Economist's Outlook

Highlights from “Social Benefits of Homeownership and Stable Housing”

Highlights from the full article included in the latest volume of the Journal of the Center for Real Estate Studies. 

Research has consistently shown the importance of the housing sector on the economy and the long-term social and financial benefits to individual homeowners. However, in recent years many have questioned the role of homeownership due to the housing downturn and foreclosure crisis. Thus, a related question is: do the social benefits of homeownership from the past still apply? With respect to the new conditions of the real estate market, the current report provides an updated review of the literature of the social benefits of homeownership. Furthermore, this paper examines not only the ownership of homes, but also the impact of stable housing (as opposed to transitory housing and homelessness) on social outcomes, looking specifically at some outcome measures such as:

Educational achievement

Consistent findings show that homeownership does make a significant positive impact on educational achievement. Less clear, however, is whether homeownership in itself, stable housing or favorable neighborhood characteristics are the main underlying factors contributing to better educational outcomes.

More recently, researchers found that the act of saving has some association with child outcomes and specifically the degree to which children of homeowners are less likely to drop out of school.

Civic participation

The extent of community involvement and the benefits that accrue to society are hard to measure, but several researchers have found that homeowners tend to be more involved in their communities than renters.

After the sharp decline of home prices, recent studies reevaluated the social role of homeownership and found that residential stability increases the likelihood of electoral participation but is unrelated to participation in membership groups. Interestingly, even after controlling for residential stability, homeowners remain more likely to participate in local elections, civic groups and neighborhood compared to renters.

Health benefits

Early studies of homeownership and health outcomes found that homeowners and children of homeowners are generally happier and healthier than non-owners, even after controlling for factors such as income and education levels that are also associated with positive health outcomes and positively correlated with homeownership.

More recent studies have found that the wealth building effect of homeownership and the sense of control it provides to homeowners in a stable housing market affect homeowners’ mental and physical health in a positive way. However, the literature is mixed in times of housing market instability. While some studies showed that homeowners fared better than renters during the recent housing crisis, other studies suggest that areas of high housing distress also had high rates of mental health and stress-related diagnoses. More research is needed on the relationship of health outcomes and homeownership.

Crime

Research on crime and home ownership shows that a lower crime rate among homeowners and people living in a stable housing environment are consistent with theories on social disorganizations. A stable neighborhood, independent of ownership structure, is also likely to reduce crime. It is easier to recognize a perpetrator of crime in a stable neighborhood with extensive social ties.

However, with respect to the housing crisis and the increased foreclosure rates, several studies readdressed the relationship between homeownership and crime examining the effects of foreclosures on neighborhood crime. Most of those studies found some evidence that additional foreclosure leads to an increase of burglary and violent rates.

 

Read the full paper here (PDF) >

REALTORS® Confidence Index Survey: September 2017 Highlights

The REALTORS® Confidence Index (RCI) survey[1]  gathers monthly information from REALTORS® about local real estate market conditions, characteristics of buyers and sellers, and issues affecting homeownership and real estate transactions.[2] This report presents key results about market transactions from September 2017. View and download the full report here.

Market Conditions and Expectations

• The REALTORS® Buyer Traffic Index registered at 61 (59 in September 2016).[3]

• The REALTORS® Seller Traffic Index registered at 45 (44 in September 2016).

• The REALTORS® Confidence Index—Six-Month Outlook Current Conditions registered at 65 for detached single-family, 55 for townhome, and 52 for condominium properties. An index above 50 indicates market conditions are expected to improve.

• Properties were typically on the market for 34 days (38 days in September 2016).

• Eighty-five percent of respondents reported that home prices remained constant or rose in September 2017 compared to levels one year ago (84 percent in September 2016).

Characteristics of Buyers and Sellers

• First-time buyers accounted for 29 percent of sales (34 percent in September 2016).

• Vacation and investment buyers comprised 15 percent of sales (15 percent in September 2016).

• Sales of distressed properties (foreclosed or sold as a short sale) accounted for four percent of sales (four percent in September 2016).

• Cash sales made up 20 percent of sales (21 percent in September 2016).

