2014 12 realtors confidence index 2015-01-23

8/9/2019 2014 12 Realtors Confidence Index 2015-01-23

1/32

REALTORS CONFIDENCE INDEXReport on the December 2014 Survey

NATIONAL ASSOCIATION OF REALTORS

Research Department

Lawrence Yun, Senior Vice President and Chief Economist


2/32

TheREALTORS Confidence Index(RCI) Report provides monthly information aboutreal 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 localmarket 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 acombined basis, are viewed to be representative of the sales for the month1. Responses werereceived from January 5-13, 2015. All real estate is local: conditions in specific markets mayvary from the overall national trends presented in this report.

The Report also contains commentaries by the Research Department on recent economicdata 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

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


3/32

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


4/32

Page | 1

SUMMARY

The information provided by REALTORS about local market conditions in December2014 indicated a broad uptick in confidence and market activity compared to that in November2014. The REALTOR Confidence IndexCurrent Conditions, the RCI-Buyer Traffic Index,

and theRCI-Seller Traffic Indexall increased, reflecting higher buying and selling activity acrossmost local markets in December.

Lower interest rates appeared to have steered investors back into the market. The shareof investors accounted for a slightly higher share of the market, at 17 percent. The share of first-time homebuyers slightly dipped to 29 percent.

REALTORS were broadly more optimistic about the outlook for the next six months,with theREALTOR Confidence Index-Six-month Outlookfor single family homes up at 67. Animproving jobs market, the decline in the 30-year fixed mortgage rate to slightly less than 4percent since October 2014, and recent measures by the Federal Housing Authority to lower themonthly mortgage insurance premium from 1.35 percent to 0.85 percent and the GSEs (FannieMae and Freddie Mac) to buy mortgages with 97% loan-to-value ratio may be underpinning thisincreased optimism. Optimism also picks up in anticipation of the seasonal uptick in the springseason.

Falling oil prices means more money into consumers pockets, which along withreasonable 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 theeffect of the continued drop in oil prices on employment and its impact on housing.

December 2014 REALTORS Confidence Index Survey Highlights

Dec 2014 Nov 2014 Dec 2013

RCI

Current Conditions: Single Family Sales /1 51 49 59RCI- 6 Month Outlook: Single Family Sales /1 67 60 66

RCIBuyer Traffic Index /1 47 43 57

RCI-Seller Traffic Index /1 38 35 43

First-time Buyers, as Percent of Sales (%) /2 29 31 27

Sales to Investors, as Percent of Sales (%) 17 15 21

Cash Sales, as Percent of Sales (%) 26 25 32

Distressed Sales, as Percent of Sales (%) 11 9 15

Median Days on Market 66 65 72

Median Expected price growth in next 12 months (%) 3.2 3.0 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. Theindex is not adjusted for seasonality effects./2 NARs 2014 Profile of Home Buyer and Sellers (HBS) reportsthat among primary residence home buyers,33 percent were first-time homebuyers. The HBS surveys primary residence home buyers, while the monthly RCISurvey surveys REALTORS and captures purchases for investment purposes and vacation/second homes.


5/32

Page | 2

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 fortheREALTORS Confidence Index-Current Conditionsacross property types all rose inDecember 2014 compared to November 2014. The index for single-family homes was 51 (49 inNovember 2014; 59 in December 2013). The indexes for townhomes and condominiums werebelow 50. REALTORS continued to report that financing for condominiums is difficult toobtain because of FHA financing eligibility regulations. An index above 50 indicates that thenumber of respondents who viewed their markets as strong outnumbered those who viewedthem as weak.2

Rising employment, although accompanied by weak wage growth, and the decline in the30-year fixed mortgage rate to slightly less than 4 percent since October 2014 likely accounted

for the uptick in market activity.

Confidence about the 6-Month Outlook Improved

Confidence about the outlook for the next six months improved significantly inDecember. In the single family market, theREALTORS Confidence Index - Six-month

2 An index of 50 delineates moderate conditions and indicates a balance of respondents havingweak(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 isnot adjusted for seasonality effects.

