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Updated: 15 min 57 sec ago

Regional and Local Banks Gain Share in CRE Lending

Tue, 10/27/2015 - 15:47

Commercial space is heavily concentrated in large buildings, but large buildings are a relatively small number of the overall stock of commercial buildings. In terms of inventory, commercial real estate (CRE) markets are bifurcated, with the majority of buildings (81 percent) being relatively small (SCRE), while the bulk of commercial space (71 percent) is concentrated in larger buildings (LCRE). The bifurcation continues along transaction volumes as well, with deals at the higher end—$2.5 million and above—comprising a large share of investment sales, while transactions at the lower end make up a smaller piece of the pie.

Data are readily available for transactions in excess of $2.5 million from several sources, including Real Capital Analytics (RCA). However, in general, data for smaller transactions—many of which are handled by REALTORS®—are less widely available. NAR’s CRE research offers a window of information for SCRE properties and transactions, mostly valued below $2.5 million.

The latest report from RCA focuses on lending sources in the CRE space. The 2015 landscape is more diversified and balanced than the prior year. CMBS issuers account for 21 percent of the lending market this year, a decline from last year’s 27 percent. Government agencies (Fannie Mae and Freddie Mac) were the second source of funds, by market share, with 18 percent of activity.

Banks have also stepped-up lending for CRE projects, accounting—in aggregate—for 38 percent of market share. While national banks comprised 16 percent of total activity, regional and local banks made up 15 percent of total activity, a significant increase from 2011 when they accounted for only 9 percent of total.

Based on NAR’s 2015 data, the capital picture displays a fundamentally different landscape. Local and regional banks account for 58 percent of REALTORS® CRE market lending. Local and community banks represent over one-in-three lending sources, having gained market share from the prior year, when they made up 30 percent of the market.

Private investors were the third main capital providers, accounting for 11 percent of deals during 2014. National banks came in fourth place, with 7 percent market share. The Small Business Administration and credit unions made up 6 percent and 5 percent, respectively, of transactions.  Life insurance companies were much less active in REALTOR® markets, representing 3 percent of deals, while CMBS conduits accounted for only 1 percent of funding, tied with REITs and public companies.

For more information and the full report, access NAR’s Commercial Lending Trends 2015 at http://www.realtor.org/reports/commercial-lending-trends-survey.

Measurement Variations in Home Sales

Tue, 10/27/2015 - 10:37

Last week, the National Association of REALTORS® reported that homes sold at a 5.55 million unit pace in September and that this was 4.7 percent above the August sales pace and 8.8 percent above the September 2014 sales pace. This figure is seasonally adjusted—to account for fewer sales in winter months like January and greater sales in summer months like June—and at an annual pace—meaning we multiply the resulting number by 12 so that it can easily be compared with the total figure for the year. For example, in 2014, there were 4.94 million homes sold in the calendar year, so we know that this September’s pace is better than 2014

Along with the Seasonally Adjusted Annual Rate data, we also produce an estimate of unadjusted sales. In September 2015, we reported that there were 471,000 home sales across the United States, a figure that was 8.0 percent higher than September 2014 and 6.5 percent lower than August 2015. You’ll notice that the measured increase from September 2014 to September 2015 differs depending on whether we use the adjusted or unadjusted data (8.8 percent versus 8.0 percent). This is mainly because the seasonal adjustment process can result in slightly different seasonal factors from year to year.

So is the 471,000 unadjusted home sales we reported the actual number of homes that sold in September? No; the unadjusted home sales we reported are the best estimate of home sales given our data collection methodology and reporting process. This is a very good estimate of the number of homes sold in the US in September 2015, but like all estimates, it is subject to variation and error.

What are sources of variation in the data? First, there is the issue of rounding. When we report 471,000 home sales, this is a rounded estimate from our data collection process and could mean that the raw number was as low as 470,500 or as high as 471,499. The variation from rounding gives a differential of roughly a quarter percentage point and could sway a growth rate by up to 0.5 percent.

Another source of variation in the home sales data is the sample. While we collect data from hundreds of MLSs and local associations across the country, we only use data from roughly 200 of the most regular data reporters in the panel used to construct the monthly estimates. These reporters account for roughly 40 percent of home sales across the country. If our panel markets have sales trends that mirror the markets in non-panel areas, our estimate will be a solid reflection of the entire market. Alternately, if our panel data varies from non-panel data areas in random ways, our data will be too high some months and too low other months, yet it should be roughly consistent with the entire market over time.

Assuming random sampling error in our sample, the best estimate of a 95 percent confidence interval around the monthly existing home sales estimate is plus or minus 4 percent. When we report 471,000 sales in September, the 95 percent confidence interval for the count of home sales in September is in the range of 452,000 to 490,000 (452,160 to 489,840 before rounding. More generally, in repeated random samples of home sales, the confidence interval would contain the true count of home sales 95 percent of the time). This also means that we can be quite certain that sales in September 2015 were higher than sales in September 2014, and the true rate of increase likely fell between 3.7 percent and 12.4 percent.

If you look, you’ll find confidence intervals around all kinds of data. They don’t often garner much attention, but they provide useful information. One reason why analysts sometime focus more on building permits than on housing starts or completions as an indicator of construction is that the building permits survey has a much narrower confidence interval than either of the other two construction indicators.

