REALTORS CONFIDENCE INDEX

Report on the December 2014 Survey

NATIONAL ASSOCIATION OF REALTORS

Research Department
Lawrence Yun, Senior Vice President and Chief Economist

The REALTORS Confidence Index (RCI) Report provides monthly information about
real estate 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 December 2014 report is based on the responses of 4,092 REALTORS about local
market conditions in December. Of these, 2,327 respondents closed a sale and provided
information about the characteristics of their last transaction for December, which, on a
combined basis, are viewed to be representative of the sales for the month1. Responses were
received from January 5-13, 2015. All real estate is local: conditions in specific markets may
vary from the overall national trends presented in this report.
The Report also contains commentaries by the Research Department on recent economic
data releases and policies affecting housing.

Lawrence Yun, Senior Vice President and Chief Economist

Jed Smith, Managing Director, Quantitative Research
Gay Cororaton, Research Economist
Meredith Dunn, Research Communications Manager

The survey was sent to 50,000 REALTORS who were selected through simple random sampling. To
increase the response rate, the survey is also sent to respondents in the previous three surveys and who provided
their email addresses. The number of responses to a specific question varies because the question is not applicable
to the respondent or because of non-response. To encourage survey participation, eight REALTORS are selected
through simple random sampling drawing to receive a gift card.

Table of Contents
SUMMARY............................................................................................................................................... 1
I. Market Conditions ................................................................................................................................. 2
Market Activity Improved in Most Markets in December 2014............................................................... 2
Confidence about the 6-Month Outlook Improved ................................................................................... 2
REALTORS Buyer and Seller Traffic Indexes Increase in December 2014 ......................................... 6
Home Price Growth Contined to Slow in December 2014 ....................................................................... 7
REALTORS Expect Modest Price Growth in the Next 12 Months...................................................... 8
Properties Were Typically on the Market at 66 Days in December 2014................................................. 9
II. Buyer and Seller Characteristics ......................................................................................................... 11
Sales to First Time Buyers: 29 Percent of Sales .................................................................................... 11
Sales for Investment Purposes: 17 Percent of Sales ............................................................................... 12
Second-home Buyers and Relocation Sales ............................................................................................ 13
Distressed Sales: 11 Percent of Sales ...................................................................................................... 15
Cash Sales: 26 Percent of Sales ............................................................................................................ 17
First time Home Buyers Who Put Down Low DownPayment: 66 Percent ......................................... 18
International Transactions: 2 Percent of Residential Market ................................................................ 19
III. Current Issues .................................................................................................................................... 20
Credit Conditions Slowly Easing ........................................................................................................... 20
IV. Commentaries by NAR Research ...................................................................................................... 21
2014 Year-end Employment Summary................................................................................................... 21
FHA Lowers Pricing to Reflect Less Risk ............................................................................................. 23
November 2014 Housing Affordability Index ......................................................................................... 26
EHS in 2014 By the Numbers -Popular Contract Dates ......................................................................... 27

SUMMARY
The information provided by REALTORS about local market conditions in December
2014 indicated a broad uptick in confidence and market activity compared to that in November
2014. The REALTOR Confidence Index Current Conditions, the RCI-Buyer Traffic Index,
and the RCI-Seller Traffic Index all increased, reflecting higher buying and selling activity across
most local markets in December.
Lower interest rates appeared to have steered investors back into the market. The share
of investors accounted for a slightly higher share of the market, at 17 percent. The share of firsttime homebuyers slightly dipped to 29 percent.
REALTORS were broadly more optimistic about the outlook for the next six months,
with the REALTOR Confidence Index-Six-month Outlook for single family homes up at 67. An
improving jobs market, the decline in the 30-year fixed mortgage rate to slightly less than 4
percent since October 2014, and recent measures by the Federal Housing Authority to lower the
monthly mortgage insurance premium from 1.35 percent to 0.85 percent and the GSEs (Fannie
Mae and Freddie Mac) to buy mortgages with 97% loan-to-value ratio may be underpinning this
increased optimism. Optimism also picks up in anticipation of the seasonal uptick in the spring
season.
Falling oil prices means more money into consumers pockets, which along with
reasonable interest rates, shouldbe positive for the housing outlook in 2015. However,
REALTORS in states with greater dependence on the oil and gas industry cautioned about the
effect of the continued drop in oil prices on employment and its impact on housing.
December 2014 REALTORS Confidence Index Survey Highlights
Dec 2014
RCI Current Conditions: Single Family Sales /1
51
RCI- 6 Month Outlook: Single Family Sales /1
67
RCI Buyer Traffic Index /1
47
RCI-Seller Traffic Index /1
38
First-time Buyers, as Percent of Sales (%) /2
29
Sales to Investors, as Percent of Sales (%)
17
Cash Sales, as Percent of Sales (%)
26
Distressed Sales, as Percent of Sales (%)
11
Median Days on Market
66
Median Expected price growth in next 12 months (%)
3.2

