Economist's Outlook

Migration Winners of 2014

When a household chooses where to live, it is said that it has already chosen a set of local public goods (schools, parks, and public safety) and a set of taxes to finance the public goods. Based on theories from Urban Economics, people locate across neighborhoods according to their preferences for public goods, social characteristics and other factors (such as job relocation, closer to friends or family[1]). Aside from theories, let’s see where most people moved in 2014 in reality.

A couple of weeks ago the Internal Revenue Service (IRS) made available migration data for 2013-2014 including migration patterns for counties and states[2]. Taking a closer look at the state-to-state migration flows, about one third of the states had more in-migrants than out-migrants. Texas was in the top of the list followed by Florida and South Carolina.

But what does this influx of new residents mean for those local governments?

The IRS reports adjusted gross income figures for both in-migrants and out-migrants. Using these figures as a proxy for total household income, the average income by household was computed for both groups[3]. Comparing the average income of the two groups, the following states seem to have both more and higher income in-migrants than out-migrants: Florida, Nevada, South Carolina, New Hampshire, Montana, Idaho, Tennessee, Arizona, North Carolina, Oregon, Maine and Washington.


The highest gaps in the average income between the two groups were found in Florida ($27,500), Nevada ($17,800), South Carolina ($14,900), New Hampshire ($9,400) and Montana ($7,200).   Without implying causation, this influx of new residents can provide local governments with a substantial boost in their tax base and also the local economy as more people with higher income, and likely higher wealth, moved in those areas.

Furthermore, looking at the level of total employment (nonfarm), it seems that the areas with gains in net migration had also gains in job market.  While the relationship between migration and employment has many facets, the data showed that more jobs were created in areas with net migration gains in 2014.


[1]Based on NAR’s Survey “2015 Profile of Home Buyers and Sellers”, those are the main reasons for selling previous home and moving 51 miles and further from the previous residence.

[2] Migration data are based on year-to-year address changes reported on individual income tax returns filed with IRS. The number of inflows shown in the visualization is based on the number of exemptions at state level.

[3] Average Gross Income= Total Adjusted Gross Income/Number of Returns.

Private Mortgage Insurance

 Buying a home with a down payment of less than 20 percent can be expensive, but it just got cheaper for some home buyers. Many private mortgage insurers have dropped the rates they charge high quality borrower. Combined with historically low mortgage rates, this change could unlock ownership and improve affordability for many borrowers.

The Cost of Insurance

While most people focus on mortgage rates, mortgage insurance can add significantly to the cost of borrowing. Fannie Mae and Freddie Mac (the GSEs) require borrowers who puts down less than 20 percent to pay for private mortgage insurance (PMI). The GSEs also charge separate fees called loan level pricing adjustments (LLPAs) for particular borrowers including those who put down less than 20 percent. These two fees, PMI and LLPAs, constitute insurance that low down payment borrowers are charged for conventional loans. Likewise, mortgages backed by the Federal Housing Administration (FHA) are charged a mortgage insurance premium. These mortgage insurance fees can add significant costs to the monthly payment for a home.

Why Are the Fees Changing?

Fannie Mae and Freddie Mac buy loans from lenders, package them into mortgage back securities (MBS), and then sell the MBS to investors with a guarantee that if anything bad happens, the buyer of the MBS will still get their money. This guarantee makes the GSEs insurers against anything that might go wrong including losses on loans greater than what the private mortgage insurers cover or if the private mortgage insurer goes out of business.

During the recent crisis, most insurers took significant losses as loans went bad. Absorbing losses is the insurers’ job, though. Insurers charge fees and use these fees as capital to pay claims as loans go bad. Some insurers did not hold enough capital and subsequently went out of business. When those claims went unpaid or insurers went out of business, those losses had to be paid by the GSEs. To prevent losses like this in the future, the GSEs set up new rules requiring best practices as well as higher amounts of capital of the private insurers with whom they do business.

Furthermore, the GSEs specified that the private mortgage insurers must hold specific amounts of capital against borrowers with particular characteristics. This type of system is called risk-based pricing where riskier borrowers, those with lower credit scores or smaller down payments or other characteristics, pay more. Historically, the GSEs used pooled or average-cost pricing where all borrowers paid the same fee, which reflected the average borrower’s risk.

Who Benefits and Who Loses?

Borrowers with a down payment greater than 10 percent or a credit score greater than 739 will benefit the most from the recent changes. However, borrowers with credit scores under 700 and down payments less than 10 percent will pay more. As depicted below, a borrower with a 760 credit score and a 3 percent down payment will pay $83 less each month, while a borrower with a 630 credit score would pay $128 more.

The FHA made headlines in 2015 after reducing its annual mortgage insurance premium from 1.35 percent to 0.85 percent. This change drew many new borrowers into the market but also attracted some higher quality borrowers from the GSEs. As depicted below, the recent reduction in private mortgage insurance premiums will make GSE-backed loans cheaper for those with the highest credit scores. This change will draw some of the best qualified borrowers back to the GSEs from the FHA. Borrowers facing PMI increases will likely remain with the FHA. Some borrowers might pay more for PMI than FHA insurance but will switch to the GSEs because private mortgage insurance is extinguished when the loan-to-value rate reaches 78 percent, while the FHA’s insurance must be paid for the life of the loan.

Market Impact

A steady, stable flow of affordable credit is important for the housing market. The cost of both private and government supported insurance programs has improved since 2014, while still providing sufficient capital to maintain long-term soundness of insurers.