Monthly Change in Recent Point Estimate Confidence Interval Source New Home Sales -11.5% +/- 11.3%* https://www.census.gov/construction/nrs/pdf/newressales.pdf Total Nonfarm Employment +142,000 +/- 105,000* http://www.bls.gov/news.release/empsit.tn.htm

http://www.bls.gov/news.release/empsit.nr0.htm Unemployment Rate +0.0% +/- 0.2%* http://www.bls.gov/news.release/empsit.tn.htm

http://www.bls.gov/news.release/empsit.nr0.htm Building Permits +5.0% +/- 1.4%* http://www.census.gov/construction/nrc/pdf/newresconst.pdf Housing Starts +6.5% +/- 16.4%* http://www.census.gov/construction/nrc/pdf/newresconst.pdf Housing Completions +7.5% +/- 13.6%* http://www.census.gov/construction/nrc/pdf/newresconst.pdf

*Indicates 90 percent confidence interval

Does Temperature Change Affect Housing Prices?

Tue, 10/27/2015 - 09:05

Climate change will be one of the key issues in the 2016 presidential elections. Based on prior studies[1], climate in a given location influences people’s housing decisions, and changes in climate may affect these decisions in ways that alter our understanding of desirable locations. Climate change results in a variety of physical effects including changes in temperature, precipitation, and extreme events such as flooding and hurricanes. Let’s see how temperature and housing prices changed since the last pre – election period in 82 metro areas. Please keep in mind that a four year change in temperature could have been influenced by multiple factors, both man-made and natural.


Temperature rose in most of the metro areas studied. Among these 82 metro areas, 34% had a modest increase (up to 30F) while temperature increased between 40F to 80F in 43% of them. Los Angeles-Long Beach-Santa Ana, CA and San Diego-Carlsbad-San Marcos, CA were two metro areas on the list with the highest increase in temperature between September 2011 and September 2015. In contrast, the temperature in Spokane, WA and Boise City – Nampa, ID fell by 50F in the same period.

The top 5 metro areas with the highest increase of temperature:

- Chicago-Joliet-Naperville, IL-IN-WI

- Des Moines-West Des Moines, IA

- Los Angeles-Long Beach-Santa Ana, CA

- Omaha-Council Bluffs, NE-IA

- San Diego-Carlsbad-San Marcos, CA

Top 5 metro areas with the highest decrease of temperature:

- Boise City-Nampa, ID

- Spokane, WA

- Portland-Vancouver-Hillsboro, OR-WA

- Houston-Sugar Land-Baytown, TX

- Phoenix-Mesa-Glendale, AZ

When it comes to places to live, Americans like it to be warmer. Comparing housing prices in the second quarter of 2011 with 2015, we see that people prefer a hotter place to live over one with colder climate. Cape Coral-Fort Myers, FL, Phoenix-Mesa-Glendale, AZ, Las Vegas-Paradise, NV, Orlando-Kissimmee-Sanford, FL and North Port-Bradenton-Sarasota, FL ranked at the top of places with the highest gains in housing prices.

Does this mean that temperature changes affect housing prices as well? Based on our data, metro areas with the highest gains in housing prices (50% and more) typically had a small increase in temperature (up to 20F) since last pre–election period. For example, in Atlanta-Sandy Springs-Marietta, GA the temperature increased 10F while house prices increased 78%. Also, in Cape Coral-Fort Myers, FL where the temperature dropped 10F, prices increased 91%. Nevertheless, metro areas where temperature rose more than 30F did not experience significant price gains. For instance, in Little Rock-North Little Rock-Conway, AR the temperature rose 60F while prices increased 7%. Thus, there seems to be a negative relationship between temperature change and housing prices.

But, correlation does not imply causation. In other words, the above negative correlation between temperature change and housing price does not necessarily imply that an increase of temperature will cause housing prices to fall. The above model does not take into account other factors which may affect people’s decisions and which may have been changing in different ways over the study period. Factors such as good schools, shorter commute etc. may influence where households choose to live and work. Also, housing recovery may be another factor which affected prices. For example, prices fell sharply in the sand states (FL, AZ, NV, GA) due to the high foreclosure rate, thus their recent sharp price increases seem to be a bounce.

[1] Gyourko, J and J Tracy (1991). The structure of local public finance and the quality of life.

Journal of Political Economy, 99, 774–806.

Albouy, D, W Graf, R Kellogg and H Wolff (2013). Climate Amenities, Climate Change, and

American Quality of Life. Working Paper 18925, National Bureau of Economic Research,

Cambridge, MA.

Latest New Home Sales (September 2015)

Mon, 10/26/2015 - 15:00
  • New home sales plunged in the past month to the slowest pace of the year. Despite the monthly decline, the year-to-date sales were up by 18 percent. Based on housing permit issuance trends, new home sales are likely to turn upwards in upcoming months.
  • In September, new home sales—after accounting for seasonal factors—fell to 468,000 annualized units. New homes sales account for less than 10 percent of the total home sales market at the moment, and so is a much smaller player compared to existing home sales. Yet the pace of new home sales will determine the eagerness of homebuilders to get back into market. From a broad market point of view, more homebuilding is needed in America to tame home price growth.
  • There was pullback in every region. The Northeast region took the biggest dive with sales collapsing 62 percent from the prior month.
  • Homebuilders are still indicating very little trouble in selling newly constructed property. It took on average only 3.3 months to find a buyer, which is almost a historically fast pace. The reason for fewer home sales is due to not very much new home production. Local authorities need to issue more housing permits. The data suggests they are, so it appears only a matter of time before more new homes will be constructed and sold.
  • Homebuilders are catering to the high-end buyers as evidenced by high prices on the homes sold. The median price of newly constructed homes was $296,900.  The current premium of new home prices over existing home prices is 33 percent. That is roughly double the average premium gap between new and existing home prices over the past 30 years. This focus on the high-end is also contributing to the constraint of first-time homebuyers in reaching the market.

