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March 2012 Edition Based on Data Collected Week Ending April 2, 2012
National Association of Realtors® Research Department
SUMMARY—Highlights Jed Smith, Managing Director, Quantitative Research (email@example.com) George Ratiu, Manager, Quantitative and Commercial Research (firstname.lastname@example.org). Realtor® comments and replies this month continued to indicate recovery in the residential markets. All real estate is local, so comments were varied and many times diverse and contradictory depending on location. All of the problems noted in previous months continue. For example, Obtaining a mortgage is reported as difficult. Bargain hunters and low-price bids continue. Pricing continues to be a challenge. The appraisal process continues to be a problem.
However, fewer respondents noted major problems than had previously been the case, and a growing number of respondents in recent months have been indicating cases of multiple bidding, low inventories, a resurgence of buyer interest, and the rapid resolution of distressed property sales. The health of the real estate market appears to be a function of location of the respondent, with some markets starting to trend upwards. It would be nice to conclude that the country’s residential real estate problems are over; however, the data only substantiate that a significant number of Realtors® reported improving market conditions. The real estate markets are driven by jobs and the economy—and there the reports have been mixed. There has been relatively good job growth in recent months, but not enough to restore the economy to acceptable unemployment levels. We are still looking at possibly three to four years before unemployment reaches reasonable levels if job creation continues at its current pace. In addition, there are a variety of major uncertainties impacting the economy—jobs, gasoline prices, unemployment, budget deficits, and a variety of other potentially negative situations. We continue to have a weak recovery. What Does This Mean For Realtors®? This month’s RCI shows a market starting to turn with continued recovery. Confidence and price expectations are up, rising rental rates have favorable implications for the residential market, and time on market continues to decrease. Prices and interest rates continue to be attractive. Given that the typical homeowner will occupy a house for approximately 8 years and that home ownership is basically a lifestyle decision, one can make a very good case that this is a good time to buy a house, remembering that staying within a reasonable budget and acceptable mortgage is important.
Realtor® Confidence: Up in Single Family, Townhouses, and Condos The REALTORS® Confidence Index is an indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Respondents indicate whether conditions are, or are expected to be "strong" (100 points), "moderate" (50 points), and "weak" (0 points). The results are the average score for each question. A score of 50 is the threshold between a "strong" and a "weak" condition. The current month’s report is based on 4,490 Realtor® responses. Realtor® confidence in the market outlook has increased in terms of current market performance and in terms of market outlook for single family, townhouse, and condo markets.
Townhouse Properties: Confidence Increasing
Condos: Increased Confidence
78 Percent of Responding Realtors® Expect Constant or Higher Residential Prices in the Next Year, up from 73 Percent Last Month
Buyer and Seller Traffic Strength Continues to Increase
Time That Homes Are On the Market
As of March 2012, 28 percent of properties had been on the market for six months or more when sold. In contrast, 48 percent had been on the market for three months or less.
March Distressed Sales: At 29 Percent of Market Distressed sales go through several stages—the initial overdue status for mortgage payments, the actual foreclosure by the financial institution, and the final sale of the property, frequently by Realtors® through the MLS. Measured at the MLS sales level, distressed sales have hovered in the 30 to 35 percent range for a number of years, with heavy sales concentrations in a few states. Distressed sales are currently 29 percent of total sales.
What Does This Mean For Realtors®: The Existing Home Sales market is bifurcated, with distressed properties frequently being sold at significant discounts to market, frequently in subpar condition when going to market, and reported to be popular with investors seeking bargain prices. Currently Realtors® in a number of markets are reporting shortages of inventories of distressed real estate: the markets are clearing distressed properties from the market at a rapid rate.
Distressed Real Estate—Below Market Prices Distressed properties sell below the market price of comparable, non-distressed properties; the discount level fluctuates depending on sales location and types of properties. Foreclosures have been selling at approximately 20 percent below market: 18.8 percent as of March 2012. Short Sales have been selling at approximately 15 percent below market: 15.8 percent as of March 2012.
Property Condition Affects Selling Price The discount to market is affected by property condition. Well maintained properties tend to sell at a lower discount than is the case for properties in poor condition. The un-weighted average price discounts to market are presented for April 2011 through March 2012.
