Economist's Outlook

2013 National Housing Pulse Survey: Homeownership Still a Priority for Renters

[A guest blog post from NAR's Manager of the Housing Opportunity Program, Wendy Penn]

NAR recently released the 2013 National Housing Pulse Survey. The findings show that a strong majority (78%) of renters say that homeownership is a priority for them in the future, with 51% calling it one of their highest priorities.

That is an impressive statistic, but it is not surprising. There is a reason homeownership is called the American Dream. Home is where we make memories, build our futures, and feel comfortable and secure. It’s no wonder that most renters want to own a home. So where are these renters and how can REALTORS® help them along the path toward homeownership?

REALTORS® need not look far to find renters. In communities across the country, the people who provide vital services – teachers, firefighters, bank tellers, and retail and restaurant workers – often are renters who cannot afford to buy a home in the areas where they work. This challenge leads to employees having to “drive until they qualify”, which means that workers who cannot afford to live near the workplace must travel outward until they find a neighborhood they can afford. The result is long commutes, traffic congestion, and less time spent with family and friends. One way REALTORS® can address this challenge is to become involved in creating workforce housing solutions.

Workforce housing focuses on expanding housing opportunities for America’s working families. REALTORS® are in a unique position to become partners in workforce housing solutions. They, together with business partners – chambers of commerce, homebuilders, economic development groups, lenders, and individual employers – can work alongside local officials and housing nonprofits to help increase housing opportunities for working families unable to afford to live in the communities where they work.

Social Benefits of Homeownership and Stable Housing, released by NAR in 2010, showed that homeowners move far less frequently than renters and therefore are embedded in the same neighborhood and community for a longer period. Further, the study showed that homeowners have a greater financial stake in their neighborhoods and are more likely to volunteer in their community. It makes sense that people who give their time and talents working in and serving a community would have a vested interest in living there as well. When teachers, police officers, young professionals, and others leave work they take their talents, social connections, and patronage with them. Workforce housing solutions can help keep these vital employees and their social investments in the communities they serve.

People who are able and willing to assume the responsibilities of owning a home should have the opportunity to purse the dream of homeownership, in their desired community, and REALTORS® can help. NAR has a variety of resources including grants, classes, technical assistance, and publications that REALTORS® and REALTOR® associations can use to address workforce housing issues.

Visit www.realtor.org/housingopportunity to learn more about workforce housing and NAR’s resources.

Case-Shiller Home Price Index

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s second update discusses the Case-Shiller home price index.

  • Case-Shiller May data, which is based on information from closings in March, April, and May, showed that home prices rose at their fastest rate since March 2006. The 10-city index was up by 11.8 percent from a year ago while the 20-city index showed gains of 12.2 percent. These gains are slightly higher than those measured by the FHFA last week and roughly in line with NAR and CoreLogic data for similar time periods. (all pictured in the chart above).
  • Looking at the city data, all 20 cities saw home prices increase for the month and the year. Twelve cities had double-digit price growth in the year ending in May, and four of those (Atlanta, Las Vegas, Phoenix, and San Francisco) saw home price gains of more than 20 percent. This data is consistent with other sub-national price breakdowns which have showed the largest home price increases have been in the West, where distressed and non-distressed inventory has been rapidly absorbed.
  • San Francisco had the largest year-over-year gain among the 20 cities, with home prices rising 24.5 percent. The smallest 1-year change was in New York, where prices rose only 3.3 percent.
  • Nearly all of the recent price releases cover a period of data before interest rates began their swift rise of 100 basis points. The most recent home price data comes from NAR’s June EHS release, which likely had some sales that were affected by the early rise in rates. The June data showed a continuing trend of double-digit price gains from one year ago. From June 2012 to June 2013, prices rose 13.5 percent according to the latest data. Expect Case-Shiller and other house price measures to follow suit in June.
  • Because NAR reports data on the median price of homes sold in a period, it is able to release data more quickly than other groups that employ a repeat-sales index process. While the NAR median price picks up fluctuations in house prices as well as the mix of homes sold in any given period, history shows that it is a reliable early indicator of future price changes.
  • Yesterday NAR’s June pending home sales index, an early indicator for July and August sales, showed some weakness, but not nearly as much as analysts had expected given the sharp rise in rates. The earliest measurement of July housing market activity will come with NAR’s July Existing Home Sales release scheduled for August 21. Will prices remain resilient in the face of rising mortgage rates? Our indicators suggest that the price level and rate of increase will hold as long as supply pressures remain. What do you see in your market?

