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March 2014 RCI
March 2014 RCI
NATIONAL ASSOCIATION OF REALTORS Research Department Lawrence Yun, Senior Vice President and Chief Economist
Based on Data Gathered April 1 7, 2014
Table of Contents
SUMMARY .................................................................................................................................................. 1 I. Market Conditions .................................................................................................................................... 2 REALTORS Confidence Buoyed Up in March By Seasonal Uptick .................................................. 2 Buyer Demand Continued to Outpace Supply in March ......................................................................... 3 Median Days on the Market At 55 Days in March .................................................................................. 4 Home Prices Rising Moderately .............................................................................................................. 4 REALTORS Expect Prices to Increase Modestly in the Next 12 Months ............................................ 6 II. Buyer and Seller Characteristics .............................................................................................................. 7 Cash Sales: 33 Percent of Sales ............................................................................................................... 7 Down Payment: 60 Percent of First-time Buyers Put Down 6 % or Less .............................................. 8 Sales to First Time Buyers: 30 Percent of Sales ...................................................................................... 8 Investors, Second-home Buyers, and Relocation Buyers ......................................................................... 9 International Transactions: About 2.6 Percent of Residential Market .................................................... 10 Distressed Sales: 14 Percent of Sales...................................................................................................... 11 Rising Rents for Residential Properties .................................................................................................. 12 III. Current Issues........................................................................................................................................ 14 Comments Supplied by REALTORS Responding to the March 2014 Survey .................................... 14 Tight Credit Conditions and Slow Lending Process ............................................................................... 15 Appraisals: Still a Concern But Process Is Better Compared to a Year Ago .......................................... 16 Reasons For Not Closing A Sale ............................................................................................................ 17 IV. Commentaries by NAR Research ......................................................................................................... 18 Job Additions, State by State .................................................................................................................. 18 Latest Mortgage Applications Data ........................................................................................................ 20 Highlights: 2014 Investment and Vacation Homes Survey ................................................................... 21
SUMMARY
Jed Smith and Gay Cororaton The REALTORS Confidence Index (RCI) Report provides monthly information about market conditions and expectations, buyer/seller traffic, price trends, buyer profiles, and issues affecting real estate based on data collected in a monthly survey of REALTORS. The current report is based on the responses of 3,833 REALTORS about their transactions in March 20141. The survey was conducted during April 1 -7, 2014. Questions about the characteristics of the buyer and the sale are based on the REALTORS last transaction for the month. All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. The March data indicate a more upbeat confidence concerning market conditions compared to February. The improvement may reflect the seasonal uptick in demand with the onset of spring2. Confidence about the next six months also showed a slight improvement in March compared to February. The major problems reported by REALTORS were low inventories of available homes and difficulty in obtaining mortgage financing. An exceptionally large number of respondents across several states reported very low inventory levels relative to demand. Another major problem is credit access. REALTORS reported that even good credit clients were having trouble qualifying for mortgages. There were also reports that the Qualifying Mortgage (QM) regulations and the increase in FHA mortgage insurance premiums have had an adverse effect on buyers. Appraisal valuation is still an issue although the survey data indicates fewer transactions facing appraisal problems compared to previous months. The cost of obtaining flood insurance and the sluggish job growth continued to be reported as negatively impacting the market.
This is the total number of respondents for the entire survey. The number of responses to a specific question can be less because the question is not applicable to the respondent or because of non-response. The survey was sent to a random sample of about 50,000 REALTORS. 2 The responses and data are not adjusted for seasonality effects.
