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Updated: 10 min 56 sec ago

Lesson Learned: Few Risky Mortgage Products in the Market

Thu, 11/17/2016 - 11:36

Three years after the ability to repay (ATR) rule was implemented, the risky mortgage products that became common during the last boom and helped fuel the unsustainable run-up in prices are rare. That is one of the key takeaways from the 12th Survey of Mortgage Originators (SMO) which covers lenders’ insights on trends and policy changes in the 3rd quarter of 2016.

Other insights from the 3rd quarter SMO include:

  • Non-QM lending has not bounced back from the implementation of the risk retention rule, while rebuttable presumption lending continues to gain ground.
  • Credit access for lower-credit prime borrowers is expected to rise while all other categories are likely to moderate.
  • The share of transactions delayed due to TRID rose to 2.6 percent, but both TRID and non-TRID cancelations fell.
  • More than half of lenders passed TRID-related costs to consumer with a weighted average increase of $220.
  • Only 16.7 percent of participating lenders shared the closing disclosure (CD) unconditionally with REALTORS®, while 50 percent did not share under any circumstances.
  • 83.3 percent of respondents indicated that the CFPB’s July clarification sharing did not impact their decision to share the CD.  Several lenders indicated that more clarification was needed or that they were not aware of the CFPB’s statement.
  • The majority of lenders in this survey sold their servicing rights and only 8.3 percent of respondents indicated that servicing was a factor in determining overlays.

Investment Sales in Small Cap Markets Accelerate in Third Quarter of 2016

Wed, 11/16/2016 - 11:17

Commercial sales transactions span the price spectrum, but tend to be measured and reported based on size. Commercial real estate (CRE) deals at the higher end—$2.5 million and above—comprise a large share of investment sales. Smaller commercial transactions tend to be obscured given their size. However, these smaller properties provide the types of commercial space where average Americans engage on a daily basis.

The National Association of REALTORS® Commercial Real Estate Outlook: 2016.Q4 report focuses on market performance in both large (LCRE) and small commercial (SCRE) sectors.  The report provides an overview of economic indicators, investment sales and leasing fundamentals.

The U.S. economy picked up the pace in the third quarter of this year, boosted by positive consumer spending, as well as improved business investments and a jump in export activity. Employment continued growing during the third quarter, with a gain of 619,000 net new jobs. Over the January through September period, there were 1.6 million net new payroll positions, with 1.5 million in the private sector. Average weekly earnings of employees rose by 2.0 percent in the third quarter of this year, compared to one year earlier. The unemployment rate has been flat—at an average 4.9 percent—in the third quarter of 2016, at the same level for the first nine months of 2016.

Investment Sales

The decline in large cap CRE sales volume which began at the beginning of 2016 continued into the third quarter of this year. The volume of commercial sales in LCRE markets totaled $114.8 billion, a two percent year-over-year decline, according to Real Capital Analytics (RCA). The decline curve moderated from the double-digit drop recorded in the first quarter. Given the preponderance of portfolio and entity-level transactions in 2015, their absence is casting a long shadow over this year’s activity.

The trend of diverging markets continued in the third quarter, with sales in the six major metros tracked by RCA posting an eight percent decline year-over-year. In comparison, sales in secondary markets declined only one percent, while volume in tertiary markets rose a noticeable 17 percent.

Commercial real estate in small cap markets found its path diverging at a higher rate, with sales volume accelerating during the third quarter of 2016. REALTORS® reported continued improvement in fundamentals and investment sales.  Following on the first quarter’s 8.5 percent and second quarter’s 8.5 percent increases in sales volume, third quarter transactions advanced 11.0 percent on a yearly basis.

Investment Prices

Underscoring investor approach to risk in the current markets, prices in LCRE markets rose. Based on preliminary data, prices in markets covered by RCA gained 8.9 percent during the third quarter of 2016. The advance was driven by strong appreciation in prices of apartment and industrial properties, which advanced 12.9 percent and 7.7 percent, respectively.  Prices for retail properties increased 5.1 percent year-over-year, while office properties recorded a 4.4 percent rise.

Capitalization rate compression continued into the third quarter in LCRE markets. Based on RCA data, cap rates averaged 6.6 percent, 30 basis points lower compared with the prior year. The cap rate compression was registered across all property types, except hotels, but was more pronounced for apartment and office properties—down 60 and 40 basis points, respectively.

As investors across the value spectrum broadened their search for yield into secondary and tertiary markets, the shortage of available inventory remained the number one concern for commercial REALTORS®. Prices for CRE properties accelerated, posting a 7.7 percent yearly advance in the third quarter of this year.  The pricing gap between sellers and buyers remained the second highest ranked concern. With banks continuing to tighten underwriting standards for commercial loans in the wake of increased regulatory scrutiny, financing availability was a concern in REALTORS®’ markets—14.0 percent of members ranked it as a main challenge in the third quarter.