Cash Sales: 31 Percent of Residential Sales in February The high preponderance of all-cash sales appears to be due to a number of factors: unrealistically high loan underwriting standards, a significant level of investor participation in the market, and sales of properties as second homes.
First Time Buyers: 33 Percent of Total Buyers in March 2012. Normally first time buyers are in the neighborhood of 40 percent of total residential sales, according to NAR’s Profile of Home Buyers and Sellers. Realtors® have reported that investors offering all cash-sales to sellers have crowded out first-time buyers in some cases. Unsuccessful first-time buyers typically continue their property search, sometimes making a number of bids before securing a property.
Buyer Relocation—Job Changes Realtors® report that 12 percent of residential sales were to buyers for relocation purposes—i.e., a job move, retirement, etc. The percentage decrease in February is probably due to seasonal issues.
Residential Sales to Investors: Currently 21 Percent of Residential Market Investors accounted for 21 percent of total residential sales in March, down from 23 percent in February. Investors have reported that in many cases they can obtain a positive cash flow converting properties to rental units, or obtain a resale after making improvements. Realtors® have been reporting that the market is able to absorb the large number of distressed properties coming onto the market. In some regions Realtors® report that the market would clear additional properties if available.
Second Home Purchases—At 11 Percent of Residential Market in March
Mortgage Down Payments Down payments greater than or equal to 20 percent were made by 34 percent of residential home purchasers. Down payments of 11-19 percent were reported by 5 percent.
Realtors® Continue to Report Rising Rents for Residential Properties Higher residential rents in March compared to a year ago were reported by 53 percent of Realtors®, up from 46 percent a year ago. Lower rents were reported by 11 percent of Realtors®, down from 18 percent a year ago.
Appraisals—A Continuing Problem Realtor® comments indicate that appraisal and lending issues are the two major market problems in completing a sale. Of particular concern are the use of inexperienced/out-of-town appraisers and the use of distressed properties as comps in the case of non-distressed sales. Thirty one percent of Realtors® reported having had a problem with an appraisal in the past 3 months. This does not mean that 31 percent of contracts had appraisal problems; rather 31 percent of Realtors® had one or more problems with an appraisal in the past 3 months.
International Transactions Continue at Two Percent of Market Sales of U.S. residential real estate to foreigners not residing in the U.S. continue to be in the 2 percent range. Other NAR surveys have indicated that an additional 2 to 3 percent of residential sales are made to international customers residing in the U.S. Additional information on international activities is available at http://www.realtor.org/research/research/reportsintl.
FICO Scores and Mortgages A number of Realtors® responding to the March Survey indicated continued exceptionally tight credit conditions. A comparison of FICO scores for loan transactions as reported by Realtors® responding to the RCI over the February and March time span compared with FICO scores reported by Fannie Mae’s “Acquisition Profile by Key Product Features”— showing lending conditions in the pre-boom normal housing markets of a few years ago-- shows that credit availability to lower scoring applicants appears to have declined. Realtors® provided FICO information based on their understanding of the buyers’ credit situations; in many cases the information was estimated. Overall the data seem to substantiate relatively tight credit conditions.
Credit Scores in Current Markets (Variety of Buyers and Lenders) vs. Fannie Mae Credit Mix of 2001-04.
Housing Recovery Helps Retail Sales
On April 5, 2012, in Economist Commentaries, by Lawrence Yun, Chief Economist Share| The recovering housing market is showing some impact in the retail sector. Furniture stores are reporting an 11 percent increase in sales recently from a low point two years ago. A stronger 22 percent in gains are occurring at building supply and gardening stores.
In addition to the visible impact to retail sales in stores directly related to housing, there is always a further multiplier effect even in areas such as restaurant spending and electronics as people earn more income from improved home sales.
The housing component to the broader economy (GDP) in the past years has not been pretty. The declines in new home construction and existing home sales cut into GDP. From 2006 to 2009, GDP was cut by about 1 percentage point. That is, had the housing market not suffered the downturn and had been simply neutral, GDP growth would have been a full one percentage point higher. (There is a big difference between 3% GDP growth versus 4% GDP growth, for example.)
Percentage Point Impact to GDP from the Housing Sector Now, with housing showing some recovery, though at a moderate pace, the contribution to the GDP will be positive both this year and next. A housing market recovery will result of an approximate 0.7 percentage point growth in GDP. That’s good news for people working in the industry, for retail shops, and for the broader economy.
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