Realtors® report that 12 percent of residential sales were to buyers for relocation purposes—i.e., a job move, retirement, etc., according to the latest Realtors® Confidence Index. The percentage decrease in February is probably due to seasonal issues. Overall, relocation moves should increase as the economy continues to recover.
Realtor® comments in the latest Realtors® Confidence Index survey, indicate that an increasing number of home buyers have been making all-cash purchases in recent years. 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. Cash sales made up 31 percent of residential sales in March.
A number of Realtors® responding to the Realtors® Confidence Index March Survey indicated continued tight credit conditions: in a number of cases prospective home buyers had difficulty in qualifying for a loan. 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 mortgage lending and refinancing 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 credit situation; in some cases the information for clients was estimated. However, 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.
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-and-statistics/research-reports/international-real-estate.
Realtor® comments and replies to the latest Realtors® Confidence Index continued to indicate recovery in the residential markets. All real estate is local, so comments were varied depending on location. 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. There continues to be discussions of Shadow Inventory in the press. Realtor® respondents appear to believe that increased inventories of unsold homes will not be a problem. Many respondents cited an inventory shortage.
The health of the real estate market appears to be a function of location of the respondent, with some markets starting to trend upwards. 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 situation.
In spite of all the economic negativity in recent months, however, the comments in this month’s RCI show a market starting to turn. Overall, this month’s Realtors® Confidence Index seems to indicate a continued market recovery.
According to information in the latest Realtors® Confidence Index, a total of 32 percent of residential home purchasers were reported as making an initial down payment of 20 percent or more in February 2012 among those obtaining a mortgage. Approximately 64 percent of purchasers obtaining mortgages were reported as making down payments less than 11 percent.
According to information in the latest Realtors® Confidence Index, cash sales were 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.
According to information in the latest Realtors® Confidence Index, time on the market is reported as being slightly down for homes in the Multiple Listing Services. Currently 26 percent of properties have been on the market for six months or more. In contrast, 48 percent have been on the market for three months or less.
A number of Realtors® responding to the February 2012 Realtors Confidence Index survey, indicated that prospective home buyers had difficulty in qualifying for a loan. Although interest rates are currently low, some prospective purchasers are reported as having problems in qualifying. A comparison of FICO scores for transactions as reported by Realtors® responding to the RCI compared with FICO scores reported by Fannie Mae’s “Acquisition Profile by Key Product Features” shows that credit availability to lower scoring applicants seems to have declined.
Remarks At Federal Home Loan Bank of Chicago Meeting, April 18, 2012
Jed Smith discussed the real estate outlook and associated economic risks at the Federal Home Loan Bank of Chicago’s meeting of the Mortgage Partnership Finance and Advisory Council on April 18 in Chicago. Smith indicted that the current economic expansion is expected to continue for the next several years, but the current expansion is the weakest since the Great Depression and is characterized by high unemployment and underemployment, limited job growth, difficult credit conditions, and continued concern over a variety of basically unpredictable economic factors such as oil prices, sovereign state credit issues, and government deficits.
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