September Existing-Home Sales

Fri, 10/23/2015 - 10:56
  • NAR released a summary of existing-home sales data showing that the housing market continues to recover as September’s existing-home sales reach the 5.55 million seasonally adjusted annual rate. September marks 12 consecutive months of year over year gains, and sales are up 8.8 percent from a year ago.
  •  The national median existing-home price for all housing types was $221,900 in September, up 6.1 percent from a year ago, September 2014.
  • Regionally, all four regions showed growth in prices from a year ago. The West had the largest gain at 8.0 percent while the Northeast had the smallest gain at 4.0 percent from last September.
  • From August, all regions had an increase in sales. The Northeast had the biggest increase at 8.6 percent while the Midwest had a modest increase of 2.3 percent. All regions showed solid gains in sales from a year ago. The Midwest had the biggest increase of 12 percent while the South had the smallest gain of 5.7 percent. The South leads all regions in percentage of national sales at 39.8 percent while the Northeast has the smallest share at 13.7 percent.
  • September’s inventory figure decreased 2.6 percent from last month and is also down 3.1 percent from a year ago. It will take 4.8 months to move the current level of inventory at the current sales pace. It takes approximately 49 days for a home to go from listing to a contract in the current housing market compared to 56 days a year ago.
  • Single family sales increased 5.3 percent while condos were flat compared to last month. Single family home sales increased 9.6 percent and condo sales are up 3.3 percent from a year ago. Both single family and condos had an increase in price with single family up 6.6 percent and condos up modestly at 1.9 percent from a year ago, September 2014.

August Housing Affordability Index

Thu, 10/22/2015 - 11:02

At the national level, housing affordability is down from a year ago, but up for the month of August as both home prices and mortgage rates came down while incomes grew slightly above 2 percent.

•Housing affordability is down from a year ago in August as the median price for a single family home in the U.S. is up from a year ago. Regionally, the West had the biggest increase in price at 10.0 percent while the Northeast experienced the slowest price growth at 4.4 percent. The Midwest and the South both contributed solid price gains of 7.2 percent.

•The median single-family home price is $230,200 up 5.1 percent from August 2014. August’s mortgage rate is 4.15, down 9 basis points (one percentage point equals 100 basis points) from last year. Nationally, affordability is down from 160.0 in August 2014 to 157.7 in August 2015.

•Affordability is up from one month ago in all regions, and the South had the largest jump of 3.0 percent while the Northeast rose only 1.2 percent. From one year ago, affordability is down in all regions. The West saw the biggest decline in affordability at 2.9 percent and the Midwest had the smallest decline of 0.7 percent.

•Despite month to month changes, the most affordable region is the Midwest where the index is 198.0. The index is 166.1 in the South, 153.4 in the Northeast, and 117.2 in the West.

•Rents are still rising and are currently at a seven year high. The new rules on lending disclosure known as TRID or “Know Before You Owe” could slow down the process of obtaining a loan and may cause consumers to need more time between contract singing and closing. This could also mean a need for longer rate-lock periods, which could be more expensive. Realtors can help clients by learning about the regulations, managing client expectations, and working with clients to get paperwork turned in earlier.  Recent data shows mortgage applications are currently up and monthly figures remain solid. Purchasing a home is still viewed as a standard means of building wealth and long-term gains should remain in the mind of renters.

•What does housing affordability look like in your market? View the data 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.

A REALTOR® University Presentation on A Global Perspective on the U.S. Housing Market

Wed, 10/21/2015 - 14:08

U.S. housing prices have rebounded strong in the U.S. since the housing collapse in 2006. How does the U.S. recovery compare with other countries? And what is the impact of the collapse of oil prices and slower Chinese economic growth on the ongoing recovery of the U.S. housing market? This was the topic of discussion at a recent REALTOR® University Speaker Series, with Dr. Alessandro Rebucci, Assistant Professor of the John Carey Business School as speaker[1].

According to Dr. Rebucci, U.S. average house prices have increased fairly relative to national income from their 2010 levels compared to what has been happening in other countries (see Chart 1 below). Using the house price-to-income as indicator, he noted that prices have risen faster than income in countries such as Germany, Switzerland, the United Kingdom, Canada, and Australia.[2] So the increase in U.S. house prices after the housing downturn has actually been more moderate compared to the recovery in other countries.

Regarding the impact of oil prices on housing prices, Dr. Rebucci stated that his analysis of past oil price collapses does not indicate that the current low oil prices will lead to a broad collapse of housing prices as well. Falling oil prices only lead to falling house prices if the oil prices decline is triggered by a recession. Even in states like Texas, there is no evidence of an association between oil price declines and falls in house prices in excess of the national average. He noted also that the oil price decline this time around arose from excess global supply rather than a demand collapse, although the impact might be felt on house prices at the community level where gas shale production is concentrated.

