Search form

Economist's Outlook

Subscribe to Economist's Outlook feed
Updated: 57 min 24 sec ago

Commercial Price Growth Expected to Slow in 2016

Fri, 02/26/2016 - 10:01

Commercial sales transactions span the price spectrum, but tend to be measured and reported based on size. Commercial real estate (CRE) deals at the higher end—$2.5 million and above—comprise a large share of investment sales, and generally receive most of the press coverage. Smaller commercial transactions tend to be obscured given their size. However, these smaller properties provide the types of commercial space that the average American encounters on a daily basis—e.g. strip shopping centers, warehouses, small offices, supermarkets, etc.  These are the types of buildings that are important in local communities, and REALTORS® are active in serving these markets.

The National Association of REALTORS® Commercial Real Estate Outlook: 2016.Q1 report focuses on market performance in both large (LCRE) and small commercial (SCRE) sectors.  The report provides an overview of economic indicators, investment sales and leasing fundamentals.

U.S. macroeconomic momentum dropped during the fourth quarter of 2015, buffeted by global economic slowdown and financial volatility. Business investments took a step back, and the strong dollar impacted net exports. Payroll employment offered a bright spot, closing the year with a total of 2.7 million net new jobs, boosted by private service industries. Rising employment drove demand for commercial space across the property spectrum. Vacancies continued declining in the fourth quarter of 2015, as rising rents improved cash flows.

Investment Sales

The pace of commercial transactions rebounded in the fourth quarter of 2015, after the third quarter slowdown. The volume of commercial sales in LCRE markets totaled $157 billion, a 20 percent year-over-year increase, according to Real Capital Analytics (RCA). The fourth quarter data saw gains in both individual and portfolio transactions, with a marked jump in entity level exchanges, which rose 224 percent.

Across the entirety of 2015, apartment transactions comprised the largest share of volume, with $150.0 billion in sales, followed by office properties, which accounted for $145.8 billion. Retail and industrial sales totaled $87.6 billion and $76.5 billion, respectively. Industrial sales posted the largest year-over-year change in transaction volume—54 percent.

In comparison, sales in SCRE markets rose 7.4 percent year-over-year during the fourth quarter, based on REALTORS® market data. The average transaction price declined from $1.9 million in the third quarter of 2015 to $1.6 million in the last quarter.

Investment Prices

Buoyed by rising sales and investor optimism, prices in LCRE markets rose by 12.3 percent during the last quarter of 2015, based on RCA’s Commercial Property Price Index. The advance was driven by strong appreciation in prices of CBD office and hotel properties, which advanced 18.9 percent and 16.1 percent, respectively.  Separately, additional price indices reflected the gains in commercial valuations. The Green Street Advisors Commercial Property Price Index rose 9.7 percent on a yearly basis during the fourth quarter, reaching a value of 122.0, the highest since the index’s inception in 1998. The National Council of Real Estate investment Fiduciaries (NCREIF) Price Index moderated from its third quarter record of 251.61, but increased 5.1 percent year-over-year in the last quarter of 2015.

Capitalization rates in LCRE markets averaged 6.7 percent in the fourth quarter, based on RCA reports, 20 basis points lower than the prior period. Cap rate compression continued, as transactions of office properties in CBD markets tied for the lowest cap rates with apartments, at 5.8 percent.

With inventory shortage continuing as a main concern, prices in SCRE markets rose a more moderate 4.1 percent year-over-year during the period. Average capitalization rates declined to an average 7.8 percent across all property types, a 13 basis point compression on a yearly basis. Apartments posted the lowest cap rate, at 7.2 percent, followed by industrial properties with average cap rates at 7.4 percent.  Office and retail spaces posted cap rates of 8.2 percent and 7.8 percent, respectively. Hotel transactions reported the highest comparative cap rates—8.6 percent.  It is worth noting that these cap rates are higher than those in LCRE markets, reflecting activity in markets where REALTORS® are more engaged.


Looking ahead at 2016, the GDP annual rate of growth is projected to moderate, with a 1.4 percent advance. Following what is shaping up to be a weak first quarter, economic growth is expected to pick up in the second half of 2016 to the tune of 1.6 percent in the third quarter and 2.0 percent in the fourth one. Payroll employment is projected to post 1.3 percent annual growth rate for the year. The unemployment rate is projected to fall to 4.8 percent by the end of 2016.

Commercial fundamentals are expected to improve, with vacancies continuing on a downward trend. With strong fourth quarter volume, CRE investments closed 2015 on an upbeat note, moving toward the 2007 peak. In addition, January 2016 sales maintained momentum, totaling $44.5 billion and registering the second most active January on record, according to RCA.

Given the global uncertainty and financial market gyrations, CRE is likely to remain an attractive alternative for investors this year. At the current sales pace, sales of LCRE properties are projected to total over $560 billion in 2016.

