northeast.
  • Mortgage applications are currently up this week. Even though rates are higher from a year ago, they are still lower than they have been all year.
  • 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 (April 2017)

Mon, 06/12/2017 - 11:23
  • Existing-home sales dropped 2.3 percent in April from one month prior while new home sales decreased 11.4 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, 449,000 existing-homes were sold in April while new home sales totaled 54,000.  These raw counts represent a 1 percent decrease for existing-home sales from one month prior while new home sales decreased 11 percent.  What was the trend in recent years?  Sales from March to April increased by 14 percent on average in the prior three years for existing-homes and rose by 5 percent for new homes.  So this year, both existing and new home sales underperformed compared to their recent normal.
  • 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 busier activity in May and even better in June. For example, in the past 3 years, May sales rose by 10 to 12 percent from April while June sales rose by 7 to 16 percent from May. For the new home sales market, the raw sales activity in May is hard to predict while activity will diminish in June.  For example, in the past 3 years, sales in May dropped by 2 to 4 percent in 2015 and 2016 while they increased 10 percent in 2014. However, in the past three years, June sales dropped by 6 to 12 percent from May.

Lenders Give Dodd-Frank a Second Look

Fri, 06/09/2017 - 14:32

The Dodd-Frank regulations were intended to correct many of the problems witnessed during the build-up to the subprime financial crisis. In recent quarters, market participants and politicians have debated both tweaks to and wholesale replacement of the Dodd-Frank laws. Lenders who participated in the 1st quarter Survey of Mortgage Originators shared their opinions on what changes should be made to the leadership structure of the CFPB as well as changes to the Qualified Mortgage (QM) rule.

The Dodd-Frank regulations touch housing in several ways. Dodd-Frank created the Ability to Repay (ATR) rule, which redefined which loans can be made and exemptions to it like the qualified mortgage rule (QM). It established a set of rules to govern how mortgages could be bundled and sold as mortgage backed securities (MBS) and it established an agency, the Consumer Financial Protection Bureau (CFPB), to protect consumers and to monitor financial companies. The CFPB has since promulgated other rules that affect housing like the “Know Before You Owe,” or TRID rule, which merged the Truth and Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rules that governed the origination process, disclosures to consumers, and compensation rules for lenders.

The clear majority of lenders in this survey favored changing the CFPB’s leadership structure from a single director to a five-member panel.  Only 11.8 percent of respondents wanted the CFPB eliminated indicating a recognition of the importance of protecting consumer interests. A far smaller share, at 5.9 percent, favored maintaining the status quo. One concern is that a single director could change with each administration whereas a 5-member panel would turnover in staggered terms, creating more stability and certainty for regulated entities. NAR’s board of directors recently voted in favor of such a plan.

When asked about changes to the QM rule that might be most beneficial, the top two choices by respondents were increasing the cap for rebuttable presumption loans from 150 basis points over the average prime offer rate (APOR) to 250 basis points and creating a consistent 43 percent back-end ratio across the industry. Currently, loans that are guaranteed by the FHA or the GSEs can have a back-end debt-to-income ratio greater than 43 percent and retain the QM standard. The QM status makes these loans more valuable to investors and as a result, they have better terms and lower rates. A higher cap on the rate over APOR would allow lenders to charge more for certain loans either for profit or to set aside capital for credit losses or potential litigation. This could help to expand credit, but it could also introduce more risk into the system.

Other noteworthy responses included a higher cap on points and fees that lenders can charge along with changing the small lender rule. Under the ATR, lenders’ fees are limited to no more than 3 percent of the loan, but some loans require more work like the FHA’s 203(k) rehab loans. In addition, many respondents feel that affiliate fees and points should not count towards 3 percent cap on loan fees, because it disadvantages firms with affiliates and reduces consumer choice. Finally, the small creditor portfolio (SCP) rule currently provides for an exemption to the ATR rule if a lender has less than $2 billion in assets, originates less than 2,000 mortgages annually, and holds the loans originated in portfolio for no less than 3 years. These loans are still limited to be fully underwritten, have product restrictions, but there is no cap on rate over APOR or back-end DTI. Since these loans are held in portfolio, a lender who originates a risky loan is incented to underwrite it well and to set aside adequate loss-absorbing capital. Lenders are in favor of expanding the small lender definition.