• Twenty percent of sellers offered incentives such as paying for closing costs (eight percent), providing a warranty (eight percent), undertaking remodeling (two percent), and providing appliances (one percent).

Issues Affecting Buyers and Sellers

• From July–September 2017, 73 percent of contracts settled on time (63 percent in September 2016).

• Among sales that closed in September 2017, 87 percent had contract contingencies. The most common contingencies pertained to home inspection (27 percent), obtaining financing (22 percent) and getting an acceptable appraisal (20 percent)[4].

• REALTORS® reported “low inventory” as the major issue affecting transactions in September 2017. REALTORS® also reported concerns regarding the hurricanes’ impact in Texas and Florida.

About the RCI Survey

• The RCI Survey gathers information from REALTORS® about local market conditions based on their client interactions and the characteristics of their most recent sales for the month.

• The September 2017 survey was sent to 75,000 REALTORS® who were selected from NAR’s nearly 1.2 million members through simple random sampling and to 5,543 respondents in the previous three surveys who provided their email addresses.

• There were 2,370 respondents to the online survey which ran from October 2‒12, 2017. The survey’s overall margin of error at the 95 percent confidence level is two percent. The margins of error for subgroups and sample proportions of below or above 50 percent are larger.

• NAR weighs the responses by a factor that aligns the sample distribution of responses to the distribution of NAR membership.

The REALTORS® Confidence Index is provided by NAR solely for use as a reference. Resale of any part of this data is prohibited without NAR’s prior written consent. For questions on this report or to purchase the RCI series, please email: Data@realtors.org.

[1] Thanks to George Ratiu, Managing Director, Housing and Commercial Research and Gay Cororaton, Research Economist for their data analysis and comments to the RCI Report.

[2] Respondents report on the most recent characteristics of their most recent sale for the month.

[3] An index greater than 50 means more respondents reported conditions as “strong” compared to one year ago than “weak.” An index of 50 indicates a balance of respondents who viewed conditions as “strong” or “weak.”

[4] The difference in the sum of percentages to the total percentage of sellers who offered incentives is due to rounding.

Raw Count of Home Sales (August 2017)

  • Existing-home sales dropped 1.7 percent in August from one month prior while new home sales declined 3.5 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, 535,000 existing homes were sold in August while new home sales totaled 45,000.  These raw counts represent a 4 percent increase for Existing-home sales from one month prior while new home sales dropped 10 percent.  What was the trend in recent years?  Sales from July to August declined by 2 percent on average in the prior three years for existing homes and decreased by 6 percent for new homes.  So this year, existing homes outperformed compared to their recent norm while new home sales underperformed.
  • Why are seasonally adjusted figures reported in the news?  To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate that have an effect on data around the same time each year.  For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity.  Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends.  That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month.  When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
  • What to expect about home sales in the upcoming months in terms of raw counts?  Independent of headline seasonally adjusted figures, expect slower activity in September and October. For example, in the past 3 years, September sales decreased by 8 percent on average from August while October sales dropped by 4 percent on average from September. For the new home sales market, the raw sales activity is expected to diminish in September while sales rise in October.  For example, in the past 3 years, September sales decreased by 5 percent on average from August while sales in October increased by 6 percent on average from September.

August 2017 Housing Affordability Index

At the national level, housing affordability is up from last month but down from a year ago. Mortgage rates increased to 4.19 percent this August, up compared to 3.74 percent a year ago.

  • Housing affordability declined from a year ago in August moving the index down 8.4 percent from 163.7 to 149.9. The median sales price for a single family home sold in August in the US was $255,500 up 5.6 percent from a year ago.
  • Nationally, mortgage rates were up 45 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 7.8 percent. The Northeast had an increase of 5.8 percent while the South had a gain of 5.4 percent. The Midwest had the smallest incline in price of 4.8 percent.
  • Regionally, all four regions saw a decline in affordability from a year ago. The West had the biggest decline of 10.8 percent. The South followed with a decline of 9.1 percent. The Midwest had a decline of 8.2 while the Northeast had the smallest decline of 8.1 percent.
  • On a monthly basis, affordability is up from last month in two of the four regions. The South had the biggest incline of 2.5 percent followed by the Midwest, which had an incline of 2.1 percent. The West and Northeast both shared a decline in affordability of 0.7 percent.
  • Despite month-to-month changes, the most affordable region was the Midwest, with an index value of 187.2. The least affordable region remained the West where the index was 106.2. For comparison, the index was 151.6 in the South, and 151.7 in the Northeast.

