Economic growth numbers for the first quarter will be announced next week, and it looks like it will be a huge miss. The numbers could well be just a hair above the zero growth line. The average growth rate from 1950 to 2000 was 3.7%. President Bush’s term from 2001 to 2008 generated an average GDP annual growth rate of 2.1%, while President Obama’s term yielded 1.5%. President Trump campaigned on pulling the economy back above 3%, and will therefore be sorely disappointed.
One big reason for the weak first quarter is that vehicle sales are no longer rising. After hitting over 18 million annualized vehicle sales in the final quarter of last year, the first quarter sales were 17.3 million. That figure is fine and healthy, but no longer rising. Even though consumer confidence has soared to a decade high, the actual consumer consumption increases have yet to play out. Retail sales have been solid with 5% growth, but more of the growth appears to be from price increases than from unit sale increases. Only the latter counts toward the GDP to reflect an improved standard of living.
View the full article here.
Each month, the Housing Opportunities and Market Experience (HOME) survey tracks changes in consumer views regarding the housing market. With HOME being launched in the first quarter of 2016, we can now compare what consumers are thinking about trends in real estate in the last year.
Across the board, consumers felt that home prices increased in the last year and each quarter was better than the previous to sell a home. Specifically, in Q1 of 2016, 50 percent of consumers said that home prices had increased in the last 12 months. That figure jumped up to 60 percent of consumers in Q1 of 2017. About 45 percent of respondents in 2016 felt that home prices would continue to go up in the next six months. That number also increased to 51 percent of consumers in Q1 of 2017. In Q1 of 2016, 56 percent of consumers felt strongly that now is a good time to sell a home. That figure also jumped up to 69 percent of consumers in Q1 of 2017.
On a positive note, consumers’ view of the economy has also improved in the last year. In Q1 of 2016, just under half of all respondents felt that the economy was improving at 48 percent. In Q1 of 2017, that number jumps up to 62 percent of consumers that feel the economy is improving. This sentiment is most strongly felt by consumers 54 years and younger. The Northeast was the least likely to feel the economy is improving and was consumer sentiment consistent across rural, suburban, and urban areas. Home owners are the most optimistic on the outlook of the economy compared to renters and those that live with someone else.
While there was a dip in consumer sentiment on whether now is a good time to buy a home from Q1 (75 percent) to Q4 (70 percent) in 2016, consumers’ view that now is a good time to buy slightly rebounded to 72 percent in Q1 of 2017. The sentiment that now is a good time to buy increases with age and income. The West region was the least likely to feel that now is a good time to buy and the most likely to feel that now is a good time to sell. Renters were the least optimistic that now is a good time to buy.
At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.43 percent this February, up compared to 4.04 a year ago.
- Housing affordability declined from a year ago in February moving the index down 8.7 percent from 175.9 to 160.6. The median sales price for a single family home sold in February in the US was $229,900 up 7.6 percent from a year ago.
- Nationally, mortgage rates were up 39 basis point from one year ago (one percentage point equals 100 basis points) while incomes rose 2.9 percent.
- Regionally, the West had the biggest increase in price at 9.9 percent. The South had an increase of 9.7 percent while the Midwest had a 6.0 percent gain in price. The Northeast had the smallest incline in price of 3.5 percent.
- Regionally, all four regions saw a decline in affordability from a year ago. The West had the biggest decline of 11.2 percent. The South followed with a decline of 10.9 percent. The Midwest had a decline in affordability of 7.8 percent while the Northeast had the smallest decline of 4.8 percent.
- By region, affordability is down from last month except in the Northeast where there was no change. The South had the biggest decline of 2.6 followed by the West who had a decline of 1.7 percent. The Midwest had the smallest decline in affordability of 0.3 percent.
- Despite month-to-month changes, the most affordable region is the Midwest where the index is 210.7. The least affordable region remains the West where the index is 112.9. For comparison, the index is 158.2 in the South, 169.5 in the Northeast.
- Mortgage applications are currently up this week. Even with a rise in rates, interest in purchasing a home remains strong. Prices continue to outpace incomes and demand may become choked off. Potential homeowners will benefit from investing their time working on the preapproval process.
- 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.