However, after a steep upward trajectory over the past few years during which they surpassed the prior 2007 records, CRE prices are expected to throttle back. With cap rates at very low levels and interest rates expected to rise, the price slowdown is projected to impact Class A assets in top-tier markets, where inventory shortages and crowding of capital have led to the recent run-up. Properties in smaller markets, where the recovery only began in 2013 are likely to see continued price appreciation.

To access the Commercial Real Estate Outlook: 2016.Q1 report visit



FHFA Housing Price Index

Thu, 02/25/2016 - 15:18
  • Today, the Federal Housing Finance Agency (FHFA) released their housing price index data for December 2015. FHFA data showed that prices were up 5.7 percent in December from one year ago, slightly slower than the 5.9 to 6.1 percent year over year growth seen in September thru November, but faster than growth rates seen in the early 2015.
  • Earlier this week, Case Shiller and the National Association of Realtors® (NAR) reported price data.
  • NAR data showed that prices grew at a 7.2 percent pace from December 2014 to December 2015. NAR also reported on new January 2016 data which showed a bump up to 8.2 percent growth from one year ago.
  • Case Shiller data showed that house prices rose more than 5 percent in all three indices since December 2014. The national index gained 5.4 percent, while the 10-city composite rose 5.1 percent and the 20-city composite rose 5.7 percent year over year. While the gain in the national index was higher in December vs. November, the gain in the 10-city index was lower and the rate of change in the 20-city index was the same as the previous month.
  • Recent housing price data at the national level suggests that home prices continue to increase at a strong pace—faster than what would be considered typical. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets.
  • Of course, potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. The fastest overall growth rates were seen in Portland (11.1%), San Francisco (11.0%), and Denver (10.9%) in the year ending November 2015. By contrast, Chicago (2.0%), Washington DC (2.1%), and Cleveland (2.2%) were the slowest growing markets. Data shows that sellers in these somewhat weaker areas may not have as much power to demand higher prices for their homes given the local market. How does your market compare to the national price trends?
  • NAR reports the median price of all homes that have sold while Case Shiller and the Federal Housing Finance Agency report the results of a weighted repeat-sales index. Case Shiller uses public records data which has a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported December prices include information from repeat transactions closed in October, November, and December. For this reason, changes in the NAR median price tend to lead Case Shiller and may suggest that additional strong price growth could be on the horizon. The current strong pace is a reflection of continued demand from buyers in an economy where jobs are still being created and there is a low supply of homes for sale. While affordability is a concern in an environment where home price growth is outpacing income growth and mortgage rates are expected to rise, demand has generally been strong enough to shake off this concern.

TRID: Hope on the Horizon

Thu, 02/25/2016 - 11:06

TRID has resulted in delays and cancellations of loans, but the majority of loans are being closed on time according to lenders who took part in NAR’s 9th Survey of Mortgage Originators. While originators were advising clients for longer rate locks, the majority felt that these loans could be done on time. This trend suggests that timelines could normalize in in the future and a majority of respondents expected this normalization in the next six to nine months.

The Know Before You Owe or TILA-RESPA Integrated Disclosure (TRID) rules were intended to protect consumers and to streamline the old disclosure process. The new rules were implemented on October 3rd and since then 8.3 percent of transactions were delayed according to lenders due to TRID, while another 1.5 percent were canceled. To deal with the delays 55 percent of lenders were advising their clients to take 45-day lock periods and 5 percent were recommending a 60-day lock, while 35 percent were not endorsing a change.

Of those lenders who advised for longer rate locks in the 4th quarter, 15.4 percent indicated that they could have closed most of their loans without the buffer and an additional 38.5 percent felt that some of their settlements could have been completed on time. However, 46.2 percent indicated that the buffer was necessary on all transactions.

The results above suggest that longer rate locks are not necessary in all cases and that lenders may begin to rein them in as their comfort with the TRID environment grows. This process could reduce some delays and ameliorate costs. To this end, 60 percent of lenders expect operations to normalize in the next six months, while 10 percent were not affected by the new rules, and 25 percent expect delays to remain a permanent fixture in the TRID paradigm.

TRID has increased time-to-close for a limited portion of the market and lenders have responded with buffers to allay issues. In time, the market will normalize and these buffers will come down, but longer time lines may become a normal part of the TRID environment for a small portion of the market.