Regarding the Chinese housing market and its economy, Dr. Rebucci cited recent NBER[3] research showing that house price appreciation is out of line with fundamentals only in China’s Tier 1 cities such as Beijing, Shanghai, Guangzhou, and Shenzen. Meanwhile, house prices increased in line with fundamentals in Tier 2 and in especially less liquid markets in Tier 3 cities. If the housing bubble in the Tier 1 cities does burst and house prices fall, Dr. Rebucci expects the U.S. market might benefit because of the possible inflow of capital to the U.S., under progressively more liberal regulation governing international capital flows to and from China.

Dr. Alessandro Rebucci is Assistant Professor at the Johns Hopkins Carey Business School, E. St. John Real Estate Program. He held various research positions at the International Monetary Fund and at the Inter-American Development Bank. He can be reached at arebucci@jhu.edu.


[1] The REALTOR® University Speaker Series was held on October 19, 2015 at the NAR Washington Office.

[2] An index lower than 100 means house prices are increasing less than income, while an index greater than 100 means housing prices are rising faster than incomes, making a house purchase more unaffordable. The index is an indicator of changes in prices and incomes compared to a base year.  In terms of levels, it is possible that house prices are in fact “ too high” or “unaffordable” relative to the level of income.

[3] National Bureau of Economic Research

How Do Homeowners Accumulate Wealth?

Mon, 10/19/2015 - 12:19
Lawrence Yun for Forbes

The differences between buying and renting are massive.  According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400.  The data reflects 2013 and the next survey of household finances, which is conducted every three years, will be out in 2016.  Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.

Read the rest of the article at Forbes > 

Waiting on the Boomerang

Fri, 10/16/2015 - 15:17

Return or boomerang buyers have grown in numbers in recent years. Forecasts indicate that these former homeowners who experienced a foreclosure or short sale will return to the market in greater volume in the years ahead. However, lack of knowledge about special financing programs or lender overlays are hampering this group’s return.

Several factors could hinder a boomerang buyer’s ability to purchase another home including an impared credit score, a weak job situation, or a family matter. Mandatory waiting periods for financing through the FHA, VA, or the GSEs also impact return buyers. As depicted below, the FHA, VA, and GSEs restrict acces to credit following a foreclosure for a minimum of 3, 2 or 7 years (bottom left), respectively, though the GSEs are more lenient for a short sale.

However, if the consumer can prove that they lost their home due to a decline of income, loss of employment or some family situations they may be eligible for the extenuating circumstances criteria. Consumers eligible for this program may be be able to attain financing in as little as a year through the FHA or VA programs (above right).

The chart above depicts the distribution of years in which the foreclosures or short sales took place for return buyers who purchased their subsequent home in 2014.[1] The data is also displayed by the type of financing used. Because each financing program has a standard and extenuating circumstances option, one would expect to find two concentrations of buyers in each distribution: one around[2] the standard time frame and another near the extenuating circumstances opportunity. This two-hump or bicameral pattern is evident in the conventional (green), but not for the VA (red) and FHA (blue). The difference in timing for the VA program is minimal and may result in the single hump. However, there is only one peak in the FHA’s distribution as well and it is higher or more concentrated than the other two distributions. Furthermore this point is four years prior to 2014, suggesting that the bulk of return buyers who use the FHA’s program are waiting three years and not taking advantage of the shorter extenuating circumstances option. Likewise, the VA distribution is most concentrated three years prior to re-purchase, aligning with the two year wait under the VA’s standard foreclosure definition.

There are four potential reasons for borrowers not taking advantage of the shorter waiting period of the extenuating circumstances program at the VA and FHA:

  • Consumers are not aware of the program,
  • FHA and VA customers do not qualify for the extenuating circumstances,
  • Lenders are not aware or do not offer the program, or
  • Overlays are having an impact on this group’s ability to credit qualify for the program

Unfortunately, we cannot measure consumers’ awareness of the FHA’s program from this survey nor can we measure these consumers’ credit scores. Survey work by the FHA indicates that the majority of former homeowners who were financed by the FHA and experienced a foreclosure or short sale would have qualified for extenuating circumstances[3], but this does not necessarily imply that they would choose FHA financing again as pricing was higher for the FHA than conventional in 2014. However, these consumers’ initial choice of FHA suggests that they are either credit, capital or capacity constrained and would likely choose this program again. Finally, a review of several lenders’ product offerings suggests that many lenders do not offer the shorter option[4] for FHA and VA products. Furthermore, because this group’s credit scores are impacted by distress sales which can take years to recover[5], well documented credit overlays[6] on FHA production could be having a disproportionate impact. While not definitive, the latter two issues may be constraining this group.

From 2006 to 2014 nearly 9.3 million homes were foreclosure on or short sold. Homebuyers who experienced a short sale or foreclosure are returning to the market in growing numbers and will continue to do so over the next decade. While financing channels have expanded to provide opportunities for these potential return buyers, limitations persist.

[1] Special thanks to Brandi Snowden for preparing these cut of the 2014 Profile of Home Buyers and Sellers

[2] Ability to recover credit score and build down payment as well as the blend of foreclosures and short sellers may spread re-entry around these points.