Nov 2014
49
60
43
35
31
15
25
9
65
3.0

Dec 2013
59
66
57
43
27
21
32
15
72
3.7

/1
An index of 50 indicates a balance of respondents having weak(index=0) and strong (index=100)
expectations. An index above 50 means there are more respondents with strong than weak expectations. The
index is not adjusted for seasonality effects.
/2
NARs 2014 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers,
33 percent were first-time homebuyers. The HBS surveys primary residence home buyers, while the monthly RCI
Survey surveys REALTORS and captures purchases for investment purposes and vacation/second homes.

Page | 1

I. Market Conditions
Market Activity Improved in Most Markets in December 2014
Local markets broadly picked up across all property types in December 2014 compared
to November 2014, although activity was more modest compared to a year ago. The indexes for
the REALTORS Confidence Index-Current Conditions across property types all rose in
December 2014 compared to November 2014. The index for single-family homes was 51 (49 in
November 2014; 59 in December 2013). The indexes for townhomes and condominiums were
below 50. REALTORS continued to report that financing for condominiums is difficult to
obtain because of FHA financing eligibility regulations. An index above 50 indicates that the
number of respondents who viewed their markets as strong outnumbered those who viewed
them as weak.2
Rising employment, although accompanied by weak wage growth, and the decline in the
30-year fixed mortgage rate to slightly less than 4 percent since October 2014 likely accounted
for the uptick in market activity.

REALTORS Confidence Index - Current Conditions-as of Dec 2014 RCI Survey

(50="Moderate" Conditions)
80

SF

Townhouse

Condo
51

60

37

40

33

20

200801
200805
200809
200901
200905
200909
201001
201005
201009
201101
201105
201109
201201
201205
201209
201301
201305
201309
201401
201405
201409

Confidence about the 6-Month Outlook Improved

Confidence about the outlook for the next six months improved significantly in
December. In the single family market, the REALTORS Confidence Index - Six-month
2

An index of 50 delineates moderate conditions and indicates a balance of respondents having

weak(index=0) and strong (index=100) expectations or all respondents having moderate (=50) 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.

Page | 2

Outlook increased to 67 (60 in November 2014; 66 in December 2013). An improving jobs

market, the decline in the 30-year mortgage rate to about 4 percent, and recent measures by the
Federal Housing Authority to lower the monthly mortgage insurance premium from 1.35 percent
to 0.85 percent and the GSEs (Fannie Mae and Freddie Mac) to buy mortgages with 97% loanto-value ratio may be underpinning this increased optimism. Optimism also picks up in
anticipation of the seasonal uptick in the spring season.
However, REALTORS in the states that are heavily reliant on oil and gas such as
Texas and North Dakota have cautioned that the slump in oil prices may lead to employment
cutbacks, leading to a slowdown in the housing sector.
Expectations about the market for townhomes and condominiums also turned more
positive although broadly weak (below 50). REALTORS continued to report about the
difficulty of obtaining FHA financing for condominiums, typically the entry point for
homeownership.
REALTORS Confidence Index - Six Month Outlook-as of Dec 2014 RCI Survey
(50="Moderate" Outlook)
80
60

SF

Townhouse

Condo
67
49

40
45
20

200801
200805
200809
200901
200905
200909
201001
201005
201009
201101
201105
201109
201201
201205
201209
201301
201305
201309
201401
201405
201409

The following graphs show the REALTOR Confidence Index-Six-month-Outlook by

state as well as employment growth, a key driver of housing demand. Across many states, the
index was greater than 50, which means that the number of respondents who have a strong
outlook outnumbered those with weak outlook. The outlook for single family homes was
strongest in North Dakota, Colorado, and Texas (red). In the townhomes and condominium
markets, the outlook was strongest in the District of Columbia, North Dakota, Colorado, Texas,
California ,Florida, Hawaii, and Alaska (red). These states have experienced strong job growth
due to the oil/gas and information technology sectors.
3

The market outlook for each state is based on data for the last 3 months to increase the observations for
each state. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30
observations.