January 2016 Existing-Home Sales

Wed, 02/24/2016 - 15:29
  • NAR released a summary of existing-home sales data showing that the housing market sales continue to build on the momentum from last month, as January’s existing-home sales reach the 5.47 million seasonally adjusted annual rate. January’s existing-home sales pace is the second highest since 2007 and sales are up 11 percent from a year ago.
  • The national median existing-home price for all housing types was $213,800 in January, up 8.2 percent from a year ago.
  • Regionally, all four regions showed growth in prices from a year ago. The Midwest had the largest gain at 8.7 percent while the Northeast had the smallest gain at 0.9 percent from last January.
  • From December, only the Northeast and the Midwest regions saw gains in sales. The Midwest had the biggest increase of 4.0 percent followed by the Northeast with a gain of 2.7 percent. The South remained flat and the West declined 4.1 percent.  All regions showed gains in sales from a year ago. The Northeast had the biggest increase of 20.6 percent while the South had the smallest yet still solid gain of 5.7 percent. The South leads all regions in percentage of national sales at 41.0 percent while the Northeast has the smallest share at 13.9 percent.
  • January’s inventory figures increased 3.4 percent from last month to 1.82 million homes for sale but this smaller than normal increase in inventories from December to January means the level remains unhealthy. Inventories are down 2.2 percent from a year ago. It will take 4.0 months to move the current level of inventory at the current sales pace. It takes approximately 64 days for a home to go from listing to a contract in the current housing market compared to 69 days a year ago.
  • Single family sales increased 1 percent while condos fell 4.7 percent compared to last month. Single family home sales increased 11.2 percent and condo sales are up 8.9 percent from a year ago. Both single family and condos had an increase in price with single family up 8.3 percent and condos up 7.4 percent from January 2015.

EHS in 2015 by the Numbers – Part 4 – Contracts

Wed, 02/24/2016 - 11:11

This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.

You probably know that recent home listings went under contract slightly more often on Mondays followed by Tuesdays, and Fridays. Here is the data to back up your intuition:

  • As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2014 holds for 2015. The last sales data for December 2015 is in, and we can get a good sense of the year by looking at the data we currently have for the past 12 months. In our first posts, we looked at popular and least common closing dates, and popular listing dates. Here, we’ll take a look at contracts.
  • Below, we see the most popular under-contract days of 2015[1].  Similar to the pattern in home listings, we see a strong preponderance of spring dates and lack of weekends.
  • The biggest months for new contracts in 2015 were April, May, and June. These months alone accounted for about 3 in 10 new contracts in this analysis.
  • While not devoid of contract activity, the weekends are not common contract signing days.  Among weekdays, Mondays followed by Tuesdays, and Fridays are the most common days for new contracts to be signed, though Wednesdays and Thursdays are only slightly less common. In spite of that fact, not a single Thursday made the list of top 25 days for contracts in 2015.
  • While home closings exhibit a strong tendency to get done at the end of the month, contracts are, like listings, much steadier throughout the course of the month. Listings show a slight tendency to be posted earlier rather than later in a month, and contracts have a very slight tendency to be signed more often in the early to middle portion of a month rather than at the end.

[1] This analysis includes listings that went under contract at any point in the period under observation, January 1, 2015 to December 31, 2015.  If two contracts existed in the observation period on the same listed property because, for example, one contract fell through and another contract was signed in a later month, both contract dates would be counted as “new contracts” in the analysis.  Thus, some contracts counted here may have fallen through.

The Look at the Home Search Process Over 35 Years

Tue, 02/23/2016 - 15:05

We dug into our historical records to look at how long home buyers have searched for the homes they purchased over the years and the number of homes they viewed during that process. Our main finding was that despite major changes in the housing market, ups and downs in the economy, and the advent of the digital age, home buyers searched for roughly the same amount of time and looked at the same number of houses in more than three decades. The differences were only a few weeks, not years, and a couple of homes, not hours spent on the search. Let’s look at the minor fluctuations that have occurred.

The Profile of Home Buyers and Sellers report was first launched in 1981. In the 1980’s—1990’s, it was conducted only every two years. By 2004, the survey was conducted every year accompanied by its annual release, marking the report as one of the most popular and insightful research studies on the home buying and selling market from the perspective of consumers.


Decade Trends

  • For most of the 1990’s, home buyers searched for a median of two months; they looked at 12 homes in the early ‘90’s and 10 homes by the end of the decade.
  • For a majority of the 2000’s, home buyers still searched only two months; by 2009—2010 they were looking for nearly three months. During that decade, home buyers looked at a median of 10 homes for most years, with a slight dip to nine homes during 2004—2006.
  • During the 2010’s, home buyers look for homes for 12 weeks until 2014 and 2015 when it bumped back down to only 10 weeks. At the beginning of the decade, buyers looked at a median of 12 homes. In the last four years, they looked at only 10 homes.
  • 2004—2006 home buyers searched for eight weeks and looked at nine homes, the shortest period of time according to the report.
  • 2009—2011 buyers searched for 12 weeks and looked at 12 homes, the longest search time according to the report.