[3] This may be different for owners who used VA or conventional financing on their initial purchase

[4] See Scotsman Guide’s FHA/VA/Government matrix for September or October of 2015

[5] For additional details on time to recover credit scores see http://economistsoutlook.blogs.realtor.org/2015/04/17/return-buyers-many-already-here-many-more-to-come/

[6] http://www.urban.org/research/publication/opening-credit-box/view/full_report


Latest Consumer Price Inflation (September 2015)

Thu, 10/15/2015 - 11:01
  • Though the headline shows no inflation, rents are now rising at the fastest pace in 7 years. Moreover egg prices are up 37 percent from one year ago. The lower gasoline prices are in essence masking much of inflationary pressures from other items.
  • The overall consumer inflation fell 0.2 percent over the month in September and was unchanged from one year ago. As a result, social security checks in 2016 will see no cost-of-living-adjustment.
  • The Federal Reserve in deciding on monetary policy is more concerned with the “core inflation” and not the headline inflation. The “core” – after taking out the volatile impact of large swings in energy and food prices – rose by 1.9 percent from one year ago. If it crosses the 2 percent line then the Fed will itch to raise rates. As long as rents rise, and they will given the 30-year low rental vacancy rates, the “core inflation” will trend higher. The Fed rate hike is therefore certain though the first rate hike could be delayed till December or early next year. In addition, the second and third rate hikes will occur later in 2016.
  • Renters’ rent rose by 3.7 percent, the highest pace since 2008. Homeowners’ equivalence rent (a hypothetical rent a homeowner would pay if the house was rented) rose by 3.1 percent, the highest pace since 2007. There is a housing shortage and these rent components will continue to rise for the foreseeable future because of falling vacancy rates.
  • For seniors on social security who are not homeowners and do not drive that much will get hurt next year from higher rents, higher food prices, higher medical fees, and higher public transportation costs. Prices are lower for clothes and electronic equipment, but seniors do not purchase many of these items.

Applications for Purchase Mortgages

Wed, 10/14/2015 - 10:41
  • Applications for purchase mortgages tumbled 34.1 percent for the week ending October 9th after surging 27.4 percent in the prior week, but the 4-week moving average remains strong. The new TILA RESPA Integrated Documentation (TRID) closing documents and process also known as the Know Before You Owe rule was introduced on October 3rd. Consequently the boom and bust pattern reflects applications that were filed early to avoid complications with the new rule and the subsequent slump.

  • This regulation streamlines many of the current closing docs and includes new features intended to make the consumer more aware of their true financial burden.
  • While both components fell sharply from a week earlier, the conventional applications portion declined slightly more than government applications (pictured above). However, the full index was down only 1.2% from a year ago, the first year-over-year decline in the seasonally adjusted index since January 2015. If demand had not been pulled forward into the prior week’s reading, this week’s reading likely would have been much stronger than a year earlier. The 4-week moving average, a means of smoothing this weekly volatility, declined just 3.1 percent from the prior week, but is up 23.4 percent from the same time a year ago, roughly the same as it was for the prior month.
  • The average rate for a 30-year fixed mortgage was unchanged from a week earlier at 3.99 percent, but was 21 basis points lower than the same time a year earlier.

  • This week’s decline is likely to abate in the weeks ahead, but the pattern may remain choppy as originators wrestle with the new regulatory environment.
  • In the long term, the rule should help to make the process a more transparent process for consumers. Luckily the change was timed for the fall, a slower period, the Consumer financial Protection Bureau has signaled its intention to hold lenders harmless so long as they perform a “best effort” to comply in the near term.
  • Some lenders may be better prepared for the changes than others. Consumers and Realtors should shop a variety of lenders and ask their Realtors for their experiences with various lenders in the TRID environment. The closing process may take longer and as a result could cost slightly more for longer rate locks. A savvy lender could help to smooth the process.

Twitter Chat, Oct. 16, 3 pm ET: Technology in the Home Buying Process

Wed, 10/14/2015 - 07:39


Join us for our next Real Insight Twitter chat this Friday, Oct. 16, at 3 pm EST on technology use in the home buying process. We will be discussing how home buyers use technology to research and identify properties as well as how they connect with and ultimately choose their REALTOR®.

We will be co-hosting this chat with Lauren Mitrick, an award-winning Realtor for Chicago-based Newman Realty. Lauren’s been recognized as a “30 Under 30” Realtor by Forbes, REALTOR® Magazine and the NAR Young Professionals Network. Follow her on Twitter at @laurenmitrick.

Lauren will be joined by an esteemed panel of current and recent homebuyers:

Lexie Kier, Managing Director of LaterPay USA, a micropayment company for digital content, and Founder at Cuurio, an index for tech startups and a partnership platform for brands, is currently going through the process of buying a new home. Follow her on Twitter at @a0k.

A recent Chapel Hill, N.C. transplant with her husband and two daughters, Beth Torrie is VP of Strategic Engagement at Sitecore, an enterprise content management platform. Beth has 20 years of experience leading marketing and communications programs for innovative software companies. Follow her on Twitter at @bethtorrie.

Follow the #RealInsightChat hashtag on Twitter to stay connected to the conversation. We encourage you to ask your own questions and participate in the chat, just don’t forget to use the hashtag!

We hope you can make it!