Capitalization rates in SCRE markets continued compressing, to an average 7.2 percent across all property types, a 70 basis point compression on a yearly basis. Apartments posted the lowest cap rate, at 6.4 percent, followed by office properties with average cap rates at 6.8 percent.  Retail and industrial transactions recorded cap rates of 7.1 percent and 7.6 percent, respectively. Hotel transactions posted the highest comparative cap rates—8.3 percent.

Outlook

Commercial fundamentals are expected to continue on a positive trend, with three of the four core sectors favoring landlords. On the investment side, while financial markets’ volatility left a mark on the sales volume in large cap CRE markets during the first half of 2016, volume is expected to rebound slightly in the latter half of the year. In small cap CRE markets, increased scrutiny from banking regulators has tightened lending conditions, leading to more cautious capital flows into CRE transactions.

While the U.S. CRE markets have experienced diverging trends in 2016, the U.S. economy’s comparative strength coupled with low global yields translate into enduring appeal for commercial assets. While investors are approach risk from a defensive position, investment performance retains safety buffers even as the Federal Reserve is weighing acting on rates. Properties in secondary and tertiary markets remain well-positioned for growth.

 

To access the Commercial Real Estate Outlook: 2016.Q4 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

How Recent Mortgage Rate Increases Affect Housing Affordability

Tue, 11/15/2016 - 15:36

Bond Yields and Mortgage Rates are Moving Up

This week has been an eventful one for bond markets. Just before the election, ten-year yields began to increase from the 1.8 percent yield they had held somewhat consistently in the second half of October. As of yesterday’s close, ten-year yields are now over 2.2 percent.

Mortgage rates, which generally track the ten-year bond yields closely, have responded in kind. If one is looking at a daily source, such as from the Wall Street Journal or New York Times, mortgage rates were near 3.9 percent as of yesterday, up from 3.5 percent as recently as three weeks ago. Other industry publications show that the most prevalent rate has hit 4 percent.[1] The most widely quoted mortgage rate, a weekly rate from Freddie Mac that is released each Thursday registered 3.57 percent last week, and is anticipated to show a notable jump when it is released on Thursday.

It’s too soon to know whether these increases will stick, but tightening from the Federal Open Market Committee either later in 2016 or early 2017 and anticipated infrastructure spending both tend to suggest higher rates are in the future.[2] Home shoppers will likely have to adjust to these new rates. While incomes will grow and home price growth will undoubtedly slow, neither will adjust as quickly as mortgage rates. But what will that mean for home shoppers?

How Will These Moves Affect Potential Home Buyers’ Budgets?

Looking at how NAR’s Affordability Index would change in a higher rate scenario gives an idea of what may be in store. At the national level, moderate home prices relative to incomes give the market space to accommodate a rate increase. The monthly payment increases by $11 per month per 10 basis point increase in the mortgage rate, and the income needed to qualify to purchase the median priced home increases by just over $500.[3] The current median income family household earns nearly 1.7 times the income needed to qualify to purchase the median priced home. If rates were to rise to 4.2 percent and prices and incomes were to stay steady, the median family income would be just less than 1.6 times the income needed to qualify to purchase the median priced home.

Certain groups however are more likely to notice the interest rate increases. Those who live in the West, where home prices tend to be higher, will see the monthly payment increase by $16 per 10 basis point rise in the mortgage rate, and the qualifying income increases by just less than $800.

Another group more likely to notice the interest rate increases are those who put smaller down payments. Those putting only five percent down to purchase a median-priced home will see the monthly payment increase by $13 per 10 basis point rise in the mortgage rate, and the qualifying income increases by just over $600.

While the recent changes are notable given the steadiness in rates prior to the last few weeks, data suggest that the typical family budget will be able to handle this rate increase. If you are working with potential buyers who are near the threshold for qualifying based on their income and shopping price range, recent changes in mortgage rates may mean a new shopping strategy is required.

[1] See for example Mortgage News Daily’s tracking survey of mortgage rates: http://www.mortgagenewsdaily.com/data/30-year-mortgage-rates.aspx

[2] In the summer of 2013, mortgage rates rose rapidly in response to anticipated Fed policy changes in what has come to be known as the “taper tantrum.” From May to July rates rose sharply and while they declined from September to October, they turned back up in November and December before starting a longer-lasting decline in January 2014 that has lasted (with a few hiccups in 2015) through the summer of 2016.

[3] These calculations assume a 20 percent down payment.