51

37

33

0

20

40

60

80

200801

200805

200809

200901

200905

200909

201001

201005

201009

201101

201105

201109

201201

201205

201209

201301

201305

201309

201401

201405

201409

REALTORS Confidence Index - Current Conditions--

as of Dec 2014 RCI Survey

(50="Moderate" Conditions)

SF Townhouse Condo


6/32

Page | 3

Outlook increased to 67 (60 in November 2014; 66 in December 2013). An improving jobsmarket, the decline in the 30-year mortgage rate to about 4 percent, and recent measures by theFederal Housing Authority to lower the monthly mortgage insurance premium from 1.35 percentto 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.

However, REALTORS in the states that are heavily reliant on oil and gas such asTexas and North Dakota have cautioned that the slump in oil prices may lead to employmentcutbacks, leading to a slowdown in the housing sector.

Expectations about the market for townhomes and condominiums also turned morepositive although broadly weak (below 50). REALTORS continued to report about thedifficulty of obtaining FHA financing for condominiums, typically the entry point forhomeownership.

The following graphs show theREALTOR Confidence Index-Six-month-Outlook bystate 3 as well as employment growth, a key driver of housing demand. Across many states, theindex was greater than 50, which means that the number of respondents who have a strongoutlook outnumbered those with weak outlook. The outlook for single family homes wasstrongest 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 growthdue 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 foreach state. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30observations.

67

49

45

0

20

40

60

80

200801

200805

200809

200901

200905

200909

201001

201005

201009

201101

201105

201109

201201

201205

201209

201301

201305

201309

201401

201405

201409

REALTORS Confidence Index - Six Month Outlook--as of Dec 2014 RCI Survey

(50="Moderate" Outlook)

SF Townhouse Condo


7/32

Page | 4

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



8/32

Page | 5

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


Non-farm Employment

Year-on-Year Growth in Dec 2014


9/32

Page | 6

REALTORS Buyer and Seller Traffic Indexes Increased in December 2014

Buyer and seller traffic broadly increased in many local markets in December 2014compared to November, although weaker compared to a year ago. Although supply has beenimproving, 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, althoughsupply is still broadly weak ( 35 in November 2014; 43 in December). An index below 50indicates that more REALTOR respondents viewed traffic conditions as weak compared tothose who viewed conditions as strong.

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

4Every 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 thenation. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peekahead at sales trends two to three months into the future. For the month of December, the diffusion index for foottraffic 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 suggesthow much of a change in traffic there was, just that more than half of the markets tracked experienced more foottraffic in December of 2014 than 12 months earlier.

47

38

20

30

40

50

60

70

80

200801

200805

200809

200901

200905

200909

201001

201005

201009

201101

201105

201109

201201

201205

201209

201301

201305

201309

201401

201405

201409

REALTORS Buyer and Seller Traffic Indexes--

as Dec 2014 RCI Survey

(50="Moderate" Conditions)

Buyer Traffic Index Seller Traffic Index


10/32

Page | 7

Home Price Growth Contined to Slow in December 2014

With home prices now close to their peak levels, home prices continue to increasemodestly. Appproximately 47 percent of REALTOR respondents reported that the price oftheir averagehome transaction was higher in December compared to a year ago (53 percent inNovember 2014; 60 percent in December 2013). The median home price of an exisiting home asof 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 homeprices rebounded starting in 2012.


11/32

Page | 8

REALTORS Expect Modest Price Growth in the Next 12 Months

REALTORS expected prices to increase modestly in the next 12 months, with themedian at about 3.2 percent. The map shows the median expected price change in the next 12months 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 ofthe West Coast region, South Carolina and Georgia (orange) prices are expected to increase 3-4percent. 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 oilprices.

5 In generating the median price expectation at the state level, we use data for the last three surveys to haveclose to 30 observations. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than30 observations.

43%

10%

47%

0%

20%

40%

60%

80%

201203

201205

201207

201209

201211

201301

201303

201305

201307

201309

201311

201401

201403

201405

201407

201409

201411

Percentage Distribution of REALTOR Respondents

Reporting Price Change from a Year Ago--

as of Dec RCI Survey

Higher Lower Unchanged


12/32

Page | 9

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


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 at98 days (116 days in November 2014 ; 122 days in December 2013) . Foreclosed propertieswere on market at 61 days (65 days in November 2014; 67 days in December 2013). Non-distressed properties were on the market at 66 days (63 days in November 2014 ; 70 days inDecember 2013).

Approximately 31 percent of properties were on the market for less than a month whensold (32 percent in November 2014;28 percent in December 2013).