TRID Delays Stabilize

Tue, 02/23/2016 - 09:32

The new TRID regulations continue to dog the market, but the impact moderated slightly in January. With the spring market beginning to heat up in February, lenders will be pressed to streamline their settlement procedures while REALTORS® will need to search out those lenders best able to close on time.

The average time-to-close as measured in days rose from 40.9 in February to 43.3 in January. Relative to the same time in January of 2015, the time-to-close was 5.3 days higher reflecting TRID-related delays. However, this year-over-year increase was a decline from the 5.7 additional days registered in December and suggests an improvement or at least stabilization.

The distribution of these delays also reinforces the trend seen in December. The share of settlements that took more than 45 days rose from 46.9 percent in December to 50.1 percent in January. This monthly uptick in January at the long-end of the distribution appears to be seasonal, but the increase relative to last year is wholly new and depicts a shift of 8.8% of market share to the 46+ day’s portion of the distribution under TRID, roughly the same as in December.

While delays due to TRID are potent and continue to impact the market, their impact is isolated to roughly 9 percent of settlements. Lenders will be tested in the months ahead as they attempt to streamline their processes and reduce delays in the face of higher volumes in the spring market. REALTORS® should seek out lenders who are collaborative and who have successfully navigated TRID without delays to assure smooth settlements in 2016.

EHS in 2015 by the Numbers – Part 3 – Popular Listing Dates

Mon, 02/22/2016 - 11:14

This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.

You probably know that home listings go up most often on Thursdays and Fridays. Here is the data to back up your intuition:

  • As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2014 holds for 2015. While December 2015 is still preliminary, we can get a good sense of the year by looking at the data we currently have for the past 12 months[1]. In our first posts, we looked at popular and least common closing dates. Here, we’ll take a look at listings.
  • Below, we see the most popular listing days of 2015. Note the strong preponderance of spring dates and obvious lack of weekends.
  • The biggest months for new listings are April, May, and June, followed by March and July. These months alone accounted for roughly half of all new listings in this analysis.
  • While not devoid of new listings, the weekends are obviously not popular days to list. Among weekdays, Fridays and Thursdays are the most common days for new listings to go up, with Mondays and Wednesdays trailing a bit and Tuesdays not too far behind. Tuesdays and weekends are the only days of the week absent in the top 25 days for listings.
  • While home closings exhibit a strong tendency to get done at the end of the month, listings are much steadier throughout the course of the month with a slight tendency to be posted earlier rather than later.

[1] This analysis considers data from January 1, 2015 to December 31, 2015.

Survey Reveals Modest Credit Expansion

Fri, 02/19/2016 - 13:42

The share of non-QM and rebuttable presumption loans rose in the 4th quarter as reported by respondents to NAR’s 9th Survey of Mortgage Originators. While these loans are riskier than standard, prime loans, they are still at subdued levels, and in the case of non-QM loans they are entering the market in places where private capital can absorb the risk. This trend suggests a modest expansion of credit.

The Ability to Repay (ATR) rule martialed in a new set of lending rules in the spring of 2014. Lenders’ are now required to be able to prove the ability of all borrowers to repay their loans or face significant penalties. This concept sounds obvious, but definitively proving the soundness of a loan isn’t. As a result, lenders were given two standards that if met provided either clear or nearly full exemption from the ATR; a qualifed mortgage standard or a rebuttable presumption standard. Qualified mortgages enjoy the fullest legal protection for lenders and tend to be standard prime loans, while rebuttable presumption have less protection and tend to be standard loans but for lower credit scores or low down payments. Loans outside of these two definitions pose more legal risk for lenders and include interest only loans, those with points and fees greater than 3 percent of the balance, and jumbo loans with debt-to-income ratios greater than 43 percent.

Respondents in the 4th quarter survey indicated a sharp increase in the share of non-QM loans from 0.3 percent in the 3rd quarter to 1.5 percent in the 4th. The non-QM share peaked at 5.0 percent in the 3rd quarter of 2014 before pulling back sharply on weak investor demand. The share of rebuttable presumption loans increased as well, reaching 10.4 percent in the 4th quarter, not far from its peak of 12.8 percent in the 2nd quarter of 2014.

Banks tended to have the highest share of non-QM loans in the 4th quarter of 2015, while mortgage bankers drove the share of rebuttable presumption. These results likely reflect the business models of the various originators. Since there is little investor appetite for non-QM loans, non-QM loans must be held in portfolio putting bank capital at risk, while non-banks lack the capital for this type of lending. Conversely, banks have shown little interest in lending down the credit spectrum, while non-bank lenders have moved into this market both in the conventional and FHA spaces. Research by the Federal Reserve has shown that non-bank lenders tend to charge slightly higher than average rates, a trend that likely reflecting their capital structure and appropriate pricing of risk. Finally, survey respondents indicated that investor interest in non-QM loans slowed in the 4th quarter relative to the 3rd quarter, though it was expected to increase modestly over the next six months.