The Latest Homeownership Rate

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s first update discusses the latest homeownership rate.
  • The homeownership rate in America fell to the lowest level in nearly 20 years.  The latest figure of 65.2 percent ownership rate in the first quarter of 2013 is down only a decimal point from the prior quarter, but still marks a continuing trend of falling rates since the bubble years when a record high of 69 percent of Americans owned their homes.
  • The homeownership rate is likely to fall further before stabilizing.  Why?  The growth of households over the next two years is likely to be a 50-50 split between new owners and new renters.  Though there is sizeable pent-up demand for home buying, excessively tight underwriting will limit the number of first-time homebuyers, thereby preventing conversion of renters to homeowners.  Also recent job creations will unbridle young adults to move out of their parent’s home, but they will start out as renters.
  • The rise in the renter population with no net increase in the owner population at a time of housing recovery automatically means greater unequal distribution of wealth.  Housing wealth is rising because of price increases, but the wealth is going to the fewer and fewer households who happen to be homeowners and those who own more than one homes.
  • Clearly, new and stronger regulation to prevent the excesses that led to the housing bubble is needed.  The Wall Street titans who are no more, such as Bear Stearns and Lehman Brothers, made colossal mistakes in coming up with and betting on subprime mortgages.  Other big Wall Street players received massive government aid at their time of need.  But the new regulation out of Dodd-Frank is said to be confusing and burdensome, which greatly restricts credit availability.  Construction loans are also hard to get, consequently leading to housing shortage and a rapid run-up in home prices.  Many of the financially sound and credit worthy renters who are unable to participate in the housing recovery are therefore weeping.
  • But as Dante’s beloved Beatrice is to have told him – “Stop the weeping now.  Save the hotter tears for later.” For Americans, that later time is if PATH legislation becomes a law.  PATH will significantly raise down payment requirements, make 30-year fixed rate mortgages harder to get, and boost mortgage rates for nearly all homebuyers since the government guarantee would be removed.  Because PATH will favor large banks over small ones and would be vulnerable to too-big-to-fail, American taxpayers will face significant risk of bailing out large financial banks.  PATH is a law against property and sustainable homeownership.  PATH, in short, is a law against hard work and entrepreneurship.
  • More info on PATH is here  http://speakingofrealestate.blogs.realtor.org/2013/07/29/why-path-approach-to-fannie-freddie-phase-out-is-troubling/

REALTOR® Commercial Markets Post Solid Growth in Second Quarter

The second quarter marked a noticeable improvement in the recovery trajectory of commercial REALTOR® markets.  Based on the results of the July Commercial Real Estate Market Survey, commercial practitioners reported solid leasing activity and a double digit rise in sales volume.  Nationally, 60 percent of REALTORS® reported completing a sales transaction during the quarter.

On a year-over-year basis, sales increased 12.2 percent in the second quarter, as prices rose 2.3 percent.  Cap rates declined 50 basis points, from an average of 9.2 percent in the first quarter to 8.7 percent in the second. Multifamily properties recorded the lowest average cap rates, at 7.5 percent, followed by industrial spaces, at 8.2 percent.  Office and retail spaces posted cap rates of 8.3 percent and 8.5 percent, respectively.

The average transaction price moved from $1.1 million to $1.0 million in the second quarter. Commercial practitioners continued to find financing as the top obstacle in closing deals, followed closely by price disagreements between buyers and sellers.  Tight inventory remains a concern for one in five practitioners.  In keeping with the upward momentum in the markets, REALTORS® rated the direction of commercial business opportunities 6.0 percent higher compared with the first quarter, in the wake of a 4.0 percent rise from the fourth quarter of last year.

Leasing was also moving steadily upwards, at a pace 5.0 percent higher over the previous quarter, pointing to a steadily rising demand.  On the supply side, new construction finally showed signs of life, increasing 4.0 percent over the first quarter.  Vacancies declined for all property types, except industrial and hotel properties.  Office vacancies declined 7 basis points, to 16.9 percent, while retail availability declined 140 basis points, to 14.6 percent.  Multifamily vacancy was 5.7 percent.

