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2016 Fourth Quarter Metro Affordability

Tue, 02/21/2017 - 10:27

The National Association of Realtors quarterly home prices increased again this quarter. With inventory, being an issue in certain metro markets affordability may become a challenge for potential homebuyers. Here is a look at the metro areas for the top five most and least affordable of the fourth quarter 2016 as well as a look at the median existing single-family home price year over year percentage change for the top five highest and lowest growth metro areas of the fourth quarter 2016.

These are the most affordable metro areas for the fourth quarter 2016:

These are the least affordable metro areas for the fourth quarter 2016:

These are the top five metro areas that had the highest home price appreciation:

These are the bottom five metro areas that had a decline in home price appreciation:

Home Renovations to Accommodate Family Animals

Fri, 02/17/2017 - 10:45

For homeowners, animals are part of the family according to 99 percent of animal owners that NAR surveyed in its new report Remodeling Impact: Animal House. Nevertheless, finding a rental property or a home owners association that accommodates animals, according to 61 percent of REALTORS®, can be difficult.

Nearly half of all animal owners have undertaken a home renovation project to accommodate their family animals (52 percent), and owners feel a great sense of satisfaction and accomplishment. The overall Joy Score for home renovations for animals was 9.4.

The most popular animal renovation projects were building a fenced yard (23 percent), adding a doggy door (12 percent), and installing laminate flooring (10 percent). All three projects received a Joy Score of 9.2 or higher once completed. Three-fourths of animal owners feel that constructing a fenced yard (78 percent) and adding laminate flooring (76 percent) are important to the home for their animals. Other renovation projects include installing a mudroom or animal washing station, animal pool/water feature, kitty litter closet, and doggy door.

Of the owners that completed a renovation project, 44 percent hired a professional to do their project and 56 percent did a renovation themselves. Those that hired a professional had a greater sense of satisfaction (65 percent) than those that completed one themselves (61 percent). Those that completed a project themselves had a greater sense of accomplishment (58 percent) than those that hired a professional (52 percent).

As income goes up, the percent of animal owners that completed a home renovation for their animal increases. In addition, as income goes up, so does the share that hired a professional to complete their home renovation project compared to those that completed a project themselves.

Single males were more likely to renovate to accommodate an animal than single females. Married and unmarried couples equally renovated at a similar rate. More than two-thirds of single males completed a project themselves compared to only half of single females instead of hiring a professional. Married couples were more likely than unmarried couples to hire a professional.

 

President’s Day 2017: How Does the White House Compare to the Average Home

Fri, 02/17/2017 - 10:25

In the spirit of President’s Day we can use data from the 2016 Profile of Home Buyers and Sellers to see how the typical home differs from the White House.

Typical Home Purchased in the U.S.

  • 86% of buyers purchased a previously owned home, with 83% of buyers choosing a detached single-family home.
  • Looking by first-time and repeat buyers, both also purchased detached single-family homes more often with 82% of first-time buyers and 84% of repeat buyers.
  • 54% of all buyers purchased their home in a suburb/subdivision.
  • The typical detached single-family home purchased was 1,950 square feet.
  • Recent homes purchased also had a median of 3 bedrooms, 2 bathrooms, and were built in 1991.
  • Among all buyers, the expected length of tenure in the home purchased was 12 years.

The White House

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

 

For more information on this data check out the President’s Day Infographic and the 2016 Profile of Home Buyers and Sellers.

A More Encompassing Look at Housing Affordability: REALTORS® Affordability Distribution Curve and Score

Thu, 02/16/2017 - 09:00

Because housing is a big part of many Americans’ financial wellbeing the ability to access homeownership – housing affordability – is an important topic. The National Association of REALTORS® (NAR) Housing Affordability Index is a great way to simply understand how affordable the housing market is or isn’t for the typical home buyer and how that compares over time. However, it has a few shortcomings. First, not everyone is the typical home buyer. While looking at the median family is a good representation of the middle of the market, the situation for those with incomes above or below the median family income can look quite different. Second, the NAR Housing Affordability Index uses home sale prices to determine affordability, so it’s backward looking. We know what affordability was, but what about the affordability of housing inventory that is active on the market right now?

