Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage applications and the ADP National Employment Report.
- According to the latest edition of the Realtors® Confidence Index, in October 34 percent of home buyers had a down payment greater than 20 percent, 29 percent paid cash, and 34 percent were first-time buyers.
- Normally one would expect to see first-time buyers at 40 percent of the market, but investors and cash buyers apparently are absorbing part of the first-time buyer market.
- Many market observers have also mentioned tight credit as having a negative impact on first-time buyers.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses the Case-Shiller index, the FHFA Home Price index and consumer confidence.
Last time we discussed shadow inventory, we focused on the large build up in the seriously delinquent category of distressed inventory. Since then, many of the 90+ days-late loans have progressed into foreclosure inventory. Along with the improvement among new delinquencies, the seriously delinquent inventory has fallen. Still, the size of the shadow inventory has remained largely unchanged, partly due to the robo-signing crisis that began last year.
In sizing up the inventory of distressed loans, we can see that there has been some positive change particularly among the new delinquencies. The new delinquencies continue trending down and are below 2008 levels. According to LPS data, the share of loans that are behind by two payments are down 13 percent from last fall and add up to about 2.36 million - down from over 3 million at the beginning of 2009. Among them, however, are a large number of repeat delinquencies. Only about a quarter of new 30 day delinquencies are first time delinquencies. Furthermore, within the seriously delinquent inventory, with loans 90+ days past due, data shows that inventory has also receded significantly from over 3 million at the beginning of 2010 to about 2.17 million currently. Foreclosure starts, where the loans move from delinquent status into foreclosure, are significantly down from last fall, showing a 20% decrease, or about 220,000 starts, per month. This is not a surprise given the impact that moratoria and robo-singing has had on the entire foreclosure process. The starts are still up from this April, however, when they reached a halting 187,000 monthly starts.
Nevertheless, the bottleneck still sits in foreclosure inventory. There are still over 2.1 million loans included in the foreclosure inventory, a number much unchanged from the beginning of 2010. This lingering inventory, however, is increasingly filled with aging delinquent loans. Forty percent of the foreclosure inventory is made up of loans that have not made a payment in at least 2 years, accounting for about 900,000 loans.
The reason for this aging inventory is largely a consequence of moratoria, process reviews under way, but also modification efforts. Since January 2010, about 2 million modifications have taken place either through the HAMP program or through private modifications. Interestingly though, for every 100 loans that enter the foreclosure inventory, 100 loans exit. Of those 100 that exit the foreclosure inventory, almost 60 percent return to delinquent inventory. Along with the trends suggested among the new delinquencies, this exit trend indicates a high level of churning among the same group of problem loans.
At the state level, past due inventory has fallen in all but two states, Alaska and Wyoming. The largest six month decline was in fact among the states with highest degree of foreclosure problems, Arizona, Florida, Nevada, California, but also Connecticut, all falling in the range of 11 to 13 percent. Other states with elevated foreclosure levels, are also down, in the range between 10 and 5 percent.
For more information, read the Foreclosure Inventory presentation here >
Each month Realtors® provide data and comments in responding to the Realtors® Confidence Index Survey. The November edition, with data current as of late October, summarizes a number of major issues mentioned by Realtors®, mainly focused on mortgage availability and lending standards, appraisals, and foreclosures. Of particular interest was the Realtor® experience in the closing process: 47 percent of Realtors® reported on-time settlements, down from the 65 to 70 percent range reported in previous months.
Problems with obtaining mortgages along with appraisal and inspection problems were mentioned as causes of settlement delays and cancellations.
- Appraisals continue to be a problem – Respondents report that appraisals are coming in lower in many cases than the contract. In addition, appraisals are frequently late, slowing down or sometimes even terminating the proposed transaction.
- Lending – Obtaining a loan is reported as difficult: excessive/unreasonable documentation requirements, delays, and rejections of buyers who would normally be considered credit worthy are mentioned as issues. Loans for condos are even more difficult, and frequently unavailable.
- The major economic issue: JOBS – Without jobs and with concerns about the expectation of continued employment, potential buyers just are not in the market. Realtors® reported substantial concern over the current economy as well as perceptions by potential buyers that the economy is not improving. Consumer confidence was reported as down substantially with major negative impacts on potential transactions.
- Prices – Problems of potential sellers currently upside down in their mortgages were mentioned as major market impediments as well as buyer concerns about declining prices.
- Foreclosures and short sales – Continued to be seen as major market negatives.
- Property condition – Mentioned as exceptionally important in the current market, along with anything that makes a first impression.
- All Real Estates Is Local – In some areas of the country the market was reported as improving – consistent with NAR’s reports that some major metropolitan areas are starting to recover.