After contracting sharply in recent years, credit availability has slowly expanded. Unlike the heady years a decade ago, this riskier credit appears to be limited and concentrating in the portions of the market best suited to sustain it, protecting the broader market from a repeat of the subprime crisis.

EHS in 2015 by the Numbers – Part 2 – Least Common Closing Dates

Fri, 02/19/2016 - 11:14

This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.

You probably know that home closings slow down during the holidays and the earlier part of the week. Here is the data to back up your intuition:

  • The sales data for December 2015 is still preliminary, but we can get a good sense of the year by looking at the data we currently have for the past 12 months[1]. In our first post, we looked at top closing days of 2015.
  • In this list, we see the slowest closing days of 2015. The resulting list depends very much on how you define the eligible days.
  • Very few closings happen on weekends and federal holidays. Excluding these days as well as Christmas Eve, we find that the slowest closing day was Tuesday, January 13, 2015. Last year’s slowest day—January 2, 2014—again made the list, but was number four instead of number one this year, likely because it fell on a Friday which tends to boost sales. In fact, it was the only Friday to make this list.
  • While in 2014 there were a few weekend days that performed at least as well as these slow business days, this was not the case in 2015. All weekend days and holidays were slower than the slow business days listed below.
  • Because this ranking was compiled with data that was not seasonally adjusted, we see that winter days figure prominently in the list of slowest days for home closings.
  • Those who have been in business a few years can probably expect these seasonal fluctuations, but for those who are new to real estate, take note and plan your vacations accordingly.

[1] This analysis considers data from January 1, 2015 to December 31, 2015.

EHS in 2015 by the Numbers – Part 1 – Popular Closing Dates

Thu, 02/18/2016 - 15:15

This blog post was written by Managing Director of Housing Research, Danielle Hale, and Data Analyst, Hua Zhong.

You probably know that home closings predominate on Fridays and the end of the month. Here is the data to back up your intuition:

  • As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2015 holds for 2016. The last sales data for December 2015 is in, and we can get a good sense of the year by looking at the data we currently have[1].
  • A list of top closing days of 2015 shows that the last business day of a month and Fridays are the most popular days to complete a home sale transaction. In fact, these days are so popular that the top 25 closing days accounted for roughly a quarter of all home sale closings for the year.
  • The top 7 closing days were the last business days of April, May, June, July, September, and October. The next 18 most popular days were all Fridays except for four dates, all of which were at or near the end of the month: Monday, November 30; Monday, August 31; Tuesday, March 31; and Thursday, July 30.
  • Because this ranking was compiled with data that was not seasonally adjusted, we see that spring and summer days figure prominently in the top of the list, but all seasons are represented.
  • This day by day data confirms the preliminary unadjusted monthly EHS data which shows that June and July were the top months for home sales in 2015, followed by August and May. In fact, June and July alone account for more than 20% of sales for 2015.
  • It is expected that spring and summer months will be strong from a home sales perspective. This is why NAR Research reports seasonally adjusted home sales data each month, so we can see how sales are performing relative to what we might typically expect given the season.
  • By this metric, the second half of 2015 was stronger than the first half of the year with the notable exception being November, when TRID implementation dampened closed sales[2]. We expect the strength in the second half of 2015 will carry through into 2016.
  • What was your busiest day in 2015?

[1] This analysis considers data from January 1, 2015 to December 31, 2015.

[2] Revisions to seasonal adjustment factors that will be made in February 2016 when 2015 data is finalized are likely to shift the precise magnitude of this figure but unlikely to change the broad trend.

Where are the Closing Documents?

Wed, 02/17/2016 - 11:04

New rules governing the settlement process were introduced in the 4th quarter of 2015. NAR Research surveyed its members to gauge the impact of the new regulations and found a modest, but significant impact on volumes, but more insidious problems with REALTORS® ability to support their clients.

On October 3rd 2015, the Know Before You Owe or TILA-RESPA Integrated Documentation (TRID) rules went into effect. The rules were intended to better protect consumers, while streamlining the documentation required for settlement. One of the principle changes was the replacement of the HUD-1 form with the closing document or “CD”. The closing document describes the fees, charges, and APR the consumer faces. In the past, REALTORS® often aided their clients by answering questions about the HUD-1. 54.5 percent of REALTORS® who were surveyed indicated that they had problems getting the CD for transactions and half found errors when they did get access.

When REALTORS® did get access to CDs, they frequently found missing concessions and incorrect names or addresses, but incorrect fees, commissions, and taxes were also reported. Finally, REALTORS® were more likely to have issues getting access to the CDs, when settlement was delayed.

REALTORS® advise their clients on many aspects of the home purchase process. With TRID changes causing issues for some transactions, REALTORS® can seek out lenders who are up-to-speed on the TRID rules and who are attentive to the long-term relationship between these transaction partners.