Millennials, buyers ages 36 years and younger, make up the largest share of home buyers by generation at 34 percent of all home buyers in 2016 (down from 35 percent in 2015). This group was born between 1980 and 1998 and is the largest share of buyers for the fourth consecutive year. Sixty-six percent of Millennials are married couples and this age group has the largest share of unmarried couples at 13 percent. Millennials have smaller families—they have the largest share with only one child under the age of 18 years living at home at 22 percent. Overall, 49 percent have one or more children.
Millennials are most likely to rent an apartment (56 percent) or live with friends or family (20 percent) as their previous living arrangement. The primary reason that this generation purchase homes is the desire to own a home of their own at 50 percent and they state that it is just the right time to buy (60 percent).
Millennials account for the largest share of first-time home buyers at 66 percent. This generation primarily buy previously owned homes (89 percent) for a better price (44 percent) and new homes (11 percent) to avoid renovations or problems with electricity and plumbing (48 percent). Millennials account for the smallest share to purchase multi-generational homes at seven percent. When they did purchase multi-generational homes, the primary reason is for cost savings at 34 percent.
Buyers aged 36 years and younger are the most likely to purchase in the suburbs or a subdivision at 57 percent. Equal to buyers 37 to 51 years, they purchase within a median of 10 miles from their previous residence. More than other generations, they purchase homes for the quality of the neighborhood (66 percent), convenience to a job (65 percent), overall affordability of homes (50 percent), quality of school districts (40 percent), convenience to entertainment and leisure activities (25 percent), and convenience to parks and recreational facilities (22 percent).
They have a median household income of $82,000. They purchase the least expensive homes at a median home price of $205,000. This generation of buyers purchase the smallest homes in size at a median square feet of 1,800, equivalent to buyers 62 years and older. They also purchase the oldest homes at a median year of 1984.
Commuting costs are the most important to Millennials, 39 percent said this was very important. Compared to other generations, Millennials are also the most likely to say that they compromised on the price of the home, size of the home, lot size, style of the home, and distance from their job. Millennials have the shortest expected tenure in the home at a median of 10 years, on par with buyers 71 years and over.
More than other generations, Millennials are the most likely to look online for information about home buying and talk with a friend or relative as the first step in their home search process. They are the most likely to find the home they purchased using the internet (56 percent), most likely to frequently use the internet in their search (93 percent), and most likely to use a mobile device to search for homes (86 percent). Finding the right property is the most difficult step for Millennials at 57 percent. Millennials are the most likely to move with life changes (29 percent), move with a job or career change (20 percent), outgrow the home (19 percent), and want a nicer home with added features (10 percent).
Millennials are the most likely to finance their home purchase at 98 percent. The median percent financed is 93 percent, the highest share among the generations. Millennials are the most likely to use savings (75 percent) and a gift or loan from a friend or relative (29 percent) as the source of their downpayment. Buyers 36 years and younger are the most likely to say saving for the downpayment is the most difficult step in the home buying process at 23 percent. Among those who had difficulty saving, 55 percent of Millennials have student loan debt and 32 percent have car loans, more than other age groups. Overall, 46 percent of Millennial home buyers had student loan debt. They are the most likely to use an FHA loan (27 percent) and least likely to use a conventional loan (56 percent) compared to other generations. Millennials are the most likely to feel that their home purchase was a good financial investment at 85 percent.
Generation X, buyers ages 37 to 51 years, make up the second largest share of home buyers by generation at 28 percent of all home buyers in 2016. The median age for this group is 43 years old and they were born between 1965 and 1979. They tend to have the largest families; 62 percent of these buyers have one or more children under the age of 18 years living at home—30 percent have two children under 18 years at home—and they make up the highest share of buyers that are married couples at 68 percent. The primary reasons that Generation X purchases homes is the desire for a larger home, job-related relocation, and change in family situation more than other generations.
Generation X make up the second largest share of first-time home buyers at 26 percent. Correspondingly, they make up the largest share to purchase detached single-family homes at 87 percent. They also have the highest median household income at $106,600, boosted by double income couples. They also purchase homes in accordance with their incomes and buy the most expensive homes of all generations—a median home price of $261,000. This generation of buyers also purchases the largest homes in size at a median square feet of 2,100.
Buyers 37 to 51 years are also the most racially and ethnically diverse group of home buyers, with 21 percent identifying as a race other than White/Caucasian. This group also have the highest percentage of home buyers that speak another language besides English. Thirteen percent of buyers 37 to 51 years were not born in the United States.