  • Mortgage applications are currently down. Inventory shortage remains with the speed of transactions moving at face pace. Rates are steady, since prices drop the qualifying income decreases and more people can afford to buy a home. While median family income increased and qualifying income decreased, housing affordability will rise and homes will become more affordable.
  • 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.

Home Purchase Originations Rose by 10 Percent in 2016, But are Still Below Pre-Housing Crash Level

Amid improving macroeconomic conditions, residential lending continued to increase in 2016, based on the recently released 2016 Home Mortgage Disclosure Act (HMDA) data. [1] [2] The number of first-lien loan originations for the purchase of one-to-four unit properties intended for owner occupancy rose to 3.46 million in 2016, a 10 percent increase from 3.12 million in 2015. Although residential lending has been growing at double-digit rates since 2012, loan originations in 2016 were only at three-fourths of the peak level of 4.83 million in 2005. Lending has not fully recovered due to the interplay of factors relating to the borrower’s capacity to obtain a mortgage, tighter lending standards, and the faster appreciation of housing prices relative to income growth amid a lack of housing supply. An increasing share of originations has gone to high income earners.[3]

By type of loan, conventional loans accounted for 61 percent, well below their 90 percent share in 2005-2006, when loan originations rose to a peak of 4.42 million. FHA-insured loans accounted for 25 percent, up from 5.5 percent in 2005, but the level is well below the 40 percent share in 2009-2010 when FHA increased lending as conventional lending collapsed. FHA’s share to loan originations has declined in part because of the increase in upfront and annual mortgage insurance premiums and the change in duration of payment of premiums to the full term of the loan for loans that have more than 90 percent loan-to-value ratios.[4] Meanwhile, VA-guaranteed and RHS/FSA-guaranteed loan originations have generally continued to increase since 2004, except in 2005-2007 when the number of loans decreased slightly. VA-guaranteed loans accounted for 10 percent of originations, while RHS/FSA accounted for three percent.

Low-to-Middle Income Borrowers Were More Likely Obtain FHA and FSA/RHS-Insured Loans, While High-Income Borrowers Were More Likely to Obtain Conventional and VA-Guaranteed Loans

Residential lending has not fully recovered to pre-crash levels due to the interplay of demand (borrower) and supply (lender) factors. On the borrower side, the fast pace of house prices relative to income growth may be one factor. As of July 2017, the median sales price of existing homes sold has increased by 68 percent since 2012 compared to 15 percent growth in median family income. On the lender side, tighter lending standards (loan-to-value, debt-to-income, credit scores) have also made obtaining a mortgage more difficult or costly, especially for low to middle-income households/earners. The chart below shows that shows that applicants whose gross annual incomes are “high” (relative to the U.S. median household income of $59,039 in 2016[5]) were likely to obtain a conventional loan: the median applicant income on approved conventional loans in 2016 was $90,783 and the median applicant income on approved VA-guaranteed loans was $74,863. Applicants with incomes that were in the range of the U.S. household median income were more likely to obtain an FHA-insured and FSA/RHS loans: the median applicant income on FHA-insured loans was $60,007 and the median applicant income on approved FSA/RHS loans was $47,211.

Although applicants with lower incomes were more likely to obtain an FHA-insured loan, the median loan amount was also small, at $179,172. Conventional and VA-guaranteed originated loan amounts were typically larger, but borrowers typically had higher incomes and were more likely to put in larger downpayment, as suggested by the lower loan-to-income ratios on conventional loans.

The share of loan originations going to “high” income applicants (applicant income is 80% to 120% of the median metropolitan area income where the census tract of the property is located) has been steadily rising. As of 2016, 46 percent of loan originations went to applicants whose incomes were above 120 percent of the metropolitan area median income, up from 35 percent in 2009.