With sliding vacancies, landlords find fewer reasons to provide rent concessions.  In addition, rental rates rose 2.0 percent during the second quarter.  In terms of space requirements, tenant demand remained strongest in the 5,000 square feet and below, accounting for 70.0 percent of leased properties.  Lease terms remained steady, with 36-month and 60-month leases capturing the bulk of the market.

For the full report along with respondent comments, please visit http://www.realtor.org/reports/commercial-real-estate-market-survey.

Charts from Today’s Pending Home Sales Release

After reaching the highest level in over six years, pending home sales declined in June, with rising mortgage interest rates beginning to impact the market.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged down 0.4 percent to 110.9 in June from a downwardly revised 111.3 in May, but is 10.9 percent higher than June 2012 when it was 100.0; the data reflect contracts but not closings.

Based on year-to-date sales activity, and stable contract signings expected for the balance of the year, NAR projects existing-home sales to rise more than 8 percent in 2013. Inventory shortages will lead the median price to rise by nearly 11 percent this year.

Unemployment Insurance Claims Increase Slightly

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses unemployment insurance claims.

  • Initial claims for unemployment insurance filed in the week ending July 20 slightly rose to 343,000, an increase of 7,000 from the previous week’s upwardly revised level. The increase is not unusual compared to the usual weekly swing in the data[1].  The average level of initial claims is now at the pre-Great Recession level of about 350,000.
  • A stable level of initial claims filed indicates that the economy is not losing more jobs. Unfortunately, there is still a large pool of under- and unemployed who needs a job. NAR expects about 2 million net new jobs in 2013. Fewer job losses and more job gains will provide support to increased home sales and rental apartment demand. However, much faster job growth is required to lower the unemployment which as of June was at 7.6 percent.

[1] As of 2013, the standard deviation which measures variation around the mean was 13,691 claims.

New Home Sales, Mortgage Applications

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales and mortgage applications.

  • The recent increase in mortgage rates continues to weigh on new home purchases. The Mortgage Bankers Association released its weekly survey of mortgage applications this morning. The purchase component eased 2.1% this week relative to last and has eased by more than 2% in four of the last 6 weeks. This data is seasonally adjusted so the downward trend in applications reflects the strong upward increase in mortgage rates over the same time frame. Rates eased modestly this week in daily trading and are likely to show a moderate decline in tomorrow’s release by Freddie Mac.
  • On a more positive note, sales of new homes jumped 8.3% from May to June to a seasonally adjusted annualized rate of 497,000, in part due to a strong increase in June, but also due to a moderate downward revision in May. Sales of new homes have increased for three consecutive months.
  • Sales of new homes are hamstrung by low inventories, though. The months supply of new homes eased to 3.9 in June from 4.2 in May, and 4.8 in June of 2012. A figure of 6.5 would be more indicative of a market in balance.

  • Low inventories relative to strong demand is pressing up on new home prices, which rose 7.4% over the 12-month period ending in June to $249,700; the 12th consecutive year-over-year increase. The median existing home price was 16.3% lower at $214,700, above the historical average spread of 12.3%, suggesting that existing homes are relatively cheap by historical standards.
  • New sales continue to chug along, which is important for new construction and job creation. However, mortgage rates are beginning to have an impact on home purchases. Some of this impact may prove transitory as buyers re-set their expectations and more sellers bring much needed inventories to the market ahead of higher rates. Limitations from Basel III on speculative building and access to capital markets have hampered smaller builders from expanding production to ease supply shortages. Higher rates and prices will erode affordability going forward, though, weighing on sales unless lenders expand originations to take advantage of higher rates and reduced risks in the lending environment.

Profile of International Clients from Canada

Canada has remained as the top source of international clients purchasing U.S. property, as reported in the National Association of REALTORS® 2013 Profile of International Home Buying Activity, which summarizes the survey responses of over 3,300 REALTORS® for the 12 months ended March 2013.

Approximately 71 percent of reported purchases by Canadian buyers were for properties in Florida, Arizona, and California. Canadian buyers preferred to locate in a suburban or resort area. Further, according to information from Realtor.com ® based on access to the website, the five markets of greatest interest to Canadians are Las Vegas, Fort Lauderdale, Orlando, Detroit, and Naples.