Raw Count of Home Sales (September 2016)

Mon, 11/14/2016 - 11:12
  • Existing-home sales rose 3.2 percent in September from one month prior while new home sales increased 3.1 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, 484,000 existing-homes were sold in September while new home sales totaled 46,000.  These raw counts represent a 10 percent decrease for existing-home sales from one month prior while new home sales dropped 2 percent.  What was the trend in recent years?  Sales from August to September decreased by 11 percent on average in the prior three years for existing-homes and decreased by 4 percent for new homes.  So this year, both existing and new home sales outperformed relative to their recent norm.
  • 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, the raw sales activity in October is hard to predict while expect less activity in November. For example, in the past 3 years, October sales dropped 6 percent last year, increased 2 percent in 2014 and dropped 1 percent in 2013. In contrast, November sales dropped by 15 to 21 percent from October. For the new home sales market, expect busier activity in October while activity will diminish in November. For example, in the past 3 years, October sales increased by 3 to 16 percent from September while November sales dropped by 8 to 18 percent from October.

Veteran’s Day 2016: Active-Duty Military and Veteran Home Buyers

Fri, 11/11/2016 - 10:18

Today we honor those who have served our country, and those who are actively serving in the military, or have a spouse who is currently or has served in the past. Looking at data from the recently released 2016 Profile of Home Buyers and Sellers, we can see home buying trends among active-duty service members and veteran home buyers.

  • Recent home buyers who were active-duty service members made up two percent of all recent buyers and veterans made up 18 percent of all recent home buyers. Fifty-one percent of active-duty service member buyers, and 18 percent of veteran buyers are first-time home buyers.
  • Active-duty service member buyers were typically 35 years old, and veteran buyers were 59 years old.
  • Eighty-three percent of active-duty service member buyers were married couples, eight percent single males, six percent unmarried couples, and two percent single females. Eighty percent of veteran buyers were married couples, eight percent single males, and single females and unmarried couples were both five percent.
  • The most commonly purchased home type was a single-family home at 83 percent for active-duty service member buyers and 82 percent for veteran buyers. Eleven percent of active-duty service member buyers and six percent purchased of veteran buyers purchased a townhouse/row house.
  • Prior to purchasing, 57 percent of active-duty service member buyers rented an apartment or house. Thirty-six percent of veteran buyers owned their previous home prior to buying.
  • The main reason for their recent purchase was the desire to own a home of their own, for both active-duty service member buyers (37 percent) and veteran buyers (17 percent).
  • Ninety-one percent of active-duty service member buyers and 80 percent of veteran buyers found photos to be very useful when searching for homes online.
  • When searching for their home 87 percent of active-duty service members and 90 percent of veteran home buyers bought their home through a real estate agent or broker.

 

For more information on active-duty service members and veteran home buyers view the Veteran’s Day infographic, and highlights from the 2016 Profile of Home Buyers and Sellers.

How Trump’s Presidency Could Impact Real Estate

Thu, 11/10/2016 - 14:16

How will the real estate market be impacted by Donald Trump’s victory and Republicans controlling both chambers of Congress? Though Mr. Trump is a real estate man, his policy platform has been largely vague on real estate proposals.  Here are my thoughts on how certain real estate issues may play out under President Trump and of their potential impact to consumers.

  1. There will no doubt be a short-term stimulus to the economy. A combination of tax cuts and government spending in the form of upgrading nation’s infrastructure and for national defense will provide a short boost to the economy in the first half of 2017. Inflation will likely kick a bit higher from a faster GDP growth and that will lead to modestly higher interest rates. Accompanying gains in consumer confidence will further move the economy higher. Should the faster GDP growth be sustained and arise out of higher productivity, then inflation will be manageable. There is no free lunch, however. Should the stimulus impact give only a short term boost and not be durable then a much larger budget deficit will force interest rates notably higher. The future generation will be saddled with more debt.

 

View NAR Chief Economist, Lawrence Yun’s full article here.

September 2016 Housing Affordability Index

Thu, 11/03/2016 - 11:17

At the national level, housing affordability is up from a year ago for the third consecutive month. Mortgage rates ticked up and stood at 3.78 this September and increases are expected to continue.

  • Housing affordability increased from a year ago in September pushing the index up 1.0 percent from 165.9 to 167.5. The median sales price for a single family home sold in September in the US was $235,700 up 5.6 percent from a year ago.
  • Nationally, mortgage rates were down 32 basis points from one year ago (one percentage point equals 100 basis points) while incomes modestly rose 2.5 percent.
  • Regionally, the West had the biggest increase in price at 7.9 percent. The South had an increase of 6.8 percent while the Midwest had a 5.9 percent gain in price. The Northeast had the smallest increase of 1.3 percent.
  • Regionally, two of the four regions saw increases in affordability from a year ago. The Northeast had the biggest increase of 5.2 percent. The Midwest had a modest increase of 0.1 percent. The South had a decline in affordability of 1.6 percent while the West had a decline of 0.2 percent.
  • By region, affordability is up in all regions from last month. The Northeast had the biggest increase of 4.8 percent. The Midwest followed with a gain of (3.2 percent) and the South had a gain of (2.3 percent). The West had the smallest increase in affordability of 0.8 percent.
  • Despite month to month changes, the most affordable region is the Midwest where the index is 210.5. The least affordable region remains the West where the index is 120.0.  For comparison, the index is 170.6 in the South, 173.0 in the Northeast.
  • Mortgage applications are currently down this week and rates remain historically low. There have been no meaningful gains in housing starts or completions which will not help future affordability.
  • 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.