Page | 3

REALTORS(c) Confidence Index: Outlook in Next Six Months for Single-Family Homes
Based on Oct 2014-Dec 2014 RCI Surveys

REALTORS(c) Confidence Index: Outlook in Next Six Months for Townhouses

Based on Oct 2014-Dec 2014 RCI Surveys

Page | 4

REALTORS(c) Confidence Index: Outlook in Next Six Months for Condominiums

Based on Oct 2014-Dec 2014 RCI Surveys

Non-farm Employment
Year-on-Year Growth in Dec 2014

Page | 5

REALTORS Buyer and Seller Traffic Indexes Increased in December 2014

Buyer and seller traffic broadly increased in many local markets in December 2014
compared to November, although weaker compared to a year ago. Although supply has been
improving, demand continued to outstrip supply . The Buyer Traffic Index registered at 47 (43 in
November 2014; 57 in December 2013). The Seller Traffic Index improved to 38, although
supply is still broadly weak ( 35 in November 2014; 43 in December). An index below 50
indicates that more REALTOR respondents viewed traffic conditions as weak compared to
those who viewed conditions as strong.
REALTORS Buyer and Seller Traffic Indexes-as Dec 2014 RCI Survey
(50="Moderate" Conditions)
Buyer Traffic Index

80

Seller Traffic Index

70
60

47

50
40
30

38
201409

201405

201401

201309

201305

201301

201209

201205

201201

201109

201105

201101

201009

201005

201001

200909

200905

200901

200809

200805

200801

20

NAR also tracks data on the number of properties shown by REALTORS using
Sentrilock, LLC data4. The index based on Sentrilock data foot traffic also shows an increase in
the December 2014 Foot Traffic Index to 62, the second highest level of the year. The
December improvement in foot traffic was broad based, with particular strength in the Midwest
and central Northeastern markets. Showings need not necessarily translate to sales, but foot
traffic has a strong correlation with future contracts and home sales.

Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a
REALTOR. Lockboxes made by SentriLock, LLC. are used in roughly a third of home showings across the
nation. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek
ahead at sales trends two to three months into the future. For the month of December, the diffusion index for foot
traffic surged 20 points to 62.0, the highest reading of this year, but for September.
The index surged above the 50 mark which indicates that more than half of the roughly 200 markets in this panel
had stronger foot traffic in December of 2014 than the same month a year earlier. This reading does not suggest
how much of a change in traffic there was, just that more than half of the markets tracked experienced more foot
traffic in December of 2014 than 12 months earlier.

Page | 6

Home Price Growth Contined to Slow in December 2014

With home prices now close to their peak levels, home prices continue to increase
modestly. Appproximately 47 percent of REALTOR respondents reported that the price of
their average home transaction was higher in December compared to a year ago (53 percent in
November 2014; 60 percent in December 2013). The median home price of an exisiting home as
of November 2014 was $205,300 ( $207,500 in October 2014; $195,500 in November 2013 ).
A moderation in home price growth is a boon for homebuyers, especially first-time buyers.
REALTORS have reported about the lack of affordable housing in many areas as home
prices rebounded starting in 2012.

Page | 7

Percentage Distribution of REALTOR Respondents

Reporting Price Change from a Year Ago-as of Dec RCI Survey
80%
Higher

Lower

Unchanged

60%

47%

40%

43%

20%
10%
201411

201409

201407

201405

201403

201401

201311

201309

201307

201305

201303

201301

201211

201209

201207

201205

201203

0%

REALTORS Expect Modest Price Growth in the Next 12 Months

REALTORS expected prices to increase modestly in the next 12 months, with the
median at about 3.2 percent. The map shows the median expected price change in the next 12
months by the state of REALTOR respondents in the Oct Dec 2014 surveys5.
States with the most upbeat price expectations (red) include the District of Columbia,
Florida, and Nevada where prices are expected to increase at about 4 to 5 percent. In most of
the West Coast region, South Carolina and Georgia (orange) prices are expected to increase 3-4
percent. REALTORS expect more modest price growth along the Midwest region from
North Dakota to Oklahoma, possibly on account of the concerns about the effect of falling oil
prices.

In generating the median price expectation 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 the D.C. may have less than
30 observations.

Page | 8

Median Expected Price Change of REALTORS in Next 12 Months, By State

Based on Oct 2014-Dec 2014 RCI Surveys

Properties Were Typically on the Market at 66 Days in December 2014

Properties that closed in December were typically on the market at 66 days (65 days in
November 2014; 72 days in December 2013)6. Short sales were on the market for the longest at
98 days (116 days in November 2014 ; 122 days in December 2013) . Foreclosed properties
were on market at 61 days (65 days in November 2014; 67 days in December 2013). Nondistressed properties were on the market at 66 days (63 days in November 2014 ; 70 days in
December 2013).
Approximately 31 percent of properties were on the market for less than a month when
sold (32 percent in November 2014;28 percent in December 2013).

This is the median days on the market. A median of say 30 days means that half of the properties were on
the market for less than 30 days and another half of properties were on the market for more than 30 days.