The increases in PMI fees for weaker borrowers will reinforce the FHA’s recent premium cuts retaining these borrowers at the FHA. Reduced fees for stronger borrowers will draw a small share of the FHA’s business to the private sector. As a result, the FHA is likely to remain a significant player in the market for low down payment borrowers. Retaining some of the stronger borrowers is important to keep insurance costs down in the FHA’s average cost model and to reduce any potential impact to tax payers. Thus, in the years to come as lenders reduce overlays on the FHA’s program and weaker borrower re-enter the market, the stronger borrowers in the FHA’s book of business will help to offset the cost of weaker borrowers.

First time buyers as well as buyers in high cost markets will benefit from improved mortgage insurance pricing in 2016. These changes reflect stronger capital rules intended to strengthen the financial health of the market, but they will also help to save consumers money.

Raw Count of Home Sales (February 2016)

  • Existing-home sales decreased 7.1 percent in February from one month prior while new home sales rose 2 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, 314,000 existing-homes were sold in February while new home sales totaled 44,000.  These raw counts represent a 4 percent gain for existing-home sales from one month prior while new home sales increased 16 percent.  What was the trend in the recent years?  Sales from January to February increased by 3 percent on average in the prior three years for existing-homes and rose 11 percent for new homes.  So this year, both existing and new home sales outperformed compared 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 have an effect on data around the same time each year.  For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity.  Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends.  That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month.  When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
  • What to expect about home sales in the upcoming months in terms of raw counts?  Independent of headline seasonally adjusted figures, expect busier activity in March and even better activity in April for existing-home sales. For example, in the past 3 years, March sales typically increased by 26 to 37 percent from February and with more gains in April where sales rose by 11 to 19 percent from March. For the new home sales market, the raw sales activity in March tends to be better than that occurring in February, and activity is expected to grow more in April. For example, in the past 3 years, March sales rose by 2 to 14 percent from February while April sales typically rose by 4 to 5 percent from March.

Labor Market Indicators Show Sustained Job Growth and Stability

  • The number of individuals filing initial unemployment insurance claims continued to trend below 300,000 for the 57th consecutive week, the longest streak since 1973 according to the Department of Labor.[1] In the week ended April 2, 267,000 claims were filed, a decrease of 9,000 from the previous week’s level. Initial claims for unemployment insurance are filed by workers who are starting a period of unemployment. Fewer number of claims filed indicates greater job security and stability.

  • The continued low level of unemployment insurance claims is one of many labor market indicators that all point to sustained job growth (see Federal Reserve Board Governor Janet Yellen’s Labor Market Indicators Dashboard below). These indicators include the falling headline unemployment rate, fewer part-time workers, lower share of the long-term unemployed (27 weeks and over) to the unemployed, and the rising job openings rate.

Across most states, the number of initial claims filed is lower in Jan –March 2016 compared to the same period in 2015. However, claims have increased in some states, notably North Dakota, Wyoming, and Louisiana where the number of jobless claims are up by more than 10 percent. The increase in filings in these three states is likely associated with falling production as oil prices collapsed starting in mid-2015.


Repeat Buyers Making a Splash More Than First-Time Buyers

One way to examine changes in the housing market is to look at the prior living arrangements of buyers, specifically changes in the last decade. In 2015, 43 percent of all buyers rented an apartment or house before buying. Forty-six percent owned their previous home and 10 percent lived with parents, relatives, or friends. In 2005, 46 percent also owned their previous home and in the decade between that share remained relatively constant.

In 2010, however, those who owned their previous residence dipped significantly to 35 percent. 2010 was also the year that first-time home buyers saw their highest buying percentage in the market at 50% of all homes purchased that year, according to NAR’s 2015 Home Buyer and Seller Profile, due to the government’s tax credit offered to spur first-time buyers in the housing market. By 2011, the percentage of repeat buyers jumped back up to 47 percent, which is above the historical norm.

Examining changes in patterns of previous living arrangement for first-time home buyers in the last decade is also revealing. Namely that the patterns for renters and those living with friends and family have not changed drastically, instead remained steady throughout the last decade. This is interesting to note because the demographics for first-time home buyers has changed over time—the age has increased, income fluctuated, and household composition has grown—and yet the shares of the market that previously rented or lived with family has remained constant. The other interesting feature of first-time buyers is that roughly one-fifth (19 percent) reported living with family or friends in 2015, likely to help save for the downpayment.

For repeat buyers, there were a few more changes over time worth noting. We see a big change from 2007 to 2008 where buyers that previously rented an apartment or house jumped up from 19 percent to 23 percent. The trend accelerated to a peak of 25 percent in 2010 when the first-time home buyer credit helped push fence sitters to purchase in the market. Thereafter, that share fell sharply to 21 percent in 2001, before rising steadily to 27 percent by 2015.

In the 2014 Profile of Home Buyers and Sellers, we saw that eight percent of sellers sold a distressed property largely in 2009 as a result of the housing crisis. We can infer from this trend that the increase in buyers that previously rented—and quite possibly that owned a home once before but sold under distress—are starting to return to the market in the last few years from 2012 to 2015. A portion of this group started as home owners, had to rent for a period of time until market and economic conditions improved, and each year have begun to purchase homes again.



Are Unfair Housing Practices Occurring in the Real Estate Market?

When the National Association of REALTORS® receives a bundle of inquires on a specific topic, its Research and Statistics Department is often asked to conduct a survey of its members to learn more about emerging topics affecting the real estate industry. At the beginning of 2016, there were several anecdotal stories of discrimination occurring in the market violating Fair Housing laws, as REALTOR Magazine aptly notes in the article Fair Housing Is In Your Hands for Fair Housing month this March 2016.

Concurrently, our survey analysts hunkered down to listen to our members. One might have thought that the anecdotal stories coming in demonstrate that discrimination is occurring quite frequently. On the contrary, the first question in the survey reveals that 83 percent of our members said they had never seen discrimination in their market area.