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


13/32

Page | 10

0

50

100

150

200

201105

201107

201109

201111

201201

201203

201205

201207

201209

201211

201301

201303

201305

201307

201309

201311

201401

201403

201405

201407

201409

201411

Median Days on Market of Sales Reported By REALTOR

Respondents--as of Dec 2014 RCI Survey

All Foreclosed Short Sales Not distressed

Source: NAR, RCI Survey

All: 66 Foreclosed: 61 Shortsale: 98 Not distressed: 66

31%

16%13%

12%

7% 6% 7% 3% 5%

0%

5%10%

15%

20%

25%

30%

35%

=12

mos

Distribution of Time on Market for Sales Reported by

REALTOR Respondents -Dec 2014 RCI Survey

201312 201411 201412


14/32

Page | 11

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-timehomebuyers appeared to have stayed at the sidelines, with the share of first-time homebuyersdecreasing to 29 percent of existing home sales in December (31 percent in November 2014; 27percent in December 2013 ).7

Access to mortgage financing and the lack of affordable home have been reported to bekey constrains to home ownership of aspiring first-time buyers. Recent policy announcementsare aimed at loosening the credit box for responsible borrowers. The Federal Housing Authorityreduced 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 premiumwill 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 borrowerswho meet their underwriting guidelines along with other requirements such as participating in aborrower education program.

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

7 First time buyers accounted for about 33 percent of all homebuyers based on data from NARs 2014Profile

of Home Buyers and Sellers. This is a survey of primary residence homebuyers and does not capture investorpurchases but does cover both existing and new home sales. TheRCI Surveyis a survey of REALTORS abouttheir transactions and captures purchases for investment purposes and second homes for existing homes..

29%

0%

10%

20%

30%

40%

50%

60%

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

First Time Buyers as Percent of Market*--


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


15/32

Page | 12

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

Sales for Investment Purposes: 17 Percent of Sales

Purchases for investment purposes appeared to be on the uptrend again. The share ofpurchases 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

26% 25% 24% 28% 24% 29% 29% 28% 31% 26%

52% 49% 53% 46% 51% 47% 48% 47%46% 50%

22% 26% 23% 26% 25% 24% 23% 25% 24% 23%

0%

20%

40%

60%

80%

100%

201307

201309

201311

201404

201407

201408

201409

201410

201411

201412

Age Distribution of Buyers for Sales Reported by REALTOR

Respondents-- as of Dec 2014 RCI Survey

Age 34 and under Age 35-55 56+

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

36% 38% 37% 38% 37%

55% 54% 54% 53% 54%

9% 9% 9% 9% 9%

0%

20%

40%

60%

80%

100%

201408 201409 201410 201411 201412

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

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


16/32

Page | 13

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

Second-home Buyers and Relocation Sales

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

17%

0%

5%

10%

15%

20%

25%

30%

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

Sales to Investors as Percent of Market*--


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

9%

59%

32%

0%

10%

20%

30%

40%

50%

60%

70%

Age 34 and under Age 35 - 55 Age 56+

Age Distribution of Homebuyers Purchasing For

Investment Purposes

Source: RCI, 2014 Surveys


17/32

Page | 14

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

11%

0%

2%

4%

6%

8%

10%

12%

14%

16%

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

Second-Home Buyers as Percent of Market*--


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

5%

46%49%

0%

10%

20%

30%

40%

50%

60%


Age Distribution of Second Home Buyers



18/32

Page | 15

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. InDecember 2014, distressed sales accounted for 11 percent of sales: 8 percent of reported saleswere foreclosed properties, and about 3 percent were short sales8. Fewer distressed propertieswere listed on the market, which explains to some degree why investment sales have generallybeen on the decline.

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

14%

0%

2%

4%

6%

8%

10%12%

14%

16%

18%

201104

201106

201108

201110

201112

201202

201204

201206

201208

201210

201212

201302

201304

201306

201308

201310

201312

201402

201404

201406

201408

201410

201412

Relocation Buyers as Percent of Market*--


*Based on most recent sale of the month of REALTOR res ondents.