Generation X purchases new homes for the ability to choose and customize design features and previously owned homes for more charm and character. These buyers, like Millennials, purchase the shortest median distance from their previous home at a median of 10 miles. Generation X are the most likely to purchase in neighborhoods that were convenient to schools. This group is the most likely to compromise on the condition of the home at 21 percent. The length of the home search is the longest for Generation X buyers at 12 weeks, while all other generations search for a median of 10 weeks.
Generation X primarily uses savings and proceeds from a previous sale for the downpayment of their home purchase. However, these buyers are delayed four years from purchasing a home due to debt. Eighteen percent of buyers 37 to 51 are delayed five years and 27 percent are delayed more than five years from buying a home. Of these buyers that said saving for the downpayment was the most difficult step in the buying process, 41 percent have credit card debt and 15 percent have child care expenses, more than other generations. This group of buyers also have the highest median amount of student loan debt at $30,000. This group of buyers cancels vacations more than other age groups in order to save for a home. Equal with Millennials, 45 percent said that the mortgage application was not difficult or no more difficult than expected. Of the six percent that have a mortgage lender reject their application, 20 percent said it was due to their debt to income ratio. Generation X also has the highest share that sold a distressed property at 14 percent, primarily in 2011. More than other generations, buyers 37 to 51 use a fixed-rate mortgage at 93 percent.
Generation X is the largest share of home sellers at 29 percent. They also have the highest median selling incomes at $122,100 and sell median priced homes at $240,000. Among Generation X sellers, one in five wanted to sell earlier but could not because their home was worse less than their mortgage. Sellers typically purchased their home 10 years ago, in 2006. Generation X sellers equally are the most racially and ethnically diverse of the generations. On par with Millennials, they move within the same state at the highest rates. Buyers 37 to 51 sell the most homes in urban and central city areas and move the shortest distances. Their primary reasons for selling is a job relocation, the neighborhood is less desirable, and a change in family situation.
The National Association of REALTORS® surveyed its members to learn more about sustainability issues real estate agents face in their industry. More specifically, what environmentally sustainable features are buyers looking for when they purchase a home, how do wind and solar energy factor into a buyer’s perception of the home’s value, and what market considerations could improve sustainability practices?
First, NAR members affirmatively said that promoting energy efficiency features in their listing was very or somewhat valuable at 71 percent. The availability and demand for green features in the home, on the other hand, was still a relatively small market. Seventy percent of agents and brokers were not involved in a transaction with a property that had green features in the last 12 months. Sixty percent of agents said that buyers were interested in sustainability issues.
Agents said buyers considered the following as very important: comfortable living spaces (71 percent), proximity to frequently visited places (40 percent), windows, doors, and siding features (39 percent), and a home’s utility bills (28 percent).
Eighty percent of real estate agents said solar panels were available for home owners in their markets. Forty-two percent of agents said solar panels increased the perceived value of the property, compared to 31 percent that said they had no effect. As for wind farms, 71 percent said these were not available in their markets and 38 percent said wind farms had no effect on the perceived property value. Only 24 percent of agents said that tiny homes were available in their markets at this time (tiny homes defined as a home that is 600 square feet or less).
With room for growth, real estate agents listed a number of issues and market considerations that need attention to connect buyers to sustainable practices. The top issues include: understanding lending options for energy upgrades or solar panels (44 percent), improving the energy efficiency of existing housing stock (40 percent), lack of MLS data on home performance and/or solar installations (34 percent), and the valuation of homes with solar panels (30 percent).
Younger Boomers, buyers ages 52 to 61 years, make up 16 percent of all home buyers in 2016. The median age for this group is 57 years old and they were born between 1955 and 1964. This age group is the most likely to purchase a multi-generational home at 20 percent. Their reasons for purchasing a multigenerational home are children or relatives over the age of 18 years moving back in (20 percent), health/caretaking of aging parents (15 percent), to spend time with aging parents (11 percent), and children over 18 years that never left (10 percent).
For Younger Boomers, the primary reasons they purchased homes are a job-related relocation or move (11 percent), desire to be closer to friends and family (10 percent), and the desire for a smaller home (10 percent), more than other generations. Compared to other buyers, they are the most likely to say that they did not have much choice and they had to purchase when they did (22 percent).
Younger Boomers are the least likely to purchase in the suburbs (49 percent) and most likely to purchase in rural areas (13 percent) compared to other generations. They have the second highest median household income at $93,800. They also purchase the second most expensive homes of all generations with a median home price of $230,000. This generation of buyers also purchase the second largest homes in size at a median square footage of 1,900.