 

September 2016 Pending Home Sales

Tue, 11/01/2016 - 11:32
  • NAR released a summary of pending home sales data showing that September’s pending home sales are up 1.5 percent from last month and also up 2.4 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.
  • All regions showed increases from a year ago except the Midwest, which had a decrease of 1.0 percent. The Northeast saw the biggest incline from a year ago at 7.7 percent while the South had the smallest incline of 1.7 percent. The West had an incline of 4.0 percent.
  • From last month, the West had the largest increase at 4.7 percent. The South followed with an increase of 1.9 percent. The Northeast had the biggest decline of 1.6 percent. The Midwest also had a decline of 0.2 percent.
  • The pending home sales index level was 110.0 for the US.
  • 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.


Halloween and Home Sellers in 2016

Mon, 10/31/2016 - 11:02

Home sellers decide to move for many reasons. Using the 2016 Profile of Home Buyers and Sellers, we can discover these reasons as well as some surprising reasons for selling a home.

  • Among all home sellers, 18 percent decided to sell their current home because it was too small.
  • The desire to move closer to friends and family was the deciding factor for 15 percent of home sellers.
  • Fourteen percent of sellers sold their home because of job relocation.
  • All at 10 percent, the neighborhood becoming less desirable, a change in family situation, and that the home is too large were all reasons for selling.
  • First-time sellers most often sold because their current home was too small (31 percent), for job relocation (13 percent), and because the neighborhood became less desirable (12 percent.
  • Repeat sellers sold to move closer to friends and family (18 percent), because their home is too large (14 percent), or for a job relocation (14 percent).

  • While not also the typical reason for selling, 28 percent of REALTOR® respondents have at least once had to sell a house or find a new home for a seller who was convinced that their house was haunted.

 

Find more home buyer and seller information in the 2016 Profile of Home Buyers and Sellers and the 2016 Halloween & Home Sellers infographic.

September 2016 Existing-Home Sales

Thu, 10/27/2016 - 11:20
  • NAR released a summary of existing-home sales data showing that housing market activity bounced back this month. September’s existing home sales reached the 5.47 million seasonally adjusted annual rate and existing-home sales are up 3.2 percent from a year ago.
  •  The national median existing-home price for all housing types was $234,200 in September, up 5.6 percent from a year ago.
  • Regionally, all four regions showed growth in prices from a year ago, with the West leading at 8.1 percent. The South had an increase of 6.6 percent, and the Midwest followed with a 5.9 percent increase. The Northeast had the smallest gain of 2.1 percent from September 2015.
  • From August, all four regions experienced inclined in sales with the Northeast having the biggest increase of 5.7 percent. The West followed with a gain of 5.0. The Midwest had a gain of 3.9 percent while the South had the smallest gain of 0.9 percent.
  • Two of the four regions showed a gain in sales from a year ago while the South was the only region to have a decline of 0.9 percent. The Midwest led all regions and had the biggest gain of 2.3 percent. The West had gains of 1.6 percent while the sales in the Northeast were flat. The South lead all regions in percentage of national sales at 39.5 percent while the Northeast has the smallest share at 13.5 percent.
  • September’s inventory figures are up 1.5 percent from last month to 2.04 million homes for sale and the level remains below historical averages. Inventories are considerably down 6.8 percent from a year ago. It will take 4.5 months to move the current level of inventory at the current sales pace. It takes approximately 39 days for a home to go from listing to a contract in the current housing market, down from 49 days a year ago.
  • Single family sales increased 4.1 percent while condos decreased 3.2 percent compared to last month. Single family home sales inclined 0.6 percent and condo sales were flat compared to a year ago. Both single family and condos had an increase in price with single family up 5.6 percent and condos up 6.1 percent from September 2015.

Price Growth Foreshadows Important Change for Mortgage Borrowers

Wed, 10/26/2016 - 15:52

In the wake of the financial crisis, the national conforming loan limit was frozen at its 2007 level of $417,000. After nearly a decade of waiting, Federal regulators may finally be ready to raise that limit as well as several other important demarcations in the mortgage market.

Expanded Limits for an Expanding Housing Market

The HERA legislation of 2008 established the current conforming loan limit of $417,000; the limit below which Fannie Mae and Freddie Mac can guarantee mortgages. The legislation also created an exemption for some areas with high median home prices. These counties became known as “high cost” or “super conforming” and their loan limits were most recently set at the lesser of 115 percentage of the local median price or 150 percentage of the conforming loan limit or $625,500.[1] The HERA legislation tasked the then newly formed Federal Housing Finance Agency (FHFA) to monitor prices and to adjust the loan limits accordingly. In 2015, the FHFA chose a new price index to track the market and based on that index, the limits are likely to be adjusted upward for the first time since 2007.