Page | 9

Median Days on Market of Sales Reported By REALTOR

Respondents--as of Dec 2014 RCI Survey
200

All

All: 66

Foreclosed

Foreclosed: 61

Short Sales

Shortsale: 98

Not distressed

Not distressed: 66

150
100
50

201105
201107
201109
201111
201201
201203
201205
201207
201209
201211
201301
201303
201305
201307
201309
201311
201401
201403
201405
201407
201409
201411

Source: NAR, RCI Survey

Distribution of Time on Market for Sales Reported by

REALTOR Respondents -Dec 2014 RCI Survey
35%

31%

30%
25%
20%
15%
10%
5%

16%

13%

12%
7%

6%

7%
3%

5%

0%
<1 mo 1 to < 2 2 to < 3 3 to < 4 4 to < 5 5 to < 6 6 to < 9 9 to < >=12
mos
mos
mos
mos
mos
mos 12 mos mos
201312
201411
201412

Page | 10

II. Buyer and Seller Characteristics

Sales to First Time Buyers: 29 Percent of Sales
Market activity generally picked up in December. However, to some degree first-time
homebuyers appeared to have stayed at the sidelines, with the share of first-time homebuyers
decreasing to 29 percent of existing home sales in December (31 percent in November 2014; 27
percent in December 2013 ) .7
Access to mortgage financing and the lack of affordable home have been reported to be
key constrains to home ownership of aspiring first-time buyers. Recent policy announcements
are aimed at loosening the credit box for responsible borrowers. The Federal Housing Authority
reduced the annual mortgage insurance premium from 1.35 percent to 0.85 percent . NARs
analysis indicates that the reduction in reduction in the annual mortgage insurance premium
will save homeowners $990 in the initial year, attracting homebuyers which will create about
90,000 to 140,000 home purchases. In November 2014, the GSEs (Fannie Mae and Freddie Mac)
announced that they will accept loans originated with 3 percent downpayment for borrowers
who meet their underwriting guidelines along with other requirements such as participating in a
borrower education program.

60%

First Time Buyers as Percent of Market*-as of Dec 2014 RCI Survey

50%
40%
29%

30%
20%
10%

200810
200901
200904
200907
200910
201001
201004
201007
201010
201101
201104
201107
201110
201201
201204
201207
201210
201301
201304
201307
201310
201401
201404
201407
201410

0%

*Based on most recent sale of the month of REALTOR respondents.

About 26 percent of buyers were 34 years old and under, typically the age-group of firsttime home buyers (31 percent in November 2014; 24 percent in November 2013).

First time buyers accounted for about 33 percent of all homebuyers based on data from NARs 2014 Profile
of Home Buyers and Sellers. This is a survey of primary residence homebuyers and does not capture investor
purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS about
their transactions and captures purchases for investment purposes and second homes for existing homes..

Page | 11

Age Distribution of Buyers for Sales Reported by REALTOR

Respondents-- as of Dec 2014 RCI Survey
Age 34 and under

Age 35-55

56+

26%

23%

26%

25%

24%

23%

25%

24%

23%

52%

49%

53%

46%

51%

47%

48%

47%

46%

50%

26%

25%

24%

28%

24%

29%

29%

28%

31%

26%

201311

201404

201407

201408

201409

201410

201411

201412

60%

22%

201309

80%

201307

100%

40%
20%
0%

Source: NAR, RCI Surveys. This question was not asked in some months.

About 37 percent of buyers were renters, a group that includes first-time homebuyers.

Living Status of Home Buyers at Time of Home Purchase

for Sales Reported by REALTOR Respondents-as of Dec 2014 RCI Survey*
Lives with parents, relatives, or friends
Lives in own home
Rents an apartment or house
100%

9%

9%

9%

9%

9%

55%

54%

54%

53%

54%

36%

38%

37%

38%

37%

201408

201409

201410

201411

201412

80%
60%
40%
20%
0%
* Based on the most recent sale of the month of REALTOR respondents.

Sales for Investment Purposes: 17 Percent of Sales

Purchases for investment purposes appeared to be on the uptrend again. The share of
purchases for investment purposes increased in December 2014 after easing for most of the year.
Approximately 17 percent of REALTORS reported that their last sale was for investment

Page | 12

purposes (15 percent in November 2014; 21 percent in December 2013). Most buyers are in the
ages 35-55 year-old bracket.

30%

Sales to Investors as Percent of Market*-as of Dec 2014 RCI Survey

25%
20%

17%

15%
10%
5%
200810
200901
200904
200907
200910
201001
201004
201007
201010
201101
201104
201107
201110
201201
201204
201207
201210
201301
201304
201307
201310
201401
201404
201407
201410

0%

*Purchase of property for investment purposes.* Based on most recent sale of the month
of REALTOR respondents.

