At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.28 percent this March, up compared to 3.87 percent a year ago.
- Housing affordability declined from a year ago in March moving the index down 8.2 percent from 172.3 to 158.2. The median sales price for a single family home sold in March in the US was $227,800 up 6.6 percent from a year ago.
- Nationally, mortgage rates were up 41 basis point from one year ago (one percentage point equals 100 basis points) while incomes rose 2.8 percent.
- Regionally, the South had the biggest increase in price at 8.6 percent. The West had an increase of 8.3 percent while the Midwest had a 6.2 percent gain in price. The Northeast had the smallest incline in price of 1.6 percent.
- Regionally, all four regions saw a decline in affordability from a year ago. The West and the South had the biggest decline of 9.9 percent. The Midwest followed with a decline of 7.9 percent. The Northeast had the smallest decline of 5.2 percent.
- By region, affordability is down from last month except in the West where there was no change. The Midwest had the biggest decline of 4.5 followed by the Northeast who had a decline of 3.8 percent. The South had the smallest decline in affordability of 0.6 percent.
- Despite month-to-month changes, the most affordable region is the Midwest where the index is 201.5. The least affordable region remains the West where the index is 113.4. For comparison, the index is 157.6 in the South, and 163.0 in the Northeast.
- Mortgage applications are currently up this week. Rates are higher but still historically low. The home ownership rate is near a 50 year low. Potential homeowners can strategize on using their tax refund this year or next year to help on the down payment. Some are already thinking of doing so as covered in this blog here.
- What does housing affordability look like in your market? View the full data release here.
- The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation here.
- Existing-home sales rose 4.4 percent in March from one month prior while new home sales increased 5.8 percent. These headline figures are seasonally adjusted figures and are reported in the news. However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Specifically, 456,000 existing-homes were sold in March while new home sales totaled 58,000. These raw counts represent a 45 percent increase for existing home sales from one month prior while new home sales rose 21 percent. What was the trend in recent years? Sales from February to March increased by 32 percent on average in the prior three years for existing homes and rose by 8 percent for new homes. So this year, both existing and new home sales outperformed compared to their recent normal.
- Why are seasonally adjusted figures reported in the news? To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate that have an effect on data around the same time each year. For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity. Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends. That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month. When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
- What to expect about home sales in the upcoming months in terms of raw counts? Independent of headline seasonally adjusted figures, expect busier activity in April and even better in May. For example, in the past 3 years, April sales rose by 11 to 19 percent from March while May sales rose by 10 to 12 percent from April. For the new home sales market, the raw sales activity in April tends to be better than that occurring in March, while May’s activity seems to be more volatile. For example, in the past 3 years, raw home sales in April increased 5 percent on average from March. However, sales in May dropped by 2 to 4 percent in 2015 and 2016 while they increased 10 percent in 2014.
While tight housing inventory pushes home prices upward, we look at building permits to see how many new housing units are expected to come on the market. Building permits are an important leading indicator for developments in the economy. They show how much investment is taking place in the local economy and its overall health.
We compared the number of new housing units authorized by building permits in the following three years:
- 2000 – “healthy” inventory conditions,
- 2005 – “strong” inventory conditions, and
- 2015 – “tight” inventory conditions
While the majority of counties reached the highest number of building permits in 2005, it is interesting to see what number of building permits each had under healthy (2000) and low (2015) inventory conditions. Then, we estimate the number of new housing units that needs to come on the market so that counties have enough inventory to satisfy housing demand.
Comparing construction activity in 2000, 2005 and 2015, 28 percent of the counties had the highest number of building permits in 2000 while 60 percent of them had a peak in 2005 and 12 percent in 2015. Most of the counties, which had a peak in 2000 were located in Michigan, Colorado and Indiana. Arizona, Hawaii, Maine and Florida had the highest share of counties which had a peak in 2005, while North Dakota and the District of Columbia issued more building permits in 2015 compared to 2000 and 2005.
Comparing the number of building permits issued in 2000 and 2015, on a national level, we see that permits in 2015 were 74 percent of the permits issued in 2000. In terms of percentage change, 2015 permits were 26 percent less than their 2000 level. However, at a county level, we see that 25 percent of the counties have rebounded above their year-2000 level of building permits. Lea County, NM, Vernon Parish, LA, Grant Parish, LA, Hutchinson County, TX and East Feliciana County, LA were the top five counties with the strongest gains in building permits issued in 2015 compared to their 2000 level. It is interesting to mention that single-family homes are typically built in these five counties.
While the American Dream is to own a single-family home, let’s take a closer look at the building permits issued for single-units. Based on 2015 data, single-units monopolized the market in 70 percent of the counties. In these areas, building permits were issued for single-units only. In contrast, 1 percent of the counties did not build any single-family home.
Comparing the number of single-family permits in 2000 and 2015, on a national level, we see that permits in 2015 were 58 percent of the permits issued in 2000. In terms of percentage change, 2015 single-family permits were 42 percent less than their 2000 level. However, looking at single-family construction by county, we see that 24 percent of the counties rebounded to 2000’s levels of building permits. Lea County, NM, Vernon Parish, LA, Grant Parish, LA, Hutchinson County, TX and East Feliciana County, LA were again the top five counties with the strongest gains in single-unit building permits issued in 2015 compared to 2000.