TRID: 3-months In Review

Tue, 02/16/2016 - 11:01

The mortgage lending process underwent a major regulatory overhaul in the 4th quarter. NAR Research surveyed its members to gauge the impact of the new regulations and found a modest impact to the market, but significant impact for those settlements that were delayed.

The TILA-RESPA Integrated Documentation (TRID) or Know Before You Owe rules went into effect on October 3rd 2015. The rules are intended to streamline the documentation process and to add protections for consumers. REALTORS® who were surveyed indicated that 10.4 percent of transactions were delayed, but less than 1 percent cancelled. When settlement was delayed, the average delay was 8.8 days.

The share of closings that were delayed and the magnitude of the delay are very similar in scope to those found in an earlier analysis. Typically, a homebuyer locks their mortgage rate 30 days in advance of settlement. Locking the rate insures against fluctuations in the rate, but the buyer must pay for this insurance. Typically, a buyer pays a premium for each 15-day increment added to the base lock (e.g. 45 or 60 day rate lock). Or, if the buyer does not have a long enough rate lock and the settlement takes longer, they may need to pay for a rate extension, which is more expensive than a rate lock. For those home buyers impacted by the TRID-related delays, they may face higher costs due to longer rate locks or extensions. It is unclear whether lenders are absorbing these costs or passing them onto consumers. However, lenders would not absorb the costs of delayed moves and scheduling for both the buyer and seller.

Delays weighed on the market in the 4th quarter, but cancellations are low. As a result, the TRID impact shifted total monthly sales volumes roughly one period. This shift in the aggregate sales volume may mask the impact on impacted borrowers though.

December 2015 Housing Affordability Index

Fri, 02/12/2016 - 15:55

At the national level, housing affordability is down from a year ago as higher home prices and only slightly lower mortgage rates mean that monthly payments are rising faster than incomes.

Housing affordability declined from a year ago in December pushing the index from 171.0 to 161.7. The median sales price for a single family home sold in December in the US was $226,000, up 8 percent from a year ago. For year as a whole, the median price for a home in the US 2015 was 223,900, 7.2 percent higher than 2014 price which was 208,900.

  • Growing incomes and easing mortgage rates from a year ago helped to nearly offset the increase in home prices. Nationally, mortgage rates were down 2 basis points from one year ago (one percentage point equals 100 basis points) while incomes rose approximately 2 percent. The reduction in mortgage rates from one year ago saves the median home buyer $2 per month on principal and interest payments at the current home price while income growth means the median family earns $106 more per month than December 2014.
  • Regionally, all four regions saw declines in affordability from a year ago. The Midwest had the biggest decline in the affordability index of 6.5 percent followed by the West, South, and Northeast with the smallest at 2.7 percent.
  • The West had the biggest increase in price at 8.6 percent while the Northeast experienced the slowest price growth at 6.1 percent. The Midwest and the South fell in between with 7.8 percent and 7.0 percent, increase in single family home prices, respectively.
  • By region, affordability is down in all regions from last month. The South (5.0 percent) and West (3.0 percent) had the biggest dip while the affordability decreased the least the Midwest (2.1 percent) and Northeast (0.9 percent).
  • Despite month to month changes, the most affordable region is the Midwest where the index is 209.5. This means that in the Midwest in December 2015, the median income family earned roughly 2 times the income that would be needed to qualify to purchase the median-priced home that sold in the same month. For comparison, the index is 167.3 in the South, 165.1 in the Northeast, and 118.5 in the West.
  • Price growth for potential home owners remains unhealthy especially in certain metro markets where inventory is an issue. Mortgage rates are currently stable and have exhibited a tendency to move lower as a result of financial market turmoil in spite of the Fed’s move to raise short-term rates. Homebuyers looking to get into the market can still lock in a low rate which helps make homes more affordable and enables new owners to participate in the equity build up that results when home prices rise.
  • 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 (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

President’s Day 2016: How Does the White House Compare to the Average Home

Fri, 02/12/2016 - 14:04

In the spirit of President’s Day we can use data from the 2015 Profile of Home Buyers and Sellers to see how the typical home differs from the White House.

Typical Home Purchased in the U.S.

  • 84% of buyers purchased a previously owned home, with 83% of buyers choosing a detached single-family home.
  • Looking at first-time and repeat buyers, both also purchased detached single-family homes more often with 80% of first-time buyers and 84% of repeat buyers.
  • 52% of all buyers purchased their home in a suburb/subdivision. The typical detached single-family home purchased was 1,900 square feet.
  • Homes purchased also had a median of 3 bedrooms, 2 bathrooms, and was built in 1991.
  • Of all buyers, the expected length of tenure in the home purchased was 14 years.