Age Distribution of Homebuyers Purchasing For

Investment Purposes
70%

59%

60%
50%
40%

32%

30%
20%
10%

9%

0%
Age 34 and under

Age 35 - 55

Age 56+

Source: RCI, 2014 Surveys

Second-home Buyers and Relocation Sales

Purchases for vacation/second home purposes and for job/business relocation purposes
have been reported as relatively constant since 2010. About 11 percent of reported sales were
for a second home. The bulk of second home buyers are almost split between those in the 35-55
age group and the 56 and over age group.

Page | 13

16%

Second-Home Buyers as Percent of Market*-as of Dec 2014 RCI Survey

14%
11%

12%
10%
8%
6%
4%
2%

201009
201011
201101
201103
201105
201107
201109
201111
201201
201203
201205
201207
201209
201211
201301
201303
201305
201307
201309
201311
201401
201403
201405
201407
201409
201411

0%

*Based on most recent sale of the month of REALTOR respondents.

Age Distribution of Second Home Buyers

60%
46%

50%

49%

40%
30%
20%
10%

5%

0%
Age 34 and under

Age 35 - 55

Age 56+

Source: RCI, 2014 Surveys

About 14 percent of sales were by relocation buyers who moved due to a job-related
change. Most relocation buyers are in the 35-55 age group.

Page | 14

14%

201104
201106
201108
201110
201112
201202
201204
201206
201208
201210
201212
201302
201304
201306
201308
201310
201312
201402
201404
201406
201408
201410
201412

18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

Relocation Buyers as Percent of Market*-as of Dec 2014 RCI Survey

*Based on most recent sale of the month of REALTOR respondents.

Age Distribution of Relocation Movers

Due to Job Change
55%

60%
50%
40%
30%

25%
19%

20%
10%
0%
Age 34 and under

Age 35 - 55

Age 56+

Source: RCI, 2014 Surveys

Distressed Sales: 11 Percent of Sales

With rising home values and fewer foreclosures, sales of distressed properties have
generally been on the decline compared to the magnitude in the wake of the Great Recession. In
December 2014, distressed sales accounted for 11 percent of sales: 8 percent of reported sales
were foreclosed properties, and about 3 percent were short sales8. Fewer distressed properties
were listed on the market, which explains to some degree why investment sales have generally
been on the decline.

The survey asks respondents to report on the characteristics of the most recent sale for the month.

Page | 15

Distressed Sales, As Percent of Sales Reported by

REALTOR Respondents*-- as of Dec 2014 RCI Survey
60%
50%

Foreclosed

Short Sale

Foreclosed: 8% Shortsale: 3%

40%
30%
20%
10%
200810
200901
200904
200907
200910
201001
201004
201007
201010
201101
201104
201107
201110
201201
201204
201207
201210
201301
201304
201307
201310
201401
201404
201407
201410

0%

* Based on most recent sale of the month of REALTOR respondents.

Foreclosed property sold at a 15 percent average discount, while properties sold as short
sales sold at an average of 12 percent discount. For the past 12 months, properties in above
average condition were discounted by an average of 9-12 percent, while properties in below
average condition were discounted at an average of 13-19 percent.

Mean Percentage Price Discount of

Distressed Sales Reported by REALTOR Respondents*
(in %)--as of Dec 2014 RCI Survey

30
25

Foreclosed

Shortsale

20

15

15
10

12
200902
200905
200908
200911
201002
201005
201008
201011
201102
201105
201108
201111
201202
201205
201208
201211
201302
201305
201308
201311
201402
201405
201408
201411

* Based on most recent sale of the month of REALTOR respondents.

Page | 16

Mean Percent Price Discount by Property Condition

of Distressed Sales Reported by REALTOR
Respondents --Average for Jan 2014 - Dec 2014
25

19

20
15
10

12

13

13
9

5
0
Above average

Average

Foreclosed

Below average

Short sale

Cash Sales: 26 Percent of Sales

Approximately 26 percent of REALTOR respondents reported that their last

transaction was a cash sale (25 percent in November 2014; 32 percent in December 2013). The
share of cash sales has declined from an average of about 30 percent. This appears to be tied to
the decline in the share of purchases for investment purposes as well as the decline in share of
sales of distressed properties. Foreign clients, and buyers of second homes and distressed
properties are more likely to pay cash than first time home buyers. Less than 10 percent of
first-time homebuyers make an all cash purchase.

40%

Cash Sales as Percent of Market*-as of Dec 2014 RCI Survey

35%
30%

26%

25%
20%
15%
10%
5%
200810
200901
200904
200907
200910
201001
201004
201007
201010
201101
201104
201107
201110
201201
201204
201207
201210
201301
201304
201307
201310
201401
201404
201407
201410

0%

* Based on most recent sale of the month of REALTOR respondents.