To answer these questions, the NAR Research Division and realtor.com partnered to do an analysis of affordability at different income percentiles for all active inventory on the market.[1] First, we have a summary measure—the Realtors® Affordability Score[2]—that summarizes what is going on for different income percentiles in a single measure for each state.[3] Like the Housing Affordability Index, the Realtors® Affordability Score is useful for highlighting overall trends in affordability over time. Another result of this research is Realtors® Affordability Distribution Curve.[4] With the distribution curve, we can zoom into certain income segments of the market and see how many houses are affordable to those in the particular income group.

Let’s start with describing a Realtors® Affordability Distribution Curve. First, we gather income data for households in our desired market.[5] Then we construct a maximum affordable house price for the income level[6] using a down payment percentage determined from recently locked mortgages from Optimal Blue.[7] Once we have the maximum affordable house price for a given income percentile, we look at active listings on realtor.com to see what percent of homes on the market are priced less than that maximum affordable house price. In other words, we see what share of homes on the market in that area is affordable to that income percentile. When we graph income percentiles against the share of homes on the market that are affordable to those income percentiles, we get the Affordability Distribution Curve. As seen below, a median income household (50th percentile) can afford roughly 46 percent of houses currently on the market. For households below this, there are fewer affordable homes on the market; a household in the 35th percentile can afford roughly 28 percent of houses on the market. For households above this, there are a greater number of affordable homes on the market; a household in the 75th percentile can afford roughly 74 percent of homes on the market.

 

After we find the Affordability Distribution Curve, we can create the REALTORS® Affordability Score. The score is simply 2 times the area under the distribution curve. The score will vary between 0 and 2. A score of 0 will result when no household can afford any of the homes that are currently on the market. A score of 2 will result when all households can afford all of the homes that are currently on the market. A coefficient of 1 generally suggests a market close to equality, in other words, homes on the market are affordable to households in proportion to their income distribution. For example, a household in the 20th percentile of income can afford 20 percent of homes currently listed on the market given prevailing purchase terms. However, a coefficient of 1 could also suggest very high affordability for certain income segments and low affordability for other income segments.[8] In general, higher coefficients suggest better affordability conditions for a broader scope of households, but a review of the full distribution curve would be needed to determine what income segments might have the best affordability conditions.

NAR Research and realtor.com computed distributions and scores for January 2016 through January 2017. In January 2017 the US had a Realtors® Affordability Score of 0.92, which generally means that households in many income percentiles can afford a smaller share of houses on the market than their income percentile. Looking at the distribution curve for January 2017, we see that the whole Realtors® Affordability Distribution Curve falls below the Equality Line, but the gap is generally smaller for upper income percentiles. The US Affordability Score decreased from 0.97 in January 2016, due to rising prices across the country and rising mortgage rates that occurred in the last three months of the year. However, North Dakota, Alaska and Wyoming saw increases of 0.03 on average in their scores in 2017.

Midwest states have some of the most accessible housing markets in the US. Indiana come out on top as the most accessible with a ratio of 1.23, meaning that it’s 23% beyond the equality line, and typically lower-income households can afford a greater share of currently listed homes. Out of the 50 states and DC, 28 have scores greater than the US score. And 70% of these states are located in the Midwest and South region. On the other side of the spectrum, Hawaii is the least equal state with a score of 0.52, followed by California, the District of Columbia, and Oregon. In many of these areas, rising home prices have almost priced the lower-income population out of the market.

 

While looking at active inventory is a valuable innovation of this index, there is also a potential drawback of using listing prices—they do not always relate to final sale prices in the same way. In very hot sales markets, homes can sell for more than the listing price. In slower sales markets, buyers may be able to purchase a home by offering slightly less than the asking price. For example, looking at the data from the Profile of Home Buyers and Sellers we can see that in the past decade the typical final price to asking price ratio ranged from 96 to 99 percent for recent buyers. While this is not a huge deviation over time, it’s something to keep in mind. Further, the REALTORS® Confidence Index shows that in any given month, price discounts can range significantly from property to property. In the most recent month of data, just over 2 percent of properties sold at a price eight percent or more above asking price, while just over 20 percent of properties sold at a similar-sized discount from the asking price.