The Dodd-Frank regulations have a wide-sweeping impact on housing finance. Many of the regulations have benefited consumers, but a few may need refining. Lenders and NAR leadership agree that a change in leadership structure at the CFPB is in order, but lenders in the most recent Survey of Mortgage Originators argue that tweaks to other regulations are also needed. These tweaks could expand access, but that benefit should be balanced with potential risks to the market. However, the fundamental rights and protections of the consumer are clearly supported by lenders and REALTORS® alike.

Soft Consumer Spending Leads to Flat Retail Demand in Q1.2017

Thu, 06/08/2017 - 11:13

In the wake of a moderate 2016, the rate of economic growth remained tepid during the first quarter of 2017, with a 1.2 percent annual increase, based on the second estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis (BEA). While the second estimate was an improvement over the initial 0.7 percent, it was far below the average 3.4 percent typical of first-quarter GDP growth over the 1950-16 period.

The first quarter moderation in economic activity came mostly from a pullback in consumer spending, and to a smaller extent, a decline in government expenditures. Consumer spending—the main component of GDP—remained positive, though with a scant 0.6 percent annual gain during the quarter. With the winter months milder than expected, consumers cut back on auto purchases to the tune of 13.9 percent, bought fewer clothes and shoes, as well as less gasoline, oil and energy goods. The silver lining during the quarter were higher purchases of furniture and household appliances, which rose 2.9 percent, recreational goods and vehicles (up 13.2%), and grocery store items (up 3.1%).

Disposable personal income—adjusted for inflation—increased 1.0 percent in the first quarter, according to the BEA. The personal saving rate was 5.7 percent in the first quarter, higher from the previous quarter’s 5.5 percent.

Payroll employment advanced in the first quarter of 2017, with a net gain of 527,000 new jobs, according to the Bureau of Labor Statistics (BLS). Private service-providing industries continued as the growth engine during the quarter, with 341,000 net new jobs. As a direct response to the hundreds of department store closures announced during the first quarter by retail companies, such as Macy’s, Kohl’s, JC Penney and Sears, retail trade employment declined by 20,800 jobs.

With weak consumer spending in the first quarter, demand for retail spaces was unchanged. Retail net absorption totaled 14.5 million square feet during the quarter, according to CBRE. Retail construction activity picked up speed, with completions advancing 12.4 percent year-over-year, totaling 10.5 million square feet. Availability declined 30 basis points on a yearly basis, reaching 7.0 percent. Retail rents continued accelerating—in the wake of 13 consecutive quarters of growth—and averaged $16.97 per square foot, a 6.0 percent increase from the first quarter of 2016.

Commercial fundamentals in small cap commercial markets remained positive during the first quarter of 2017, but the pace of growth moderated. Leasing volume advanced 2.3 percent from the prior quarter. New construction increased by 2.3 percent from the prior quarter, the slowest pace since the first quarter of 2015. Leasing rates rose by 3.8 percent, as concessions declined 11.1 percent.

Vacancy rates continued declining in the first quarter of this year. Lease terms remained steady, with 36-month and 60-month leases capturing 61.0 percent of the market. One-year and two-year leases made up 23.0 percent of total.

To access the Commercial Real Estate Outlook: 2017.Q2 report visit https://www.nar.realtor/reports/commercial-real-estate-outlook.

 

REALTORS®’ in West States Expect Fastest Price Growth in the Next 12 Months

Wed, 06/07/2017 - 15:30

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

Among REALTORS® who responded to the April 2017 survey, the median expected home price change in the next 12 months was 4.2 percent (4.0 percent in March 2017; 3.8 percent in April 2016). [1] Lack of supply amid strong demand has continued to push up home prices, based on the April 2017 REALTORS® Confidence Index Survey Report. [2]

The map below shows the median expected price change of the respondents in the next 12 months at the state level.[3] In 10 West states, led by Washington, Utah, and Colorado, the median expected price growth is in the range of five to seven percent. The oil-producing states have the lowest median expected price change in the next 12 months at two to three percent.