While the official release of the new limits will come later this fall, based on recent price index trends, the national conforming limit is likely to rise to a range of $418,000 to $427,000, while the high-cost limit will increase to a range of $627,000 to $640,500. Actual price growth has outpaced the 4.7 percentage forecasted by NAR in November of 2015. A change to the conforming loan limit would impact 3,000 counties while an adjustment to the high-cost limit would affect another 112 counties, the vast majority of the 3,234 counties nationwide.

In addition, the FHA’s lending limits are anchored by the conforming loans limit. Thus, when the conforming loan limit rises, so will the FHA’s base limit and its high-cost limit. Recent price trends imply that these limits may be raised for 2017 and that lenders could be able to originate FHA-backed mortgages with balances up to anywhere from $271,700 to $277,550 in most areas and up to a range of $627,000 to $640,500 in high-cost areas.

Impact for the Mortgage Market and Consumers

The main beneficiary of this change will be consumers. Loans greater than the conforming and high costs limits are called “jumbo” and are typically held by banks or securitized into private label mortgage backed securities (PLS). However, the PLS market has not recovered from the crisis and most loans held in portfolio are of extremely high quality with large down payments, high credit scores, low debt-to-income ratios, and large reserves. Rates charged by banks for jumbo loans have been lower than those below the conforming limits in recent years. This anomaly in part reflect historically high fees at the GSEs, competition among banks for high quality jumbo borrowers, and the lack of middle-quality borrowers in the jumbo space and fees charged them. Consequently, higher limits are unlikely to impact the jumbo market as consumers who can qualify for these loans will seek out their lower rates. However, the new limits could help main-stream borrowers to access credit in higher-cost markets like Washington, New York, and many parts of California, while at the same time allowing the private market greater participation through private mortgage insurance and risk-sharing deals in the GSE space.

Federal regulators are likely to announce soon the first changes to the national conventional conforming, high cost, and FHA loan limits in nearly a decade. This change is important in the face of rising home prices and limited access in the jumbo market that could hamper some would-be homeowners from participating in the market.

[1] For further discussion, see here: http://economistsoutlook.blogs.realtor.org/2015/11/25/modest-improvements-in-conventional-loan-limits/

September State Job Growth Comparisons

Wed, 10/26/2016 - 09:42

August 2016 Housing Affordability Index

Tue, 10/25/2016 - 11:40

At the national level, housing affordability is up from a year ago for the second consecutive month. Mortgage rates are down again and stood at 3.74 this August though increases are on the horizon.

  • Housing affordability increased from a year ago in August pushing the index up 2.2 percent from 160 to 163.5. The median sales price for a single family home sold in August in the US was $242,200 up 5.3 percent from a year ago.
  • Nationally, mortgage rates were down 41 basis points from one year ago (one percentage point equals 100 basis points) while incomes modestly rose 2.4 percent.
  • The West had the biggest increase in price at 8.7 percent. The South had an increase of 7.1 percent while the Midwest had a 5.7 percent gain in price. The Northeast had the smallest increase of 0.8 percent.
  • Regionally, two of the four regions saw increases in affordability from a year ago. The Northeast had the biggest increase of 6.4 percent followed by the Midwest with a modest increase of 1.1 percent. The South had the only decline in affordability of 0.1 percent while the West remained flat.
  • By region, affordability is up in all regions from last month. The Northeast had the biggest increase of 2.9 percent. The Midwest followed with a gain of (2.5 percent) and the South had a gain of (1.9 percent). The West had the smallest increase in affordability of 0.4 percent.
  • Despite month to month changes, the most affordable region is the Midwest where the index is 204. The least affordable region remains the West where the index is 119.2.  For comparison, the index is 166 in the South, 165.1 in the Northeast.
  • Mortgage applications are currently up this week and rates remain historically low. Purchase mortgage applications are also currently up this week.
  • 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.

 

Housing Characteristics for Homeowners in Blue and Red States

Mon, 10/24/2016 - 09:23

With less than three weeks to go, let’s take a look at housing preferences of homeowners based on their political beliefs.  Historically, there are states whose residents predominantly vote for Democratic Party (Blue) or Republican Party (Red) presidential candidates[1]. Do homeowners in those states have more in common than their political preferences?