Amid rising home prices, jumbo loans —loans that exceed the loan limits that the government sponsored enterprises (Fannie Mae and Freddie Mac)— rose to nine percent of originations[6], higher than the 4.3 percent share in 2004.

Not Meeting Debt to Income Limit is Major Reason for Denial

HMDA does not collect data on credit scores, loan-to-value, and debt-to-income on individual applicants, so an evaluation of why applicants with incomes higher than the household income were denied is difficult to assess. However, HMDA allows the lender to provide up to three reasons for the denial (in no order of preference). Based on the first reason listed (which may be deemed to be a random sample of the denial reasons), not meeting the debt-to-income (DTI) ratio was the major reason provided by lenders why applicants were denied (29 percent), followed by credit history (22 percent) and insufficient collateral or downpayment (15 percent). Not meeting the debt-to-income ratio was the major reason applications were denied across all loan types. (In this regard, Fannie Mae’s decision in July 2017 to increase its back-end DTI ratio limit from 45 percent to 50 percent is a positive move to ease the constraints for mortgage borrowers with 50 percent DTI whose risk profile is not significantly different from the risk profile of borrowers with 45 percent DTI.)

 

Rising House Prices, Lack of Downpayment, and Weak Credit Profiles Made Homes Less Affordable

For middle-income borrowers, an FHA loan is the best option (i.e., the borrower is more likely to get approved), but the faster appreciation of home prices relative to income growth has increasingly made a home purchase less affordable. Since 2012, house prices have increased by 68 percent, while incomes have increased by 15 percent.

Low downpayment conventional loans are available, but middle-income earners may be hard pressed to meet the downpayment on a bigger loan. Moreover, borrowers with less than sterling credit profiles and with little downpament bear additional costs associated with a higher mortgage rate that government-sponsored enterprises (Fannie Mae and Freddie Mac) charge to reflect the higher borrower risk (called loan level price adjustments, which reduce lender’s fees). [7] For example, Fannie Mae assess an LLPA of 1.5 percent of the loan ($1,500 on a $100,000 loan) on a loan it will purchase from a lender where the a borrower has a 680 FICO score and a loan with a 95 loan-to-value ratio (or 5 percent downpayment), The LLPA rises to 3.5 percent ($3,750) for borrowers with less than 620 FICO score. LLPAs increase the mortgage rate charged to borrowers because lenders make up for the reduction in fees arising from the LLPA by increasing the mortgage rate charged to the borrower.

In summary, the latest 2016 Home Mortgage Disclosure Act data indicates that residential lending has been growing at double-digit rates since 2012. However, loan originations remain below 2005 levels for reasons related to the interplay of borrower’s income and credit profiles, tighter lending standards, and rising home prices due to inadequate supply. For these reasons, an increasing share of originations[8] has gone to high income earners.

[1] The author thanks Hua Zhong, Data Scientist, for writing the code that greatly facilitated the tabulation of the HMDA data.

[2] The Home Mortgage Disclosure Act (HMDA) was enacted by Congress in 1975 and was implemented by the Federal Reserve Board’s Regulation C. On July 21, 2011, the rule-writing authority of Regulation C was transferred to the Consumer Financial Protection Bureau (CFPB). Regulation C requires lending institutions to report public loan data. Federally-insured banks, savings institutions, credit unions, and non-depository mortgage financial institutions that meet Regulation C requirements for asset size, presence in a metropolitan area, number of originations, and whose loans are intended for sale to the GSEs, are required to report their lending transactions. In 2016, there were 16.3 million HMDA records from 6,762 financial institutions. According to FDIC, there were 9,498 FDIC-insured and FIDC-supervised institutions as of June 2017. See https://www.ffiec.gov/hmda/, https://www.ffiec.gov/hmda/pdf/2013guide.pdf, https://www.fdic.gov/bank/statistical/stats/

[3] First-lien, one-to-four family, owner occupied, home purchase originated

[4] The annual mortgage insurance premium increased from 0.55 percent of the loan amount to 1.35 percent of the loan amount from 2010 to 2013 and it was reduced to 0.85 percent for most borrowers in 2015 (loans less than or equal to $625,500 and greater than 95% LTV). The upfront mortgage insurance premium was increased from 1.75 percent, to 2.25 percent, then 1.0 percent in 2010 and then raised to 1.75 percent in 2012. Starting with cases in June 3, 2013, loans with more than 90% LTV are charged the annual MIP for the term of the loan. See https://www.fha.com/fha_requirements_mortgage_insurance

[5] U.S. Census Bureau, 2016 Annual Social and Economic Supplement of the Current Population Survey.