Younger Boomers are the most likely to consider heating and cooling costs very important. This age group is the least likely to compromise on the price of the home as well as the quality of and distance from schools. Younger Boomers move from their previous residence at a median of 15 miles from their previous residence.
Younger Boomers are the most likely to look online for properties for sale as their first step in the home search process (53 percent). They are also the most likely to utilize online video sites as useful search information on homes (63 percent).
Younger Boomers are the most likely to use money from a 401K or pension fund including a loan for the downpayment of their home purchase. This age group is the most likely to feel that the mortgage application and approval process is easier than expected (24 percent).
Younger Boomers are the third largest share of home sellers last year at 20 percent. They have the second highest median incomes for sellers at $111,100 and sold the highest median priced homes at $279,800. Younger Boomers are the most likely to sell a detached single-family home and sell the largest homes at a median of 2,200 square feet. They are the most likely to offer home warranty incentives to help sell the home.
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).”
Among contracts that went into settlement or were terminated over the period December 2016–February 2017, 24 percent had a delayed settlement, according to the February 2017 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.
Among contracts that had a delayed settlement (24 percent), 36 percent faced issues related to obtaining financing and 20 percent had appraisal issues. 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.
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.
 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/
Older Boomers, buyers aged 62 to 70 years, make up 14 percent of all home buyers in 2016. The median age for this group is 66 years old and they were born between 1946 and 1954. Within this group, they have the largest share of single female buyers at 21 percent. Their primary reason for purchasing a home, more than other generations, is for retirement (19 percent), followed by the desire to live closer to friends and family (19 percent).
Combined, Older Boomers own the highest share of investment (11 percent) and vacation (six percent) properties. Equal to the Silent Generation, Older Boomers are the most likely to purchase homes in a small town (24 percent) and in a rural area (11 percent).
Compared to other buyers, they move the greatest distances at a median of 25 miles. Older Boomers are the least likely to purchase homes for the quality of school districts or convenience to schools. Rather, they purchase homes for the quality of the neighborhood and for convenience to friends and family. This age group finds energy efficient appliances and lighting to be very important. Overall, Older Boomers are the most likely to have made no compromises on the home when they purchased (50 percent), cited that they are never moving and this is their forever home (31 percent).
In their home search process, Older Boomers are the most likely to drive by homes and neighborhoods and they are the least likely to find the paperwork a difficult step. Older Boomers are the most satisfied with the home buying process at 91 percent.
Older Boomers’ income is below the median income of all buyers ($88,500) at just $76,800 and they purchase homes at a median price of $225,000. Older Boomers are the most likely to use the proceeds from the sale of a primary residence as the source of their downpayment (56 percent) and from an IRA account (six percent). They are the largest group of home buyers to save for a downpayment for more than two years (35 percent).
Older Boomers are the second largest share of home sellers at 21 percent in 2016. The median age for Older Boomer seller is 66 years. They have the second lowest median income at $86,400. They are the most likely to sell to be closer to friends and family (26 percent) and for retirement (21 percent), in another region of the country (24 percent), and at a median distance of 36 miles from the home they recently purchased. They are also the most likely to sell when they wanted to (95 percent). They receive the highest equity at 36 percent and second highest dollar value at $60,000.
The Silent Generation, buyers ages 71 to 91 years, make up the smallest share of home buyers by generation at only eight percent of all home buyers in 2016. The median age for this group is 75 years old and they were born between 1925 and 1945. They tend to have the smallest families; 97 percent of these buyers have no children living at home under the age of 18 years and they make up the highest share of single male buyers at 10 percent. Of the generations, buyers 71 to 91 years buy fewer multi-generational home at 11 percent. For those that purchase a multi-generational home, the reason is for the health and caretaking of aging relatives at 21 percent.
The Silent Generation have the smallest share of first-time home buyers at only four percent, which is expected as they are the oldest in age. Correspondingly, they make up the largest share to move directly from a home that was owned at 91 percent. They also have the lowest median household income at $66,600, likely living off retirement funds. They manage their finances accordingly and buy homes with the second lowest median home price at $220,000. They also purchase the newest homes last year with a median age of 1999.