When the survey asked how often REALTORS see a potential fair housing issue in their transactions, 91 percent said never or almost never. Ninety-nine percent of REALTORS said that they talk with clients to address the potential issue if it arises. Ninety-nine percent also said they had never failed an ethics complaint regarding a fair housing issue.

The vocal nature of REALTORS thus shows that they are doing their due diligence to make the housing market fair and free from discrimination. It also indicates that real estate agents are likely to speak out against unfair practices. The survey also found that two-thirds of NAR members (64 percent) proactively discuss fair housing issues with buyers and sellers. Seventy percent of REALTORS said they bring up the topic of fair housing with clients, and that buyers and sellers rarely or never initiate the conversation themselves (83 percent).

Furthermore, 64 percent of REALTORS reported that they actively discuss fair housing issues in office meetings. Sixty-one percent also said that fair housing laws are effectively enforced in the market place. Eighty-five percent also reported that the fair housing laws have not prevented them from closing a transaction.

While it appears that discrimination is not widespread in the current housing market, it does not mean that it has been eradicated entirely. REALTOR members recognize the importance of safeguarding the market from unfair practices as it benefits the greatest number in the community. NAR members also noted that they also take courses to educate themselves on the issues, how to prevent potential violations, and what do in the event of discrimination.

Time to Normalize Fees

  • In 2015, the FHA reduced its annual mortgage insurance premium (MIP)
  • Revenues subsequently increased
  • The FHA can further reduce its fees, while maintaining sufficient capital on future pools to cover losses, administrative expenses, and a margin
  • The fund will meet its capital ratio in a modestly longer timeline

In the spring of 2015, the Federal Housing Administration (FHA) reduced its annual insurance premium. The move was controversial as the FHA was below its statutory capital ratio of 2.0 percent. However, the reduction in the MIP generated an increase in demand for the FHA purchase and refinance product which helped the FHA reached its 2.0 percent capital ratio. The FHA’s fees remain historically high and a reasonable analysis suggests that there is still room for the fees to decline.

Following the financial crisis and great recession, the FHA expanded from less than 5 percent of the market at its boom-time nadir to its post-recession peak of more than 50 percent. The FHA was an important source of credit during and after the recession, wadding into the market as the countercyclical source of credit while the private sector pulled back. The FHA’s books took sharp losses as a result and fees were subsequently increased to limited adverse selection, to shore up the FHA’s books, and to help stimulate the private sector.

Between 2011 and 2014, market reforms like the ability to repay rule were implemented and the private mortgage insurance industry rebounded. To support consumer confidence and to continue the FHA’s financial recovery, the FHA’s annual mortgage insurance premium was reduced from 1.35 percent to 0.85 percent. Reducing a fee to improve its books appeared counter intuitive, but the then excessive fees were driving borrowers away from the FHA. Thus, by reducing its fee but retaining a healthy revenue margin, the FHA boosted loan volumes and total revenues.

In fiscal year 2015, the FHA breached its mandatory 2.0 percent capital ratio. However, the FHA’s forward book of business, which represents purchase and refinance mortgages, remains below this threshold. With continued profitability, the forward book of business too is expected to surpass the 2.0 percent mark and to keep progressing. With the 2.0 percent threshold in sight, it is reasonable to revisit the FHA’s pricing of its mortgage insurance. Overshooting a reasonable capital ratio may provide artificial solace, but it could also create negative externalities such as reducing borrowers’ capacity and a transfer of wealth from consumers to the government. Furthermore, reducing the rate of convergence on the capital ratio would be in line with other government insurance programs like the FDIC.[1]

What is the Right Fee?

Following the methodology of Goodman, Bai, and Zhu of the Urban Institute[2] (hereafter referred to as UI), the profitability of the FHA’s portfolio for 2015 to 2022 is estimated below.[3] This analysis differs from that of the UI as it incorporates the FHA’s forecast of its portfolio for the period of 2015 to 2022 as well as its estimate of normal (43.4 percent) and stress (60.1 percent) severities.[4] While these are lower than those incorporated by UI, they include losses accrued to the FHA as a result of the Seller Funded Down Payment Assistance Program. The delinquency rates and severities for this cohort were significantly higher than the rest of the FHA’s book[5] and this program has since been eliminated. Thus, the updated severities remain conservative.

The 2015 book[6] of business retains its strong credit profile, but the FHA projects an even stronger profile for 2015 through 2022.[7] As a result, the FHA’s revenue growth is expected to increase modestly bringing in annual revenues of $3.55 billion. The sustained profitability is a boon for the program, but should be scaled back to avoid overshooting the intended goal. Reducing profitability to 1.87 percent per the FHA’s target as outlined in its proposed supplement performance metric[8] could allow for a reduction of its annual fee of roughly 10 basis points, while still generating annual revenues of roughly $2.6 billion. Alternatively, a decline in the profitability to 1.0 percent, enough to cover 8 basis points of administrative fees and a small margin, could reduce the MIP by as much as 25 basis points, while netting nearly $1.4 billion in annual revenues.

Fund Still Reaches Capital Ratio

Reducing the FHA’s premium would reduce the economic value or the current value of its total future earning adjusted for inflation on each year’s book. However, under either scenario the FHA’s resources would continue to grow. A 10 basis point reduction in the MIP would yield revenue of roughly 1.4 percent net of administrative expenses. With a 1.4 percent ratio of the economic value to the endorsement volume, the capital ratio for the forward book of business would be met in 2017 instead of 2016 as under the baseline.[9] With a more aggressive 25 basis point reduction, the economic value of future books is reduced to 0.5 percent of endorsements and the forward book of business reaches the 2.0 capital ratio in 2022 (See appendix).

The Consumer Benefits

A reduction in MIP would have real impacts for a borrower. A 10 basis point reduction would save a borrower with a $200,000 mortgage roughly $17 each month or $200 per year. The benefit grows with the size of fee reduction more than $50 per month or reaching $600 annually for a reduction of the annual insurance fee from 0.85 percent to 0.55 percent.