Counties with the most “unit-dense” buildings in 2015
We also calculated the number of units per building by simply dividing the total number of units (2+) to the total number of buildings (2+). We found that 11 units were built per building on average in 2015. However, some counties built more than 50 units per building on average while in Prince George County, MD the ratio reached 319 units per building. To meet the growing demand for housing, more multifamily units are built in these areas. Here are the counties with the most “unit-dense” buildings in the U.S.:
- Prince George County, MD: 319 units per building
- Arlington County, VA: 136 units per building
- New York County, NY: 121 units per building
- Fairfax County, VA: 119 units per building
- Fulton County, GA: 113 units per building
- Clearfield County, NY: 108 units per building
Select a State and County and see how many units were built on average per building in 2015:
How many new units should be added to the market?
One of the main concerns in the housing market right now is the limited housing inventory. The combination of limited homes on the market with high buyer demand for housing pushes prices upward. Indeed, as we already mentioned, three out of four counties issued fewer building permits in 2015 compared to 2000.
The question is how many new units should be added additionally to the market in order that supply meets demand? Assuming that the number of building permits in 2000 was enough to meet people’s demands, we calculated the number of new housing units that should be added additionally if needed based on the population in 2015.
Select a State and County:
While the latest available annual data refers to 2016, we looked at the most recent activity of the counties, which are requested to report monthly. Comparing the number of new housing units authorized by building permits between January and March of 2017 and the same period in 2016, we found that 54 percent of the counties experienced gains. Thus, new residential construction seems to get better in 2017 and, thus, to slow down home price gains. Based on NAR’s forecast, it is estimated that new home prices will increase 1.9 percent in 2017 while prices rose by 6.7 percent last year. Similarly, existing home price increases are forecast to slow, but only slightly, to 5.0 percent from 5.1 percent in 2016.
 Source: U.S. Census Bureau.
 2,138 counties were included in the study. These counties had at least 10 building permits issued in 2015.
 Based on the construction activity in 2,138 counties.
 Population 16+ years old in 2015.
 Permits needed (2015) ) – (permits issued in 2015)
 Monthly statistics are obtained by directly cumulating the data for all places in the county that
are requested to report monthly (743 counties). Annual statistics are obtained by cumulating data for all places
in the county, both monthly and annual reporters.
In the wake of the housing crisis, vacation and investment buyers played an important role in sopping up excess inventory. As their participation wanes, the impact will vary around the country. Furthermore, deception and poor lending practices to some investors played a key role in fomenting the last crisis, so the robustness of their participation in the current environment is worth a closer look.
A Receding Tide
NAR Research recently released the 2017 Investment and Vacation Home Buyers Survey. This survey includes small “mom and pop” investors that will be the focus of this report as opposed to institutional investors. Purchases by vacation buyers in 2016 fell sharply to 15 percent from 19 percent in 2015, while purchases for investment held steady at 19 percent. That decline in part reflects growth in demand by owner occupants. This moderating pattern is important as researchers noted that investors played a key role in the foreclosure crisis. The investor share of home purchases rose sharply at the tail end of the housing boom and drove higher default rates. Researchers pointed to concentrations of investors in bubble areas, deception in holding multiple mortgages, and higher use of riskier loans by investors in driving this latter trend. However, these authors noted a large unexplained element. This element could be owners’ deeper ties to the community including schools and personal relationships as well as the magnified impact of foreclosure on persons unable to spread the shock across other investments or reserves.Financing for small investors was difficult to come by in the wake of the crisis. As a result, cash purchases surged. Based on data from the Home Mortgage Disclosure Act (HMDA), financing constraints eased over time and the share of financed purchases for non-occupation rose from a low of 10.4 percent in 2009 or 285 thousand purchases to 13.1 percent in 2012 or 352 thousand. That figure grew to 402 thousand by 2015, but their share eased to 11.1 percent as total sales volume increased lead by owner occupants who tend to finance their home purchases. This trend suggests that investors and vacation buyers have increasingly relied on financing.
Where Investor Call Home
Regionally, non-owner financed purchases tend to be in vacation areas including coastal Florida and the Carolinas, as well as New England. However, recreational areas of Michigan, Wisconsin, and Minnesota as well as in the mountain states, Arizona, and West Texas were also heavy users of investor or vacation financing in 2015. Metro areas in Florida dominated the top ten markets including Destin, Punta Gorda, and The Villages.
While investors played a role in the market’s crisis, they also played an important role in its recovery. From 2008 through 2011, there was regular discussion of the shadow inventory on banks’ balance sheets that would eventually hit the market. Investors helped the market to absorb this excess and frequently paid cash or provided significant down payments. Since then the shadow inventory has evaporated and a supply shortage has emerged. Are these new investors risky like those during the boom?
Unfortunately, the HMDA dataset does not provide information on the number of properties owned by an investor or their down payments, both indicators of stress. However, it does provide their income and the amount borrowed. This is important since an increasing number of investors are using mortgages to finance their purchase (versus cash) in a similar manor to 2004 and 2005. (See below)
In 2015, the ratio of the average mortgage balance at origination relative to average income for non-occupant purchases stood 11.7 percent higher than in 2004, while the same ratio was only 2.8 percent higher for owner occupants. This ratio does not account for historically strong affordability through low mortgage rates, but it does highlight the relative decline in affordability for investors compared to owner occupants.