Buyers 71 to 91 years are also the largest share to buy a new home at 21 percent and the largest share to purchase for the amenities of new home construction communities (22 percent). These buyers are the most likely to purchase a duplex, apartment, or condominium at 17 percent and townhouse at nine percent. They are also the most likely to buy a home in senior-related housing at 24 percent. The neighborhood influence with these buyers is the desire to own a home convenient to shopping (39 percent) and for the design of the neighborhood (29 percent). They are the least likely to buy homes in an area for the quality of the school district, convenient to schools, or the availability of larger lots of acreage. They are also the least likely to compromise on the condition of the home (13 percent). The Silent Generation makes up the largest share, on par with buyers 62 to 70 years, to buy in a small town at 24 percent.
The age group of buyers 71 to 91 years are the highest share among generations to purchase for the desire for a smaller home and to be closer to friends and family (both at 23 percent). In tandem with Millennials, they have the shortest expected tenure in the home with a median of 10 years. They are the most likely to move due to a household member’s health and least likely to move for a nicer home with added features or to outgrow home.
Eighty Percent of First-time Homebuyers Put Down Less than 20 Percent Downpayment (Based on December 2016–February 2017 Closed Sales)
More first-time homebuyers take advantage of a low downpayment loan compared to all homebuyers, according to the February 2017 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.
Among all buyers whose transaction closed in February 2017, 62 percent of those who obtained a mortgage made a downpayment of less than 20 percent. Among first-time homebuyers who obtained a mortgage and whose transactions closed in December 2016–February 2017, 80 percent made a downpayment of less than 20 percent.
Among first-time homebuyers, 65 percent put down a zero to six percent downpayment, a decrease from the 74 percent share in June 2009 when NAR started collecting this information in the RCI Survey.
The Federal Housing Administration (FHA) and the Government Sponsored Enterprises (GSEs) have implemented policies to make credit more widely available, such as FHA’s reduction of its annual mortgage insurance premiums and the Government Sponsored Enterprises (GSEs) acceptance of three percent downpayment mortgages. However, the impact of these measures in attracting first-time homebuyers appears to be modest for a variety of reasons. Lack of information about these products may be one reason. In fact, NAR’s 2016 Q3 Housing Opportunities and Market Experience (HOME) Survey found that only 13 percent of those aged 34 or under believe they need a downpayment of five percent or less. Additionally, although low downpayment loans are available, some buyers may want to save for a bigger downpayment to meet underwriting standards (e.g., debt-to-income ratios, loan-to-value ratios), save on mortgage insurance, or get a lower interest rate.
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.
 To increase the sample size for first-time homebuyers, NAR uses information from the last three surveys.
Recently GO Banking Rates put out some interesting information in their survey on how Americans spend their tax return. This was a very relevant topic because one thing that comes to mind in reference to potential homebuyers is the always-elusive down payment. With a sizable tax refund, the average American would have a decent down payment depending on which region or market you live in. The average tax refund was $2,860 for most Americans last year. Based on that refund approximately five percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential homebuyers if they are not already. Some good information can be found in the age groups who would invest and how likely they were to invest.
The survey states that of those between the ages of 18-34, six percent would use their tax refund to make a purchase of a car, home etc. Among those who are in the age range of 35-44, nine percent were likely to make an investment in a car or home etc. However, those ages 45-54 only planned to use one percent of their tax refund to make an investment of a car, home etc. That makes the 18-44 group the most likely to invest and possibly take advantage of using their tax refund to partake of the American dream. The younger generation is still burdened with debt while the older generation is in a better position to save and invest.
Let us take a look at the data from NAR’s 2017 Home Buyer and Seller Generational Trends:
- First-time buyers made up 35 percent of all homebuyers, an increase over last year’s near all-time low of 32 percent.
- Sixty-six percent of buyers 36 years and younger were first-time buyers, followed by buyers 37 to 51 years at 26 percent. (First time home buyers group would use between six and nine percent to invest) (Second group 37-51 years would use 31%-41% of their tax return to put into savings)
- At 34 percent, buyers 36 years and younger continue to be the largest generational group of homebuyers with a median of 31 years old.
- Home buyers between the ages of 37 and 51 were reported to have the highest household incomes among any other generation at $106,600, followed by buyers between 51 and 60 that had an income at $93,800 (down from $100,200).
With higher incomes and a tax refund of approximately $2,860, those who are most likely to purchase may actually be in good shape financially when it comes to being a future homeowner. While some may not have planned to use all or part of that $2,860 this year, next year is still a good strategy to plan ahead to use that refund or part of it for that down payment. We can see at least 5 percent is thinking of how to invest their money and home ownership is a means of developing wealth.