Latest State and Metro Employment (August 2015)

Mon, 10/12/2015 - 10:47
  • Good News: 47 states have created jobs over the past 12 months. Utah is leading the way with a 4 percent job growth rate. The Pacific Ocean states of Oregon and Washington are right behind. Florida and Nevada round out the top-five. Naturally, these states are seeing solid demand for home buying and for commercial real estate leasing activity.
  • Bad News: Though jobs are positive, nearly all states lost momentum. The job creation to August were slightly weaker compared to July in 41 states. Only 9 states had a stronger pick-up. For example, Texas had created 278,000 net new jobs in the 12-months to July; but then slipped to a fewer 212,000 to August.
  • Ugly News: There are fewer jobs this August compared to one year ago in West Virginia, Alaska, and North Dakota. Lower oil prices are leading to fewer drillings and coal miners are very unhappy about the current state of its industry. Fewer jobs will mean lower demand for real estate.
  • At the metro level, some cities continue to fly high. Here are markets with 3.5 percent or better job growth rate:

  • Job creations are all fine and welcomed. But inadequate new construction in relation to jobs will lead to real estate prices shooting up too high, too fast, and thereby divide the community between the haves and have-nots. Social tensions are evident in Silicon Valley where fresh job takers in Facebook, Google, and Apple forcing off long-time residents who are renters to move away. It is these types of perceived economic injustice as to why Bernie Sanders can tap into their anger even though successes of high tech companies are good for the country. Broadly speaking, there are too many cities where new home construction is lagging behind in relation to job gains. Though the solution is simple of issuing more housing construction permits by local authorities, this will not occur. Therefore, expect even more angry renters over time.

Applications for Purchase Mortgages

Wed, 10/07/2015 - 10:57
  • Applications for purchase mortgages spiked 27.4 percent for the week ending October 2nd, likely a result from implementation of the new TILA RESPA Integrated Documentation (TRID) closing documents and process also known as the Know Before You Owe rule on October 3rd. Some originators are concerned that the implementation could cause delays and have advised clients to close earlier.

  • This regulation streamlines many of the current closing docs and includes new features intended to make the consumer more aware of their true financial burden.
  • The increase in weekly purchase applications was nearly uniform between the conventional and government spaces which rose 27.1 percent and 27.9 percent, respectively. Relative to last year, the increase was even more pronounced at 48.9 percent.
  • Mortgage rates slipped eight basis points to 3.99 percent from a week earlier and were 31 basis points lower than the same time a year earlier. While the drop in rates may have spurred more refinance business, purchase applications rarely respond this robustly to changes in mortgage rates.


  • This week’s surge in applications pushed the index to its highest level since the week of May 7th, 2010 when the first-time home buyer tax credit expired, but it likely to be transitory with a decline or choppy pattern in applications in the week or weeks ahead as demand that would have occurred in the future was pulled forward. The new rules may result in longer lock periods and costs for some consumer in order to hold onto low rates as closing times may close. Furthermore, as some lenders may not be fully prepared, those that are prepared may see higher volumes that result in delays.
  • In the long term, the rule should help to make the process a more transparent process for consumers. Luckily the change was timed for the fall, a slower period, the Consumer financial Protection Bureau has signaled its intention to hold lenders harmless so long as they perform a “best effort” to comply in the near term.
  • Consumers and Realtors concerned about delays may want to shop around for lenders who are best prepared and can close on time.

More Loans Getting Approved, But Applications Still Low

Wed, 10/07/2015 - 09:49

The share of home purchase loan originations to total home purchase loan applications improved steadily if slightly, based on the latest Home Mortgage Disclosure Act (HMDA) loan level data as of 2014 (most recent). However, consumers remained reluctant to borrow as credit standards remained difficult, even for middle-income earners. FHA-insured mortgages have higher debt-to-income requirements and are more accessible to non-high income earners.

Loan approvals continue to increase although modestly

The share of loan originations to the total loan applications has been improving steadily, although modestly since 2011. In 2014, 69.4 percent of all home purchase loan applications resulted in a loan origination, a slight increase from 66.6 percent in 2011. Conversely, the share of loan applications that were denied decreased from 15.6 percent in 2011 to 13.4 percent in 2014. The combined share of loans that were approved but not accepted by the applicant and loans that were withdrawn by the applicant also decreased from 15.6 percent in 2011 to 14.7 percent in 2014 (Chart 1).

Across income group categories, the shares of home purchase loans originated to loan applications have increased since 2011, although modestly (Chart 2)[1]. Among applicants whose income is 80 percent or more of the median family income of the metropolitan statistical area (MSA) in which the applicant’s census tract is located, the share of loans originated was greater than 70 percent in 2014.  Among applicants whose income is below 80 percent of the MSA median family income, the percentage of loan applications that were originated also improved to 64.9 percent in 2014 from 62.5 percent in 2011. The likelihood of having a loan originated increases as income increases.

 “Middle” to “higher income” borrowers increasing, but “lower” income borrowers still reluctant to borrowAlthough the share of loan originations to total applications has been improving across all income groups, the number of loan originations has increased only among applicants earning 80 percent or more of the MSA median family income.  Meanwhile, the number of loan originations among applicants earning below 80 percent of the MSA median family income has stayed at about the same level since 2010 (Chart 3). Loan originations from this latter group were essentially flat because loan applications have barely budged since 2011. In contrast, applications from those earning 80 percent or more of the MSA median family income have steadily increased, especially among applicants earning 120 percent or higher of the MSA median family income (Chart 4).Altogether, the number of home purchase loan originations increased only modestly to 3.14 million in 2014 from about 3.02 million in 2013, a slower pace compared to the turnaround in 2012-2013. The number of loan originations remains far below the 6.81 million level in 2005.