Another useful tool in the HMDA dataset is the rate spreads above average prime offer (APOR) for financed purchases. A higher rate spread suggests a riskier loan and likely a lower credit score, smaller down payment, or some other risk factor(s). It is clear from the chart above that the share of loans for non-occupancy that are higher priced remains well below that of the boom period. The share that was 3 percent above the APOR was just 0.7 percent in 2015 compared with 18.2 percent at the markets peak in 2006. The share with a spread of 1.5 percent to 3 percent above was 2.6 percent in 2015. Unfortunately, this variable has changed over time and this category was not collected until 2009. It is still clear that higher priced loans remain well below crisis levels.
NAR’s 2017 Investment and Vacation Home Buyers Survey can add color missing from the HMDA data. Cash purchases by this group fell from 50 percent in 2011 to 32 percent in 2016, but remained well above the 26 percent share during the buildup to the crisis. Furthermore, the share putting down 70 percent or more remains above 2011 levels and those from the period of risky lending. These figures do not include institutional investors whose presence rose dramatically in the wake of the recession.
Investors played an important role in the market over the last decade and can help support a growing rental population. However, a growing share of small investment and vacation buyers now finance their purchases giving them less “skin in the game” and average mortgage-to-income ratios are on the rise. To date lending to investors appears more robust than during the pre-crisis period, but given past precedence, their participation including institutional investors should be monitored for resilience.
 This survey does not include institutional investors
 Haughwout, Klaauw, Lee, and Tracy. “Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis.” Sept 2011
REALTORS® Reported More Contracts Were Settled on Time from January—March 2017 Compared to Past Years
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the past three months, think of your most recent sales contract that was either settled/closed or terminated. Please explain how the deal concluded (settled, delayed, terminated, sale is pending, no contract signed).”
An increasing share of contracts are settled on time, based on the March 2017 REALTORS® Confidence Index Survey Report. Among respondents who reported they had a contract that went into settlement or was terminated over the period December 2016–March 2017, 70 percent reported that the contracts were settled on time, 23 percent had a delayed settlement, and seven percent reported that the contract was terminated. During the same period in 2015 and 2016, only 65 percent of contracts were settled on time.
Among contracts that had a delayed settlement (23 percent), 30 percent faced issues related to obtaining financing and 21 percent had appraisal issues. While they are still the top cause of delay, issues related to obtaining financing have been cited by fewer respondents than when NAR first tracked this indicator. Forty percent of those reporting a delay cited a financing issue. The decline may reflect the improvement in the economic environment, better credit histories from borrowers, and improvement in the loan evaluation processes of mortgage originators.
Regarding appraisal issues, respondents reported facing appraisal delays due to a shortage of appraisers, valuations that are not in line with market conditions, and “out-of-town” appraisers who are not familiar with local conditions. In NAR’s Survey of Mortgage Originators, 55 percent who took part in the survey reported some level of issues getting appraisals. Other specific issues that led to delays involved titling, sale contingencies, problems related to distressed sales, home/hazard/flood insurance issues, and the buyer losing a job.
Among contracts that were terminated (seven percent), 25 percent faced issues related to home inspections and 20 percent had issues related to the buyer’s ability to obtain financing.
 Ken Fears, 2016 Survey of Mortgage Originators, Fourth Quarter, Economists Outlook Blog. See http://economistsoutlook.blogs.realtor.org/2017/02/07/survey-of-mortgage-originators/
This blog post was written by Karen Belita, Data Scientist.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members if they have additional comments or information regarding the demand, demand-supply conditions, changing buyer profile and preferences, mortgage/credit issues, or other issues impacting the market in their own words.
The additional comments supplied by the members are a glimpse of their personal point-of-view of the current housing market, which can intuitively support the data collected on the housing market.
Looking back at the comments in the REALTORS® Confidence Index Survey from 2009, some of the most popular words and phrases were “short sale,” “foreclosure,” and “bank.” The comments indicate that distressed properties were overwhelming the market, which was a reflection of the financial crisis in the United States that started in 2007, and poured into 2009. Four years later, in 2012, the same words were still popular in the REALTORS® Confidence Index Survey, which indicated that members were still noticing or were concerned about distressed properties, although, data indicate that the market was starting to turn at this time. Conversely, four years later, in 2016, there was shift in what the members were commenting about. Words referring to distressed properties were scarce. The most frequent words and phrases in 2016 were: “low inventory,” “inventory low,” “multiple offer,” and “inventory.” This indicates that the main concern or issue of the members was the low inventory in the real estate market, especially relative to the number of buyers.
The word frequency represents the most popular words and/or phrases within the collection of comments from the members. Word frequency is represented as size in the word clouds below.
With rising home values, improved economic conditions, and fewer foreclosures, the share of sales of distressed properties has generally continued to decline. Distressed sales accounted for six percent of sales in March 2017 (seven percent in February 2017; eight percent in March 2016), based on the March 2017 REALTORS® Confidence Index Survey Report. Foreclosed properties were five percent of residential sales, while short sales were only one percent of residential sales. Distressed sales accounted for about a third to half of sales until 2012 when they began to fall below this level.