NAR recently released 2017 Real Estate in a Digital Age report takes a deeper look at REALTORS® use of digital technology. Real estate agents predominantly communicate with clients using digital means, namely email (94 percent), phone (91 percent), and text messaging (90 percent). The majority of REALTORS® use email, computers, and smartphones daily and 48 percent of real estate firms cited that keeping up with technology will be a challenge in the next two years.
The REALTOR® presence on websites and in social media has become commonplace displaying property listings, agent profiles, and financial calculators. Real estate agents under 30 are the most likely to write a blog and women and sales agents are the most active on social media.
In an industry where marketing is paramount, using high-quality video and photography can make a listing stand out. For example, camera drones are one of the hottest new devices to offer online video tours. Twenty-six percent of offices use drones in some capacity and 18 percent plan to in the future.
Smart home devices, as another example, are increasingly becoming important to clients. Agents reported that the following smart home devices are important to buyers: locks (62 percent), lights (61 percent), thermostats (60 percent), cameras (51 percent), and doorbells (35 percent). Nearly half of real estate professionals would like to continue to expand their use of technological advances in their business. Buyers have expressed on interest in smart home devices (42 percent), smart home technology for the entire home (22 percent), and smart features for specific rooms (13 percent).
There is certainly a need for additional training and assistance in the use of social media to expand real estate marketing. Fifty-seven percent of NAR members are comfortable using social media and 18 percent are uncomfortable or do not use it. Facebook is the most used social media tool (80 percent) followed by LinkedIn (71 percent). With two-thirds of business derived from past clients and referrals, social media allows agents to cultivate and maintain relationships with clients over time.
- Existing-home sales dropped 3.7 percent in February from one month prior while new home sales increased 6.1 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, 315,000 existing-homes were sold in February while new home sales totaled 49,000. These raw counts represent a 1 percent decrease for existing-home sales from one month prior while new home sales rose 20 percent. What was the trend in recent years? Sales from January to February increased by 3 percent on average in the prior three years for existing-homes and increased by 12 percent for new homes. So this year, existing-home sales underperformed compared to their recent normal while new home sales outperformed.
- 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 March and even better in April. For example, in the past 3 years, March sales rose by 26 to 37 percent from February while April sales rose by 11 to 19 percent from March. New home sales market tends to get busier in both March and April as well. For example, in the past 3 years, raw home sales in March increased by 2 to 11 percent from February while April sales rose by 5 percent on average from March.
Sales to first-time homebuyers accounted for 32 percent of residential sales in February 2017 (33 percent in January 2017; 30 percent in February 2016), according to the February 2017 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.
Sustained job growth and improving incomes along with the aging of the Millennial generation are likely underpinning the continued, albeit modest, increase in homebuying by first-time buyers. The anticipation of further increases in interest rates may also have prompted first-time buyers to enter the market. As shown below, the population most likely to be first-time home buyers—those aged 25 to 34—is projected to continue to increase through 2024 at which point many Millennials will have aged out of this age group.
Buyers 34 years old and under, who are likely to be first-time buyers, accounted for 29 percent of residential buyers in February 2017 (28 percent in January 2017; 28 percent in February 2016). The share of buyers 34 and under appears to be on a gradual uptrend from the 26 percent share in July 2013 when this information was first collected in the survey.
Homebuyers who were renting prior to their recent home purchase accounted for 42 percent of sales in February 2017 (42 percent in January 2017; 38 percent in February 2016). The fraction of buyers who were renting prior to their recent home purchase has increased from the 36 percent share in January 2014 when this information was first collected. At the same time, the share of buyers who were living in their own home at the time of their recent home purchase has decreased.
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.
 Mortgage rates in this report refer to the average contract rates on 30-year conventional mortgages reported by Freddie Mac. The average 30-year mortgage rate was 3.54 percent in the week of November 3, 2016. It broke above four percent, to 4.03 percent, in the week of November 24, and it climbed to 4.32 percent in the week of January 29. Since that time, rates have eased somewhat. The average rate stood at 4.21 percent in the week of March 9, 2017.
 NAR’s 2016 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 28 percent were 18-34 years old. The HBS surveys primary residence home buyers, while the monthly RCI Survey surveys REALTORS® and captures purchases for investment purposes and vacation/second homes.