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I. Market Conditions
REALTORS Confidence Buoyed Up in March By Seasonal Uptick Confidence about current market conditions improved in March 2014 compared to February 2014, reflecting in part the seasonal uptick in spring. The REALTORS Confidence Index - Current Conditions for single family sales rose to 71 (60 in February) . The indexes for townhouses/duplexes also rose to 49, while the index for condominiums improved to 42 although still below 50 which indicates moderate conditions . 3 Confidence about the outlook for the next six months slightly improved compared to February but is still lower compared to the same period a year ago. REALTORS remained concerned about the low levels of inventory, difficult credit conditions, and uncertainty about flood insurance regulation. The six-month Outlook Index for single family homes was at 69 (68 in February), the index for townhouses at 51 (50 in January) , and the index for condominiums at 47 (46 in February). REALTORS Confidence Index - Current Conditions
80 70 60 50 40 30 20 10 0 SF Townhouse Condo 71 49 42
An index of 50 delineates moderate conditions and indicates a balance of respondents having weak(index=0) and strong (index=100) expectations. The index is calculated as a weighted average using the share of respondents for each index as weights. The index is not adjusted for seasonality effects.
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200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 201401
With the onset of spring , the Buyer Traffic Index notched up to 63 (59 in February) although demand was softer compared to a year ago as buyers faced higher prices and the continued difficulty in getting a mortgage. Still, demand continued to exceed supply with the Seller Traffic Index at 42 (43 in January). In many states, REALTORS expressed frustration about the low inventory levels. An index of 50 indicates moderate traffic conditions4. REALTORS Indexes of Buyer and Seller Traffic
80 70 60 50 40 30 20 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 201401 Buyer Traffic Index Seller Traffic Index 42 63
The index is constructed from a survey of REALTORS reporting on whether they perceive traffic as weak, moderate, or strong.
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200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 201401
Median Days on the Market At 55 Days in March With little inventory relative to demand, properties sold faster for the fourth straight month at 55 days (62 days in February)5. Short sales were on the market for the longest, at 112 days (98 February), and foreclosed properties were on market at 55 days (60 days in February). Non-distressed properties were on the market at 53 days (61 days in February). Conditions varied across areas. Approximately 37 percent of respondents reported that properties were on the market for less than a month when sold (34 percent in February) . Median Days on Market by Type of Sale
180 160 140 120 100 80 60 40 20 0
Mar 2014: All: 55; Foreclosed: 55; Shortsale: 112 ; Not distressed: 53
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Foreclosed
Short Sales
Not distressed
Home Prices Rising Moderately REALTORS continued to report that prices are generally still on an uptrend. About 68 percent of respondents reported that the price of their average home transaction is higher today compared to a year ago (65 percent in February). About 23 percent reported constant prices, and 9 percent reported lower prices.
A median of say 60 days means that half of the properties were on the market for less than 60 days and another half of properties were on the market for more than 60 days.
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201403
23%
9% 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 201306 201307 201308 201309 201310 201311 201312 201401 201402 201403
Approximately 14 percent of reported sales were of properties that sold at a net premium compared to the original listing price (same as in February). In mid-2013, about 20 percent of REALTOR respondents reported selling properties at a premium. Percent of Resported Sales Where Property Sold at a Net Premium Compared to the Original Listing Price
25% 20% 15% 10% 5% 0% 14%
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REALTORS Expect Prices to Increase Modestly in the Next 12 Months REALTORS generally expect prices to increase over the next 12 months with a median expected price increase of 4.2 percent6. Low inventory compared to demand is expected to continue to buttress prices , as well as the declining share of distressed sales in the market. Relatively strong economic growth in some states is also a factor propping up housing demand and prices. The states with the most upbeat expected price increases of 5 to 7 percent are California, Oregon, Nevada, Georgia, Florida, and Hawaii (red). In states with booming economies like Washington, North Dakota, Texas, Michigan, the DC-Metro Area , and NY the expected price increase is about 3 to 5 percent range (orange). In the rest of the states, the expected price growth is less than 3 percent (blue).
State Median Price Expectation for Next 12 Months (in%) Based on REALTORS Confidence Index Survey, Jan 2014 Mar 2014 Surveys
The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state. The graph shows the range of these state median expected price change.
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The RCI Survey asks about the most recent sale for the month.