Other information about Canadian buyers:

  • 98 percent purchased a residential property;
  • 47 percent purchased in a small town/resort and 41 percent in a suburban area;
  • the median price of the reported properties was $183,000;
  • about 86 percent purchase on an all-cash basis.

There is a good chance of having a foreign buyer, whose expectations and needs may differ from those of U.S. buyers. The site http://www.realtor.org/global provides a substantial amount of information that may be of help to REALTORS® not experienced in dealing with international clients.

FHFA Home Price Index

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the FHFA home price index.

  • FHFA data today show that prices were up 7.3 percent from a year ago in May. For the same period, NAR reported that prices rose 12.7 percent and CoreLogic reported a 12.2 rise in home prices. Case Shiller data covering a similar period of time will be available a week from today.
  • Looking closely at the May data, we see that the biggest gains from a year ago were in the Pacific (Hawaii, Alaska, Washington, Oregon, and California) and Mountain (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico) divisions. NAR data also showed the largest gains in home prices occurred in the West. From one year ago the smallest gains were in the East South Central (Kentucky, Tennessee, Mississippi, and Alabama) and Middle Atlantic divisions (New York, New Jersey, and Pennsylvania).
  • From one month ago, the biggest gains were in the South Atlantic (Delaware, Maryland, District of Columbia, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Florida) where prices advanced by 1.8 percent. The East South Central division showed weakness from April to May as prices slipped 1.5 percent.
  • In yesterday’s EHS release, NAR data showed a continuing trend of double-digit price gains from one year ago. From June 2012 to June 2013, prices rose 13.5 percent according to the latest data. Because NAR reports data on the median price of homes sold in a period, it is able to release data more quickly than other groups that employ a repeat-sales index process. While the NAR median price picks up fluctuations in house prices as well as the mix of homes sold in any given period, history shows that it is a reliable early indicator of future price changes.
  • Based on the FHFA data, the market price peak occurred in April 2007, and the current index is 11.2 percent below that peak, roughly in line with its January 2005 level.

REALTOR® Confidence in Current Market Conditions Held Steady

REALTORS® generally continued to view current conditions in the single–family home market as “strong” with the Index-Current Conditions [1] holding steady at 71 in June. A level of 50 delineates “moderate” conditions. The Index for townhouses was unchanged at 51. The Index for condominiums approached the 50 level. REALTORS® ascribed the low volume of condominium sales to problems in FHA financing. [Source: June REALTORS® Confidence Index (RCI) Survey]

Although demand remained broadly robust, recent increases in interest rates were reported as deterring some potential buyers from purchases, but also inducing other potential buyers to move forward quickly in anticipation of possible additional interest rates increases. Tight underwriting standards coupled with protracted bank approval processes continued to frustrate home buying activity, especially for first-time homebuyers. Inventory was reported to be low compared to demand although there has been some easing in recent months. REALTORS® also raised concerns about the dampening effect of new regulations such as the increase in mortgage insurance premiums and lifetime payment under certain conditions.

What Does this Mean for REALTORS®?
After a number of years of concerns about the overall conditions of the housing market the data indicate a substantial and ongoing upswing.

[1] The Index is calculated as a weighted average of the responses, evaluated at 0-Weak, 50-Moderate, and 100-Strong.

Inflation and the Mortgage Interest Deduction (MID)

Did You Know: The mortgage interest deduction (MID) was capped at $1 million in 1987 and not pegged to inflation. If it had been indexed, the MID cap would be over $2 million today.

