‘First-Time Buyers’ Fuel Latest Home Sales Boost

The market share of first-time home buyers rose to 32 percent of transactions in May, matching the highest share since September 2012. A year ago, first-time buyers represented 27 percent of all buyers, NAR reports.

“The return of first-time buyers in May is an encouraging sign and is the result of multiple factors, including strong job gains among young adults, less expensive mortgage insurance and lenders offering low down payment programs,” says Lawrence Yun, NAR’s economist. “More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise.”

As the supply of homes remain tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation, Yun notes. “Without solid gains in new home construction, prices will likely stay elevated – even with higher mortgage rates above 4 percent,” Yun says.

Source: National Association of REALTORS®

Existing Home Sales Inch Up

Existing-home sales increased modestly in February, but constrained inventory levels pushed price growth to its fastest pace in a year, according to the National Association of Realtors®.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.2 percent to a seasonally adjusted annual rate of 4.88 million in February from 4.82 million in January. Sales are 4.7 percent higher than a year ago and above year-over-year totals for the fifth consecutive month.

The median existing-home price2 for all housing types in February was $202,600, which is 7.5 percent above February 2014. This marks the 36th consecutive month of year-over-year price gains and the largest since last February (8.8 percent).

Lawrence Yun, NAR chief economist, says although February sales showed modest improvement, there’s been some stagnation in the market in recent months. “Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,” he said. “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.”

Apartment Rent Surge Expected into 2015

Renters need to brace themselves: Apartment rent is expected to continue to outpace inflation next year. It’s a landlord’s market, which means strong demand continues to give landlords justification to hike rents.

Rent growth will likely reach 3.9 percent in 2015, only a slight dip from 4 percent this year, according to a recent forecast released by the National Association of REALTORS®. For at least two more years, vacancy rates for rental apartments are expected to remain low.

“Low housing inventory and the sizable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year,” says Lawrence Yun, NAR’s chief economist.

2 California metros saw the lowest vacancy rates for rental apartments in the fourth quarter, according to NAR:

Orange County, Calif.: 2.2%

  • Sacramento, Calif.: 2.2%

Source: “Apartment Rent to Outpace Inflation Next Year: NAR,” MarketWatch (Nov. 24, 2014)

FHA Ends Post-Payment Penalties

The Federal Housing Administration is overhauling a long-held policy of charging extra interest payments on loans it insures to borrowers who have already paid off the principal debts on their mortgages.

FHA has permitted its lenders to charge borrowers a full month of interest when they sell or refinance a home, even if borrowers had paid off the mortgage weeks prior to the end of the month. For example, if borrowers went to closing on an FHA loan on Sept. 3, lenders would be allowed to continue to charge them interest through Sept. 30.

Beginning Jan. 21 of next year, new FHA mortgages will require lenders to collect interest only on the balance remaining on the date of closing for a home sale or refinancing. (However, sellers and refinancers who currently have FHA loans and expect to close before Jan. 21 likely won’t see much benefit from the new policy.)

The Consumer Financial Protection Bureau raised the issue with FHA last year, asking why FHA was allowing its lenders to collect post-payment penalties from borrowers at closing. FHA had argued that its bond investors, who purchase packages of insured mortgages, expected full-month payments of interest plus principal. FHA said that its lenders did charge borrowers slightly below market rates to help compensate for the post-closing payments.

However, critics argued that the policy was unfair to borrowers. The National Association of REALTORS® had lobbied against the FHA policy for more than a decade. NAR estimated that during 2003 alone, sellers and refinancers paid nearly $690 million in extra interest charges due to the policy.

Source: “FHA to Ban Lenders From Charging Extra Interest Payments on Mortgages,” The Los Angeles Times (Sept. 7, 2014)

 

Rising Home Prices Press Down Affordability

While housing affordability rose from January to February in some select markets, it’s lower year-over-year as home prices continue to rise while wages stay mostly stagnant, according to the National Association of REALTORS®’ latest Housing Affordability Index. The index is based on median home prices, family incomes, and average mortgage interest rates.

The median single-family home price is $189,200, up 9 percent from year-ago levels. Mortgage rates have also been on the rise, up a full percentage point from year-ago levels. Meanwhile, income levels have risen 1.9 percent in the past year.

Affordability is up slightly from a month ago in the Northeast and Midwest, while the West and South saw a minor drop in February month-over-month, according to NAR’s index. However, affordability is down in all regions from year-ago levels. The West has seen the largest decline in affordability in the past year, due to a 17 percent price gain.

Source: “Latest Housing Affordability Data,” National Association of REALTORS®’ Economists’ Outlook blog (April 11, 2014)

Home Buyers May Face Sticker Shock This Spring

As the spring market heats up, more buyers are finding higher home prices than they may have expected, CNBC reports.

“People quite frankly came out and got sticker shock … they picked up the price sheet and saw, ‘Wow, that’s way more than I thought’ because home prices had gone up so much in 2013,” Brad Hunter, chief economist at Metrostudy, told CNBC.

Existing-home prices were up 9.1 percent in February above year ago levels, according to the National Association of REALTORS®. Meanwhile, incomes are up just 2.1 percent from a year ago, according to the Bureau of Labor Statistics.