Purchasing for investment has become less attractive with fewer distressed sales on the market and with home prices rising, but a seasonal pick-up in the share of investment purchases can often be seen from November to March. Investment sales made up 15 percent of sales in March 2017 (17 percent in February 2017; 14 percent in March 2016). Purchases for investment purposes have generally been on the decline since 2011–2012 when investment sales accounted for 20 percent of sales.
With fewer sales of distressed properties and sales of properties for investment use, the share of sales that are all-cash has also been on trending downwards. In March 2017, 23 percent of sales were cash sales (27 percent in February 2017; 25 percent in March 2016). Buyers of homes for investment purposes, distressed sales, second homes, and foreign clients are more likely to pay cash than first-time home buyers. As the shares of investment and distressed sales have declined, so has the share of cash sales.
 The survey asks respondents who had a sale in the month to report on the characteristics of the most recent sale closed.
 The 2016 NAR Investment and Vacation Homes Survey reports that among home buyers, 19 percent purchased the property for investment purposes, to rent out or for asset diversification.
This blog post was written by Karen Belita, Data Scientist.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members if they have additional comments or information regarding demand-supply conditions, changing buyer profile and preferences, mortgage/credit issues, or other issues impacting the market in their own words.
Based on the additional comments by the members in the March 2017 REALTORS® Confidence Index Survey, one of the main issues and/or concerns of the members is the low inventory in the current housing market. This is supported by the word frequency of the following words and phrases: “low inventory,” “inventory low,” “shortage,” and “inventory.” The frequency of the phrase “multiple offer” also indicates that members are noticing that the current market is a seller’s market, and many buyers are competing for the few listings available.
The word frequency represents the most popular words and/or phrases within the collection of comments from the members. Word frequency is represented as size in the word cloud below. How does this compare with your local housing market?
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”
Among REALTORS® who responded to the March 2017 survey, the median expected home price change in the next 12 months was four percent (3.8 percent in February 2017; 3.7 percent in March 2016), based on the March 2017 REALTORS® Confidence Index Survey Report.  Lack of supply amid strong demand has propped up home prices.
The map below shows the median expected price change of the respondents in the next 12 months at the state level. Thirteen states, led by Washington, Colorado, and Utah, had median expected price growth in the range of four to seven percent. The oil-producing states of Alaska and North Dakota have the lowest median expected price change; respondents expect a decline in Alaska home prices and growth of two percent in North Dakota in the next 12 months.
Looking at the values over time in selected states, the median expected price change appears to be increasing again, indicating that respondents expect demand to remain strong, even as home prices continue to rise. In many states, the expected price change in the next 12 months is higher than the expected price change one year ago.
 The median expected price change is a measure that represents the middle value of the distribution of responses.
 To increase the number of observations for each state, NAR uses data from the last three surveys.
 The selected states shown in these charts are those with approximately 150 observations.
- NAR released a summary of pending home sales data showing that March’s pending home sales pace slowed 0.8 percent from last month and are modestly up 0.8 percent from a year ago.
- Pending sales are homes that have a signed contract to purchase on them but have yet to close. They tend to lead Existing Home Sales data by 1 to 2 months.
- Two of the four regions showed inclines from a year ago. The South lead with an increase of 3.9 percent followed by the Northeast 1.8 percent. The Midwest had a decline of 2.4 percent. The West had the biggest decline of 2.7 percent.
- From last month, the only region to have a gain of 1.2 percent in pending sales was the South. The Northeast and the West both shared a decline of 2.9 percent. The Midwest had the smallest decline of 1.2 percent.
- The pending home sales index level for the month was 111.4 for the US. February’s data was unrevised and remained 112.3.
- This is the pending index’s 35th consecutive month over the 100 index level.
- The 100 level is based on a 2001 benchmark and is consistent with a healthy market and existing home sales above the 5 million mark.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members, “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?”
With spring and summer rolling in, the REALTORS® Confidence Index—Six-Month Outlook for single-family homes, townhomes, and condominiums each registered above 50, indicating that more REALTOR® respondents expected market conditions to be “strong” than “weak” over the next six months compared to current conditions, based on the March 2017 REALTORS® Confidence Index Survey Report.
In the single-family homes market, the outlook in the next six months compared to current conditions is “strong” to “very strong” in nearly all states and “moderate” in Delaware and the District of Columbia.
In the townhomes market, the outlook is “moderate” to “very strong”, except in Wyoming, New Mexico, and Mississippi. Respondents expect the townhomes market to be “very strong” in Washington, Oregon, Utah, and Colorado.
In the market for condominiums, the outlook is “moderate” to “very strong” in many states, except in eight states and the District of Columbia. Respondents expect markets to be “very strong” in Utah and Colorado. Nationally, the index for condominiums was at 61 in March 2017 (61 in February 2017; 55 in March 2016), the highest level since this index was generated in 2008. The approval of H.R. 3700, the “Housing Opportunity Through Modernization Act of 2016,” appears to be bolstering homebuying in the condominium market. Among other measures, the law eases access to FHA condominium financing by reducing the FHA condominium owner occupancy ratio from 50 to 35 percent, directing the FHA to streamline the condominium re-certification process, and providing more flexibility for mixed-use buildings.
 The survey asks, “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?” NAR compiles the responses into a diffusion index. An index of 50 indicates a balance of respondents having “weak” (index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is not adjusted for seasonality.