Page | 17

Percent of Sales Reported by REALTOR Respondents

That are All-Cash By Type of Buyer-- Dec 2014 RCI Survey
70%

63%
57%

60%

51%

50%

45%

40%
30%
18%

20%
10%

9%

0%
FTHBuyer

Investor

Second
home

Relocation International Distressed

Sale

First time Home Buyers Who Put Down Low DownPayment: 66 Percent
Among first-time buyers reported to be obtaining a mortgage in the months of October
December 2014, about 66 percent made a downpayment of 6 percent or less. 9 This is a decline
from the 77 percent figure in early 2009,and contrasts with the 61 percent figure at the beginning
of 2014.
Recent announcements by the FHA and the GSEs are likely to increase the access of
borrowers to low downpayment loans. FHA, which insures loans originated at 3.5 percent
downpayiment has rolled back the annual mortgage insurance premium from 1.35 percent to
0.85 percent, saving borrowers about $990 in the first year and potentially attracting about
175,000-375,000 homebuyers. The second is the announcement by the government sponsored
enterprises (Fannie Mae and Freddie Mac) that they will accept loans originated with a 3
percent down payment for borrowers that meet the standard eligibility underwriting guidelines
and other qualification guidelines such as participating in a borrower education program.10
Borrowers making a low downpayment may still face higher costs for risk adjustment (called
loan level pricing adjustments) in the case of GSE-backed loans, and borrowers will also be
required to purchase private mortgage insurance.11
9

Based on the REALTOR respondents most recent sales for the survey months, which altogether are
viewed to be a representative sample of all sales for these months.
10
http://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-FHFA-Director-Melvin-L-Watt-on-Releaseof-Guidelines-for-Purchase-of-Low-Down-Payment-Mortgages.aspx
11
For FHA-insured loans, the upfront mortgage insurance premium is 1.75 percent of the base loan amout,
and the annual premium is 1.35 percent for 30-year loans with LTV of 95 percent or more . For GSE-backed loans,
the upfront loan level price adjustments is as low as 0.25 percent for borowers with FICO score of 740+ for 60%
loan-to-value mortgages and as high as 3.5 percent for for borrowers with FICO score of less than 620 and 90-95%
loan-to-value mortgages.

Page | 18

77%
66%
61%
200906
200909
201002
201005
201008
201011
201102
201105
201108
201111
201202
201205
201208
201211
201302
201305
201308
201311
201402
201405
201408
201411

90%
85%
80%
75%
70%
65%
60%
55%
50%

Percent of Reported First-time Buyers Obtaining a

Mortgage Who Had a Down Payment of 0% to 6%*-as of Dec 2014

Based on past three NAR -RCI surveys. NAR's RCI survey asks characteristics about the
REALTOR's last sale for the month.

International Transactions: 2 Percent of Residential Market

Approximately 2.0 percent of REALTOR respondents reported their last sale was a
purchase by a foreigner not residing in the U.S. International buyers frequently pay cash as well
as purchase properties above the median price of the domestic buyer. For the 12 months ending
March 2014, NAR estimated that sales to non-resident international clients and foreigners who
are temporarily residing in the U.S. amounted to $ 92.2 billion, as reported in the 2014 Profile of
International Homebuying Activity.12

4.0%

Sales to International Clients as Percent of Market*-as of Dec 2014 RCI Survey

3.5%
3.0%
2.5%

2.0%

2.0%
1.5%
1.0%
0.5%
201003
201005
201007
201009
201011
201101
201103
201105
201107
201109
201111
201201
201203
201205
201207
201209
201211
201301
201303
201305
201307
201309
201311
201401
201403
201405
201407
201409
201411

0.0%

*Based on most recent sale of the month of REALTOR respondents.

12

Page | 19

http://www.realtor.org/topics/profile-of-international-home-buying-activity

III. Current Issues

Credit Conditions Slowly Easing
Credit conditions are slowly easing, although credit continued to flow to those with high
credit scores. Almost half of REALTORS providing transaction credit score information
reported FICO credit scores of 740 and above; in 2013, the share was hovering at about 60
percent. About 2 percent of REALTORS reported a purchase by a buyer with credit score of less
than 620; in a normal market the share of credit scores below 620 would be closer to 5 percent.
Distribution of FICO Scores Reported by REALTOR
Respondents --as of Dec 2014 RCI Survey
< 620

70%
60%
50%
40%
30%
20%
10%
0%

620-740

740+
51%
47%

201412

201410

201408

201406

201404

201402

201312

201310

201308

201306

201304

201302

201212

201210

201208

201206

201204

201202

2%

Source: NAR RCI Surveys

Potential buyers facing credit limitationsmight want to consider a mortgage origination

by community banks and credit unions.