25%

55%

19%

0%

10%

20%

30%

40%

50%

60%


Age Distribution of Relocation Movers

Due to Job Change



19/32

Page | 16

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

0%

10%

20%

30%

40%

50%

60%

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

Distressed Sales, As Percent of Sales Reported by

REALTOR Respondents*-- as of Dec 2014 RCI Survey

Foreclosed Short Sale

Foreclosed: 8% Shortsale: 3%

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

15

12

5

10

15

20

25

30

200902

200905

200908

200911

201002

201005

201008

201011

201102

201105

201108

201111

201202

201205

201208

201211

201302

201305

201308

201311

201402

201405

201408

201411

Mean Percentage Price Discount of

Distressed Sales Reported by REALTOR Respondents*

(in %)--as of Dec 2014 RCI Survey

Foreclosed Shortsale

%



20/32

Page | 17

Cash Sales: 26 Percent of Sales

Approximately 26 percent of REALTOR respondents reported that their lasttransaction was a cash sale (25 percent in November 2014; 32 percent in December 2013). Theshare of cash sales has declined from an average of about 30 percent. This appears to be tied tothe decline in the share of purchases for investment purposes as well as the decline in share ofsales of distressed properties. Foreign clients, and buyers of second homes and distressedproperties are more likely to pay cash than firsttime home buyers. Less than 10 percent offirst-time homebuyers make an all cash purchase.

12 13

19

9 9

13

0

5

10

15

20

25

Above average Average Below average

Mean Percent Price Discount by Property Condition

of Distressed Sales Reported by REALTOR

Respondents --Average for Jan 2014 - Dec 2014

Foreclosed Short sale

26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

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

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



21/32

Page | 18

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 OctoberDecember 2014, about 66 percent made a downpayment of 6 percent or less. 9 This is a declinefrom the 77 percent figure in early 2009,and contrasts with the 61 percent figure at the beginningof 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 percentdownpayiment has rolled back the annual mortgage insurance premium from 1.35 percent to0.85 percent, saving borrowers about $990 in the first year and potentially attracting about175,000-375,000 homebuyers. The second is the announcement by the government sponsoredenterprises (Fannie Mae and Freddie Mac) that they will accept loans originated with a 3percent down payment for borrowers that meet the standard eligibility underwriting guidelinesand other qualification guidelines such as participating in a borrower education program. 10Borrowers making a low downpayment may still face higher costs for risk adjustment (calledloan level pricing adjustments) in the case of GSE-backed loans, and borrowers will also berequired to purchase private mortgage insurance.11

9 Based on the REALTOR respondents most recent sales for the survey months, which altogether areviewed 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-Release-of-Guidelines-for-Purchase-of-Low-Down-Payment-Mortgages.aspx11 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.

9%

63%

51%

18%

57%

45%

0%

10%

20%

30%

40%

50%

60%

70%

FTHBuyer Investor Second

home

Relocation International Distressed

Sale

Percent of Sales Reported by REALTOR Respondents

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


22/32

Page | 19

International Transactions: 2 Percent of Residential Market

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

12http://www.realtor.org/topics/profile-of-international-home-buying-activity

77%

61%

66%

50%

55%

60%

65%

70%

75%

80%

85%

90%

200906

200909

201002

201005

201008

201011

201102

201105

201108

201111

201202

201205

201208

201211

201302

201305

201308

201311

201402

201405

201408

201411

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.

2.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

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

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

*Based on most recent sale of the month of REALTOR res ondents.


23/32

Page | 20

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 informationreported FICO credit scores of 740 and above; in 2013, the share was hovering at about 60percent. About 2 percent of REALTORS reported a purchase by a buyer with credit score of lessthan 620; in a normal market the share of credit scores below 620 would be closer to 5 percent.

Potential buyers facing credit limitationsmight want to consider a mortgage originationby community banks and credit unions.

2%

51%

47%

0%

10%

20%

30%

40%

50%

60%

70%

201202

201204

201206

201208

201210

201212

201302

201304

201306

201308

201310

201312

201402

201404

201406

201408

201410

201412

Distribution of FICO Scores Reported by REALTOR

Respondents --as of Dec 2014 RCI Survey

< 620 620-740 740+

Source: NAR RCI Surveys


24/32

Page | 21

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 showed252,000 net new payroll job additions in December. Over the last 12 months, that totalnet of new jobs comes to a cool 3 million. The pool of potential homebuyers and theneed 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 2008-09. Therefore, compared with the prior employment peak in 2007, the country has only 2million workers now. In the meantime over these years, the countrys populationincreased by nearly 19 million.