 To increase the number of observations for each state, the index is based on data for the last three months. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” NAR compiles the responses into a diffusion index. A diffusion index greater than 50 means that more respondents rated conditions as “Strong” than “Weak.” For graphical purposes, index values 25 and lower are labeled “Very Weak,” values greater than 25 to 45 are labeled “Weak,” values greater than 45 to 55 are labeled “Moderate,” values greater than 55 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very Strong.” The range of +/-5 around 50 approximates the historical margins of error at the 95 percent confidence level for small states.
 See for example this review: http://economistsoutlook.blogs.realtor.org/2016/10/05/do-elections-affect-the-housing-market-in-washington-dc/
The bill, which was championed by NAR, passed the House of Representatives 427-0 and the Senate under unanimous consent on July 14, 2016 and was signed by President Obama on July 29, 2016. See http://www.realtor.org/articles/president-obama-signs-hr-3700
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?”
Amid strong demand and tight supply, properties sold in March 2017 were typically on the market for a shorter period compared to one year ago. The median days on market was 34 days (45 days in February 2017; 47 days in March 2016), based on the March 2017 REALTORS® Confidence Index Survey Report.
Properties that sold in January–March 2017 were typically on the market for less than 31 days in 12 states and in the District of Columbia. Looking at the values over the last few years, in most states the median length of time that properties stay on the market has trended downwards, though the graphs also show that days on market in some states fluctuates seasonally.
The length of time that properties are on the market has fallen as demand has outpaced the inventory of homes for sale. In 2011, properties were typically on the market for 97 days.
Nationally, 48 percent of properties that sold in March 2017 were on the market for less than a month (42 percent in February 2017; 42 percent in March 2016). Only 11 percent of properties were on the market for six months or longer (10 percent in February 2017; 13 percent in March 2016).
The survey asks, “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market.
To increase the number of observations for each state, NAR uses data from the last three surveys. The selected states shown in these charts are those with approximately 150 observations.
 Days on market usually refers to the time from listing date to contract date.
The share of primary home buyers rose in 2016 to 70 percent of all homes sold on the market from 65 percent in 2015. Buyers who purchased to live in a primary residence bought 70 percent of all homes in 2016 for a total of 4.2 million properties. The remaining 30 percent of homes were snatched up by investors and vacation home buyers—1.14 million investment properties and 721,000 vacation homes. The major trends for 2016: vacation homes sales went down for the third straight year to 12 percent from 16 percent in 2015 and investor sales remained steady at 19 percent.
Vacation Home Sales
Vacation home sales declined overall 21.6 percent from 2015 to 2016, however the share of 12 percent returns to the historical norm collected since 2003. The median sales price for a vacation home in 2016 was $200,000, an increase of 4.2 percent over 2015. For vacation homes, popular destinations were the beach (36 percent), lakefront (21 percent), and the country (20 percent). They were largely purchased in rural (25 percent) and resort areas (25 percent) that were a median of 200 miles from the buyer’s primary residence.
Vacation and investment properties tend to be smaller units. Twenty-one percent of vacation properties purchased last year were townhomes and 22 percent were condominiums. Comparatively, 86 percent of primary residences purchased were detached single-family homes. The median square footage of vacation properties was 1,460, whereas a primary residence tends to be 1,900 square feet.
Twenty-eight percent of vacation home buyers did not use a mortgage. Of the 72 percent that used a mortgage, 45 percent financed less than 70 percent of the purchase price. For primary residence home buyers, 23 percent financed between 80 and 89 percent.
The primary reasons buyers cited purchasing vacation homes were to use for vacations or as a personal and family retreat (42 percent), for future retirement (18 percent), and low real estate prices or good deals (12 percent). Eighty-one percent of vacation home buyers feel that now is a good time to buy a home making vacation buyers the most positive group. The median household income in 2016 for vacation home buyers was $89,900.
Investment Home Sales
Investor home sales, on the other hand, increased slightly by 4.5 percent from 2015 to 2016. The median sales price for an investor home in 2016 was $155,000, an increase of 8.0 percent over 2015. Investment properties were largely purchased in suburban (34 percent) and urban areas (23 percent) at a median of 20 miles from a buyer’s primary residence.
Twenty-five percent of investment properties were condominiums and 11 percent were townhomes. Similar to vacation homes, 18 percent of investment purchases were homes in foreclosure and 17 percent short sales. Only five percent of primary residences are homes in foreclosure and four percent short sales.
The primary reasons buyers cited purchasing investment homes were to generate income through renting property (37 percent), potential for price appreciation (16 percent), and low real estate prices or good deals (15 percent). Seventy-six percent of investor home buyers feel that now is a good time to buy a home. The median household income in 2016 for investor home buyers was $82,000, compared to primary residence owners at $75,000.
While local conditions vary, the REALTORS® Buyer Traffic Index and the REALTORS® Confidence Index—Current Conditions for single-family homes, townhomes, and condominiums remained above 50 in March 2017, indicating that more respondents reported “strong” than “weak” conditions. Both indices were higher than their levels one year ago and in the previous month. The REALTORS® Seller Traffic Index decreased from its level one year ago, but it increased from its level in the previous month. It has remained below 50 since February 2008, indicating that seller activity is still “weak,” based on the March 2017 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.