Since we are using listing prices to determine what is affordable, we are assuming that the housing inventory on the market will all sell for the exact price at which it is listed. If homes are regularly selling above list price, then the market may be slightly more unaffordable than our Affordability Score suggests whereas if homes are regularly selling below the list price, the market may actually be more affordable than our Affordability Score suggests. Also, if certain parts of the market (upper or lower price tiers) are more prone to price discounts or bidding wars, that will also paint a different picture of affordability.

In spite of these limitations, the new Realtors® Affordability Distribution Curve and Score are valuable tools to assess the affordability of different markets to different population income groups on a relative basis and over time.

For more information, view the Realtors® Affordability Distribution Curve and Score data page here > 

[1] Active inventory data comes from realtor.com and will include some but not all new homes as well as existing home inventory.

[2] This score was inspired by the Gini Coefficient which is used by economists to understand income and wealth distributions and inequality.

[3] Additional levels of geography may be produced in the future.

[4] These distributions are modeled somewhat after the Lorenz Curves used to estimate the Gini coefficient, but instead of considering a single variable as the Lorenz Curves do, we are interested in the comparison of income and house prices, namely, what percent of homes for sale are affordable to households at each income percentile.

[5] We use income distribution data from Nielsen. Nielsen data is provided as numbers of households within income brackets, so we can calculate the percentile within, above, or below any bracket. See detailed methodology here: http://www.tetrad.com/pub/documents/popfactsmeth

[6] The maximum affordable house price assumes that 30 percent of a purchaser’s income can go to pay for the financing, property tax, homeowner’s insurance costs, and a mortgage insurance premium if the down payment is less than 20 percent. We assume that homes are financed with a 30-year fixed-rate fully-amortizing mortgage at the prevailing mortgage rate. Mortgage rates are those advertised on realtor.com during the period analyzed.

[7] Because we allow the down payments to vary over time with actual market conditions, they can affect measured affordability in a direction that might not be intuitive. When purchasers are putting down higher (lower) down payments, measured affordability is higher (lower). This is because when the upfront sum of money used in the down payment is higher (lower), there is a lower (higher) remainder of the house purchase price left to finance. Thus with a higher (lower) down payment, the monthly payment is lower (higher).

[8] Several states have coefficients that equal 1 in the study period. They are Delaware (July 2016); Louisiana (February 2016); Maryland (May 2016, June 2016, December 2016); Minnesota (December 2016); Virginia (January 2017); and Wyoming (June, July, August, September). As can be seen from the respective distribution curves, some of these states are more uniformly close to the line of equality while others have segments with high affordability offset by segments with low affordability.

EHS in 2016 by the Numbers – Part 4 – Contracts

Wed, 02/15/2017 - 11:30

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

Home listings went under contract slightly more often on Mondays followed by Fridays and Tuesdays in 2016.  Here is the data:

  • As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2016 holds for 2017.  The last sales data for December 2016 is in, and we can get a good sense of the year by looking at the data we currently have for the past 12 months.  In our first posts Part 1,  Part 2, and Part 3 we looked at closings and listings by day.  Here, we’ll take a look at contracts.
  • Below, we see the most popular under-contract days of 2016[1].  Similar to the pattern in home listings, we see a strong preponderance of spring dates and lack of weekends.
  • The biggest months for new contracts in 2016 were April, May, and March followed closely by June.  These months alone accounted for more than 4 in 10 new contracts in this analysis.  .
  • While not devoid of contract activity, the weekends are not common contract signing days.  Among weekdays, Mondays followed by Fridays, and Tuesdays are the most common days for new contracts to be signed, though Wednesdays and Thursdays are only slightly less common. In spite of that fact, not a single Thursday made the list of top 25 days for contracts in 2016.
  • While home closings exhibit a strong tendency to get done at the end of the month, contracts are, like listings, much steadier throughout the course of the month.  Listings show a slight tendency to be posted earlier rather than later in a month, and contracts have a very slight tendency to be signed more often in the early to middle portion of a month rather than at the end.