  • In 1987, following tax reform in 1986, the mortgage interest deduction was capped. Only interest on mortgages up to $1 million was deductible. For context, at the time the median priced single-family home was $85,600.
  • Many tax parameters are indexed for inflation and the indexing began at a variety of points in time. For example, the earned income credit (1984), the standard deduction (1987), the personal exemption (1988), the tax rate tables (1989), the old phaseout of personal exemptions and limitation on itemized deductions (1990) [1], the 10 percent bracket (2002) [2], and the new phaseout of personal exemptions and limitations on itemized deductions, AMT, and 39.6 percent bracket (2013) [3] are all indexed for inflation. The inflation adjustment ensures that inflationary increases alone do not push tax payers into higher marginal tax rates or erode benefits like the standard deduction.
  • While the mortgage interest deduction cap remains unchanged, the price of single-family homes has more than doubled in 25 years even after the house price declines of the Great Recession. In 2012, the median priced single-family home sold was $177,200 (slightly higher than the median priced existing home which sold for $176,800). The most recent monthly price was above $200,000 and given the pattern of price increases, the median priced home sold in 2013 will probably be near that level.
  • Financiers often use a “rule of 72 [4]” to figure out how long it takes something that is compounding to double or how long it takes for purchasing power to be cut in half by inflation. To use the rule, take the rate of return or the inflation rate and divide 72 by that number. In the last 30 years, inflation has averaged about 3 percent. Using the rule of 72, that would suggest that in the last 24 years, purchasing power has been cut in half.
  • So while home prices have doubled and purchasing power has been roughly halved, the Mortgage Interest Deduction cap has not budged. If it had been tied to the inflation measure used to adjust other tax items, the MID cap would be over $2 million today.

[1] http://www.irs.gov/pub/irs-tege/rp92_102.pdf
[2] http://taxfoundation.org/article/inflation-adjustment-tax-brackets-almost-zero-next-year
[3] http://taxfoundation.org/blog/details-fiscal-cliff-tax-deal
[4] Sometimes called the “rule of 70” or “rule of 69.” See here: http://en.wikipedia.org/wiki/Rule_of_72

Fewer Unemployment Insurance Claims Filed in Week Ending July 13

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses unemployment insurance claims.

  • Good news on the job front this week: Fewer initial claims for unemployment insurance were filed in the week ending July 13 compared to the previous week, with claims dropping to 334,000, a decrease of 24,000 from the previous week’s level. The number of initial claims filed has been trending downwards and is back to the “normal”, or pre-recession, level of about 350,000.
  • Although the economy has been experiencing fewer job losses, the level of net jobs still needs to accelerate to make a dent in lowering the unemployment rate, which as of June was at 7.6 percent. Federal Reserve Board Chairman Ben Bernanke testified yesterday before the House Financial Services Committee essentially stating that monetary policy will continue to be accommodative until there is a substantial improvement in the labor market. So while this week’s unemployment claims data is a piece of good news, the Federal Reserve seems to give indication that monetary policy will continue to remain loose until job gains accelerate.

  • What this means to REALTORS®: NAR expects about 2 million net new jobs in 2013. Fewer job losses and more job gains will provide support to increased home sales and rental apartment demand. However, much faster job growth is required to lower the unemployment rate.

Housing Starts in June

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts.

  • New home construction stubbornly refuses to rise despite an inventory shortage and the fast pace of home sales. Housing starts fell 9.9 percent in June. From one year ago, starts are now up 10.4 percent, but clearly have lost a couple steps since they had been up 30 to 40 percent in most months this year.
  • The drop was primarily driven by an undersupply of multifamily units. Single-family home construction was essentially unchanged. Apartment vacancy rates will continue to tighten as a result and renters can expect the slow squeeze of higher rents.
  • Housing starts need to rise by at least 50 percent from the current condition to help relieve the housing shortage. If upcoming months are like the latest data then inventory shortage will persist for a longer period and home prices can be expected to rise too fast.
  • The big home builders, like KB Homes, Lennar, and Toll Brothers, have access to Wall Street funds via bond and stock issuance. They are building. But the small-sized local private builders are hampered by the difficulties of obtaining construction loans. Excessive regulatory burdens for small-sized local and community banks, which traditionally have funded many of the home builders, are said to prevent construction loans from occurring. The end result is that big guys are smiling while small guys are shut out of the market place. A case of well-intentioned financial regulation gone awry?

Simple Tax Code: A Visualization

Visuals are often better than words.  Here’s an example from history: when Vladimir the Great wanted to adopt a religion for his country (around the year 1000), he read and heard of many different religions but had a hard time deciding which way to go.  The decision came easily, however, once he visited and stepped into the church of Hagia Sophia in Constantinople (now Istanbul, Turkey).  He said it was like entering heaven on earth and subsequently adopted Christianity for all of Russia and Ukraine.

One can also appreciate the simple visual of the U.S. tax code.  It began in 1913 with only 400 pages (inside one will find the mortgage interest deduction).