[6] Again, first-lien, one-to-four family, home purchase, owner occupied.

[7]LLPAs as not added directly to the mortgage rate. Rather, the LLPAs are deducted from the lender’s fees (e.g., fees for underwriting, appraisal, recording)) when they sell the loan to the GSEs. Lenders recover the reduction in fees by charging the borrower a higher mortgage rate.

[8] First-lien, one-to-four family, owner occupied, home purchase originated

County Median Home Prices

Q2 2017

After the release of the Housing Price Index for the second 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 96 percent of counties. Counties in the following metro areas experienced price gains higher than 12.5 percent:

Mount Vernon-Anacortes, WA

Seattle-Tacoma-Bellevue, WA

Salem, OR

Sherman-Denison, TX

Deltona-Daytona Beach-Ormond Beach, FL

Longview, 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 4.20 percent in March while it decreased to 3.97 percent in July and it dropped further to 3.88 percent in August.

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 $77 to the amount of $938 while a rise from 4.2 to 5.0 percent will increase the monthly payments by $92[2] (to $1,030 per month).

But the effect depends on the location. At the high end, San Francisco homebuyers have seen a nearly $391 increase in monthly payments so far, and if rates were even higher now, financing the same-priced home would cost an extra $468 per month.  At the low end, in Cochran County, TX, home buyers paid an extra $13 per month in March when mortgage rate was 4.2 percent, 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 4.2 percent in 2017 and 4.6 percent in 2018 while home prices are expected to rise 5.2 and 3.6 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 (Q2 2017)

Data by Price (Q2 2017)

Methodology (Q2 2017)

 

[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 ($213,099) is expected to be lower than NAR’s home value ($253,600 in Q2 2017). Please see Methodology for more details.

2016 Survey of Consumer Finances Takeaway: Income and Wealth Share of 90 Percent of Families Has Declined in Past 27 Years (1989-2016)

The Federal Reserve Board just released the much anticipated 2016 Survey of Consumer Finances (SCF), a survey conducted every three years that collects information about family incomes, their net worth/wealth, and other financial characteristics of families. The survey shows a continuing redistribution of income and wealth to the top 1 percent, amid falling homeownership, modest gains in income at the lower income group, and large gains in financial returns from an 8-year stock market bull run.

Top 1 Percent Has Gotten More of the Income and Wealth Pie Since 1989

One of the most important findings in the 2016 SCF is the continued redistribution and concentration of income and wealth to the top 1 percent of families[1] during 2013–2016, This continues the trend that began in 1989 since the SCF was collected. Since 1989, the top 1 percent of the income group has collectively gotten a higher share of the total income pie, the next nine percent saw no increase in their share, and the remaining 90 percent got a smaller share of the income pie (see Figure A below from 2016 SCF Report ).

With cumulative change in prices of 3 percent in 2013-2016, the chart below shows the bottom 20 percent had no real income gains, while the second bottom 20 percent (20-39.9 percentile) saw a modest real growth in income of 2 percent. On the other hand, the top 10 percent saw a real income gain of 6 percent.

The same picture holds true in terms of the wealth gains by wealth groups. Figure B below (from 2016 SCF Report) shows that the wealthy top 1 percent have increasingly gotten a larger share of total wealth since 1989, the next nine percent saw no change in their collective share of total wealth, while the remaining 90 percent saw their wealth decline dramatically. Clearly, there has been a perverse and inequitable distribution of income over the last 27 years.