Home builders also have been raising their prices over the past year. For example, D.R. Horton, one of the nation’s largest builders, announced earlier this year that it planned to raise home prices in some of its markets this spring. In January, the builder said the average price of its homes under contract was up 10 percent in the past year.

Buyers also are facing rising mortgage rates and tighter credit conditions.

Still, while prices have been on the rise, home prices are well off their peak from the housing boom in 2006, housing experts note. Inventories remain constrained in many markets as some home owners wait for higher home prices before they list.

Source: “Homebuyers Face Spring Sticker Shock,” CNBC.com (April 4, 2014)

Shut Out of the Housing Market? ‘First-Timers Dwindle’

First-time home buyers are particularly being hit hard by rising prices and tougher credit standards — and their decreasing market share proves it.

The National Association of REALTORS® reports that first-time home buyers accounted for 26 percent of purchases in January, down from 30 percent a year earlier. It’s also the lowest market share for first-time buyers that NAR has recorded since it began measuring it in 2008.

The falling number of first-time home buyers has the potential to slow the pace of the recovery, Bloomberg reports. The decline of first-time home buyers is hampering home sales, which dropped 5.1 percent in January compared to a year earlier, NAR reports.

“It’s a huge problem,” says Leslie Appleton-Young, chief economist for the California Association of REALTORS®. “We have a ladder of home ownership and need first-time home buyers beginning the process of owning, building equity, and trading up to have a healthy housing sector.”

Some housing advocates are blaming investors for pushing out home buyers, particularly where first-time home buyers are being outbid by investors offering all-cash offers. Nearly 80 organizations are calling on federal regulators to address investors pushing potential home buyers out of the market, reports the California Reinvestment Coalition. They argue that federal housing agencies conducting bulk sales of foreclosed homes and distressed mortgages have heightened the problem.

The housing advocates are asking for greater oversight from federal regulatory bodies, such as with more oversight of new investor landlords and ensure that banks aren’t favoring investors over home buyers with FHA loans in REO purchases. The group is also asking for greater research on the disparate impact of REO properties on various communities, particularly the impact to minority communities. Read more about the housing advocates’ stance at the California Reinvestment Coalition website.

Source: “Americans Shut Out of Home Market Threaten Recovery: Mortgages,” Bloomberg Businessweek (March 5, 2014) and “80 Organizations Ask Federal Government to Address Investor Cash Flooding Into Neighborhoods,” California Reinvestment Coalition (March 4, 2014)

‘Housing Recovery Threatened’ by Flat Wages

While job growth is picking up nationally, wages remain flat, which is holding back a more robust recovery, the National Association of Home Builders wrote in a recent blog post.

“A significant amount of pent-up housing demand exists, but for it to be unlocked more rapidly, additional gains in wages must be realized,” NAHB economists wrote.

During the recession, all age groups saw a decline in incomes, with the exception of the 65-and-older cohort. Since 2000, those under the age of 24 have seen the largest reductions in income, followed by people ages 45 to 54 (the top-earning age group), NAHB’s analysis shows.

First-time home buyers remain a shrinking number in the housing market. They accounted for 27 percent of existing-home purchases in December, down from 30 percent a year earlier, according to the National Association of REALTORS®.

Many young adults are facing high student loan debt, stifling their wage growth and ability to qualify for a mortgage, according to NAR’s Economists’ Outlook blog.

—By REALTOR® Magazine

‘Home Foreclosures Fall’ to 5-Year Lows!

National foreclosure pre-sale inventory is at its lowest point since 2008, Lender Processing Services reports.

The inventory—which reflects the number of loans that are in some stage of foreclosure—represents 2.54 percent of all mortgaged homes in LPS’ October data. That marks a 3.23 percent drop month-over-month, and a nearly 30 percent year-over-year drop. LPS’ data reflects about 70 percent of the mortgage market.

The National Association of REALTORS® reported last week that distressed homes are making up fewer of the total existing-home sales recorded in the past year. Sales of distressed homes—which include foreclosures and short sales—made up 14 percent of October sales, down 25 percent year-over-year.

Distressed sales tend to sell at a discount. NAR reported that foreclosures sold for an average discount of 17 percent below market value in October. Short sales were discounted 14 percent below market value.

Source: “Foreclosure Inventory Falls to 5 year Low,” Mortgage News Daily (Nov. 22, 2013) andNational Association of REALTORS®

Older Home Buyers Less Willing to Compromise?

Older home shoppers are more picky in their home purchases than younger buyers, according to a survey of nearly 94,000 recent home buyers and sellers.

About half of the those surveyed who were age 58 and older say they made no compromises during their recent home purchase. On the other hand, only 28 percent of the youngest home buyers surveyed said they didn’t compromise, according to the survey conducted by the National Association of REALTORS®.

For the most part, younger home buyers reported having to compromise on price, lot size, distance from job, and style of home.

“First-time buyers are starry-eyed and have no idea what they really need. They might want a five-bedroom and never use two of them,” says Stephen Melman, director of economic services for the National Association of Home Builders. Those in their 50s “are better than most housing consumers at knowing what they want — and won’t be shy.”

After all, many older home buyers have already purchased a home in the past, so they may know more about what they want and don’t want in their next home.

Source: “The Older the Home Buyer, the Pickier,” The Wall Street Journal (Sept. 30, 2013)