Today, it is a mess with 74,000 pages that no one reads (see below for the comparison).  Thank heaven for the software and accountants to do the taxes for us.  What nonsense loopholes are in these pages….?  Something to ponder.

Consumer Inflation in June

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest Consumer Price Index (CPI).

  • There was relatively benign inflation of 1.8 percent over the past 12 months. However, expect higher and higher inflation in upcoming months and years.
  • A little spike in energy/gasoline prices was one reason for the upturn in the latest Consumer Price Index (CPI) reflecting conditions in June. Continued strengthening in global oil prices of late will further ripple into higher consumer prices in the upcoming months.
  • Apartment rents rose by 2.9 percent, the highest growth rate in four years. The murky and fuzzy “homeowner equivalency rent” – which tries to measure what the homeowner would pay in rent if they did not own – rose by 2.2 percent, also the highest growth rate in four years. Based on low apartment vacancy rates and shortage of inventory, rents and equivalent rents will show bigger gains in the near future. Note: home price is not part of the consumer price index as homes are considered assets. Homebuyers will no doubt disagree.
  • Based on the latest trend and likely occurrence in the upcoming months, the overall CPI towards the end of the year will be 2.0 to 2.5 percent. That is the amount of cost-of-living-adjustment social security recipients can expect next year. For those without a COLA clause – this may be some tough luck.
  • It would be interesting to observe what the inflation will be in 2 or 3 years after the massive dose of printing of money (called formally Quantitative Easing) that occurred in the U.S. over recent years. Some tapering off on Quantitative Easing will likely happen later in the year. Though economics textbooks say inflation is a monetary phenomenon everywhere, most economists do not expect inflation to get out of hand in the U.S. because of continuing slack and a continued high unemployment rate in the U.S. My call, however, is for 4 to 6 percent inflation in 2015. I hope I am wrong because higher inflation will mean much higher mortgage rates as lenders need to compensate for the loss in purchasing power of money that is paid back.

Response to New York Times Article “Owning a Home Isn’t Always a Virtue”

The New York Times ran an opinion piece this past weekend by Professor Robert Shiller that calls for reducing the mortgage interest deduction and other housing benefits. The article points to Switzerland as a good example of a stable high-income country that has a low homeownership rate. The article unfortunately misses the most obvious points and deviates into “hard-to-prove” areas as if they are facts.

  • Obvious Fact #1: the housing crisis arose from easy lending via private market subprime mortgages and from Fannie/Freddie’s arrogance in thinking they were private profit-maximizing companies — even though Fannie/Freddie were backed by taxpayers with government guarantees.
  • Obvious Fact #2: The housing crisis did not happen because of the mortgage interest deduction, which has been in the tax code for 100 years. Simply ask: why were there no housing crises in the 1950s or 1980s when mortgage interest deductions were also present?
  • Obvious Fact #3: The removal of the mortgage interest deduction in the U.S. will result in home price declines of about 15 percent. That translates into about $2.5 trillion in wealth destruction to property owners who incidentally pay huge portions to the federal revenue pot already. Roughly 80 to 90 percent of all federal income taxes are paid by homeowners.
  • Hard-to-Prove Area #1: Switzerland is indeed stable, but why? Is it because of or in spite of the low homeownership rate? Is it because of or in spite of an extraordinarily high rifle ownership rate to compensate for not having a standing army? Is it because of or in spite of the federalist government structure where more laws are present at the provincial level than at the national level (where they apparently live by the motto of you (the neighboring province) can do whatever you like, as long as you leave me alone)? Or is it because of the large immigrant population in Switzerland who are not citizens of the country? There are innumerable other cross-country factors that are always hard to grasp for comparison purposes.
  • Hard-to-Prove Area #2: Egypt has a very low rate of formal property ownership with a clear-cut title. Egypt is not stable – at least not yet. Many other countries had their revolution with only a few people owning land. Does America want to take a chance on low homeownership rate?
  • Hard-to-Prove Area #3: A country may be stable with a low homeownership rate but the wealth distribution could be highly unequal. Germany has a low unemployment rate and a growing economy. However, the wealth distribution in Germany is said to be very unequal, with only property owners holding on to most of the wealth. The Economist in the early July issue speculated that the relatively low ownership rate of 50 percent in Germany is the reason. Still the jury is out on the cause of wealth inequality in Germany.
  • In summary, the mortgage interest deduction has been very good for America for the past 100 years. The hard working taxpayers deserve this break. We however need to assure that massive scale subprime lending never returns.
  • With the above caveats in mind, enjoy reading the New York Times article.