Page | 20

IV. Commentaries by NAR Research

2014 Year-end Employment Summary
Lawrence Yun, Chief Economist

Job gains accelerated in the second half of 2014. The latest monthly data showed
252,000 net new payroll job additions in December. Over the last 12 months, that total
net of new jobs comes to a cool 3 million. The pool of potential homebuyers and the
need for commercial building spaces are therefore expanding.
From the low point of 2009, more than 10 million jobs have been created. Recall,
however, that 8 million jobs were lost during the painful recession in 200809. Therefore, compared with the prior employment peak in 2007, the country has only 2
million workers now. In the meantime over these years, the countrys population
increased by nearly 19 million.
More jobs have pushed down the unemployment rate to 5.6 percent, which would be
considered almost normal. Frustratingly though for workers, the wages are barely
rising. In December the wage rate rose by 1.65 percent from one year before. The weak
wage growth is partly reflecting a considerably large number of people who are working
part-time.
REALTORS are mostly not on any companys payroll and are not included in the wage
data. Commission income comes in lump sum and only if there is a closing. All the time
spent driving and doing research means nothing if the property does not
close. REALTOR income also varies greatly from one year to the next and from one
person to the next.A typical wage rate by industry is shown below. Note the lower wage
rate for retail trade. That is why it is rare to see the same Starbucks crew over a 12month time span. And each new crew tends to spell your name differently.

Page | 21

Page | 22

FHA Lowers Pricing to Reflect Less Risk

Ken Fears, Director, Regional Economics and Housing Finance Policy
The FHA announced important changes to the pricing of its mortgage insurance today. This
change will help to shore up the long-term solvency of its mortgage insurance fund, improve
affordability and sustainability for most borrowers, and price in a significant number of
borrowers locked out of the market in recent years. It will also provide a strong signal, along
with solid recent employment growth and lower mortgage rates, to first-time buyers who might
be on the fence. Its not the silver bullet, but an important step toward normalization of the
housing market.
Changes in Context
The President announced that the FHA will reduce its annual premium by 0.5%, or from 1.35%
to 0.85% for a borrower using a 30-year fixed rate mortgage with a 3.5% downpayment. In
historical context, that reduces the annual MI charge to its lowest level since since early October
of 2010. The fee that FHA charges for its credit enhancement is a combination of an annual fee
(MIP) which is paid monthly and an up-front charge (UFMIP) which can be paid as a lump some
at closing or more often it is rolled into the balance and financed for the life of the loan. The total
fee, estimated as an upfront price now stands at 6.0% [1], down from 8.5% prior to this change.
The total fee is at its lowest level since 2011, but remains higher than other non-recessionary
periods over the last 30 years.

Even with the rate reduction, the fee charged by the FHA for its mortgage insurance (6% of
originated balance) more than covers the expected losses (5%), allowing excess fees to continue
to build up the capital reserve to its required minimum of 2.0%. Furthermore, the added volume
generated by the lower fees will help to ameliorate the income lost by reduced premiums. In
short, by modestly reducing rates and expanding the pool of borrowers, the FHA is still on
trajectory to meet its capital requirement over a modestly longer horizon, while reducing the
amount that it charges borrowers beyond the cost of the program.
Page | 23

Borrower Impact
For a borrower with a $200,000 mortgage, this changes amount to a reduction in the monthly
payment of $83, an improvement of 7.1%, or nearly $1,000 over the first year. By year five, this
borrower has saved nearly $4,800, but over 30 years the borrower would save roughly $18,000.
This later point is important as FHA still charges its annual MI fee for the life of the loan, a
change instituted in 2011. Mortgage rates are expected to rise as much as two percentage points
in the coming years, which will significantly reduce borrowers ability and incentive to refinance
out of the FHA program as they have done in recent years. As a result, this change will have a
larger impact for many homeowners over the life of their ownership.

The lower fees will also help to stymie the flow of lower-risk borrowers from the FHA to the
conventional market. The FHA pools its expenses for low and higher risk borrowers, thus
allowing it to provide lower average pricing than the private market would for moderate risk
borrowers. To do so, the FHA must maintain some lower risk borrowers in its portfolio, vets its
borrowers, and provides only vanilla products with no risky features. High pricing of its MI
caused a flight of quality borrowers in 2013 and 2014 putting the FHAs ability to fund middle
class borrowers and its very mission in jeopardy.
Beyond stabilizing the shift between the conventional and FHA markets, the lower pricing will
draw thousands of credit worthy borrowers back into the market. NAR Research estimates that
the fee reduction will price in an additional 1.6 million to 2.1 million renters along with many
trade-up buyers, resulting in 90,000 to 140,000 additional annual home purchases based on the
standard affordability limits at the FHA and conventional market and dynamics in the housing
finance market.