In addition to the homeownership rate[2], we examined the following housing characteristics for homeowners who reside in Blue and Red states:

  • Median home value,
  • Median Household Income (inflation-adjusted)
  • Household size,
  • Years of owing their home,
  • Year structure built,
  • Number of rooms,
  • Heating Fuel

Blue States:

It looks like traditional Democratic states don’t have many similarities on the housing characteristics above. We should bear in mind that Blue states are mostly located in coastal areas. It could be their widespread geographical location that makes homeowners so different.  First of all, the homeownership rate and home values have significant differences in Blue states. For instance, the homeownership rate in Maine and Delaware was 71 percent in 2015 while New York had 53 percent. Similarly, the value of a typical home in Hawaii was $566,900 while it was $137,500 in Michigan[3]. With respect to how many people reside in their homes, the differences are not so drastic. With the exception of Hawaii and California, more than half of Blue states had a household size in the range of 2.6-2.7. Moreover, homeowners in most Blue states tend to have lived in their residence for 14-15 years while more than 50 percent of the homeowners use utility gas and less than 10 percent of them use electricity for heating. In Maine, Connecticut and Vermont, most homeowners use fuel oil, kerosene etc. for heating.

Red States:

Homeowners who live in the traditional Republican states seem to have more similarities in their housing preferences than those of Blue states. With the exception of Texas and North Dakota[4], the homeownership rate varies from 64 to 69 percent for Red states and home values do not differ as greatly as in Blue states. Specifically, the highest value for a typical home in red states was $259,600 in Alaska while the lowest value was $112,700 in Mississippi. Furthermore, homeowners in most of those states own a house built in the decade of 1980s[5] where they typically live for 12-13 years. Lastly, in most Red states, more than 50 percent of homeowners use utility gas for heating.

Finally, comparing homeowners of Blue and Red states, it seems that they don’t have significant differences, among the characteristics examined here, other than home values and median household income. The visualization below shows the median housing characteristics for both Blue and Red states (2005-2015).

[1] The Blue and Red breakdowns used are based on results from the past 6 presidential elections (1992-2012). States that voted for the Democratic presidential candidate in all six elections are deemed “Blue” while states that voted for the Republican presidential candidate in all six elections are deemed “Red.”

[2] It was also examined the homeownership rate for Millennials (25-34 years old). Please take a look at the visualization above.

[3] All data used is from the 2015 American Community Survey published by the Bureau of the Census.

[4] Homeownership rate in Texas and North Dakota was 61 and 62 percent accordingly.

[5] Homeowners in Red states own newer houses than a typical homeowner nationwide (median year structure built is 1978 for the U.S.). Seven out of ten owner-occupied houses in Red states were built more recently than the typical house in the U.S.

Internet & Real Estate Agents: Some Things Change, Others Remain the Same

Wed, 10/19/2016 - 11:21

According to Science Journal, the internet took over multichannel global communications almost instantaneously, transmitting one percent of information in 1993, 51 percent by 2000, and 97 percent by 2007.[1] The internet’s prominence in the real estate industry has a similar progression.

The National Association of REALTORS® has tracked home buyers and sellers’ use of the internet in the home search process since 1995. As one would expect, the use of the internet grew with time. According to NAR’s Home Buyers and Sellers Report, only two percent of buyers and sellers used the internet in their home search in 1995. That number grew to 92 percent by 2015.

While the use of the internet has grown over the last 20+ years, some things in the real estate business have not changed so drastically. Namely, home buyers predominantly use a real estate agent for the purchase of their home. In 2005, 77 percent of home buyers worked with an agent to purchase their home. In 2015, buyers worked with an agent as the dominant purchase method, albeit going up a few points to 87 percent of home buyers. There is no argument that internet provides a valuable resource to home buyers. However, agents remain essential to helping buyers through the process, finding the right home, and ultimately closing the deal.

*From 1995 to 2005, the NAR Home Buyers and Sellers Report was published every other year (1995, 1997, 1999, 2001, 2003, and 2005). There is no data for 2000. After 2005, it was published every year.

[1] “The World’s Technological Capacity to Store, Communicate, and Compute Information”, Martin Hilbert and Priscila López (2011), Science (journal), 332(6025), 60–65.

Tenure in Home Has Steadily Increased in Last 30 Years

Thu, 10/13/2016 - 15:17

The Profile of Home Buyers and Sellers has collected data since 1985 on the median tenure a seller has remained in their home and the expected tenure for home buyers since 2006.

In 1985, the median tenure for sellers remaining in their home was five years, the lowest in since we started tracking the data in the 30-year period. From 1987 to 2008, the median tenure for sellers was a steady six years throughout the course of about a 20-year period. The only exception was in 1997 when the median tenure jumped up one year to seven years for sellers. As the U.S. housing market entered a recession, the median tenure for sellers began to rise—seven years in 2009, eight in 2010, and to nine years in 2011 where it has remained steady through 2015. The only exception is in 2014 when the median tenure for sellers reached an all-time high at 10 years, but came back down to nine last year. Thus market changes in the last decade have caused sellers to remain in their homes longer, increasing the median number of years in the home by 50 percent more than they did 20-30 years prior.