#HBSGenerations Twitter Chat Recap

Last week NAR Research held a Twitter chat on home buyer and seller generational trends.  The information for this chat was taken from our recent 2013 Home Buyer and Seller Generational Trends report, and echoes many of the observations that real estate professionals are seeing in their own markets.  There were too many responses to include them all, but the recap of the major highlights is below.  Thank you to all who participated!

(2:00pm) @NAR_Research: Welcome to today’s chat on the Home Buyer & Seller Generational Trends report. Jessica Lautz here to talk/answer questions #HBSGenerations

(2:00pm) @NAR_Research: Younger buyers buy to own a home of their own; older buyers buy to be closer to family, friends, and relatives #HBSGenerations

(2:01pm) @NAR_Research: As age increases among recent home buyers, the rate of owning more than one home also increases.  #HBSGenerations

(2:03pm) @NAR_Research: At least 80 percent of buyers who are aged 57 and younger bought a detached single-family home… #HBSGenerations

(2:05pm) @NAR_Research: … while it is increasingly common for buyers over the age of 57 to purchased townhouses and condos. #HBSGenerations

(2:07pm) @NAR_Research: Younger buyers tend to stay close to their previous residence, often staying w/in 10 miles of previous home #HBSGenerations

(2:10pm) @NAR_Research: Older buyers tend to move longer distances, typically more than 20 miles from their previous home #HBSGenerations

  • @First_Finance: What can realtors do to reach and serve younger homebuyers? @NAR_Research #HBSGenerations
    • @NAR_Research: REALTORS can learn younger home buyer preferences in buying, search time, and increased use of tech in the search process.#HBSGenerations
    • @NAR_Research: Such as: Younger buyers tend to place a high importance on commuting costs #HBSGenerations
    • @NAR_Research:  Also: Younger buyers more likely to use the internet, and use the internet more frequently, during the search #HBSGenerations

(2:12pm) @NAR_Research: As the age of the home buyer increases, the age of the home declines. #HBSGenerations

(2:17pm) @NAR_Research: When choosing an agent, younger buyers more likely to place agent’s honesty and trustworthiness higher as a factor #HBSGenerations

(2:18pm) @NAR_Research:  Older buyers saw higher importance in landscaping for energy conservation, environmentally friendly community features #HBSGenerations

(2:20pm) @NAR_Research: The older the home buyer, the fewer compromises the buyer tended to make with their home purchase #HBSGenerations

(2:20pm) @NAR_Research: Younger buyers tended to make sacrifices on the price, size, and condition of the home purchased #HBSGenerations

(2:22pm) @NAR_Research: Among all generations of buyers the 1st step in the buying process is looking online for properties for sale.  #HBSGenerations

(2:23pm) @NAR_Research: Younger buyers are more likely to consider purchasing a home in foreclosure. #HBSGenerations

(2:25pm) @NAR_Research: Older buyers rate the agent’s knowledge of the neighborhood as a higher factor than younger buyers when choosing an agent #HBSGenerations

(2:25pm) @NAR_Research:  Most likely because older buyers tend to move longer distances and may not necessarily know the neighborhood #HBSGenerations

  • @ruzicka: @NAR_Research Avg age of GenY buyers was 28. How does that compare to GenX and Boomers, when they were in their 20s or 30s?
    • @NAR_Research: @ruzicka Unfortunately we do not have trend data on this. Closest is data on first % of Gen Y were FT.
    • @NAR_Research: @ruzicka Typical FT buyer age is pretty much unchanged for the last 10 years: 30-32 years old.