Looking at the values over time in selected states, the median expected price change appears to be increasing again, indicating that respondents expect demand to remain strong, even as home prices continue to rise.[4] In 39 states, the expected price change in the next 12 months is higher than the expected price change one year ago.

[1] The median expected price change is a measure that represents the middle value of the distribution of responses.

[2] To increase the number of observations for each state, the index is based on data for the last three months. 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).” NAR compiles the responses 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 45 are labeled “Weak,” values greater than 45 to 55 are labeled “Moderate,” values greater than 55 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very Strong.” The range of +/-5 around 50 approximates the historical margins of error at the 95 percent confidence level for small states.

[3] To increase the number of observations for each state, NAR uses data from the last three surveys.

[4] The selected states shown in these charts are those with approximately 150 observations.

Industrial Demand Slows in Wake of Soft Consumer Spending

Wed, 06/07/2017 - 11:07

In the wake of a soft 2016, the economic growth remained weak during the first quarter of 2017. Based on the second estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis (BEA), the United States economy rose at an annual rate of 1.2 percent. While the second estimate was an improvement over the initial 0.7 percent, it was far below the average 3.4 percent typical of first-quarter GDP growth over the 1950-16 period.

The first quarter moderation in economic activity came mostly from a pullback in consumer spending, and to a smaller extent, a decline in government expenditures. Consumer spending—the main component of GDP—was positive, with a scant 0.6 percent annual gain during the quarter. With the winter months milder than expected, consumers cut back on auto purchases to the tune of 13.9 percent, bought fewer clothes and shoes, as well as less gasoline, oil and energy goods. The silver lining during the quarter were higher purchases of furniture and household appliances, which rose 2.9 percent, recreational goods and vehicles (up 13.2%), and grocery store items (up 3.1%). Spending on services rose 0.8 percent on an annual basis, with recreation, transportation and financial services leading the modest gains.

On-line purchases continued on an upward trend in the first quarter of 2017, driving demand for distribution centers. Retail e-commerce sales totaled $105.7 billion in the first quarter of the year, a 14.7 percent gain compared with the same quarter of the prior year, according to the Census Bureau. E-commerce sales represented 8.5 percent of total retail sales.

The first quarter employment numbers advanced, adding 527,000 net new jobs. The wholesale trade sector added 18,300 new jobs during the quarter. The transportation and warehousing sector started the year at a slower pace, adding 1,300 new positions on payrolls.

Industrial properties experienced a slowdown in demand and increased supply during the first quarter of this year. Industrial net absorption totaled 33.1 million square feet, the 28th quarter of positive demand, according to CBRE. However, absorption was 48 percent lower on a yearly basis. Industrial developers have been busy building new product over the past few years. In the first quarter, completions outpaced demand, as 44.9 million square feet of space came to market, a 13.5 percent increase from the prior year. Industrial vacancy posted a 10 basis point uptick, to 8.0 percent. Industrial asking rents advanced 7.4 percent on a yearly basis, the highest gain since 2007, to an average of $6.71 per square foot.

Commercial fundamentals in SCRE markets remained positive during the first quarter of 2017, but the pace of growth moderated. Leasing volume advanced 2.3 percent from the prior quarter. New construction increased by 2.3 percent from the prior quarter, the slowest pace since the first quarter of 2015. Leasing rates rose by 3.8 percent, as concessions declined 11.1 percent.

Tenant demand remained strongest in the “5,000 square feet and below” segment, accounting for 84 percent of leased properties. Demand for space in the “Under 2,500 square feet” segment was practically flat from the prior quarter, accounting for 45 percent of REALTORS®’ responses. Demand for properties in the “10,000 – 49,999 square feet” notched a noticeable jump, accounting for 11.0 percent of total responses, an almost two-fold increase from the prior quarter.