In 2006, we started asking first-time and repeat buyers how long they expected to remain in the home they just bought. First-time buyers reported that their median expected tenure was just six years and nine years for repeat buyers, the lowest since we started collecting the data for both buyer types. For repeat buyers, that bumped up to 10 years in 2007, 12 years in 2009, and then up to 15 years in 2010 where it has remained steady for the past six years. For first-time buyers, the median expected tenure in the home jumped to 10 years in 2008 where it has remained ever since. It is no surprise that repeat buyers expect to remain in their home longer than first-time buyers. It is interesting, however, to see that first-time buyers in 2006 expected to sell in just six years. Fast forward a decade to 2015 and first-time buyers expect to sell in almost double the amount of time.

To follow this series as we discuss the findings of 35 years of profile data, check out the hashtag #NARHBSat35 on your social channels. NAR Research will be releasing trend line data since 1981 to celebrate 35 years of home buyer and seller demographic research.

 

 

Closing Delays Ease in September

Wed, 10/12/2016 - 10:04

After peaking at 3.9 days in August, delays in the settlement process eased in September. The difference in time to settle a sale eased relative to last year by 3.4 days.

Settlement delays surged in wake of Brexit as rates fell and lenders strained under a surge of refinancing. Under the new TRID or Know Before You Owe rules, a rate change greater than 0.125% that occurs within three days of closing can force lenders to re-issue the closing disclosure (the new document that replaced the HUD-1) and wait an additional three days. Most lenders have added extra time to the process in case of such changes, but some are still adjusting which contributed to the jump in delays. This issue was compounded by a longer-term trend of shortages of qualified appraisers relative to growing sales and refinancing volume.

Delays will likely ease through the fall as refinance demand burns out, lenders continue to adapt, and rates begin to rise in anticipation of a rate hike by the Federal Reserve.

Raw Count of Home Sales (August 2016)

Fri, 10/07/2016 - 10:43
  • Existing home sales dropped 0.9 percent in August from one month prior while new home sales slipped 7.6 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, 541,000 existing homes were sold in August while new home sales totaled 50,000.  These raw counts represent a 5 percent increase for existing home sales from one month prior while new home sales dropped 12 percent.  What was the trend in recent years?  Sales from July to August decreased by 4 percent on average in the prior three years for existing homes and decreased by 3 percent for new homes.  So this year, existing homes outperformed to its recent norm while new homes sales underperformed.
  • 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 less activity in both September and October for existing home sales. For example, in the past 3 years, September sales dropped by 7 to 18 percent from August while October sales typically decreased by 1 to 6 percent from September.  For the new home sales market, the raw sales activity in September is hard to predict while activity in October will be busier than September. For example, in the past 3 years, September sales dropped 15 percent last year, increased 3 percent in 2014 and were unchanged.
  • For more information, see this post >

 

August 2016 Existing-Home Sales Over Ten Years

Thu, 10/06/2016 - 11:19

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

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

  • The total number of homes sold in the US for August 2016 is higher the ten year August average. Regionally, all four regions were above the ten year August average, while the Midwest and South led with stronger sales.
  • Comparing August of 2006 to August of 2016 fewer homes were sold in 2016 in the US and all regions, the Northeast enduring the biggest decline of 51.4 percent. The US had a drop of 18.9 percent while the West had the smallest drop in sales at 8.3 percent over the ten year period.
  • This August the median home price is higher than the ten year August average median price for the US and all four regions. The West leading all regions with 14.1 percent growth.
  • Comparing August of 2016 to August 2006, the median price of a home increased in all regions. The South led all regions with a gain of 13.8 percent followed by the Midwest with 11 percent. The US had an incline in price of 7.1 percent while the Northeast had the smallest gain of 0.7 percent and the West experienced a modest gain of 1.3 percent.
  • Looking at year over year changes, after August 2011 price growth turned positive and maintained momentum thru the current year for the US and four regions. Since 2012 August price growth has been steady, while the Northeast experienced only one decline in 2014.
  • The median price year over year percentage change shows that home prices began to fall in 2008 nationally, and prices dipped by double digits in 2009 for all regions with the West having the biggest decline of 12.3 percent in 2009 after an even larger decline of 23.9 percent in 2008. The trend for median home prices turned around completely in 2012, when all regions including the US showed price gains. The following year, 2013, price growth rates peaked and the West had the largest gain in price of 18.3 percent, while the Northeast had the smallest gain at 7.3 percent from 2012 to 2013. This August the West (9.2%) had the highest year over year price change over the US and the other three regions.
  • There are currently fewer homes available for sale in the US this August than the ten year August average.  This current August the US had the fastest pace of homes sold relative to the inventory when months supply was 4.6 months. In 2010 the US had the slowest relative pace when it would have taken 11.5 months to sell the supply of homes on the market at the prevailing sales pace. Relative to all supply, the condo market had the biggest challenge in 2008 when it would have taken 15.8 months to sell all available inventory at the prevailing sales pace.
  • The ten year August average national months supply is 7.5 while single family is 7.3 and condos are 8.8 months supply.