[1] This analysis includes listings that went under contract at any point in the period under observation, January 1, 2016 to December 31, 2016.  If two contracts existed in the observation period on the same listed property because, for example, one contract fell through and another contract was signed in a later month, both contract dates would be counted as “new contracts” in the analysis.  Thus, some contracts counted here may have fallen through.

Affordability is Main Hurdle for Aspiring Home Buyers

Tue, 02/14/2017 - 13:31

NAR released a new Aspiring Home Buyers Profile that captures the consumer sentiment of the housing market for non-homeowners—defined as those that rent and those that live with someone else (such as family and friends) rent-free. The report is aptly named, for nearly nine in 10 non-homeowners expressed the desire to own a home of their own one day and eight in 10 stated that homeownership is part of their American Dream.

A third of all U.S. consumers households surveyed in 2016 were non-homeowners (34 percent), which is a sizable number of people who want to own a home but haven’t found a path to homeownership just yet. Of non-owners, 26 percent were renters and 11 percent were those living with someone else without paying rent. The typical non-owner is under 34 years of age (59 percent), has an income of less than $50,000 (64 percent), and lives in suburban areas (43 percent).

Non-owners reported that affordability of homes was the number one reason they do not currently own. Last year, about half of non-owners said that they could not afford to buy (48 to 57 percent each quarter). Around a fifth of non-owners said they wanted the flexibility of renting rather than owning (18 to 22 percent each quarter), and small fraction did not want the responsibility of owning (nine to 12 percent each quarter).

Non-owners could benefit from increased education on downpayment assistance. In the third quarter of 2016, survey respondents were asked questions related to downpayments. Of the non-owners, 39 percent believe they need more than 20 percent for a downpayment and 87 percent believe they need more than 10 percent.

Throughout 2016, non-owners view that now is a good time to buy a home decreased over time. In the first quarter of the year, 63 percent of non-owners said that now was a good time to buy a home compared to 55 percent of non-owners in the last quarter of the year.

Home Buyer Households: Valentine’s Day 2017

Tue, 02/14/2017 - 11:28

Using data from the 2016 Profile of Home Buyers and Sellers we can break down household composition, and the relationship it has to home purchasing choices.

  • Among all recent home buyers, 66 percent were married couples, 17 percent were single females, eight percent were unmarried couples, and seven percent were single males.
  • Three percent of recent buyers identified as gay or lesbian, and one percent identified as bisexual.
  • Among first-time buyers, 58 percent were married couples, and 71 percent of repeat buyers were married couples.
  • Among all home buyers, 83 percent purchased a detached single-family home, seven percent purchased a townhouse/row house, four percent purchased an apartment or condo.
  • Eighty-seven percent of married couples, and 85 percent of unmarried couples purchased a detached single-family home.
  • Married couple buyers were typically 44 years old with a household income of $99,200. They typically purchased homes that were a median of 2,010 sq. ft., for $255,000.
  • Unmarried couple buyers were typically 33 years old with a household income of $84,800. They typically purchased homes that were a median of 1,670 sq. ft., for $181,400.
  • Single female buyers were typically 50 years old with a household income of $55,300. They typically purchased homes that were a median of 1,520 sq. ft., for $173,000.
  • Single male buyers were typically 47 years old with a household income of $69,600. They typically purchased homes that were a median of 1,575 sq. ft., for $190,600.

For more information on how relationship status and household composition affects homeownership choices, check out the Homebuyer Households infographic, and the 2016 Profile of Home Buyers and Sellers.

December 2016 Housing Affordability Index

Fri, 02/10/2017 - 10:59

At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.15 percent this December, up dramatically from last month’s 3.82 percent, but roughly unchanged compared to 4.14 a year ago.