Percentage of Families Owning Primary Residence Has Declined Since 1989

One reason for the decline in the share of wealth among the bottom 90 percent is the decline in percentage of homeowner families. The 2016 SCF shows that the share of non-financial assets, which includes residential property, has generally declined since 1989. Non-financial assets still account for the bigger portion of the total assets of all families, at 57.5 percent in 2016, but the share has fallen since 1989, when the share hit a high of 69. 5 percent. The housing boom brought the share up to 66 percent, but it has continued to decline since 2007 in the wake of the Great Recession and collapse of the housing market.

Primary residence and other residential properties accounted for 60.2 percent of non-financial assets in 2004, but the share of residential property has declined since the housing market collapse, to 53.3 percent in 2016. The share of residential asset holdings has declined even as home prices have climbed back up strongly. Based on the Case-Shiller national price index, home prices were up by 42 percent by the second quarter of 2017 compared to the levels in the second quarter of 2011 when prices hit rock bottom. In part, there are also fewer homeowners because home prices have increased more steeply than income.

Ability and Desire to Own/Save for a Home Declined During Great Recession, But Appears to Be on the Rebound

The 2016 SCF data shows that less than half of renters save, and that renters are less likely to save than homeowners. The Great Recession and conditions eight years since, have made it even more difficult for renters (and homeowners) to save. Moreover, the intention to save to buy a home was eroded in the wake of the housing crisis. In 2004, 4.7 percent of respondents reported that buying a home was the most important reason for saving, but this declined to 3.1 percent in 2013.

However, the desire to save, and to do so for a home purchase appears to have turned a corner in 2016. A slightly higher percentage of renters (and owners) reported saving in 2016, and a higher fraction of those who saved did so for a home purchase. This may, in part, be explained by the improvement in the economy marked by sustained job growth and improvement in incomes, although at a modest pace.

Non-financial Wealth Gains

The wide gap in financial asset holdings across income groups also explains the increasing concentration of income as the fraction of families holding financial assets increase the higher the income group. Retirement accounts are the most prevalent form of financial holdings across income percentiles, followed by the cash value of life insurance, then stocks, then pooled investment funds. Nearly 92 percent of families in the top 10 percent own retirement accounts, while only 11 percent of those in the bottom 20 percent own these accounts. Meanwhile, 46 percent of families in the upper 20 percent own stocks compared to 34 percent or less for those in the bottom 40 percentile group. The median value of assets held by all families is $23,500, a drop in the bucket compared to the $818,000 held by the top 10 percent!

The effect on wealth and income distribution from holding these financial and non-financial assets are considerable, particularly for financial assets. In the chart below, I rebased the stock, house price, and consumer price indices and the household median income to their annual average value in 2007 so I get the growth rate based on the same year. As shown in the chart below, the stock market has been on a tear since 2009, with the value up by 36 percent. Meanwhile, housing prices have just recovered in 2016. Median household income rose by only one percent as of 2016 compared to 2007, slower than the change in prices during this period of two percent.

In summary, holdings to financial and non-financial assets and the slow growth in incomes explain the continued concentration of income to the upper income groups since 1989. The decline in homeownership had a significant effect. However, the economic conditions continue to improve , and more households have a desire to save for a home purchase. Any improvement in home ownership will help in redistributing wealth back away from the top 1 percent.

[1] In the SCF, the family is the primary economic unit which includes the economically dominant individual or couple and all others who are financially dependent.

91 Percent of Closed Sales in August 2017 Had Contract Settlement Contingencies

Contract contingencies give the buyer and seller the right to back out of the contract if these conditions (contingencies) are not met. According to a monthly survey of REALTORS®, 91 percent of closed sales in August 2017 had contract settlement contingencies, up from 60 percent in December 2012, according to the August 2017 REALTORS® Confidence Index Survey.

The common contract settlement contingencies are related to passing home inspections (19 percent), the buyer obtaining financing (19 percent), and appraisal contingencies (15 percent).

These contingencies are reflective of the risks buyers face when purchasing a home and are meant to protect buyers against these uncontrollable, but anticipated, risks. Financial contingencies indicate that buyers continue to face a potential problem obtaining credit and obtaining credit in a timely manner. Appraisal contingencies are reflective of the ongoing home price appreciation in many markets. Appraisal contingencies protect the buyer by ensuring that the property is appraised for a specified minimum amount. If the appraised value is higher, the buyer will need to obtain a bigger loan or put down a larger downpayment so if he cannot do so, then the appraisal contract contingency kicks in and the buyer does not need to proceed with the purchase.