View the full Aug 2016 EHS Over Ten Years slides.

Do Elections Affect the Housing Market in Washington, DC?

Wed, 10/05/2016 - 10:26

In view of the upcoming presidential elections, Washington, DC is getting ready to welcome the administration of the next president. But what does this mean for local housing market? Do elections affect housing market in the area? Let’s take a closer look at the single family existing home sales in the following areas in the past six presidential elections (1988-2015):

  • Washington County, DC (which refers strictly to the District of Columbia alone),
  • Counties inside the beltway (Montgomery County, Prince George’s county, Alexandria, Arlington County, Fairfax County, Falls Church), and
  • Washington, DC metro area (as defined by the Office of Management and Budget).

The current study focuses on the total existing home sales between November and March, since activity for home sales is normally expected to be slower in these months than the other months of the year.  For the three years surrounding the last six presidential elections (the year before, the election year, and the year after), here is the average home sales growth for each one of the areas[1]:

Based on the chart above, we notice that activity for home sales is busier in the election year and even better in the following year for Washington County, DC. In the Washington, DC metro area:

  • The year before an election home sales rose by 10 percent on average.
  • The year of the elections home sales rose by 12 percent on average.
  • The year after the elections home sales rose by 10 percent on average.

We also notice that the metro area experiences higher growth in home sales than the county itself. This shows that people go beyond the District’s borders to buy single-family homes.

Likewise, median home prices had more gains in the election year than the previous and following year in both areas. According to the visualization below, in Washington, DC metro area, median home prices grew by 3 percent in the previous year of the elections, 7 percent in the election years and they went back to 5 percent growth one year after the elections. In a similar way, the District experienced 7 percent price growth in the previous year of the elections, 8 percent in the election years and 6 percent one year after the elections.

All in all, it seems that the following months will be very busy for Realtors in Washington, DC metro area. In buyer’s perspective, housing hunting process is expected to be more competitive while sellers can benefit from the anticipated busier activity.

 

Detailed analysis for each one of the election periods

Elections 1992: In the first year of Clinton’s presidency, home sales increased by 2 percent in Washington, DC metro area from the previous year. However, sales increased by 12 percent one year after the elections. Taking a closer look at the housing market in 1993, it seems that more factors boosted home sales that year. For instance, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling.

Home prices grew less than the year before the elections. The median home price in 1992 was $141,424 in Washington, DC metro area while it was slightly higher at $148,819 in Washington County, DC for the period between November/1992 and March/1993.

Elections 1996: In the second term of Clinton’s presidency, home sales in Washington, DC metro area decreased by 8 percent compared to a year prior. In contrast, home sales increased by 48 percent in the year after the elections. In July 1997, the Taxpayer Relief Act changed the treatment of capital gains from residential real estate to exempt from taxation gains of up to $250,000 for singles and $500,000 for married couples.

With regards to home prices, the median home price in 1996 was $145,327 in the metro area while it was $138,720 at county level. Home prices increased in both areas in 1996 (3.4 percent price growth in metro area, and 6.1 percent price growth in the county).

Elections 2000: Under the first year of Bush’s presidency, home sales increased less than the year before the elections in Washington, DC metro area. In 1999, single-family home sales increased 65% while they rose 37% in 2000. Also, in the beginning of March 2000, the Dot-com bubble collapse began. This may be one of the reasons that home sales slowed down in 2000.

However, home prices increased in 2000. Median home price was $176,124 in the metro area while it was $166,136 in the county for the period between Nov/2000 and March/2001.

Elections 2004: In 2004, while the homeownership rate peaked with an all-time high at 69 percent, single-family home sales reached a peak in Washington, DC metro area (32,050 home sales in the period between November and March). As a result, median home price for the months November through March rose to $348,915 in 2004 from $272,314 a year earlier (28 percent increase).

Elections 2008: Nationwide, after the largest drop in home sales in 25 years, home sales continued to fall. However, in the Washington, DC metro area, single-family home sales started picking up in 2008. Home sales increased by 25 percent from a year earlier for the period November/2008- March/2009.

Nevertheless, home prices continued to fall in the metro area. Actually, median price dropped to 295,877 for the period Nov/2008-March/2009. That was a 21 percent decrease from a year earlier.

Elections 2012: During the second inauguration of Obama, home sales in the Washington, DC metro area rose by 11 percent from a year earlier. Home sales for the period Nov/2012 – March/2013 were almost 20,000 while the median home price increased to $320,468 (11 percent increase).

[1] Excluding the category of “Counties inside the beltway” because there are not available data for this area before 2004.

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