(2:28pm) @NAR_Research: 85% of buyers under 32 considered their purchase a good financial investment vs.  50% of buyers aged 88 and older. #HBSGenerations

(2:29pm) @NAR_Research: As age increases, the rate of marriage among sellers declines and the rate of single female households increases #HBSGenerations

(2:30pm) @NAR_Research: Younger sellers more likely to use the same real estate agent or broker for home purchase than older sellers #HBSGenerations

(2:32pm) @NAR_Research: Youngers sellers typically want their selling agent to help sell the home within a specific timeframe #HBSGenerations

  • @carolmoson With younger buyers and sellers you need to earn confidence. Have researched alot so you need to provide more #HBSGenerations

(2:34 pm) @NAR_Research: Older sellers are more likely to want their selling agent to help market the home to potential buyers #HBSGenerations

(2:35pm) @NAR_Research: Older sellers are more likely to recommend their agent or broker to others than younger sellers #HBSGenerations

(2:38pm) @NAR_Research:  Thank you for joining in today’s Twitter Chat! You can find download & view the full report here: http://www.realtor.org/reports/home-buyer-and-seller-generational-trends … #HBSGenerations

Top Destination States of International Buyers

There is international home buying activity throughout the country, but the top destination states in terms of number of buyers were Arizona (9% ), California (17%), Florida (23%), and Texas (9%). This information is based on the National Association of REALTORS® 2013 Profile of International Home Buying Activity, which summarizes transactions reported by over 3,300 REALTORS® for the 12 months ended March 2013.

Proximity to the home country, the presence of relatives, friends and associates, job and education opportunities, and climate and location appear to be important considerations to prospective buyers:

  • Europeans are attracted to states with warmer climates such as Florida and Arizona.
  • The West Coast is attractive to Asian purchasers.
  • Buyers from Mexico favor states in close proximity such as Texas and Arizona.
  • Florida appears to be attractive to South Americans as well as Europeans and Canadians.
  • Buyers from India are locating in urbanized areas and states that are home to IT companies such as California, New York, and North Carolina.

What Does This Mean to REALTORS®? There is a good chance of having a foreign buyer, whose expectations and needs may differ from those of U.S. buyers. Although buyers are concentrated, almost every state has at least some foreign interest. The Global section of the realtor.org website global provides a substantial amount of information on international transactions.

Mortgage Rates

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage rates.

  • As expected, the average 30-year fixed mortgage rate jumped to 4.51% for the seven-day period ending on July 10th.  That is an increase from 4.29% a week earlier and 3.98% for the second week in June.  The higher rates increased monthly principle and interest payments by roughly 6.5%.
  • After a modest improvement early last week, rates jumped Friday on positive employment figures.  Treasury and agency MBS traders interpreted the positive jobs news as evidence that the Fed would likely curtail its large scale asset purchases, including 10-year Treasuries and agency MBS, earlier than expected in September.
  • Rates have climbed in recent weeks mostly on speculation about when the Fed will end its purchases of MBS and Treasuries.  When that happens, the price of those assets will decline with the loss of the Fed’s demand, resulting in higher yields and mortgage rates.  The rollercoaster in rates in recent weeks is driven by traders trying to get ahead of that trend.
  • Regardless of the recent speculative gyrations, rates are likely to rise with economic expansion.  While that trend may curb affordability, it will ease price growth and expand employment helping to create sustainable growth in housing demand.
  • Applications for purchase mortgages fell 3.1% last week from the last week in June, the second consecutive decline.  However, the impact on the refinance side was much stronger.
  • While the recent increase in rates will impact affordability and cause some shoppers to reset expectations, rates are still low by historical standards.  Rates were well above 4.5% until mid-2011.   Furthermore, the decline in refinance activity will push lenders to search out more potential borrowers and ease credit standards, allowing access to credit for many borrowers who have been shut out in recent years and unable to take advantage of low rates.

Canada and China Are Top International Buyers

The United States attracts international buyers from many countries.  In recent years Canada, China, Mexico, India, and the United Kingdom have accounted for over half of the foreign residential transactions.  In the 12 months ended March 2013, these five countries made up approximately 53 percent of the reported international transactions. This information is based on the National Association of REALTORS® 2013 Profile of International Home Buying Activity, which summarizes the survey responses of over 3,300 REALTORS®.

China and Canada have been the fastest growing sources of international clients. About 23 percent of reported purchases were from Canadians and 12 percent from China. Rising Chinese purchasing power and a strong Canadian dollar which has resulted in lower effective prices have likely encouraged greater demand from these countries.

What Does This Mean for REALTORS®? There is a good chance of having a foreign buyer, whose expectations and needs may differ from those of U.S. buyers.  The site http://www.realtor.org/global

provides a substantial amount of information that may be of help to REALTORS® not experienced in dealing with international clients.