 NAR’s 2016 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 41 percent rented an apartment or house. The HBS surveys primary residence home buyers, while the monthly RCI Survey surveys REALTORS® and also captures purchases for investment purposes and vacation/second homes.
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 February 2017 survey, the median expected home price change in the next 12 months was 3.8 percent, according to the February 2017 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.
The map below shows the median expected price change of the respondents in the next 12 months at the state level. The state of Washington has the highest median expected price growth at nearly six percent, followed by the states of Oregon, Montana, Utah, Colorado, Michigan, Tennessee, South Carolina, and Rhode Island at four to five percent. The oil-producing states of Alaska and North Dakota have the lowest median expected price change; respondents expect a slight decline in Alaska home prices and growth of less than 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.
While total housing inventory continues to fall year-over-year for the last 21 months, more markets are turning into a sellers’ market. Under limited inventory conditions, sellers get more confident. The increased demand exceeds the existing supply, which means that more buyers are seeking to purchase properties than there are available homes on the market. As a result of the bidding wars, sellers are able to secure a sale price that is higher or similar to the listing price. These kind of conditions are typically called a “sellers’ market.”
We calculated the ratio of sale to the first original asking price for 262 counties in the United States. In simple words, the ratio shows us what percentage of the first original asking price sellers were able to get. For instance, the ratio for the United States is 95%, which means that homeowners sold their house for $228,400 while the asking price was $240,400. Alternatively, we could say that nationwide, sellers sold their house for 5% less than their asking price.
At local level, it is very interesting to see how the ratio of sale to ask price differs from county to county. The ratio varies between 80% and 99%. The higher the ratio, the higher the percentage of sale to asking price which suggests a stronger market for sellers. Adams, CO was the county with the highest ratio (99.3%) while Rabun, GA had the lowest ratio (80.3%).
Looking at the visualization above, we make the following observations:
1. Ratio is higher in counties that are close to a city.
The combination of the limited inventory and increased demand is the reason that sellers get a higher percentage of their asking price in these counties.
In Minnesota, Virginia and Maryland, counties close to the cities had a higher ratio than other counties in the area. Anoka County, MN, Arlington County, VA and Prince George County, MD had the highest ratios across these areas.
2. Ratio is higher in areas where homes are expensive.
It tends that inventory is more limited in the areas where home prices are higher as it is one of the main reasons that home prices are increasing. Although homes are already expensive, potential buyers are willing to make an offer closer to the asking price in order to win the bidding war.
After regressing Ratio to Median Sale Price, we get that if we change median sales price by 1 percent the ratio will increase by 0.4 percent.
In Washington DC metro area, the District had the highest ratio (Ratio= 97.8%, median sales price $513,000 followed by Arlington, VA (Ratio=97.1%, median sale price=$547,324). In contrast, Frederick, VA had the lowest ratio (95.2%) in the area while median sale price was $217,500.
3. Ratio is higher in fast market areas
As a result of the increased demand and high competition among potential buyers for the limited number of homes for sale, homes stay on the market for a short period. Typically, homes stay on the market for 35 days in the counties where the ratio is higher than 96%. In contrast, the median days on the market for counties with a ratio lower than 96% is 62 days.
The fact the low days on market are associated with lower price discounts implies the county level differences do broadly reflect the tightness of the local market.
Whether you are a seller or a buyer, a local real estate agent will be the most appropriate source to trust for a strategy of how to deal with conditions in your market. If you are a seller, your agent can tell you how high of a price to ask for, and if you are a buyer, what you need to offer in order to compete with other potential homebuyers.
 Ratio is calculated based on the first original asking price.
 Median sale price for the U.S. in February 2017.
 In a radius of 1.5 hour driving distance
 It is true that our observations are limited to draw conclusions for the relationship between Ratio and Median Sale Price. However, we thought that it is interesting to show the results that we get for this limited sample:
LogRatio = 0.0352025*log(Price)+-0.213799, R-squared = 0.192
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?”
REALTORS® are generally optimistic about the existing homes market in the next six months. 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.
The index for condominiums was at 61 in February 2017 (58 in January 2017; 53 in February 2016), the highest level since this NAR generated this index 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.
In the single-family homes market, the outlook in the next six months is “moderate” to “very strong” in nearly all states and in the District of Columbia. Only North Dakota registered a “weak” outlook. In the townhomes market, the outlook is mostly “moderate” to “strong” with only five states registering “weak” and three states plus the District of Columbia registering “very strong.” In the market for condominiums, only nine states registered a “weak” outlook, while 23 states plus the District of Columbia registered a strong outlook. Post-election factors may boost the outlook in the District of Columbia.