Implications for the MI Industry and the Housing Market

The reduction of rates at the FHA will make it tougher for the private mortgage insurers to
compete for these homebuyers in the interim. As depicted below in yellow, the pricing advantage
Page | 24

shifts from PMI to FHA for a significant portion of the credit box. Later this year, the FHFA is
expected to announce new capital requirements for the PMI industry as well as a decision on the
future of the GSEs loan level pricing adjustments (LLPAs). Many have argued that the
combined capital requirements of the PMIs and LLPAs provide too much capital protection,
leading to inefficiency and high costs to consumers. If the FHFA follows the FHA in providing
capital relief, pricing should shift back toward the PMI industry helping it to maintain its footing.
This step is important as a healthy PMI industry, like a healthy FHA, is critical for a robust, safe,
and liquid housing finance system over the long-term.

The FHAs proposed changes to its pricing for 2015 are good for consumers and the economy. It
puts money back into consumers pockets, improves affordability for many borrowers, and
unlocks the opportunity to purchase a home for tens of thousands, while preserving the stability
of the FHAs fund and protecting tax payers. Sluggish income growth, low inventories and
nagging tight credit remain headwinds for the market, but this shift is an important bell weather
of returning health for the market.
[1] This is a conservative estimate with a multiple of 5. As rates rise and loan life extends due to
reduced refinance incentives, the fees could generate higher revenues, further building reserves.
Extension to a multiple of 6 would imply a total fee of 6.85%

Page | 25

November 2014 Housing Affordability Index

Michael Hyman, Research Analyst

At the national level, housing affordability is down from a year ago for the month of
November as higher prices make it less affordable to purchase a home despite the lowest
mortgage rates in the last 16 months.
Housing affordability is down from a year ago in November as the median price for a
single family home in the US is up from a year ago. Regionally, the Midwest had the
biggest increase in price at 7.1% while the Northeast had a slight gain at 2.0%.
The median single-family home price is $206,200 up 5.6 % from November 2013 as year
over year price gains are starting to flatten out. Novembers mortgage rate is 4.16, down
22 basis points (one percentage point equals 100 basis points) from last year. Nationally,
affordability is down from 173.3 in November 2013 to 170.7 in November 2014.
Affordability is up slightly from one month ago in all regions, the Northeast having the
largest gain at 3.7%. From one year ago, affordability is down in two of the four regions,
the Northeast had a 2.6% increase. The Midwest saw the biggest decline in affordability
at 2.8 % while the South declined to 1.6% and the West remained flat.
Positive factors: Low mortgage rates, job creation, and stock market investments are a
few of the influences improving consumer confidence. Recently Fanny Mae and Freddie
Mac have decided to create new loan programs to help increase credit availability. A
boost in incomes would offset home price gains as price growth is coming back to normal
levels.
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.

Page | 26

EHS in 2014 By the Numbers -Popular Contract Dates

Danielle Hale, Director of Housing Statistics, and Hua Zhong, Data Analyst
You probably know that recent home listings went under contract slightly more often on
Mondays, Tuesdays, and Fridays. Here is the data to back up your intuition:
o

o
o
o

As we start the New Year, this is a good time to take a look and recap the year behind us to
see what insights 2014 holds for 2015. The last sales data for December 2014 is just now
being collected, but we can get a good sense of the year by looking at the data we currently
have for the past 12 months. In our first posts, (Part 1, Part 2, andPart 3) we looked at
closings and listings by day. Here, well take a look at contracts.
Below, we see the most popular under-contract days of 2014[1]. Similar to the pattern in
home listings, we see a strong preponderance of spring dates and lack of weekends.
The biggest months for new contracts were May, April, and June. These months alone
accounted for about 3 in 10 new contracts in this analysis.
While not devoid of contract activity, the weekends are not common contract signing
days. Among weekdays, Mondays, Tuesdays, and Fridays are the most common days for
new contracts to be signed, though Wednesdays and Thursdays are almost equally common.
In spite of that fact, not a single Wednesday made the list of top 25 days for contracts in
2014.
While home closings exhibit a strong tendency to get done at the end of the month, contracts
are, like listings, much steadier throughout the course of the month. Listings show a slight
tendency to be posted earlier rather than later in a month, and contracts have a very slight
tendency to be signed more often in the middle of a month rather than at the end.

Page | 27

Page | 28

[1] This analysis includes listings that went under contract at any point in the period under
observation, December 1, 2013 to November 30, 2014. If two contracts existed in the
observation period on the same listed property because, for example, one contract fell through
and another contract was signed in a later month, both contract dates would be counted as new
contracts in the analysis. Thus, some contracts counted here may have fallen through.

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