More jobs have pushed down the unemployment rate to 5.6 percent, which would beconsidered 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 weakwage growth is partly reflecting a considerably large number of people who are workingpart-time.

REALTORS are mostly not on any companys payroll and are not included in the wagedata. Commission income comes in lump sum and only if there is a closing. All the timespent driving and doing research means nothing if the property does notclose. REALTOR income also varies greatly from one year to the next and from oneperson to the next.A typical wage rate by industry is shown below. Note the lower wagerate for retail trade. That is why it is rare to see the same Starbucks crew over a 12-month time span. And each new crew tends to spell your name differently.


25/32

Page | 22
http://economistsoutlook.blogs.realtor.org/files/2015/01/P-T-Work.pnghttp://economistsoutlook.blogs.realtor.org/files/2015/01/Civ-Unem.pnghttp://economistsoutlook.blogs.realtor.org/files/2015/01/All-Empl.png


26/32

Page | 23

FHA Lowers Pricing to Reflect Less RiskKen Fears, Director, Regional Economics and Housing Finance Policy

The FHA announced important changes to the pricing of its mortgage insurance today. Thischange 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 ofborrowers locked out of the market in recent years. It will also provide a strong signal, alongwith solid recent employment growth and lower mortgage rates, to first-time buyers who mightbe on the fence. Its not the silver bullet, but an important step toward normalization of thehousing 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. Inhistorical 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 someat closing or more often it is rolled into the balance and financed for the life of the loan. The totalfee, 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-recessionaryperiods over the last 30 years.

Even with the rate reduction, the fee charged by the FHA for its mortgage insurance (6% oforiginated balance) more than covers the expected losses (5%), allowing excess fees to continueto build up the capital reserve to its required minimum of 2.0%. Furthermore, the added volumegenerated by the lower fees will help to ameliorate the income lost by reduced premiums. Inshort, by modestly reducing rates and expanding the pool of borrowers, the FHA is still ontrajectory to meet its capital requirement over a modestly longer horizon, while reducing theamount that it charges borrowers beyond the cost of the program.
http://economistsoutlook.blogs.realtor.org/files/2015/01/Capture.jpg


27/32

Page | 24

Borrower Impact

For a borrower with a $200,000 mortgage, this changes amount to a reduction in the monthlypayment of $83, an improvement of 7.1%, or nearly $1,000 over the first year. By year five, thisborrower 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, achange instituted in 2011. Mortgage rates are expected to rise as much as two percentage pointsin the coming years, which will significantly reduce borrowers ability and incentive to refinanceout of the FHA program as they have done in recent years. As a result, this change will have alarger 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 theconventional market. The FHA pools its expenses for low and higher risk borrowers, thusallowing it to provide lower average pricing than the private market would for moderate riskborrowers. To do so, the FHA must maintain some lower risk borrowers in its portfolio, vets itsborrowers, and provides only vanilla products with no risky features. High pricing of its MIcaused 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 willdraw thousands of credit worthy borrowers back into the market. NAR Research estimates thatthe fee reduction will price in an additional 1.6 million to 2.1 million renters along with manytrade-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 housingfinance 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 tocompete for these homebuyers in the interim. As depicted below in yellow, the pricing advantage
http://economistsoutlook.blogs.realtor.org/files/2015/01/2.jpg


28/32

Page | 25

shifts from PMI to FHA for a significant portion of the credit box. Later this year, the FHFA isexpected to announce new capital requirements for the PMI industry as well as a decision on thefuture of the GSEs loan level pricing adjustments (LLPAs). Many have argued that thecombined 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 toits pricing for 2015 are good for consumers and the economy. Itputs 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 andnagging tight credit remain headwinds for the market, but this shift is an important bell weatherof 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%
http://economistsoutlook.blogs.realtor.org/files/2015/01/3.jpg


29/32

Page | 26

November 2014 Housing Affordability IndexMichael 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 lowestmortgage rates in the last 16 months.

Housing affordability is down from a year ago in November as the median price for asingle family home in the US is up from a year ago. Regionally, the Midwest had thebiggest 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 yearover 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 thelargest 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 affordabilityat 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 afew of the influences improving consumer confidence. Recently Fanny Mae and FreddieMac have decided to create new loan programs to help increase credit availability. Aboost in incomes would offset home price gains as price growth is coming back to normallevels.