The White House

  • The White House was built in 1792, and in comparison is located in an urban or central area.
  • The White House contains 6 levels, has 132 rooms, including 35 bathrooms.
  • It also includes features such as: a tennis court, jogging track, swimming pool, billiard room, movie theatre, and bowling alley.
  • While tenure in the median expected tenure in home lasts around 14 years, in the White House the expected tenure is between 4 and 8 years.


For more information on this data check out the President’s Day Infographic and the 2015 Profile of Home Buyers and Sellers.

FHFA’s GSE Housing Goals are Targeting to Increase Affordable Housing Opportunities for Low-income Families in 2015-2017: A REALTOR® University Speaker Series

Wed, 02/10/2016 - 09:41

In a presentation in the REALTOR® University Speaker Series held recently, Dr. Paul Manchester presented the affordable housing goals for the government-sponsored enterprises, Fannie Mae and Freddie Mac, for 2015-2017.[1] FHFA’s housing goals for the GSEs pertain to increasing credit to low-income borrowers and areas for single-family homes and increasing financing for multi-family units that are affordable to low-income renters, while maintaining the financial safety and soundness of the GSEs.[2] Dr. Manchester is the Federal Housing Finance Agency’s lead economist for the preparation of FHFA’s Annual Housing Reports, submitted to Congress in October each year.[3] The webinar can be accessed here.

Some highlights of the single-family home purchase/refinance and multi-family unit financing goals:

1)      Share of single family loans to low income borrowers: pre-set benchmark. For 2015-2017, the GSEs have a pre-set benchmark that 24 percent of their single-family home purchase mortgages in each year should be for low-income borrowers, defined as borrowers with incomes of 80 percent or less of the area median income[4]. This is slightly higher than the 2012-2014 target of 23 percent. Although representing only a slight increase, this will improve the access to credit for low-income borrowers.

2)      Share of single-family loans to low-income borrowers: retrospective market comparison. A GSE meets this goal if its performance equals or exceeds this benchmark of 24 percent or if its performance equals or exceeds the low-income share of conventional home purchase mortgages originated in the primary mortgage market during the year.  This latter figure is based on FHFA analysis of Home Mortgage Disclosure Act (HMDA) data.  However, this HMDA data is not released until September of the subsequent year.  Thus in addition to comparing performance with the pre-set benchmark, FHFA employs this “look back” procedure in determining goal compliance.  An Enterprise fails a goal only if its performance falls short of both the pre-set benchmark level and the retrospective market goal-qualifying share of the primary market.  In 2013-2014, Fannie Mae met its goals to provide financing for single-family home mortgages made to low-income borrowers (highlighted in green in Chart 1). Freddie Mac missed its goal (highlighted in red), since its performance (21.8 percent in 2013 and 21.0 percent in 2014) fell short of both the benchmark level (23 percent for both years) and the market level (24.0 percent in 2013 and 22.8 percent in 2014).  Based on its shortfall on this goal and the very low-income goal in 2014, FHFA is requiring Freddie Mac to submit a housing plan that will enable it to meet targets for 2016 and 2017. [5]

3)      Multi-family low income goal – For each year, 2015-2017, the multi-family goal is that each GSE provide financing for at least 300,000 units that are affordable to low income families (600,000 total). This is higher than the targets in 2012-2014 (see Chart 2). The higher target will help ease the shortage of affordable rental units. Both Fannie Mae and Freddie Mac met their goals in 2012-2014. Together, they provided financing for 674,453 units affordable to low-income renters in 2012, 581,225 units in 2013, and 536,484 units in 2014.

4)     Small multifamily sub-goal. To enhance the role of the GSEs in providing access to affordable rental housing, FHFA has established a new sub-goal for the agencies to provide financing for units in small (5- to 50-unit) multifamily properties that are affordable to low income borrowers. For 2015, the goal for each Enterprise was 6,000 units (12,000 combined); this increases to 8,000 units each in 2017 (16,000 combined), and to 10,000 units each in 2017 (20,000 combined) (Chart 3).

REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.

[1] The REALTOR® University Speaker Series on “Overview of the Final Enterprise Housing Goals in 2015-2017” was held on January 28, 2016 at the NAR Washington Office.

[2] Under the 2008 Housing and Economic Recovery Act, all regulation of the Enterprises, except fair housing, was transferred from HUD and OFHEO to the Federal Housing Finance Agency.  FHFA is also the regulator for the Federal Home Loan Banks.


[4] FHFA sets the prospective target based on six factors:  specified in Housing Economic and Recovery Act which transferred all regulation, except on fair housing, from HUD to FHFA: (1) national housing needs; (2) economic, housing, & demographic conditions; (3) past goal performance and effort; (4) ability of Enterprises to lead the industry in making mortgage credit available; (5) projected size of relevant primary conventional, conforming market;  and (6) the need to maintain the sound financial condition of the Enterprises.