Overlays Will End

Another important trend in recent years has been lender overlays. The Department of Justice sued several lenders under the False Claims Act arguing that loans originated did not comply with FHA’s underwriting requirements. Under the law lenders were subject to triple damages and as a result many in the lending community became risk averse and deployed overlays. Efforts are underway to remedy this situation. As lender confidence grows, the share of borrowers in the FHA program with lower credit scores will expand, but the FHA has likely incorporated this scenario into its estimates. The stronger borrowers attracted by lower fees will help to support a broad portfolio as overlays normalize and to achieve the FHA’s goal of access.

A Path to Normalization

The FHA stepped in to support the market as countercyclical lender of last resort. The agency’s fees rose to offset losses, to prevent adverse selection and to stimulate the private market. With market reforms in place and a robust private mortgage insurance market returned, its time reevaluate the FHA’s fees. The FHA’s book will reflect a different mix of borrowers over the next 8 years and with a broad credit base and reduced fees, it is well positioned to support its role in the market.


[1] pp. 6


[3] See the appendix for a full list of assumptions.


[5] pp. 63-65


[7] FHA projects the 620-679 credit cohort. For this analysis this projection was split between the 620-639 and 640-679 credit cohorts using the 2015 distribution.


[9] Assuming no change in endorsement volume

In What States Did Properties Sell Quickly in December 2015–February 2016?

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?”

Nationally, properties sold in February 2016 were typically on the market 59 days (64 days in January 2016; 62 days in February 2015), according to the February 2016 REALTORS® Confidence Index Survey Report.11 Fewer days on the market are an indication that inventory remains tight. Short sales were on the market for the longest time at 126 days, while foreclosed properties typically stayed on the market for only 57 days. Non-distressed properties were typically on the market for 57 days.

Nationally, approximately 35 percent of properties were on the market for less than a month when sold. About 15 percent were on the market for longer than six months.

By state, properties typically sold within a month in the District of Columbia, Colorado, and Alaska. Properties typically sold between 31 and 45 days in Washington, California, Utah, Arizona, Minnesota, Nebraska, Kansas, and Oklahoma. In some oil-producing states which are undergoing slower job growth following the collapse of oil prices, such as Montana, Wyoming, New Mexico, and Louisiana, properties stayed on the market between 61 and 90 days. Texas appears more resilient to the oil price collapse, as properties typically sold between 46 and 60 days. Local conditions vary, and the data is provided for REALTORS® who may want to compare local markets against the state and national summary.


11 Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market. In generating the median days on market at the state level, we use data for the last three surveys to have close to 30 observations. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations.

February 2016 EHS Over Ten Years

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 February months and how that might compare to the “ten year February average” which is an average of the data from the past ten February months.

  • The total number of homes sold in the US for February 2016 is higher the ten year February average. Regionally, the Northeast and the West were slightly below the ten year February average, while the Midwest and South showed stronger sales. Since 2014 February EHS has been on the rise for the US and all four regions.
  • Comparing February of 2006 to February of 2016 fewer homes were sold in 2016 in the US and all regions, the Northeast enduring the biggest decline of 44.2 percent. The US had a drop of 25.8 percent while the South had the smallest drop in sales at 17.6 percent over the ten year period.
  • This February the median home price is higher than the ten year February average median price for the US and all four regions.
  • Comparing February of 2016 to February 2006, the median price of a home increased only in the Midwest and South. The US had a slight decline in price of 2.3 percent while the Northeast had the biggest dip of 14.3 percent and the West experienced a 5.8 percent decline in price.
  • Looking at year over year changes, after February 2011 price growth began to stabilize and maintain momentum thru the current year for the US and four regions. Since 2012 February price growth has been steady, while the Northeast experienced a few slight declines in 2014 and 2016.
  • The median price year over year percentage change shows that home prices began to fall in 2007 nationally, and prices dipped by double digits in 2009 for all regions except the Midwest which was close at 9.2 percent. The trend for median home prices turned around completely in 2013, when all regions including the US showed price gains. Because of this, all regions and the US saw their lowest February median price in either 2011 or 2012. The West had the largest gain in price of 22.3 percent, while the Northeast had the smallest gain at 5.5 percent from 2012 to 2013. This February the West (7.0%) had the highest year over year price percentage change over the US and the other three regions.
  • There are currently fewer homes available for sale in the US this February than the ten year February average.  This current February the US had the fastest pace of homes sold relative to the inventory when months supply was 4.4 months. In 2008 the US had the slowest relative pace when it would have taken 9.8 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 2009 when it would have taken 14 months to sell all available inventory at the prevailing sales pace. Since 2012 supply levels for both single family and condos have gradually come down to a healthy balance of inventories.
  • The ten year February average national months supply is 6.7 while single family is 6.5 and condos are 8.2 months supply.
  • To summarize current February trends show prices and sales on the upswing while inventory conditions continue to deteriorate. The housing market is starting to stabilize and return to the period prior to the housing bubble.

View the Feb 2016 EHS Over Ten Years slides.

Former Renters: 38 Percent of Homebuyers in February 2016

Home buyers who were renting immediately prior to their recent home purchase accounted for 38 percent of sales in February 2016 (40 percent in January 2016; 38 percent in February 2015), according to the February 2016 REALTORS® Confidence Index Survey Report.

Renters are facing challenges transitioning into homeownership. According to NAR’s March 2016 Housing Opportunities and Market Experience (HOME) Survey of U.S. households, 63 percent of respondents who currently do not own a home believe it would be difficult to qualify for a mortgage given their current financial situation.[1] Steep house price increases amid modest income gains have increasingly made homes less affordable, especially for first-time homebuyers (Chart 2). Access to credit remains tight compared to conditions prior to 2008, although conditions are slowly easing, using FICO scores as one indicator (see Chart 3).