  • Housing affordability declined from a year ago in December moving the index down 1.4 percent from 165.1 to 162.8. The median sales price for a single family home sold in December in the US was $233,500 up 3.8 percent from a year ago.
  • Nationally, mortgage rates were up one basis point from one year ago (one percentage point equals 100 basis points) while incomes rose 2.4 percent.
  • Regionally, the South had the biggest increase in price at 6.6 percent. The West had an increase of 6.3 percent while the Midwest had a 4.3 percent gain in price. The Northeast had the only decline in price of 5.6 percent.
  • Regionally, the Northeast was the only region that saw an increase in affordability from a year ago. The Northeast had an increase of 8.6 percent. The Midwest had the smallest decline of 2.1 percent. The West had a decline in affordability of 3.9 percent while the South had the largest decline of 4.4 percent.
  • By region, affordability is down from last month except in the Northeast. The Northeast had the only incline of 5.8 percent. The Midwest followed had a decline of 2.4 percent and the West had a decline of 3.3 percent. The South had the biggest decline in affordability of 4.4 percent.
  • Despite month-to-month changes, the most affordable region is the Midwest where the index is 210. The least affordable region remains the West where the index is 115.3.  For comparison, the index is 161.5 in the South, 182.2 in the Northeast.
  • Mortgage applications are currently up this week. Home ownership rates are still historically low. Without the ramping up of new construction there will continue to be a housing shortage.  Increases in population shows that there is clearly a demand for housing.
  • 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.

EHS in 2016 by the Numbers – Part 3 – Popular Listing Dates

Wed, 02/08/2017 - 11:30

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

Home listings still go up most often on Thursdays and Fridays. Here is the data:

  • As we start the New Year, this is a good time to take a look and recap the year behind us to see what insights 2016 holds for 2017. While December 2016 is still preliminary, we can get a good sense of the year by looking at the data we currently have for the past 12 months[1]. In our first posts, Part 1 and Part 2 we looked at closings by day. Here, we’ll take a look at listings.
  • Below, we see the most popular listing days of 2016. Note the strong preponderance of spring dates and obvious lack of weekends.
  • The biggest months for new listings was April, followed by March, May, June, and July. These months alone accounted for roughly half of all new listings in this analysis.
  • While not devoid of new listings, the weekends are obviously not popular days to list. Among weekdays, Fridays and Thursdays are the most common days for new listings to go up, with Mondays and Wednesdays trailing a bit and Tuesdays not too far behind. All week days are represented in the top 25 dates for listings.
  • While home closings exhibit a strong tendency to get done at the end of the month, listings are much steadier throughout the course of the month with a slight tendency to be posted earlier rather than later.

[1] This analysis considers data from January 1, 2016 to December 31, 2016

REALTORS® Remain Broadly Optimistic About Market Conditions in 2017

Tue, 02/07/2017 - 16:03

REALTORS® remain broadly optimistic about housing market conditions over the next six months, according to the December 2016 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.[1] The REALTORS® Confidence IndexSix-Month Outlook indices for all properties have been trending upward since 2012, and on an annual basis, 2016 was a record year for each property type, with each registering above 50.  The REALTORS® Confidence IndexSix-Month Outlook for single-family homes has registered above 50 since 2012. An index above 50 indicates that more REALTOR® respondents expect market conditions to be “strong” than “weak” over the next six months compared to current conditions.[2]

The index for condominiums was at 56 in December 2016 (54 in November 2016; 51 in December 2015), 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.[3] Among other measures, the law eases access to FHA condominium financing by reducing the FHA condominium owner-occupancy ratio from 50 percent 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 “strong” in many states to “very strong” in the District of Columbia and in 14 states.[4] Only North Dakota registered with a “moderate” outlook in the most recent period. In the townhomes and condominiums markets, the outlook is more evenly mixed, from “weak” to “strong” in most states, with only the District of Columbia registering a “very strong” outlook for both townhomes and condominiums. Post-election factors may boost the outlook in the District of Columbia.[5]

[1] The author acknowledges 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.