To access the Commercial Real Estate Outlook: 2017.Q2 report visit https://www.nar.realtor/reports/commercial-real-estate-outlook.

REALTORS® Reported Strong Buyer Traffic in Many States in April 2017

Tue, 06/06/2017 - 11:58

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members How do you rate the past month’s buyer/seller traffic in the neighborhood(s) or area(s) where you make most of your sales?

The REALTORS® Buyer Traffic Index indicates that buyer traffic conditions can be characterized as “moderate” to “very strong” in all states and in the District of Columbia, based on the April 2017 REALTORS® Confidence Index Survey Report.”[1]

The REALTORS® Seller Traffic Index indicates seller traffic conditions were “very weak” to “weak” in many states, but conditions were “moderate” to “strong” in the District of Columbia and in 22 states, which includes oil-producing states that have been impacted by the collapse in oil prices since the middle of 2014.[2] Respondents reported that demand is strong, but supply is lacking, especially homes that are affordable to buyers. This is consistent with available data on the affordability of active housing inventory.[3]

Nationally, the REALTORS® Buyer Traffic Index registered at 75 in April 2017 (74 in March 2017; 70 in April 2016), indicating that more respondents viewed buyer traffic conditions as “strong” rather than “weak.”[4] The REALTORS® Seller Traffic Index registered at 46 in April 2017 (43 in March 2017; 46 in April 2016), indicating that more respondents viewed seller traffic conditions as “weak” rather than “strong.” Supply conditions have remained largely tight in many areas, with the index registering below 50 since March 2008.

Homebuying demand is likely being bolstered by sustained job growth, with 2.2 million jobs added in the last 12 months and 16.3 million jobs generated since February 2010.[5] The unemployment rate fell to 4.4 percent in April 2017, the lowest rate since the economic recovery from the 2008-2009 recession. Future interest rate increases may also be prompting first-time homebuyers to take advantage of the current mortgage rates. In the week of May 11, the 30-year fixed mortgage rate averaged 4.05 percent; rates have held above four percent since the week of November 24, 2016, except during the week of April 20 when they dipped briefly to 3.97 percent.[6] Mortgage rates are likely to continue to rise modestly to an average of 4.3 percent in 2017 and 5.0 percent in 2018.[7]

Nationally, employment rose 1.6 percent in April 2017 compared to April 2016. Employment growth was strongest in Utah, Georgia, and Florida. In these states, buyer traffic was “strong” to “very strong”. Non-farm employment contracted in the oil-producing states of Alaska, Wyoming, Oklahoma, Louisiana, Mississippi, as well as in West Virginia.[8] In some of these states, the job cutbacks have led to “moderate” seller traffic conditions, based on the REALTORS® Seller Traffic Index. Texas, which has a more diversified economy, has been more resilient than other oil-producing states, with employment growing slightly above the national average.

[1] To increase the number of observations for each state, NAR computes the index based on data for the last three months. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. The survey asks, “How do you rate the past month’s buyer/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).” NAR compiles the responses into a diffusion index. For graphical purposes, index values 25 and lower are labeled “Very Weak,” values greater than 25 to 45 are labeled “Weak,” values greater than 45 to 55 are labeled “Moderate,” values greater than 55 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very Strong.” The range of +/-5 around 50 approximates the historical margins of error at the 95 percent confidence level for small states.

[2] Oil prices refer to the West Texas Intermediate average spot price. While the price of oil has picked up in the last year, the April 2017 price was roughly half the price that prevailed in Summer 2014 before the collapse, so oil-dependent economies may see some improvement, but generally remain at a low level.

[3] See for example: https://www.nar.realtor/news-releases/2017/02/nar-realtorcom-identify-growing-rift-between-housing-availability-and-affordability and https://www.nar.realtor/topics/realtors-affordability-distribution-curve-and-score

[4]The REALTORS® 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.

[5] The last 12 months refers to April 2016 to April 2017. Nearly 8.7 million jobs were lost from February 2008–February 2010, so the gain above previous peak employment is 7.6 million jobs.