Access to credit remains difficult for middle-income earners

One reason why the number of applications has barely increased among those earning below 80 percent of the MSA median family income and has improved only modestly overall is that credit access remains tight. Underwriting standards such as FICO credit scores, debt-to-income ratios, and ability to make a down payment are all related to income, and these standards have become more stringent.[1] Amid modest income growth, tight inventory conditions have also caused a rapid rise in prices that made homes more unaffordable. Finally, lower-income borrowers also tend to avail of FHA loans, and FHA’s increase in the annual mortgage insurance premiums from 55 basis points in 2010 to 135 basis points by 2014 also likely affected low-to middle-income earners during this period.[2]

The reduction in the upfront mortgage insurance premium by 0.5 percent in 2015 is intended to lower the cost of credit for FHA-insured loans and attract more first-time homebuyers. As noted in a NAR analysis by Ken Fears, NAR’s Director for Regional Economics and Housing Finance, this change in policy appears to have been well-received by consumers with lower credit scores whose optimism towards housing demand improved dramatically over the 12-month period ending in March of 2015.

What this means to REALTORS®. Among those who do make a decision to purchase a home and apply for a loan, access to credit has been improving, especially for those earning above average incomes. However, access to credit still remains generally difficult, even for middle-income earners. REALTORS® need to work with borrowers to access FHA-insured loans or loans backed by state housing finance agencies where income-related requirements are less stringent.

[1] The Urban Institute reported in its September 2015 Housing Finance at a Glance Monthly Chartbook that “the mean and median FICO scores on new originations have both drifted up about 43 and 48 points over the last decade. The 10th percentile of FICO scores, which represents the lower bound of creditworthiness needed to qualify for a mortgage, stood at 668 as of June 2015. Prior to the housing crisis, this threshold held steady in the low 600s.” See http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000421-Housing-Finance-Housing%20Finance-At-A-Glance-A-Monthly-Chartbook-September-2015.pdf

[2] In the New York Federal Reserve Board’s various surveys on consumer expectation regarding credit access to a mortgage from February 2014 thru June 2015, respondents’ perceived likelihood of being rejected was nearly 40 percent. See http://www.newyorkfed.org/microeconomics/sce/credit-access.html#indicators/overall-credit-rates-t2/g29

[1] A detailed breakdown of the action taken on a loan application was reported by lending institutions starting in 2011. Previously, reporting lending institutions only reported if the loan was originated or purchased from another institution. In counting loan applications, NAR used the “Action Data” counts. In counting total applications, we excluded preapprovals and loans purchased by the institution to eliminate double counting.

Sales to First-Time Buyers: 32 Percent of Sales in August 2015

Tue, 10/06/2015 - 10:58

First-time home buyers accounted for 32 percent of existing-home sales in August 2015 (28 percent in July 2015; 29 percent in August 2014): August 2015 REALTORS® Confidence Index Survey.12

Sustained net job creation, a low interest rate environment with 30-year fixed rates at below four percent for most of 2015, and better pricing of FHA-insured mortgages appear to be helping first-time homebuyers. The prospect of an interest rate increase by the Federal Reserve Board may also have spurred first-time home buying activity.[1] REALTOR® respondents reported that tight inventory, increasingly unaffordable prices, and weak credit profiles that fail to meet tighter underwriting standards are conditions that continue to work against first-time home buyers.

Buyers age 34 and under accounted for 29 percent of sales reported by the respondents. Nearly half of buyers were in the age group 35 to 55 years.

Renters accounted for 38 percent of sales, essentially unchanged compared to past months. Although rents are rising faster than mortgage payments, the rate of renting has remained elevated, likely due to a mix of factors related to lifestyle choice, household formation, financial constraints for younger households, and tighter underwriting standards.

12 First-time buyers accounted for about 33 percent of all home buyers based on data from NAR’s 2014 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence home buyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.

12 First-time buyers accounted for about 33 percent of all home buyers based on data from NAR’s 2014 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence home buyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.

[1] The Federal Open Market Committee, in its September 17 statement, decided to maintain at 0 to ¼ percent target range for the federal funds rate, a benchmark rate that influences all rates, including mortgage rates.

REALTORS® Expect Price Growth Moderate in Next 12 Months

Mon, 10/05/2015 - 10:13

REALTORS® who responded to the August 2015 survey expected prices to increase by 3.5 percent over the next 12 months (3.6 percent in July 2015; 3.5 percent in August 2014): August 2015 REALTORS® Confidence Index Survey. 9

The map shows the median expected price change in the next 12 months for each state based on the June-August 2015 RCI surveys.10 REALTOR® respondents from Florida had the most upbeat price expectations, with a median expected price growth in the range of five to six percent. In Washington, Oregon, Colorado, and Georgia, the median expected price growth among respondents was four to five percent.

REALTOR® respondents reported that they expect price growth to moderate after a strong price recovery that has made homes less affordable.

9 A comparison of the expected price growth for the next 12 months compared to the actual price growth shows the expected price growth to be more conservative than the actual price growth, but both are generally headed in the same direction.

10 In generating the median price expectation 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 less than 30 observations.