[2] Respondents are asked, “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?” The responses for each type of property are compiled into an 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.

[3]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

[4] 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).” The responses are compiled 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.

[5] See for example this review: http://economistsoutlook.blogs.realtor.org/2016/10/05/do-elections-affect-the-housing-market-in-washington-dc/

2016 Survey of Mortgage Originators, Fourth Quarter

Tue, 02/07/2017 - 11:29

Anecdotes have increased in recent quarters that there is a growing shortage of appraisers.  55.6 percent of lenders who took part in the most recent Survey of Mortgage Originators indicated some level of issues getting appraisals.  However, 11.1 percent indicated that the issue was significant.

Respondents indicated that roughly 9.8% of volume was hit with a rush fee for getting an appraisal within a short time-frame.  On average, those fees were 37.1 percent higher in this sample.

NAR will work with appraiser-members to continue to monitor constraints in the appraisal industry

 

Highlights of the December 2016 REALTORS® Confidence Index Survey Report

Mon, 02/06/2017 - 11:38

While local conditions vary, the REALTORS® Buyer Traffic Index and the REALTORS® Confidence IndexCurrent Conditions for single-family homes remained above 50 in December 2016, indicating that more respondents reported “strong” than “weak” conditions, according to the December 2016 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.[1] Both indices were higher than their levels in December 2015 and were essentially unchanged from November 2016 levels.[2] The REALTORS® Seller Traffic Index slightly increased from one year ago, but it has remained below 50 since November 2008, indicating that seller activity is still “weak.”

In December 2016, first-time homebuyers accounted for 32 percent of sales (32 percent in 2016; 30 percent in 2015) .[3] With fewer new foreclosures, distressed properties accounted for seven percent of sales (seven percent in 2016; nine percent in 2015), purchases for investment purposes made up 15 percent of sales (14 percent in 2016; 14 percent in 2015), and cash sales accounted for 21 percent of sales (23 percent in 2016; 24 percent in 2015). Amid tight supply, half of properties that sold in December 2016 were on the market for 52 days or less compared to 58 days in December 2015 (43 in 2016; 50 in 2015).

Lack of supply and appraisal-related problems were the main issues reported by REALTORS®. Respondents also expressed concern about the impact of rising mortgage rates. Overall, respondents were confident about the outlook over the next six months for the single-family homes, townhomes, and condominiums markets, with the six-month outlook confidence indices for these markets registering at 50 and above.

[1] 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.

[2] 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.

[3] NAR’s 2016 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 35 percent were first-time homebuyers, up from 32 percent in 2015. The HBS surveys primary residence homebuyers, while the monthly RCI Survey surveys REALTORS® and includes purchases for investment purposes and vacation/second homes.

Distressed, Investment, and All-cash Sales Continued to Decline in 2016

Fri, 02/03/2017 - 11:27

REALTORS® reported that sales of distressed properties continued to fall in 2016, according to the December 2016 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.[1] Distressed sales accounted for seven percent of sales (eight percent in 2015). With rising home values, improved economic conditions, and fewer foreclosures, the share of sales of distressed properties has continued to decline since 2009 (36 percent).

Purchasing for investment has become less attractive with fewer distressed sales on the market and with home prices rising. In 2016, investment sales accounted for 14 percent of sales (14 percent in 2015). Purchases for investment purposes have generally been on the decline since 2011–2012 when investment sales accounted for 20 percent of sales.

As the shares of distressed and investment sales have declined, so has the share of cash sales. In 2016, cash sales accounted for 23 percent of sales (24 percent in 2015). Buyers of homes for investment purposes, distressed sales, second homes, and foreign clients are more likely to pay cash than first-time homebuyers.

[1]The author acknowledges 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.

81 Percent of First-time Homebuyers Made a Downpayment of Less than 20 Percent

Thu, 02/02/2017 - 15:25

More first-time homebuyers avail of a low downpayment loan compared to all homebuyers, according to the December 2016 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.[1] Among first-time homebuyers who obtained a mortgage and whose transactions closed in October—December 2016, 81 percent made a downpayment of less than 20 percent.[2] In comparison, 62 percent of all buyers who obtained a mortgage and whose transaction closed in December 2016 made a downpayment of less than 20 percent.