[6] Mortgage rates in this report refer to the average contract rates on 30-year conventional mortgages reported by Freddie Mac.

[7] NAR forecast. See https://www.nar.realtor/sites/default/files/reports/2017/embargoes/phs-04-27/forecast-04-2017-us-economic-outlook-04-27-2017.pdf.

[8] Source: U.S. Department of Energy. See https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm

Median Days on the Market Declines to Lowest Level of 29 Days in April 2017

Mon, 06/05/2017 - 15:37

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “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 chart below shows the median days on market by state.[1] Properties that sold in February–April 2017 were typically on the market for less than 31 days in 18 states and in the District of Columbia, based on the April 2017 REALTORS® Confidence Index Survey Report. Looking at the values over the last few years, in most states the median length of time that properties stay on the market has trended downwards, though the graphs also show that days on market in some states fluctuate seasonally.[2]

 

Amid strong demand and tight supply, properties sold in April 2017 were typically on the market for 29 days, the shortest time on market since the survey began tracking this measure in 2011, (34 days in March 2017; 39 days in April 2016).[3] The length of time properties are on the market has fallen as demand has outpaced the inventory of homes for sale. In 2011, properties were typically on the market for 97 days.[4]

Nationally, 52 percent of properties that sold in April 2017 were on the market for less than a month (48 percent in March 2017; 45 percent in April 2016).[5] Only 10 percent of properties were on the market for six months or longer (11 percent in March 2017; 13 percent in April 2016).

[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]To increase the number of observations for each state, NAR uses data from the last three surveys. The selected states shown in these charts are those with approximately 150 observations.

[3] To increase the number of observations for each state, NAR computes the index based on data for the last three months. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. The survey asks, “How do you rate the past month’s buyer/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).” NAR compiles the responses into a diffusion index. For graphical purposes, index values 25 and lower are labeled “Very Weak,” values greater than 25 to 45 are labeled “Weak,” values greater than 45 to 55 are labeled “Moderate,” values greater than 55 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very Strong.” The range of +/-5 around 50 approximates the historical margins of error at the 95 percent confidence level for small states.

[4]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.

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

Rising Supply in CBD Markets Puts Pressure on Office Vacancies in the First Quarter of 2017

Mon, 06/05/2017 - 11:24

In the wake of a moderate 2016, the rate of economic growth remained tepid during the first quarter of 2017. Based on the second estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis (BEA), the United States economy rose at an annual rate of 1.2 percent. While the second estimate was an improvement over the initial 0.7 percent, it was far below the average 3.4 percent typical of first-quarter GDP growth over the 1950-16 period, but more in line with the 1.0 percent experienced over the more recent 2000-16 stretch.

Payroll employment advanced in the first quarter of 2017, with a net gain of 527,000 new jobs, according to the Bureau of Labor Statistics (BLS). Private service-providing industries continued as the growth engine during the quarter, with 341,000 net new jobs.

Within the service industries, professional and business services posted the highest number of net new employees—151,000. Financial services added 39,000 new positions, previewing increased demand for office space for the year ahead. The education and health services sector added the second-highest number of net new positions—95,000, followed by leisure and hospitality, with 57,000 net new payroll jobs.

Office demand was steady in the first quarter of 2017. Net absorption totaled 7.2 million square feet, based on data from CBRE. Suburban office space was in high demand during the quarter, accounting for 74 percent of total net absorption. Office construction picked up the pace, contributing 12.0 million square feet to the supply pipeline during the quarter, with new suburban completions totaling 8.3 million square feet. With the solid construction, office vacancies increased 10 basis points, to 13.0 percent. Rents for office properties experienced a slowdown as new space entered the market. During the first quarter, asking rents averaged $31.99 per square foot, a 4.9 percent annual rate of growth.

Commercial fundamentals in small cap markets remained positive during the first quarter of 2017, but the pace of growth moderated, according to REALTORS®’ data. Leasing volume advanced 2.3 percent from the prior quarter. New construction increased by 2.3 percent from the prior quarter, the slowest pace since the first quarter of 2015. Leasing rates rose by 3.8 percent, as concessions declined 11.1 percent.