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Down Payment: 60 Percent of First-time Buyers Put Down 6 % or Less Fewer first time home buyers are putting low downpayments. About 60 percent of first time home buyers put down 6 percent or less compared to about 74 percent in 2009. Under tight underwriting standards, REALTORS have reported that buyers who pay cash or put down large downpayments generally win against those offering lower downpayments. REALTORS also reported that in some cases financing is approved for a lower amount. For buyers with sufficient financial resources, a higher downpayment also means saving on mortgage insurance premium payments. Percent of Reported First-Time Buyers Who Had Down Payment of 6 Percent or Less*
80% 75% 70% 65% 60% 55% 50% 200906 200909 201002 201005 201008 201011 201102 201105 201108 201111 201202 201205 201208 201211 201302 201305 201308 201311 201402 60%
*Based on NAR_RCI Survey of Realtors who reported a sale to a first-time buyer. The survey asks about the last sale for the onth. The shares are based on a rolling 3-mos data to smooth the series .
Sales to First Time Buyers: 30 Percent of Sales Approximately 30 percent of respondents reported a sale to a first time home buyer8 (28 percent in February). The tighter underwriting standards are especially challenging for first-time buyers who generally need mortgage financing with low downpayment terms, who may be paying off student debt, and who have credit scores that are not top-notch . REALTORS have also reported that the increase in FHA mortgage insurance costs is discouraging buyers or making loans unaffordable9.
First time buyers account for about 40 percent of all homebuyers based on data from NARs Profile of Home Buyers and Sellers. NARs survey of buyers and sellers captures only buyers buying for residential purposes. 9 Borrowers can shift to conventional financing, but are in general likely to come up against more stringent underwriting standards.
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About 17 percent of respondents reported a sale to an investor, 11 percent reported a sale to a second-home buyer, and 13 percent reported a sale to a relocation buyer. The share of sales to investors has remained fairly stable, an indicator of continued investor interest for rental housing. Regarding the demand for properties for relocation purposes, there has been feedback from REALTORS that many baby boomers would like to downsize, but there are not enough buyers for larger homes. Due to the tight inventory, sellers who want to move up or down are having trouble finding a suitable property. Sales to Investors as Percent of Market
30% 25% 20% 15% 10% 5% 0% 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 201401 17%
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201212
201310
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201312
International Transactions: About 2.6 Percent of Residential Market Approximately 2.6 percent of REALTOR respondents reporting on their last sale was of a purchase by a foreigner not residing in the U.S. International buyers typically pay cash. In NARs 2013 Profile of International Homebuying Activity, the major buyers were reported as being from Canada, China, Mexico, India, and the United Kingdom.
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201402
201009 201011 201101 201103 201105 201107 201109 201111 201201 201203 201205 201207 201209 201211 201301 201303 201305 201307 201309 201311 201401 201403
With rising home values, the market is seeing fewer distressed sales. In March, about 10 percent of reported sales were foreclosed properties, and about 4 percent were short sales.
Distressed Sales, As Percent of Sales Reported by REALTORS
60% 50% 40% 30% 20% 10% 0% 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 201401 Foreclosed Short Sale
Foreclosed property sold at a 16 percent average discount to market , while short sales sold at a 11 percent average discount.10 The discount varied by house condition. For the past 12 months, properties in above average condition have been discounted by an average of 10-
10
The estimation of the level of discount is based on an estimate of what the property would have sold for if it had not been distressed (possibly in better condition, absent any taint of being distressed).
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12 percent, while properties in below average condition were discounted at an average of 1519 percent.
% %
30 25 20 15 10 5 12 % 18 %
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Foreclosed
Shortsale
Mean Percent Price Discount by Property Condition of Reported Distressed Sales (in percent) Unweighted Average for Apr 2013 to Mar 2014
20 15 10 5 0 Above average Average Below average 12 10 12 10 19 15
Foreclosed
Rising Rents for Residential Properties
Short sale
Demand for rentals remained strong. Among those REALTORS involved in a rental, 48 percent (46 percent in February) reported higher residential rents compared to 12 months ago. About 20 percent of REALTORS reported conducting an apartment rental, and about 4 percent reported a commercial rental transaction. While rising rents make home ownership more attractive, it slows the ability of current renters to save for a home purchase.