First-time homebuyers accounted for 32 percent of sales. Amid sustained job creation, the share of first-time homebuyers has been on a modest rise, up from 29 percent in 2014. With fewer new foreclosures, distressed properties accounted for six percent of sales, purchases for investment purposes made up 15 percent of sales, and cash sales accounted for 23 percent of sales. Amid tight supply, half of properties that sold in March 2017 were on the market for 34 days or less compared to 47 days in March 2016.
Lack of homes for sale was the main issue reported by REALTORS®. Respondents reported a mixed effect from the uptick in mortgage rates since November 2016; some buyers are encouraged to act quickly while others are discouraged by diminished affordability. With the coming of spring and summer, more respondents expect the outlook to be “strong” than “weak” in the next six months compared to current conditions. The six-month outlook confidence indices for the single-family home, townhome, and condominium markets each registered above 50, with the indices all higher compared to their levels one year ago.
 An index greater than 50 indicates the number of respondents who reported “strong” (index=100) outnumbered those who reported “weak” (index=0). An index equal to 50 indicates an equal number of respondents reporting “strong” and “weak” market conditions. The index is not adjusted for seasonality effects.
The author thanks Danielle Hale, Managing Director, Housing Research; Meredith Dunn, Research Communications Manager; and Amanda Riggs, Research Survey Analyst for their comments. Any errors are attributable to the author.
 NAR’s 2016 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 35 percent were first-time home buyers, up from 32 percent in 2015. The HBS surveys primary residence home buyers, while the monthly RCI Survey surveys REALTORS® and captures purchases for investment purposes and vacation/second homes.
The rule of thumb for potential mortgage borrowers is to get three quotes. Unfortunately, few follow through and it could possibly cost them money. As a trusted advisor, you can help your client by recommending mortgage rate search engines as well as multiple lenders, but make sure that your clients are considering the total cost.
A recent study by two economists at the Consumer Financial Protection Bureau (CFPB) looked at how borrowers shop for mortgages. They analyzed the rate sheets, like a cafeteria menu, from different lenders for loans sold to Fannie Mae and Freddie Mac that were smaller than $417,000 and compared them to the actual rates and points received by borrowers who bought a home in 2014.
The authors found that there was a wide dispersion of up to 50 basis points (0.5 percent or the difference between 3.5 percent and 4.0 percent) from the best and worst rate offers after having controlled for factors like size of the borrower’s down payment and credit score. These results were used to model what would happen if a consumer did additional search (s) for rate offers. The authors found that one additional search could reduce borrower’s monthly payment by $8.63 on average. Furthermore, this effect grows with the number of searches and five additional searches could provide a reduction of $17.03 per month. In some instances, the borrower’s initial offer was very strong and additional searches did not reduce their rates.
The authors also found that:
1) The act of shopping forces lenders to compete, reducing costs by a similar amount for all borrowers regardless of whether they shop or not.
2) Simply telling borrowers that there are better offers out there (somewhere) is not enough
3) Websites that offer mortgage rates from multiple lenders may help by generating some competition, but they are not perfect as they do not offer rates from every lender in the market and thus do not create perfect competition.
4) REALTORS® and friends aid the process by referring borrowers to lenders
5) These savings are likely larger for borrowers who use FHA guaranteed financing and smaller for those taking out jumbo or portfolio loans.
This latter effect likely reflects the financial acumen of the borrower and suggests the first-time borrower would greatly benefit from getting multiple offers rather than relying on mass marketing.
It is worth noting that the authors only conducted the research for one year, 2014. These effects could change from year-to-year as originators or investors change their pricing to reflect risk or, as during the early 2000s, underprice risk. In addition, the authors do not segment the results by borrower quality. Some lenders may price riskier borrowers slightly better than other lenders and this was certainly the case for GSE financed loans prior to reform of the representation and warranties framework in 2015 and it remains the case for FHA loans today, which might explain the stronger effects observed by the authors for FHA loans. Regardless, these results are robust and suggest that searching for rates may help borrowers to save money.
However, these results only incorporate the rate and points paid. They do not include lenders’ fees or any fees for bundled services like title insurance, which some lenders may offer at a discount. Likewise, the authors do not account for the quality of the consumer’s experience. Finally, sometimes consumers do not shop around because they prefer to use mortgage companies, or other settlement service providers, affiliated with the real estate company they are working with. Consumers surveyed by NAR have noted that “one-stop shopping” can make the home-buying process more efficient and manageable. Consequently, it is important to consider the entire offer and not just the rate and points.
So, tell your clients, especially first-time buyers, to shop more! It may save them money. They should use websites that quote multiple lenders and get offers multiple offers on their own from large retail lenders, smaller banks or credit unions, and mortgage banks, but always consider the total cost, which includes the lenders’ fees and other services. Your client could save money and you may get a referral or a repeat customer.
The S&P CoreLogic Case-Shiller National Index shows that U.S. prices of single-family homes continue to rise. The national index level in February reached a new high and is up 5.8 percent from a year earlier. But what does this mean for homeowners?