Vacancy rates continued declining in the first quarter of this year. Lease terms remained steady, with 36-month and 60-month leases capturing 61.0 percent of the market. One-year and two-year leases made up 23.0 percent of total.

To access the Commercial Real Estate Outlook: 2017.Q2 report visit https://www.nar.realtor/reports/commercial-real-estate-outlook.

REALTORS® Reported “Low Inventory” as Major Issue in April 2017

Fri, 06/02/2017 - 15:24

This blog post was written by Karen Belita, Data Scientist.

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members if they have additional comments or information regarding the demand, demand-supply conditions, changing buyer profile and preferences, mortgage/credit issues, or other issues impacting the market in their own words. The additional comments supplied by the members are a glimpse of their personal point-of-view of the current housing market, which can intuitively support the data collected on the housing market.

The word cloud below shows the most popular words and/or phrases from the respondents in the April 2017 survey based on the April 2017 REALTORS® Confidence Index Survey Report. Word frequency is represented by the size of the word. The most frequent words and phrases in the April 2017 survey were “low inventory” and “multiple offer”, which indicates that continued tightness in supply, particularly relative to strong demand, is the primary issue affecting the real estate market.[1]

REALTORS® also provided comments on contract delay issues.  The prominence of the words “lender”, “closing”, and “delay” indicates that lender delay was a major contract settlement issue in April 2017.

[1] Created by Karen Belita, Data Scientist, NAR Research

Mirroring Broader Trends, Commercial Sales in REALTORS®’ Markets Decline 4.4 Percent in Q1.2017

Fri, 06/02/2017 - 11:03

Deal volume in large capitalization markets has been declining for the past five quarters, as investors approached capital deployment more cautiously against steep price appreciation and the promise of rising interest rates. The issue was on display during the first quarter of this year, with sales volume totaling $94.8 billion, an 18 percent year-over-year decline, according to Real Capital Analytics (RCA).

In comparison, small cap markets posted a year of solid gains during 2016. However, the first quarter of 2017 brought a change in the trend line, with sales volume declining 4.4 percent, according to data from a survey of REALTORS® engaged in commercial real estate transactions. In addition, a smaller percentage of REALTORS® reported closing transactions—61.0 percent in the first quarter, compared with 69.0 percent the prior quarter—a sign of slowing activity. The trend was also mirrored in a smaller average transaction value for the quarter—$876,500.

While investment volume declined, with tight inventories, prices in large cap markets appreciated. Based on Moody’s/RCA Commercial Property Price Index data, prices gained 7.0 percent during the first quarter. The gain came from strong appreciation in prices of apartment and office, which advanced 10.0 percent and 9.0 percent, respectively.  Prices for industrial properties increased 8 percent year-over-year, while retail properties recorded a 1.0 percent decline.

In comparison to top-tier markets, price growth also increased in small cap markets during the first quarter of 2017, based on REALTORS®’ information. Prices for commercial properties increased 7.2 percent compared with the first quarter of 2016. However, capitalization rates changes indicated a likely shift in investor risk preferences. Average national cap rates reached 7.5 percent in the first quarter, 30 basis points higher than the same period in 2016.

To access the latest Commercial Real Estate Market Trends report, visit: http://www.nar.realtor/research-and-statistics/commercial-real-estate-market-survey.

 

April 2017 Pending Home Sales

Thu, 06/01/2017 - 11:52
  • NAR released a summary of pending home sales data showing that April’s pending home sales pace is down 1.3 percent from last month and are down 3.3 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 four regions showed declines from a year ago. The Northeast had the smallest decline of 0.6 percent followed by the South 2.3 percent. The West had a decline of 4.2 percent. The Midwest had the biggest decline of 6.1 percent.
  • From last month, the only region to have a gain of 5.8 percent in pending sales was the West. The Midwest had the biggest decline of 4.7 percent. The South had a decline of 2.7 percent. The Northeast had the smallest decline of 1.7 percent.
  • The pending home sales index level for the month was 109.8 for the US. March’s data was revised down slightly to 111.3.
  • In spite of the decline, this is the pending index’s 36th consecutive month over the 100 index 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.