 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.
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
 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/
FHFA House Price Indices Indicate South and Midwest Experienced Fastest Price Growth from 1990-2015: A REALTOR® University Speaker Series Presentation
At a REALTOR® University Speaker Series held recently, Dr. Will Doerner, Senior Economist, Federal Housing Finance Agency (FHFA), presented research on how prices changed from 1990—2015 at the city, county, and ZIP code level.
Several price indices and price measures are available from survey data and proprietary sources, but the price indices developed by a team of FHFA researchers are the first and only set of constant quality house price indices at the local level with a 40-year horizon. They estimate these constant quality price indices using a repeat sales (“sales on the same property”) methodology so the change in the index captures only the price effect and not the effect due to changes in the quantity and type of housing. The local price indices are freely available to the public at the metropolitan/micropolitan (over 900 areas), county (over 2,700 counties), 5-digit ZIP code (over 18,000 ZIP codes), and census tract (over 54,000 tracts) levels. Click here to go to FHFA’s webpage and download the local price indices.
Map 1 below shows the price indices at the ZIP code level as of 2016 based on prices in 2000. An index of 175 means that prices were 75 percent higher in 2016 compared to their levels in 2000 (or an average annual growth of 3.6 percent). Areas colored in red experienced the fastest cumulative price growth, while areas in green had the lowest price growth. Many of the high growth areas are in the West and Midwest region.
Another research finding is that large cities experienced less severe price declines during the housing bust than did small cities which saw steeper price declines. In other words, large cities are less prone to housing busts than small cities.
The FHFA research also suggested an increasing preference for cities and away from suburbs, a trend that started in the 1990s after the migration to the suburbs in the 1970’s-1980. Houses that are closer to the central business district (CBD) have prices rising at a faster pace compared to houses located farther away from the city center. For example, houses within less than five miles of the CBD of a large city (more than 500,000 housing units) rose at two percent more annually from 1990-2015 compared to houses located at 20 miles away from the CBD.
Perhaps most importantly in relation to FHFA’s role as regulator and conservator of Fannie Mae and Freddie Mac, ZIP code level price indices yield lower house price forecast errors compared to price indices at a higher level of aggregation (e.g. state level HPIs), thereby improving the evaluation of a borrower’s credit risks.
What This Means to REALTORS®: REALTORS® can use the FHFA local price indices as additional sources of information in evaluating home price changes in their local areas and in comparing the changes in home prices over time and across other areas.
About the Speaker
Dr. Will Doerner is responsible for House Price Index (HPI) production and related research. He is a Commissioner for the Prince George’s County Planning Board and previously served on the Hyattsville Planning Committee. Before joining FHFA, he worked in property appraisal and valuation for both state and county agencies in Florida. He has published over a dozen articles in academic journals on a range of topics like finance, housing, property taxation, and policing. Several papers have received “best paper” recognitions from professional organizations and publishers.
Dr. Doerner earned his Ph.D. and M.S. in Economics from Florida State University, where he also taught classes on housing markets and land use regulations. He received his B.S. in Mathematics-Economics and Urban Studies at Furman University. Dr. Doerner’s curriculum vitae can be found here. You can follow Dr. Doerner at @wdoerner and email him at William.Doerner@fhfa.gov.
About REALTOR® University Speaker Series
REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.
 Held on March 24, 2017 at the NAR Washington D.C. Office. Measuring House Prices: Going Local with Indices, Cycles, and Modeling
 Based on a series of co-authored papers with FHFA economists Alexander Bogin and William Larson.
 Thanks to Meredith Dunn, Communications Manager, for creating the webinar material.
 Includes NAR’s median price on existing home sales, Case-Shiller indices, and American Community Survey, CoreLogic, among others.
 Dr. Doerner presented data from 1990-2015, but 2016 data is available from the FHFA website.
 The annual growth from 2000-2016 can be estimated as (175/100)1/16-1 or 3.6 percent. FHFA also generates indices based on 1990 prices.
 The U.S. Census defines a large city as one with more than 500,000 housing units.
 Dr. Doerner noted that ZIP Code and county level HPIs are best to use when running credit risk models for large cities (500,000 or more housing units). For small cities or outside of the central areas of a large city, metro-level (or city) HPIs yield low forecast errors also.