Home prices affect the wealth of homeowners. As the price of housing increases, the wealth of homeowners increases as well. Based on the above increase of home prices, it is estimated that value of owners’ household real estate was increased by 1.3 trillion in the last year and 105 billion came from home price increases in February. That means that 75 million homeowners each gained $16,800 on average in February 2017 from a year earlier.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “How do you rate the past month’s buyer/seller traffic in the neighborhood(s) or area(s) where you make most of your sales?”
REALTORS® reported strong home buying demand amid tight supply in March 2017, based on the March 2017 REALTORS® Confidence Index Survey Report. Local conditions vary in each state, but the REALTORS® Buyer Traffic Index indicates that buyer traffic conditions can be characterized as “moderate” to “very strong” in many states except in Wyoming where buyer traffic conditions were “weak.”
The REALTORS® Seller Traffic Index indicates seller traffic conditions were “very weak” to “weak” in most states, but conditions were “moderate” to “strong” in 15 states, which includes oil-producing states that have been impacted by the collapse in oil prices since the middle of 2014. Respondents reported that demand is strong, but supply is lacking, especially homes that are affordable to buyers. This is consistent with available data on the affordability of active housing inventory.
Employment conditions affect the supply and demand for housing. Nationally, employment rose 1.6 percent in February 2017 compared to February 2016. Employment growth was strongest in Idaho, Nevada, and Utah. In these states, buyer traffic was “strong” to “very strong”. Non-farm employment contracted in the oil-producing states of Alaska, North Dakota, Wyoming, Kansas, Oklahoma, and Mississippi, as well as in West Virginia. The chart below shows the share of oil production to the state’s economy. In some of these states, the job cutbacks have led to “moderate” seller traffic conditions, based on the REALTORS® Seller Traffic Index. Texas, which has a more diversified economy, has been more resilient than other oil-producing states, with employment growing slightly above the national average.
The REALTORS® Buyer Traffic Index registered at 74 in March 2017 (70 in February 2017; 69 in March 2016), indicating that more respondents viewed buyer traffic conditions as “strong” rather than “weak.” Homebuying demand is likely being bolstered by sustained job growth, with 2.2 million jobs added in the last 12 months and 16 million jobs generated since February 2010. The unemployment rate fell to 4.5 percent in March 2017, the lowest rate since the economic recovery from the 2008-2009 recession. Future interest rate increases may also be prompting first-time homebuyers to take advantage of the current mortgage rates. In the week of April 6, the 30-year fixed mortgage rate averaged 4.1 percent, and rates have held above four percent since the week of November 24, 2016. Mortgage rates are likely to continue to rise modestly to an average of 4.4 percent in 2017 and 5.0 percent in 2018.
The REALTORS® Seller Traffic Index registered at 43 in March 2017 (41 in February 2017; 45 in March 2016), indicating that more respondents viewed seller traffic conditions as “weak” rather than “strong.” Supply conditions have remained largely tight in many areas, with the index registering below 50 since February 2008.
 To increase the number of observations for each state, NAR computes the index based on data for the last three months. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. The survey asks, “How do you rate the past month’s buyer/seller traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” NAR compiles the responses into a diffusion index. For graphical purposes, index values 25 and lower are labeled “Very Weak,” values greater than 25 to 45 are labeled “Weak,” values greater than 45 to 55 are labeled “Moderate,” values greater than 55 to 75 are labeled “Strong,” and values greater than 75 are labeled “Very Strong.” The range of +/-5 around 50 approximates the historical margins of error at the 95 percent confidence level for small states.
 While the price of oil has picked up in the last year, the March 2017 price was roughly half the price that prevailed in Summer 2014 before the collapse, so oil-dependent economies may see some improvement, but generally remain at a low level.
 See for example: https://www.nar.realtor/news-releases/2017/02/nar-realtorcom-identify-growing-rift-between-housing-availability-and-affordability and https://www.nar.realtor/topics/realtors-affordability-distribution-curve-and-score
 Source: U.S. Department of Energy. See https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm.
The REALTORS® Buyer Traffic Index provides information on the level of homebuying demand or interest, which may materialize as a contract to purchase or closed sale after two or three months.
 The last 12 months refers to February 2016 to February 2017. Nearly 8.7 million jobs were lost from February 2008–February 2010, so the gain above previous peak employment is 7.4 million jobs.
 Mortgage rates in this report refer to the average contract rates on 30-year conventional mortgages reported by Freddie Mac.
 NAR forecast. See https://www.nar.realtor/sites/default/files/reports/2017/embargoes/forecast-03-2017-us-economic-outlook-03-29-2017.pdf.
- NAR released a summary of existing-home sales data showing that housing market activity this March is the highest pace in ten years. Home sales this March are up 4.4 percent from last month and improved 5.9 percent from last year. March’s existing-home sales reached the 5.71 million seasonally adjusted annual rate.
- The national median existing-home price for all housing types was $236,400 in March, up 6.8 percent from a year ago. This marks 61 consecutive months of year over year’s gains as prices continue to rise.
- Regionally, all four regions showed growth in prices from a year ago, with the South leading all regions with an incline of 8.6 percent. The West followed with a gain of 8.0 percent. The Midwest had a gain of 6.2 percent, and the Northeast had the smallest gain of 2.8 from March 2016.
- From February, three of the four regions experienced inclines in sales while the West declined 1.6 percent. The Northeast had the biggest incline of 10.1 percent followed by the Midwest, which had a 9.2 percent incline in sales. The South had the smallest incline of 3.4 percent.