The Federal Housing Authority (FHA) and the Government Sponsored Enterprises (GSEs) have implemented policies to make credit more widely available for first-time buyers. In January 2015, the Federal Housing Authority reduced the annual mortgage insurance premium by 0.5 percentage points ( from 1.35 percent to 0.85 percent).  In 2015, Fannie Mae and Freddie Mac also accepted mortgages with three percent downpayment.

However, the impact of these measures in attracting first-time homebuyers appears to be modest for a variety of reasons. Lack of information about low downpayment 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.[3] 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.

[1]The author acknowledges 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.

[2] The estimate for first-time homebuyers is based on a 3-month period to increase the sample size.

[3] See: http://www.realtor.org/reports/2016-q3-homeownership-opportunities-and-market-experience-home-survey.

EHS in 2016 by the Numbers – Part 2 – Least Common Closing Dates

Thu, 02/02/2017 - 11:24

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

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

  • The sales data for December 2016 is still preliminary, but we can get a good sense of the year by looking at the data we currently have for the past 12 months[1]. In our first post, we looked at top closing days of 2016.
  • In this list, we see the slowest closing days of 2016. The resulting list depends very much on how you define the eligible days.
  • Very few closings happen on weekends, federal holidays, and the Friday after Thanksgiving. Excluding these days, we find that the slowest closing day was Wednesday, February 3. Last year’s slowest day—January 13—again made the list, but was number four instead of number one this year. January 2 is often on the list, but because it fell on a weekend, it was excluded this year.
  • In 2016, Wednesday, February 3 was slower than both Columbus Day (Monday, October 10) and Memorial Day (Monday, May 30), but these holidays had fewer sales than all other dates on the list.
  • One holiday that REALTORS® may not have taken off was Veteran’s Day. Perhaps because it fell on a Friday (November 11, 2016), Veteran’s Day had more home closings than all of the bottom 25 dates listed below. All other weekend days and holidays were slower than the slow business days listed below.
  • Because this ranking was compiled with data that was not seasonally adjusted, we see that winter days figure prominently in the list of slowest days for home closings.
  • Those who have been in business a few years can probably expect these seasonal fluctuations, but for those who are new to real estate, take note and plan your vacations accordingly.

[1] This analysis considers data from January 1, 2016 to December 31, 2016.

December Pending Home Sales

Wed, 02/01/2017 - 11:20
  • NAR released a summary of pending home sales data showing that December’s pending home sales made a comeback and are up 1.6 percent from last month and also up 0.3 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 West lead with an increase of 5.0 percent followed by the South 0.5 percent. The Northeast had a decline of 1.2 percent. The Midwest had the biggest decline of 3.4 percent.
  • From last month, again the South and the West were the only regions to have an increase. The West has the biggest increase of 5.0 percent followed by the South with 2.4 percent. The Midwest had a decline of 0.8 percent and the Northeast had the biggest decline 1.6 percent.
  • The pending home sales index level was 109.0 for the US. November’s data was unrevised to 107.3.
  • 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.

 

FHA Mortgage Insurance Premium Flash Survey

Tue, 01/31/2017 - 10:22

On January 10th, the FHA lowered its annual mortgage insurance premium (MIP) by 25 basis points. That decision was put on hold pending a review on January 21st. This alteration to the FHA’s fee structure was unique as it made many borrowers in the current pipeline eligible for the fee reduction. NAR Research surveyed a panel of mortgage originators to gain insights on the impact of the change to consumers and the market. The respondents felt that the impact would be small in part due to the time of year, but many borrowers would be inconvenienced, some incurring expense, and a few no longer eligible to purchase a home.