General Market Trends
For the past three years the residential markets have been fluctuating – modest increases and decreases around the current level of sales. After declining from its peak, price has fluctuated substantially from month to month, but over the three year period has been relatively flat as reported by NAR and Case-Shiller. We essentially have a residential market that is moving sideways, influenced heavily by the approximate 33 percent of transactions that are distressed sales.
The major impediment to increased sales appears to be the overall jobs picture. The economy needs to add approximately 125,000 jobs on a monthly basis in order to stay even – and we need substantially more job additions every month in order to decrease unemployment. Right now the economy is experiencing very modest growth with job creation frequently below the 125,000 figure. It appears that the combination of financial problems (both domestic and worldwide) coupled with lowered consumer demand has decreased job creation. Most economists currently see the jobs problem as lasting in the neighborhood of four years.
Current price trends are probably based on a combination of market weaknesses and emotional concerns. At this time overall affordability is near an all-time high in terms of interest rates, price/income relationships, and percentage of income required to support a mortgage. In many cases home prices are reported as below reproduction costs. Current market prices appear to be a function of the weak employment picture and a tendency of markets to overshoot on the way up and undershoot on the way down.
Realtors’® responses in the past few months have basically indicated a sideways moving market. If economic conditions continue to deliver their forecasted modest improvement, then the market recovery will be slow. All real estate is local, so overall market performance will be uneven.
What Does This Mean To Realtors®?
Clients may be concerned about all the negative publicity regarding the housing markets: Interest rates and prices are very reasonable compared to history. NAR surveys indicate that the average homebuyer will stay in their home for seven to nine years, so weekly price fluctuations really are irrelevant. In addition, homeownership needs to be a focus on lifestyle and how one wants one’s family to live. Negative or sensational publicity sells newspapers. “Dog Bites Man” is on page 32 of a 28 page paper; “Man Bites Dog” is front page above the fold. It’s important not to get carried away by irrelevant or sensational headlines. Realtors® sell houses for families and individuals. Prudence in determining the amount to pay is important. However, over the longer run the likelihood of a home purchase proving to be a reasonable expenditure has tended to be higher rather than lower.
Obtaining a Mortgage Is Difficult: Financial institutions have tightened (many would say unreasonably tightened) their lending standards. Credit-worthy buyers are reported as frequently being rejected for loans. Loan rejections may be more related to the overly risky portfolio of loans that a bank has rather than the credit worthiness of the purchaser. Home buyers need to look to regional and community banks, and credit unions when appropriate.
The Market is Better than the News: NAR and Case-Shiller data show that home prices have fluctuated in a band or range for the past few years. Prices have definitely been a concern, but should recover as the job situation improves. The real estate markets tend to move with the economy; right now the economy is slow. However, most economists continue to project ongoing economic growth. In a growing economy real estate has usually done well. Most buyers hold their properties on average for approximately eight years or more, and economists are projecting substantial growth over that time frame. These are the reasons why we say now is a good time to buy. The stock market goes through periods when valuations are low—a buyer’s market. We seem to be in a similar type of market for housing.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales and the debt situation in Europe.
- Detached single-family homes continue to be the most popular type of home purchased, accounting for 77 percent of the home buying market.
- Eight percent of households purchased a townhouse or row house and 9 percent purchased a condo.
- First-time home buyers are slightly more likely to purchase a townhouse or a condo than repeat buyers.
- New homes that were purchased were slightly more likely than existing homes to be a townhouse or row house.
- Single buyers were more likely to purchase a townhouse or condo than married couples and unmarried couples.
- For the full 2011 Profile of Home Buyers and Sellers, click here >
The indexes for buyer and seller traffic, based on information in the Realtors® Confidence Index, have been relatively constant for the past 5 months, probably reflecting current economic conditions. Economists continue to predict continued recovery of the economy, and if the recovery is accompanied with additional net job creation in excess of approximately 125,000 jobs per month on average, then we should see some pickup in the housing markets. At this time job creation is the major issue for most of the American public: modest economic growth without significant job creation does not appear to help the large number of people currently unemployed.
- First-time buyers include a higher share of single buyers and unmarried couples, while married buyers are predominately repeat buyers.
- The typical age for first-time buyers was 31, nearly unchanged from 2010, while the typical age for repeat buyers increased to 53 from 49 in 2010.
- For the full 2011 Profile of Home Buyers and Sellers, click here >
Commercial Markets Remain Weak in Third Quarter 2011
Heading into the traditional holiday season, the economy is looking for some sparkle. While the third quarter brought some positive news, it does not add up to a bountiful season. With unemployment still high, and European issues continuing to weigh on financial markets, economic concerns slowed commercial real estate markets.
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