Federal Reserve Board Economists Present “On the Effect of Student Debt on Access to Homeownership” at a REALTOR® University Speaker Series

The rising level of student debt and the relatively high default rates for student loans have raised concerns about the impact on future homeownership among student borrowers. In a presentation at a REALTOR® University Speaker Series held recently, Federal Reserve Board economists Dr. Daniel Ringo and Dr. Alvaro Mezza presented the results of a paper estimating the impact of an increase in student debt on homeownership.[1]

(To listen to the webinar, please click here.  To access the paper by Alvaro A. Mezza, Daniel R. Ringo, Shane M. Sherlund, and Kamila Sommer “On the Effect of Student Loans on Access to Homeownership”, please click here.)

The authors use a uniquely constructed administrative data set for a nationally representative cohort of 34,891 individuals aged 23 to 31 in 2004 and followed over time, from 1997 to 2010. This administrative dataset includes anonymized information pertaining to credit bureau records, student-level information (e.g., loans and grants availed of, years in school, and degree earned), school-level information (e.g. tuition fee, whether public, private, for-profit or non-for-profit), and economic variables of the state that student was enrolled in[2].

Among the paper’s interesting results are:

  • A 10 percent increase in student loan debt decreases the homeownership rate by one to two percentage points 24 months out of school.
  • In terms of numbers, a 10 percent increase in tuition fee (which is associated with student debt) reduces the number of potential homeowners by 280 individuals per 10,000 college goers two years after exiting school, which is equivalent to 170 individuals per 10,000 individuals (both college and non-college goers). [3]
  • A 10 percent increase in student loan debt causes a 0.6 percentage point increase in the probability that the borrower falls into the subprime category (credit score of 620 or less) and a 0.8 percentage point increase in the probability that a borrower falls into deeply subprime (500 or less).[4]
  • A 10 percent increase in debt is associated with a 0.7 percentage points increase in delinquency rates.
  • The authors did not find conclusive evidence that an increase in student loan leads to a lower mortgage balance.
  • Still, all is not gloom and doom– the authors point out that the homeownership rate is increasing almost linearly over time during the five-year window. In other words, an increase of 10 percent in student debt only delays the home purchase rate of a given cohort, by about three months, based on the authors’ estimates.
The authors are careful to point the following caveats:

  • The paper captures the impact of an increase in student debt, not the impact of student’s access to education loans on homeownership. The impact of the access to student loans on homeownership can be positive for as long as the income returns over time exceed the level of debt.
  • Tighter credit underwriting standards after 2005 suggest that the drag of student debt on homeownership may be greater, with lenders more sensitive to debt-to-income and loan-to-value ratios. However, the authors note that the introduction of income-based student loan repayment plans may moderate the link between student loan debt and homeownership.

About the Authors

Alvaro A. Mezza is a senior economist of the Consumer Finance Section. Daniel R. Ringo is an economist of the Real Estate Finance Section. Shane M. Sherlund is assistant director of Program Direction Section. Kamila Sommer is a senior economist of the Real Estate Finance Section. Information on the research areas, expertise, and education of the authors can be accessed from the Federal Reserve Board.

About REALTOR® University

REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.

[1] The REALTOR® University Speaker Series was held on March 25, 2016. The authors make the disclaimer that the views expressed in the paper and in the presentation do not reflect the views of the Federal Reserve Board.

[2] Anonymized administrative data are from TransUnion LLC, National Student Clearinghouse, National Student Loan Data System, Integrated Postsecondary Educations Data System, and the College Board.

[3] The authors use the in-state tuition rate at public 4-year colleges in the student’s home state as an instrumental variable for student debt, and the authors conduct a number of validation exercises to ensure that the tuition rate is a valid instrumental variable. In econometric theory, omitted variables, whose effect is picked up by the error term, lead to biased estimates of the effect of the observed explanatory variables on the dependent variable being explained. The authors use Two-Stage Least Squares and maximum likelihood methods to estimate the coefficients of the likelihood of owning a home.

[4] The credit scores are based on TransUnion LLC credit score system.

Highlights of February 2016 REALTORS® Confidence Index Survey

Market conditions vary across local markets, but the REALTORS® confidence and traffic indices indicate that overall market activity improved in February 2016 compared to one year ago and to the previous month, according to the February 2016 REALTORS® Confidence Index Survey Report. Sustained job creation and the low cost of obtaining a mortgage continue to support housing demand. However, lack of supply across many states is weighing on sales and driving up prices, making homes less affordable especially for first-time buyers.

First-time home buyers accounted for 30 percent of sales. Purchases for investment purposes made up 18 percent of sales, while distressed properties were ten percent of sales. Respondents from New York, a state which follows a judicial foreclosure process that typically takes longer than a non-judicial process, reported an increase in distressed properties in the market. Cash sales accounted for 25 percent of sales. Nationally, properties typically were on the market 59 days and took 40 days to close the contract. There are reports that TRID has led to longer rate lock and escrow periods, but there are also reports that TRID has been “fairly easy to deal with” and that the new rules “are not a major problem” largely because the industry prepared for the changes in the time between announcement and implementation.[1]

Very low supply, steep price increases, and lender processing delays were reported as the key issues affecting sales, especially to first-time homebuyers. Appraisal backlogs and “below-market” and “inconsistent” appraisals were also reported to be causing transaction delays and cancellations.The collapse in oil prices is also a concern in oil-producing states such as Texas, Wyoming, Montana, and Oklahoma. Still, with the spring and summer months coming, respondents were generally confident about the outlook for the next six months across all property types. Respondents typically expected prices to increase 3.6 percent in the next 12 months.