Highlights form the survey:

  • Respondents indicated that a range of 1 percent to 40 percent of their pipeline would be impacted with a weighted average of 15.1 percent
  • Of those affected, 5.7 percent of the affected loans will likely be cancelled, while 21.2 percent will be delayed as loan estimates (LE) or closing disclosures (CD) are reissued. This implies that roughly 0.86 percent of all mortgage production could be cancelled, in line with earlier NAR estimates.
  • Half of respondents indicated that consumers would absorb the higher MIP, while 22.2 percent said their firm would absorb a rate lock extension. One respondent indicated that consumers would absorb both costs.
  • Overall, lenders were optimistic that the impact would be limited in part due to the time of year, but for some that was not the case.

The suspension of the FHA’s fee reduction provides important lessons for how to inform the market of such changes. Furthermore, with the fee under review, many homebuyers may still benefit from a future reduction in the fee.

Instant Reaction: November Owners’ Gains Forecast

Tue, 01/31/2017 - 10:10

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 November reached a new high and is up 5.6 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 owners’ equity[1] was increased by $354 billion. That means that 75 million homeowners each gained $4,720 on average in November 2016 from a year earlier while October’s gains were $4,590 per homeowner.

 

[1] Home equity is the difference between the value of one’s home and the amount of mortgage debt on the home.

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 November reached a new high and is up 5.6 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 owners’ equity[1] was increased by $354 billion. That means that 75 million homeowners each gained $4,720 on average in November 2016 from a year earlier while October’s gains were $4,590 per homeowner.

[1] Home equity is the difference between the value of one’s home and the amount of mortgage debt on the home.

First-time Homebuyers: Slightly Up at 32 Percent of Residential Sales in 2016

Mon, 01/30/2017 - 15:32

REALTORS® reported that first-time homebuyers accounted for 32 percent of residential sales in 2016 (30 percent in 2015), according to the December 2016 REALTORS® Confidence Index Survey Report, a monthly survey of REALTORS® about their sales activity and local market conditions.[1] 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. [2],[3]

Low mortgage rates have also bolstered homebuying, although the increase in interest rates since November appears to have affected demand in some areas, according to survey respondents.[4] Mortgage rates are likely to continue to rise modestly in 2017.

 The share of first-time homebuyers increased in states such as Arizona, California, Florida, and North Carolina in 2016 compared to the rates in 2015.[5] The share of first-time homebuyers has also increased in Arizona, Florida, and New York since 2012, the first year of solid growth since the recession of 2008-2009.

 Buyers 34 years old and under, who are likely to be first-time buyers, accounted for 30 percent of residential buyers in December 2016, (29 percent in November 2016; 27 percent in December 2015). The share of buyers 34 and under has been on a gradual uptrend from the 26 percent share in July 2013 when this information started to be collected in the survey.[6]

Homebuyers who were renting prior to their recent home purchase accounted for 39 percent of sales in December 2016 (40 percent in November 2016; 38 percent in December 2015). The fraction of buyers who were renting prior to their recent home purchase has increased from the 36 percent share in November 2014 when this information started to be collected in the survey.[7]

[1]The author acknowledges 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.

[2] First-time buyers accounted for 35 percent of all homebuyers based on data from NAR’s 2016 Profile of Home Buyers and Sellers (HBS), up from 32 percent in 2016. The HBS is a survey of primary residence homebuyers and does not capture investor purchases but does cover both existing and new home sales from July 2015 to June 2016. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.

[3] NAR’s 2016 Profile of Home Buyers and Sellers (HBS), the median age of first-time homebuyers was 32 years old.

[4] 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 23, and it climbed to 4.32 percent in the week of December 29. The average rate eased to 4.12 percent in the week of January 12, 2017, with rates likely to remain above four percent during 2017.

[5]The analysis is among states that have at least 500 observations.

[6] NAR’s 2016 Profile of Home Buyer and Sellers (HBS) reports that among primary residence homebuyers, 28 percent were 18-34 years old. The HBS surveys primary residence homebuyers, while the monthly RCI Survey surveys REALTORS® and captures purchases for investment purposes and vacation/second homes.

[7] 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 homebuyers, while the monthly RCI Survey surveys REALTORS® and captures purchases for investment purposes and vacation/second homes.

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