Highlights of the April 2017 REALTORS® Confidence Index Survey Report

Thu, 06/01/2017 - 11:30

While local conditions vary, the REALTORS® Buyer Traffic Index and the REALTORS® Confidence IndexCurrent Conditions for single-family homes, townhomes, and condominiums remained above 50 in April 2017, indicating that more respondents reported “strong” than “weak” conditions. Both indices were higher than their levels one year ago and in the previous month, except the condominium index which was at the same level as the previous month.[1] The REALTORS® Seller Traffic Index was unchanged from its level one year ago, but it increased from its level in the previous month. It has remained below 50 since March 2008, indicating that seller activity is still “weak,” based on the April 2017 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.[2]

First-time homebuyers accounted for 34 percent of sales.[3] Amid sustained job creation, the share of first-time homebuyers has been on a modest rise, up from 29 percent in 2014. With fewer new foreclosures, distressed properties accounted for five percent of sales, purchases for investment purposes made up 15 percent of sales, and cash sales accounted for 21 percent of sales. Amid tight supply, half of properties that sold in April 2017 were on the market for 29 days or less compared to 39 days in April 2016. The April median days on market measure is a new low in this history of the series which goes back to 2011.

Lack of homes for sale was the main issue reported by REALTORS®. Respondents reported a mixed effect from the uptick in mortgage rates since November 2016; some buyers are encouraged to act quickly while others are discouraged by diminished affordability. With sales typically strong in the summer, more respondents expect the outlook to be “strong” than “weak” in the next six months compared to current conditions in the single-family, townhome, and condominium markets.

[1] 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.

[2]The author thanks Meredith Dunn, Research Communications Manager; and Amanda Riggs, Research Survey Analyst for their comments. Any errors are attributable to the author.

[3] 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 captures purchases for investment purposes and vacation/second homes.

April 2017 Existing-Home Sales

Wed, 05/31/2017 - 15:00
  • NAR released a summary of existing-home sales data showing that housing market activity this April slid 2.3 percent from last month but modestly improved 1.6 percent from last year. April’s existing-home sales reached the 5.57 million seasonally adjusted annual rate.
  • The national median existing-home price for all housing types was $244,800 in April, up 6.0 percent from a year ago. This marks 62nd consecutive months of year over year’s gains as prices continue to rise.
  • Regionally, all four regions showed growth in prices from a year ago, with the South leading all regions with an incline of 7.9 percent. The Midwest had a gain of 7.8 percent followed by the West with a gain of 6.8 percent. The Northeast had the smallest gain of 1.6 percent from April 2016.
  • From March, three of the four regions experienced declines in sales while the Midwest inclined 3.8 percent. The South had the biggest decline of 5.0 percent while the West had a 3.3 percent slip in sales. The Northeast had the smallest decline of 2.7 percent.
  • Two of the four regions showed an increase in sales from a year ago with the South leading with an incline of 3.6 percent. The West had a gain of 3.5 percent. The Northeast had a decline of 2.7 percent. The Midwest had the smallest decline of 0.7 percent. The South headed all regions in percentage of national sales at 41.3 percent while the Northeast has the smallest share at 13.1 percent.
  • April’s inventory figures are up 7.2 percent from last month to 1.93 million homes for sale. Inventories are down 9.0 percent from a year ago which is 23 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 29 days for a home to go from listing to a contract in the current housing market, down from 39 days a year ago.
  • In April, single-family sales declined 2.4 percent and condominiums declined 1.6 percent compared to last month. Single-family home sales inclined 1.6 percent and condominium sales were up 1.6 percent compared to a year ago. Both single-family and condominiums had an increase in price with single-family up 6.1 percent at $246,100 and condominiums up 5.6 percent at $234,600 from April 2016.

State Job Growth Comparisons: March

Tue, 05/30/2017 - 10:35

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