What this means to REALTORS®: REALTORS® need to understand the risks buyers face and to protect buyers from these anticipated risks.

August 2017 Pending Home Sales

  • NAR released a summary of pending home sales data showing that August’s pending home sales pace is down 2.6 percent from last month and also down 2.6 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.
  • All four regions showed declines from a year ago. The South had the smallest dip of 1.7 percent followed by the West with a decrease of 2.4 percent. The Midwest had a decline of 3.2 percent. The West had the biggest drop of 4.1 percent.
  • From last month, all four regions showed declines in sales. The Northeast had the biggest dip of 4.4 percent. The South had a decline of 3.5 percent followed by the Midwest with a dip of 1.5 percent. The West had the smallest decline of 1.0 percent.
  • The U.S. pending home sales index level for the month was 106.3. July’s data was revised down slightly to 109.1.

  • In spite of the decline, this is the pending index’s 40th 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.

REALTORS® Expect Continued Home Price Growth in Most States in the Next 12 Months

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?”

Home prices have been on the rise as demand continues to outstrip supply. 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.

The map below shows the median expected price change of the respondents in the next 12 months at the state level, according to respondents in the August 2017 REALTORS® Confidence Index Survey.[1]  REALTOR® respondents expected strong price growth in Washington, Nevada, Utah, and Colorado, of more than five percent in the next 12 months.

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.

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.

Housing starts need to ramp up even further, especially in Texas and Florida, to replace the housing units damaged or destroyed by hurricanes Harvey and Irma. In Texas alone, the Texas Division of Emergency Management of the Department of Public Safety reported that as of September 19, there were 15,458 destroyed residential properties and 61,667 damaged properties (single-family, mobile, and multi-family).[2]

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

[2] DSO Spreadsheet 17-0021, Texas Department of Public Safety, https://www.dps.texas.gov/dem/sitrep/default.aspx

Instant Reaction: July Owners’ Gains Forecast

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 July reached a new high and is up 5.9 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 110 billion came from home price increases in July. That means that 75 million homeowners each gained $17,600 on average in July 2017 from a year earlier.

Homebuying Demand Continues to Outpace Supply in Many States

In a monthly survey of REALTORS®, respondents reported that buyer traffic conditions in August 2017 were stable to very strong compared to conditions one year ago in all states except Delaware, according to the August 2017 REALTORS® Confidence Index Survey.[1]

Respondents rate buyer traffic as “Stronger” (100), “Stable” (50), or “Weaker” (0) in August 2017 compared to August 2016. An index greater than 50 indicates that more respondents reported stronger than weaker traffic conditions. Nineteen states had the highest levels of the index, indicating that buyer traffic was very strong, led by Washington, Idaho, Utah, South Dakota, Tennessee, Michigan, Kentucky, and Hawaii.

Meanwhile, supply was weaker or unchanged in many states in August 2017 compared to conditions in the same month last year. Seller conditions were “strong” only in nine states and the District of Columbia.

Nationally, the REALTORS® Buyer Traffic Index (64) indicates that buyer demand is stronger compared to conditions in the same month last year. Meanwhile, supply remained generally tight, with the REALTORS® Seller Traffic Index remaining below 50 (47). An index below 50 indicates that more respondents reported “weaker” than “stronger” seller conditions in August 2017 compared to conditions one year ago.

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.

Housing starts need to ramp up even further, especially in Texas and Florida, to replace the housing units damaged or destroyed by hurricanes Harvey and Irma. In Texas alone, the Texas Division of Emergency Management of the Department of Public Safety reported that as of September 19, there were 15,458 destroyed residential properties and 61,667 damaged properties (single-family, mobile, and multi-family).[2]

[1] In generating the indices, 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] DSO Spreadsheet 17-0021, Texas Department of Public Safety, https://www.dps.texas.gov/dem/sitrep/default.aspx

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

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

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

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

  • 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

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)

  • 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

  • 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

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.