Latest National Employment Figures (September 2015)

Fri, 10/02/2015 - 09:53
  • Jobs continue to be added to the economy, but the momentum is less strong than before. Even so, the latest monthly addition of 142,000 is not shabby and brings the 12-month total to an impressive 2.75 million net new jobs.
  • Both residential and commercial real estate markets have been improving principally because of jobs. One can see the differences in the recovery pace between states with fast job creation (e.g., Utah and Florida) versus states with slow or no job creations (e.g., West Virginia and North Dakota). Given that jobs are being added at a respectable pace, the real estate markets should continue to improve.
  • The lost in momentum can be seen in the 12-month job change. The pace had been 3 million or so from late last year to the early summer months of this year. Now, rather than 3 million, it is 2.75 million net new jobs.
  • No mystery that the collapse in the oil price has forced job cuts in the oil extraction. The low oil prices, however, are helping consumers save extra money to spend elsewhere. Retail spending and auto sales have been solidly positive.
  • It is a big mystery that jobs in home building are not being added more aggressively. There is a housing shortage in many local markets, yet builders have been complaining of the difficulty of finding qualified construction workers, even though the pay is well over the minimum wage.
  • No government shutdown for now, but could happen in December. As part of uncongenial debates, shouting, and bluffs, a sequestration came into effect a few years ago, resulting in a steady decline in government workers and military personnel. Those sequestration impacts are all but over now and new people are being hired. One thing people should know is if there is to be a government shutdown in December, it will be when a new budget needs to get passed. After the shutdown all government employees get paid retroactively. Employees, in essence, have joked that government shutdown is nothing more than a paid vacation time while the rest of America suffers inconvenience of not having this or that service.

Credit Conditions Continue Tighter than Normal

Thu, 10/01/2015 - 11:33

REALTORS® have reported that credit conditions remain generally tight, with significant loan processing delays: August 2015 REALTORS® Confidence Index Survey. One indicator of credit tightness is the distribution of FICO scores on approved loans.

About 53 percent of REALTORS® providing transaction credit score information reported FICO credit scores in the range of 740+. For comparison, in the period 1999-2004, only 37 percent of Fannie Mae’s and 33 percent of Freddie Mac’s 30-year, fixed rate, fully amortizing loans had FICO scores greater than 750.16

Among first-time home buyers, 32 percent of buyers were reported to have FICO scores of 740 or higher. Among buyers age 34 years and under, 37 percent had FICO scores of 700 or over. Borrowers with FICO scores of 740+ put in a higher down payment while the majority of borrowers with FICO scores of less than 740 availed of “low” down payment loans (zero to six percent). For example, 73 percent of borrowers with FICO scores of below 620 made a down payment of zero to six percent.

16 Source: Urban Institute Housing Finance Policy Center, “Housing Finance at a Glance”, May 2015 chartbook.  http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000231-Housing-Finance-At-A-Glance-Monthly-Chartbook-May-2015.pdf


August 2015 EHS Over Ten Years

Wed, 09/30/2015 - 15:56

View the August 2015 EHS Over Ten Years slides.

Every month NAR produces existing-home sales, median sales prices and inventory figures. The reporting of this data is always based on homes sold the previous month and the data is explained in comparison to the same month a year ago. We also provide a perspective of the market relative to last month, adjusting for seasonal factors, and comment on the potential direction of the housing market.

The data below shows what our current month data looks like in comparison to the last ten August months and how that might compare to the “ten year August average” which is an average of the data from the past ten August months.

  • The total number of homes sold in the US for August 2015 is higher than the ten year August average. Regionally, the Northeast was slightly below the ten year August average, while all other regions showed stronger sales. The Midwest had the largest increase above the average by 10 percent; the South was also up 7 percent while West was only up 1 percent essentially level with the August average. The West had consistently been second to the South in August sales, but over the last three years the Midwest has taken the lead.
  • Comparing August of 2005 to August of 2015 fewer homes were sold in 2015 in the US and all regions, the Northeast undergoing the biggest decline of 42.1 percent. The Midwest and the South both had the smallest drop in sales at 21 percent over the ten year period.
  • This August the median home price is higher than the ten year August average median price for the US and all four regions.
  • Comparing August of 2015 to August 2005, the median price of a home increased only in the Midwest and South. The US had a slight decline in price while the Northeast dipped 4 percent and the West experienced a 7 percent decline in price.
  • Looking at year over year changes the West led all regions in price growth until 2007 when the Northeast had the fastest growing home prices. Since 2012 the West has resumed the lead in August price growth, coming in as the top or second-place region measured by growth rate. By price level, the Northeast took the lead from the West in 2008 and held it until 2013 when it fell to the second highest price region. The median for the West surpassed the $300,000 mark while the Northeast median remains under that threshold.
  • The median price year over year percentage change shows that home prices began to fall in 2006 nationally, and prices dipped by double digits in 2009 for all regions. The trend for median home prices turned around completely in 2012, when all regions including the US showed price gains. Because of this, all regions and the US saw their lowest August median price in 2011. The West had the largest gain in price of 16 percent, while the Northeast had the smallest gain at 2 percent from 2011 to 2012.  This August the West (7.1%) had the highest year over year price percentage change over the US and the other three regions.
  • There are currently fewer homes available for sale in the US this August than the ten year August average.  In 2005 the US had the fastest pace of homes sold relative to the inventory when months supply was 4.7 months. In 2010 the US had the slowest relative pace when it would have taken 11.5 months to sell the supply of homes on the market at the prevailing sales pace. Relative to all supply, the condo market had the biggest challenge in 2008 when it would have taken almost 16 months to sell all available inventory at the prevailing sales pace. Since 2011 supply levels for both single family and condos have gradually come down to a healthy balance of inventories.
  • The ten year August average national months supply is 7.5, and this August we are at 5.2 months supply. The ten year average month supply for August for condos is 8.8 months and the single family supply is 7.3 months.