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201402
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10% 0% 15% 20% 25% 30% 35% 10% 20% 30% 40% 50% 60% 70% 0% 5% 201012 201102 201104 201104 201102 201012
4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
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201108 201110 201112 201202 201204 201206 201208 201210 201212 201302 201304 201306 201308 201310 201312 201402 22% 201110 201112 201202 201204 201206 201208 201210 201212 201302 201304 201306 201308 201310 201312 201402
201106
201108
48%
201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 201306 201307 201308 201309 201310 201311 201312 201401 201402 201403 4%
are reported to be frequently out of data and inaccurate. REALTORS mentioned the needs in many situations to address buyer and seller expectations, unrealistic due to selective and inaccurate news reports. A number of regulatory problems were reported as impacting the real estate markets. FHA and VA condo financingseen as a problem in a number of cases. Flood insuranceMentioned by a number of respondents even though premium issues have been to some degree ameliorated. The reclassifications of flood plains has been a problem and in some cases is seen as inaccurate/inappropriate. Dodd Frank debt ratiosreported as unrealistic for a number of clients, preventing sales from going through for credit-worthy clients. Tight Credit Conditions and Slow Lending Process REALTORS continued to express concern over unreasonably tight credit conditions. Mortgage lenders were reported as continuing to display an unnecessarily high level of risk aversion. In the 2001-04 time frame approximately, 40 percent of residential loans acquired by the Government Enterprises (Fannie Mae and Freddie Mac) went to applicants with credit scores above 740. Slightly more than half of survey respondents who provided credit score information reported FICO credit scores of 740 and above. Distribution of Reported FICO Scores-- RCI Surveys
60% 50% 40% 30% 20% 10% 0% lt 620 620 - 659 RCI-Mar '13 660-699 RCI_Dec'13 700-739 RCI_Mar '14 740+ 1% 11% 16% 23% 48%
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Appraisals: Still a Concern But Process Is Better Compared to a Year Ago Appraisals remain a major issue although the problem appears to have lessened compared to a year ago. Approximately 24 percent of respondents reported encountering appraisal problems in March 2014 compared to about 40 percent in 2010. Of those who had problems, 9 percent reported a price renegotiation, 6 percent had a contract delayed, 9 percent a contract cancelled.
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9%
Contract Delayed
6%
Contract Cancelled 0%
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201403
Lack of access to credit was often cited as a deterrent to home buying. About 14 percent of REALTORS who did not close a sale in February reported having clients who could not obtain financing. About 6 percent reported that the buyer gave up while 8 percent reported that the buyer continued to seek new/other financing. Lack of agreement on price accounted for 11 percent. Another 10 percent reported that the buyer lost the competition. Appraisal issues were reported as accounting for 4 percent of failures to close a sale.
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Vacation home sales rose strongly in 2013, while investment purchases fell below the elevated levels seen in the previous two years. Vacation-home sales jumped 29.7 percent to an estimated 717,000 last year from 553,000 in 2012. Investment-home sales fell 8.5 percent to an estimated 1.10 million in 2013 from 1.21 million in 2012. Owner-occupied purchases rose 13.1 percent to 3.70 million last year from 3.27 million in 2012. The sales estimates are based on responses from households and exclude institutional investment activity. Vacation-home sales accounted for 13 percent of all transactions last year, their highest market share since 2006, while the portion of investment sales fell to 20 percent in 2013 from 24 percent in 2012. The median investment-home price was $130,000 in 2013, up 13.0 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012. All-cash purchases remained fairly common in the investment- and vacation-home market: 46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home buyers.
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