What does housing affordability look like in your market? View the full data releasehere.

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.
http://www.realtor.org/topics/housing-affordability-index/datahttp://www.realtor.org/topics/housing-affordability-index/datahttp://www.realtor.org/topics/housing-affordability-index/methodologyhttp://www.realtor.org/topics/housing-affordability-index/methodologyhttp://economistsoutlook.blogs.realtor.org/files/2015/01/Nov-2014-HAi.pnghttp://economistsoutlook.blogs.realtor.org/files/2015/01/Nov-HAI.pnghttp://www.realtor.org/topics/housing-affordability-index/methodologyhttp://www.realtor.org/topics/housing-affordability-index/methodologyhttp://www.realtor.org/topics/housing-affordability-index/datahttp://www.realtor.org/topics/housing-affordability-index/data


30/32

Page | 27

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 As we start the New Year, this is a good time to take a look and recap the year behind us tosee what insights 2014 holds for 2015. The last sales data for December 2014 is just nowbeing collected, but we can get a good sense of the year by looking at the data we currentlyhave for the past 12 months. In our first posts, (Part 1,Part 2,andPart 3)we looked atclosings and listings by day. Here, well take a look at contracts.

o Below, we see the most popular under-contract days of 2014[1].Similar to the pattern inhome listings, we see a strong preponderance of spring dates and lack of weekends.

o The biggest months for new contracts were May, April, and June. These months aloneaccounted for about 3 in 10 new contracts in this analysis.

o

While not devoid of contract activity, the weekends are not common contract signingdays. Among weekdays, Mondays, Tuesdays, and Fridays are the most common days fornew 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 in2014.

o While home closings exhibit a strong tendency to get done at the end of the month, contractsare, like listings, much steadier throughout the course of the month. Listings show a slighttendency to be posted earlier rather than later in a month, and contracts have a very slighttendency to be signed more often in the middle of a month rather than at the end.
http://economistsoutlook.blogs.realtor.org/2015/01/12/part-1-ehs-in-2014-by-the-numbers-popular-closing-dates/http://economistsoutlook.blogs.realtor.org/2015/01/13/ehs-in-2014-by-the-numbers-part-2-least-common-closing-dates/http://economistsoutlook.blogs.realtor.org/2015/01/14/ehs-in-2014-by-the-numbers-part-3-popular-listing-dates/http://economistsoutlook.blogs.realtor.org/Users/bsnowden/Documents/2014%20EHS%20Series/201501%20EHS%20by%20the%20numbers%20in%202014%20-%20part%204.docx#_ftn1http://economistsoutlook.blogs.realtor.org/Users/bsnowden/Documents/2014%20EHS%20Series/201501%20EHS%20by%20the%20numbers%20in%202014%20-%20part%204.docx#_ftn1http://economistsoutlook.blogs.realtor.org/2015/01/14/ehs-in-2014-by-the-numbers-part-3-popular-listing-dates/http://economistsoutlook.blogs.realtor.org/2015/01/13/ehs-in-2014-by-the-numbers-part-2-least-common-closing-dates/http://economistsoutlook.blogs.realtor.org/2015/01/12/part-1-ehs-in-2014-by-the-numbers-popular-closing-dates/


31/32

Page | 28
http://economistsoutlook.blogs.realtor.org/files/2015/01/Contract-Week.pnghttp://economistsoutlook.blogs.realtor.org/files/2015/01/Top-contract-dates.png


32/32

[1] This analysis includes listings that went under contract at any point in the period underobservation, December 1, 2013 to November 30, 2014. If two contracts existed in theobservation period on the same listed property because, for example, one contract fell throughand another contract was signed in a later month, both contract dates would be counted as newcontracts in the analysis. Thus, some contracts counted here may have fallen through.
http://economistsoutlook.blogs.realtor.org/Users/bsnowden/Documents/2014%20EHS%20Series/201501%20EHS%20by%20the%20numbers%20in%202014%20-%20part%204.docx#_ftnref1http://economistsoutlook.blogs.realtor.org/Users/bsnowden/Documents/2014%20EHS%20Series/201501%20EHS%20by%20the%20numbers%20in%202014%20-%20part%204.docx#_ftnref1