[5] For more information about the GSEs’ performance, see FHFA’s 2015 Annual Housing Report at

Financing, Home Inspection, and Appraisal Issues: Major Issues Affecting Contract Settlement

Tue, 02/09/2016 - 11:15

In reporting on their last contract that went into settlement or was terminated over the period October–December 2015, REALTORS® reported that 33 percent of contracts had delayed settlement, according to the December 2015 REALTORS® Confidence Index Survey Report.

Among contracts that had a delayed settlement (33 percent), 45 percent had financing issues, an increase compared to the share of about 40 percent in the first half of 2015. REALTORS® reported that the “Know Before You Owe”/TRID regulations have led to longer closing periods.[1] In the December 2015 survey, 53 percent of respondents reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in the October 2015 survey when NAR first gathered this information.

Among contracts that were terminated (seven percent), 29 percent had financing issues and 29 percent had home inspection issues.

[1] The “Know Before You Owe”/TRID regulations that took effect on October 3, 2015, were intended to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage for which they are applying.

In What States Did Properties Sell Quickly in October–December 2015

Mon, 02/08/2016 - 11:13

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?”

Nationally, properties sold in December 2015 were typically on the market for 58 days compared to 66 days one year ago (54 days in November 2015; 66 days in December 2014, according to the November 2015 REALTORS® Confidence Index Survey Report.

Fewer days on the market are an indication that inventory remains tight. Short sales were on the market for the longest time at 86 days, while foreclosed properties typically stayed on the market for 68 days. Non-distressed properties were typically on the market for 57 days.

Properties typically sold within a month in the District of Columbia, Utah, and Colorado. In the oil-producing states of North Dakota, Montana, Kansas, and Louisiana, which are undergoing slower job growth following the collapse of oil prices, properties stayed on the market longer at 60 days. In Wyoming, properties typically sold after 90 days on the market. Texas appears more resilient to the oil price collapse, as properties typically sold after 45 days on the market. Diversity in the Texas economy may explain this phenomenon. Local conditions vary, and the data is provided for REALTORS® who may want to compare local markets against the state and national summary.

11 Respondents were asked “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. In generating the median days on market at the state level, we use 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.

More Workers Filed Unemployment Insurance Claims in January 2016

Thu, 02/04/2016 - 10:49
  • The number of workers starting a period of unemployment is on the rise. The U.S. Department of Labor reported that in the week ended January 30, 2016 285,000 claims were filed, an increase of 8,000 from the previous week’s level. Some of the increase may be due to weekly volatility, but even four-week moving average which strips out the weekly volatility shows an increase in jobless claims (Chart 1). In the four weeks of January 9 – 30, an average of 284,750 workers filed unemployment insurance claims, an increase compared to 263,000 claims filed in October 2015.
  • The uptick in the number of claims filed appears to be associated with the steep fall in oil prices, plunging from about $100 per barrel in 2012-2014 to about $32 in January 2016[1]. This has led to a cutback in jobs and investment spending in the oil-producing states of Texas, Oklahoma, Louisiana, North Dakota, West Virginia, Wyoming, and New Mexico (Charts 2). In the fourth quarter, the economy expanded at a slower pace of 0.7 percent as spending across most sectors declined, save for residential investment which grew at a healthy pace of 8.1 percent (Chart 3).

  • Given the headwinds coming from falling oil prices, NAR projects existing home sales of 5.34 million in 2016, a modest increase from the 5.26 million existing homes sold in 2015.

[1] West Texas Intermediate, spot price.

Home Buyers, 34 Years and Under: 27 Percent of Residential Sales in December 2015

Wed, 02/03/2016 - 10:19

Buyers who are 34 years old and under accounted for 27 percent of home sales in December 2015, according to the December 2015 REALTORS® Confidence Index Survey Report.

The participation of buyers who are 34 years and under has remained essentially unchanged since the housing market’s breakout recovery in 2012. Income growth has lagged behind the increase in house prices, making it harder to qualify for a mortgage and save for a downpayment, especially for someone with student loans.[1] Buyers 35 to 55 years old accounted for nearly half of sales, while buyers 56 and over represented 24 percent of home sales. Older buyers are more likely to have better credit profiles and the savings or home equity to use as downpayment than younger buyers.

Nationally, buyers 34 years and under accounted for 28 percent of all buyers in calendar year 2015. Younger buyers comprise a larger portion of the residential market in Utah (39 percent), Pennsylvania (38 percent), New York (36 percent), Ohio (35 percent), Illinois (36 percent), and Colorado (33 percent).

[1] Federal Reserve Board, Survey of Households and Economic Decision-making, October 2014. Among renter respondents, 50 percent reported they do not have the downpayment to purchase a home, and 28 percent reported they cannot qualify for a mortgage. See