[1] The TILA‒RESPA Integrated Disclosure (TRID) regulations came into effect on October 3, 2015. The new guidelines are intended to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage for which they are applying.

REALTORS® Are Generally Optimistic Over the Next Six Months, Based on December 2015-February 2016 Surveys

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members to assess their outlook over the next six months for the single-family homes, townhomes, and condominium markets. NAR compiles the responses into the REALTORS® Confidence Index—Six-Month Outlook across property types.

Local market conditions vary, but with the spring and summer months coming, REALTORS® remained by and large confident about the outlook over the next six months, according to the February 2016 REALTORS® Confidence Index Survey Report.[1] The following maps show the REALTORS® Confidence Index—Six-Month Outlook across property types by state.[2]

Compared to current conditions in the single-family homes market, all states, except for Delaware, Vermont, and West Virginia, were expected to have broadly “strong” to “very strong” markets in the next six months, partly because of the seasonal uptick in spring and summer. In the townhomes market, the outlook varies from “weak” to “very strong” across the states, with “very strong” market outlooks in Colorado and Nebraska. In the condominium market, the outlook is also mixed across the states, with the District of Columbia having the strongest outlook, the only area where the index registered “very strong.” In spite of some comments expressing concern about the low oil prices, the respondents in oil-producing states such as Texas, Colorado, and Montana broadly had “strong” to “very strong” outlook about conditions in the next six months. In Oklahoma, respondents had a “strong” outlook on the single-family homes market, but had “weak” outlooks on the townhomes and condominium markets.

[1] Respondents were asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?”

[2] The market outlook for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. Index values 25 and lower are considered “very weak,” values greater than 25 to 49 are considered “weak,” a value of 50 is considered “moderate,” values greater than 50 to 75 are considered “strong,” and values greater than 76 are considered “very strong.”

February 2016 Existing-Home Sales

  • NAR released a summary of existing-home sales data showing that housing market sales decreased significantly from last month, as February’s existing-home sales slumped to a 5.08 million seasonally adjusted annual rate. February’s existing-home sales pace is the lowest since November of 2015, when sales were hit by implementation of the new TRID mortgage disclosure rules, however sales are up 2.2 percent from a year ago.
  •  The national median existing-home price for all housing types was $210,800 in February, up 4.4 percent from a year ago.
  • Regionally, all regions showed growth in prices from a year ago, except the Northeast which declined 0.8 percent. The West led with the largest gain at 7.0 percent while the South had the smallest gain at 5.0 percent from last February.
  • From January, all regions experienced declines in sales. The Northeast had the biggest decrease of 17.1 percent followed by the Midwest with a decline of 13.8 percent. The South had the smallest decline of 1.8 percent and the West declined 3.4 percent.
  • All regions showed gains in sales from a year ago, except the Midwest where sales were flat. The Northeast had the biggest increase of 5.0 percent while the West had the smallest gain of 0.9 percent. The South leads all regions in percentage of national sales at 43.3 percent while the Northeast has the smallest share at 12.4 percent.
  • February’s inventory figures are up 3.3 percent from last month to 1.88 million homes for sale, but the level remains unhealthy. Inventories are down 1.1 percent from a year ago. It will take 4.4 months to move the current level of inventory at the current sales pace. It takes approximately 59 days for a home to go from listing to a contract in the current housing market compared to 62 days a year ago.
  • Single family sales decreased 7.2 percent while condos also fell 6.6 percent compared to last month. Single family home sales increased 2.0 percent and condo sales are up 3.6 percent from a year ago. Both single family and condos had an increase in price with single family up 4.3 percent and condos up 5.1 percent from February 2015.

Is California an oil-producing state?

This blog post was written by Managing Director of Housing Research, Danielle Hale, and Research Economist, Scholastica (Gay) Cororaton.

California may not be what you think of when you think US oil production, but according to statistics from the Energy Information Administration[1] on monthly crude oil production, California was the number three oil-producing state in terms of barrels of oil produced in 2014 and 2015, as seen in the first table and map below (Table 1/Map 1).

So why hasn’t the collapse of the price of oil wreaked more havoc on the California economy? It’s important to consider the contribution of oil in the context of other economic activity. If we compare the value of oil production[2] against the total value of economic production in a state, otherwise known as GDP by State[3], we can get a sense of oil’s importance to the state economy, and we can understand why Californians are not as concerned as Alaskans about the price of oil, even though California produced 22 to 25 million more barrels of oil than Alaska did in 2014 and 2015.

Looking at the second table and map below (Table 2/Map 2), we can see that as a share of economic activity, the number one oil state is North Dakota. Even though oil prices have dropped, oil production was still the equivalent of more than half of total estimated economic activity in the state in 2015[4]. Alaska follows next with an estimated oil share of economic activity at 17.5 percent in 2015. Wyoming, New Mexico, Texas, Oklahoma, and Montana round out the top 7, each expected to have oil production exceed 3 percent of 2015 state economic activity. Kansas, Colorado, Utah, Louisiana, and Mississippi are the next five states, each with oil production estimated to exceed 1 percent of state economic activity in 2015. In contrast, California, the number three producer by barrels, did not see the contribution of oil production exceed 1 percent in either year reviewed.

What industry is considered large? The mining industry across the US contributed 2.6 percent to GDP in 2014[5]. Compare that with the construction industry (3.8 percent) and the housing industry (9.6 percent) in 2014 and that gives some perspective. The collapse in the price of oil has certainly already had effects on the US production industry, and until oil prices recover, areas in which the production of oil plays a prominent role in the economy are likely to experience a headwind to growth. In other parts of the country, however, lower oil prices continue to be a welcome relief for consumers, largely offsetting the negative effects.