- All four regions showed an increase in sales from a year ago with the South leading with an incline of 8.5 percent. The West had a gain of 5.2 percent followed by the Northeast with a gain of 4.1 percent. The Midwest had the smallest gain of 3.1 percent. The South headed all regions in percentage of national sales at 42.4 percent while the Northeast has the smallest share at 13.3 percent.
- March’s inventory figures are up 5.8 percent from last month to 1.83 million homes for sale. Because inventories usually increase as we move into the spring season, this is not too surprising. The more important figure to note is that inventories are down 6.6 percent from a year ago which is 22 consecutive months of year over year declines. It will take 3.8 months to move the current level of inventory at the current sales pace. It takes approximately 34 days for a home to go from listing to a contract in the current housing market, down from 47 days a year ago. This is the shortest days on the market since May of 2016.
- In March, single-family sales increased 4.3 percent and condominiums increased 5.0 percent compared to last month. Single-family home sales inclined 6.1 percent and condominium sales were up 5.0 percent compared to a year ago. Both single-family and condominiums had an increase in price with single-family up 6.6 percent at $237,800 and condominiums up 8.0 percent at $224,700 from March 2016.
After surging in the wake of the election, mortgage rate are back on the decline. The average rate for a 30-year fixed rate mortgage was 3.97 percent for three-day period ending April 19th according a release from Freddie Mac this morning. Lower rates should help consumers currently in the market, but rates are still expected to rise through the year.
The recent decline in rates was driven by a movement of money out of stocks and into bonds. This shift was initially driven by a realization that tax reform and other pro-growth policies might take longer to implement than expected. Then an increase in international tensions drove investor further towards bonds as a safe haven.
The most recent reading is 35 basis points lower than the post-election peak of 4.32 percent from the last week in December. That decline translates into a $40 reduction in the monthly payment on a $200,000 mortgage. While this is an improvement, it remains $51 higher than the monthly payment at 3.52 percent, the rate recorded just before the election.
While higher rates will weigh on affordability, they are not necessarily a bad thing if they are the result of a stronger economy and if they bring stronger income growth as a result. Income growth can offset rising rates, stabilize household balance sheets, and drive growth. NAR is forecasting the average rate for a 30-year fixed rate mortgage to finish 2017 near 4.6 percent before rising to an average of 5.0 percent in 2017.
The Federal Housing Administration (FHA) plays a critical role in the housing market by guaranteeing financing to underserved portions of the population and by providing support to the broader housing market during cyclical downturns. In late 2016, a measure of delinquency hinted at budding stress for the FHA, but recent data suggests that conditions have improved.
In the 4th quarter of last year, the 30-day delinquency rate on FHA, VA, and conventional loans all rose relative to the 4th quarter of 2015. The FHA in particular jumped to 5.05% from 4.72% a year earlier according to the Mortgage Bankers Association. The 30-day delinquency rate measures the number of borrowers who are 30-days late on their mortgage payment and serves as an early signal that a borrower may default on their loan. An increase in delinquencies could signal a coming market decline and was cited by some to argue against the FHA’s fee reduction in January of this year.
As depicted above, the FHA’s 30-day delinquency rate is highly cyclical rising sharply in the fall and plummeting each spring. Strong spring hiring patterns as well as greater use of tax refunds by FHA borrowers to “cure” or catch up on their lapsed payment have been credited for this seasonal improvement. The chart above also depicts the steady decline in early-stage delinquencies from 2012.
The chart above depicts two data series based on data published by the FHA, but there are two important differences between them. The red line comes from the FHA’s monthly “Neighborhood Watch” report, as culled by Brian Chappelle of Potomac Partners LLC, which provides data on loans originated within the last two years. The blue line comes from the FHA’s Single-Family Loan Performance Trends Report and covers early delinquencies in the FHA’s entire portfolio. Because most defaults occur in the first two to three years after origination, the delinquency rate on the Neighborhood Watch data tends to be higher than for the entire portfolio. However, the two measures tracks closely.
The other major difference between these two series is that the Neighborhood Watch data is released one to two months earlier than FHA’s performance report. Consequently, the Neighborhood Watch data provides an early indicator of performance in the entire FHA portfolio. The chart above depicts the last five years of 30-day delinquency data by month from Neighborhood Watch. The seasonal pattern is apparent with early delinquencies rising through the fall. The measure jumped in late 2016 (orange line) eclipsing the level for 2015 and even 2013. However, the rate has since fallen sharply (turquoise) and as of March stood at 3.82 percent, its lowest level in 5 years. Likewise, the Performance Report shows a sharp decline in delinquencies for January and February, but the data for March that may corroborate this robust improvement will be published in the coming weeks. It is also worth noting that the 2015 pattern was unique in that the normal seasonal peak was not in 2015, but in January of 2016, which accentuates the difference between the 4th quarters of 2016 and 2015.
The sudden rise in early defaults on FHA, VA and conventional loans last fall was a surprise given the relative economic strength and low unemployment rate. Furthermore, the total delinquency rate, which includes borrowers who are closer to defaulting, is near a decade low. Early default measures now suggest an improvement in the 12-month trend but the question of what drove the market-wide uptick in delinquencies last fall remains.