[2] Using total annual barrels produced and an average annual oil price

[3] GDP data by State is from the Bureau of Economic Analysis (BEA) for 2014 and estimated by National Association of REALTORS® (NAR) for 2015 based on BEA and EIA data

[4] Economic activity for 2015 was estimated from 2014 figures using information about oil production changes and the overall change in US economic activity for 2015.

[5] This includes value-added from oil and gas extraction, mining except oil and gas, and support activities for mining per the BEA Valued Added by Industry data; NAR calculations.

March Marks Modest TRID Progress

Lenders appear to have stabilized the TRID impact and edged toward improvement, but substantive delays linger. With a busy spring market looming on the horizon, their efforts may pay dividends when higher volumes come.

The average time-to-close as measured in days fell from 43.3 in January to 39.9 in February. However, this decline reflects seasonal variation. Relative to the same time in February of 2015, the time-to-close was 5.1 days higher reflecting TRID-related delays. The February year-over-year increase under TRID was a decline from the 5.2 additional days in January and the 5.7 day peak registered in December.

There was a shift in the distribution of closing from January to February that was in-line with typical seasonal variation. Comparing February of 2016 to the same period last year, which accounts for seasonal variation, there was a small improvement. The share of settlements that took more than 45 days rose from 36.7 percent in February of 2015 to 45.1 percent in February of 2016, an increase of 8.4 percentage points compared to a year-over year difference of 8.8 percentage points last month. At the other end of the spectrum, the share of settlements that took less than 30 days fell by 8.6 percentage points to 23.7 percent in February compared to a year-over-year decline of 8.3 percentage points in January. Thus, a small share of under 30-day settlements look longer while a slightly larger share of the over 45 day settlements were shorter and the middle portion of the distribution absorbed both, rising 0.1% on a year-over-year basis, an improvement from the 0.6 percent decline last month.

This month’s reading was a mixed bag with modest improvement at the long-end of the settlement distribution and some erosion at the short end. As a result, the average time-to-settle improved modestly. Still this modest gain is progress and the abnormal delays are limited to about 8.5 percent of the market. Lenders will be pressed as volumes rise through the spring and summer months. REALTORS® should seek out lenders who are collaborative and who have successfully navigated TRID without delays to assure smooth settlements in 2016.

January 2016 Housing Affordability Index

At the national level, housing affordability is down from a year ago as rates are slightly higher and brisk home price growth continues to outpace median family incomes.

Housing affordability declined from a year ago in January pushing the index from 182.8 to 171.0. The median sales price for a single family home sold in January in the US was $215,000, up 8.3 percent from a year ago.

  • Nationally, mortgage rates were up 8 basis points from one year ago (one percentage point equals 100 basis points) while incomes rose approximately 2.3 percent. The increase in mortgage rates from one year ago costs the median home buyer $8 per month on principal and interest payments at the current home price while rising home prices require an additional $63 per month for a total increase of $71 in monthly principal and interest.
  • Income growth means the median family earns $126 more per month than January 2015 and while this is more than the increase in housing costs each month, it means that 56 percent of the additional income would need to be devoted to housing, whereas typically a homeowner spends 25 to 30 percent of income on housing.
  • Regionally, three of the four regions saw declines in affordability from a year ago. The Northeast had the only increase of 2.5 percent. The Midwest and South shared the biggest decline in the affordability index of 7.7 percent followed by the West with the smallest at 4.9 percent.
  • The Midwest had the biggest increase in price at 9.0 percent while the Northeast experienced a slight decline in prices at -0.1 percent. The South and the West had sizeable gains in prices of 8.5 percent and 7.6 percent increase in single family home prices, respectively.
  • By region, affordability is up in all regions from last month. The South (5.6 percent) and West (5.4 percent) had the biggest increase while the affordability increased the least in the Midwest (4.5 percent) and Northeast (4.6 percent).
  • Despite month to month changes, the most affordable region is the Midwest where the index is 219.6. The least affordable region remains the West where the index is 124.9.  For comparison, the index is 177.8 in the South, 172.7 in the Northeast.
  • Currently mortgage applications are up and rates this week have slightly increased from the lower path they were on through the end of February. Vacancy rates remain low and rents are still rising so those who do not own may feel a pinch from price increases. Increases in building permits, available workers, and new construction are needed to help offset inventory shortages that have had an impact on home prices. Despite lower figures in pending sales reported last month, continued demand should sustain sales roughly at the current pace and will provide some stability for the economy.
  • 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 (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.


Latest Consumer Price Inflation (February 2016)

  • The overall consumer inflation was virtually unchanged in February but some components are picking up steam thereby raising the prospect of a higher inflation and higher interest rates next year.
  • Specifically, the overall consumer price index fell by 0.2 percent over the month, thanks to even lower gasoline prices than before. From one year ago, consumer prices were higher by only 1.0 percent.
  • What is strongly rising relates to housing costs. Rents are higher by 3.7 percent from one year ago. Home prices are rising even at a faster rate, but government statisticians do not include home prices into the inflation calculation. Rather they use something called “homeowners’ equivalent rent”, which is what the homeowner would pay to rent out their home. This measure is also rising solidly at 3.2 percent. Given that the housing costs carry the biggest weight in the calculation of the overall inflation, it is just inevitable for the broad inflation rate to go higher, especially once gasoline prices stop falling. Higher inflation will then trigger mortgage rates to move higher.
  • The cost-of-living-adjustment, say on social security checks, was zero in 2015, to reflect no price increase in 2014. But with the inflation expected to rise by 2 percent by the end of this year and possibly by 3 percent in 2017, the cost-of-living-adjustment will similarly be readjusted in the upcoming years.
  • As an aside, one sector has experienced turbo-charged price growth over the past 30 years. Which? Ask the parents with college kids.

How Real Estate Agents Acquire New Business

This seems to be the question everyone wants to know if you are a real estate agent. Me? I found mine by referral so there was already a level of trust established. In fact, most buyers find their agents through a referral  or work with an agent they used in the past 61 percent of the time—41 percent referred from a friend, family, neighbor, or relative, five percent referred by another real estate agent, three percent referred through an employer, and 12 percent use the same agent they worked with in the past, according to The National Association of REALTORS®’s 2015 Profile of Home Buyers and Sellers report, one of NAR’s most widely read and cited surveys regarding the home buying process, types of home purchased and sold, and the role buyers maintain with the real estate agents. Seventy-three percent of sellers also used referrals from someone they knew or an agent previously they previously worked with. Overwhelmingly, 88 percent of buyers and 89 percent of sellers worked with an agent to close the home purchase or sale.

With the increase in the use of digital technology complementing the home search process—44 percent of buyers first looked online and 33 contacted a real estate agent—we can speculate that using the internet and working with an agent go hand in hand in today’s home search process.

So it begs the question—Are the efforts real estate agents put into maintaining digital platforms leading to new customers? For all buyers, 12 percent reported finding their agents online—10 percent from an internet website and two percent search engine or with a mobile application. Referrals and repeat business are no doubt the number one source of new business for real estate agents, but digital marketing is indeed how agents capture an additional fifth of their entire business.

What is interesting to note is that when we segmented the data by age in NAR’s 2016 Home Buyer and Seller Generational Trends Report, we found that buyers ages 61 to 69 found their agents online 17 percent of the time, as this group moves longer distances. As age goes up, the use of a previous agent increases and referrals go down. Older buyers are more likely to be repeat buyers and work with agents they used in the past. Younger buyers 35 years and under, relied heavily on referrals more than any other generation as many were first-time buyers. Nevertheless, 12 percent of Millennials still found their agents through online sources. By demographic composition, single males found their agents 14 percent of the time online, as did 13 percent of both married and unmarried couples.

NAR also surveys its members on the topic in two different reports. Real estate agents, as individual business professionals, were asked in the 2015 Member Profile where their business came from. Again, the median was 20 percent from repeat business and 20 percent from referrals. Sixty-four percent said they received no business from open houses. Agents reported that they received a median of three business inquiries and two percent of all business from their website. Thirty-three percent said they received 1-5 inquiries from their website; however, 32 percent said they received zero inquires. They also said that they spend a median of $130 to maintain a website for the year.

NAR also asked its members where clients came from the perspective of a real estate firm representing a group of agents where they pool their resources in the 2015 Profile of Real Estate Firms. The report states that 55 percent of new customer inquiries come from past clients (30 percent) and referrals (25 percent) for real estate firms. Ten to fifteen percent of new inquires come from the firm’s websites and 5-10 percent from social media. Ten percent of the total sales volume at firms also comes from their own websites and five percent from social media.

Most businesses need digital marketing in order to remain competitive and stay in afloat. Real estate agents and firms are no exception. The industry demands that they put money into creating and maintain their websites and devote resources into creating social media content. Social media, if done properly, can be by and large free marketing and a way to keep in contact with past clients. While having a digital footprint is important, referrals and repeat clients remain the main source of creating and maintaining client relationships in the long run for real estate agents.

Household Formation Slowdown Impacts Apartment Demand in 2015.Q4

Economic performance for the fourth quarter of 2015 was upwardly revised this past week by the Bureau of Economic Analysis. Real gross domestic product (GDP) advanced 1.0 percent on an annual basis, up from the initial estimate of 0.7 percent.

Payroll employment rose at the strongest pace in the last stretch of the year, adding 837,000 new jobs. The figure closed the year with a total net gain of 2.7 million employees. Average weekly earnings of private employees rose by 2.4 percent in the fourth quarter of this year, compared to one year earlier.

The unemployment rate declined from 5.6 percent in the first quarter 2015 to 5.0 percent by the close of the year. At the end of December there were 7.9 million unemployed Americans.  The average duration of unemployment declined from 31 weeks in the first quarter to 28 weeks by the end of 2015.

Consumer confidence, as measured by The Conference Board, declined to 96.0 in the fourth quarter of 2015, the lowest reading of the year. Separately, the Consumer sentiment index compiled by the University of Michigan moved up slightly in the last quarter of the year to 91.3, compared with the 90.7 value from the third quarter. The second quarter value was 94.2 while the third quarter posted 90.7.

Consumers’ wobbling confidence translated into lower household formation figures. Looking at historical trends, household formation averaged 1.3 million every year over the 1958-2007 period. Between 2008 and 2013, the average number of new households dropped to 579,000 per year, underscoring the severity of the Great Recession and ensuing slow recovery. In 2014, net household formation jumped to 2.2 million, as employment growth encouraged more young people to strike it on their own. During 2015, household formation advanced at a rather moderate pace of 191,000 new households.

Demand for multifamily properties continued on an upward path. Renter occupied housing units totaled 42.6 million units in the fourth quarter of 2015, a 300,000 unit advance from the fourth quarter of 2014, based on U.S. Census Bureau data. National vacancy rates averaged 7.0 percent for rental housing during the fourth quarter, unchanged from the same period in 2014. Median rents for rental units averaged $850 in the fourth quarter of this year.

Commercial fundamentals in smaller markets continued improving during the fourth quarter of 2015. Leasing volume during the quarter rose 3.0 percent compared with the third quarter of 2015. Leasing rates advanced at a steady pace, rising 2.5 percent in the fourth quarter, compared with the 2.5 percent advance in the previous quarter. As rising new supply is a concern in major markets, apartments in SCRE markets experienced availability decreases, with the national average declining 63 basis points, to 6.2 percent in the fourth quarter of 2015.

To access the Commercial Real Estate Outlook: 2016.Q1 report visit