Existing-Home Sales Rise Again in January

Washington, DC, February 23, 2011

The uptrend in existing-home sales continues, with January sales rising for the third consecutive month with a pace that is now above year-ago levels, according to the National Association of REALTORS®.

Existing-home sales¹, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010. This is the first time in seven months that sales activity was higher than a year earlier.

Lawrence Yun, NAR chief economist, said the improvement is good but could be better. “The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence,” Yun said. “The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.”

A parallel NAR practitioner survey² shows first-time buyers purchased 29 percent of homes in January, down from 33 percent in December and 40 percent in January 2010 when an extended tax credit was in place.

Investors accounted for 23 percent of purchases in January, up from 20 percent in December and 17 percent in January 2010; the balance of sales were to repeat buyers. All-cash sales rose to 32 percent in January from 29 percent in December and 26 percent in January 2010.

“Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it’s not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes,” Yun said.

All-cash purchases are at the highest level since NAR started measuring these purchases monthly in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

The national median existing-home price³ for all housing types was $158,800 in January, down 3.7 percent from January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December; it was 38 percent in January 2010.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said the median price is being dampened by unusual market factors. “Unprecedented levels of all-cash purchases, primarily of distressed homes sold at deep discounts, undoubtedly pulls the median price downward,” Phipps said. “Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value.”

Total housing inventory at the end of January fell 5.1 percent to 3.38 million existing homes available for sale, which represents a 7.6-month supply⁴ at the current sales pace, down from an 8.2-month supply in December. The inventory supply is at the lowest level since December 2009 when there was a 7.3-month supply.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.76 percent in January from 4.71 percent in December; the rate was 5.03 percent in January 2010.

Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.69 million in January from 4.58 million in December, and are 4.9 percent higher than the 4.47 million level in January 2010. The median existing single-family home price was $159,400 in January, down 2.7 percent from a year ago.

Existing condominium and co-op sales increased 4.7 percent to a seasonally adjusted annual rate of 670,000 in January from 640,000 in December, and are 7.9 percent above the 621,000-unit pace one year ago. The median existing condo price⁵ was $154,900 in January, which is 10.2 percent below January 2010.

Regionally, existing-home sales in the Northeast fell 4.6 percent to an annual pace of 830,000 in January from a spike in December and are 1.2 percent below January 2010. The median price in the Northeast was $236,500, which is 4.0 percent below a year ago.

Existing-home sales in the Midwest rose 1.8 percent in January to a level of 1.14 million and are 3.6 percent above a year ago. The median price in the Midwest was $126,300, which is 3.2 percent below January 2010.

In the South, existing-home sales increased 3.6 percent to an annual pace of 2.02 million in January and are 8.0 percent higher than January 2010. The median price in the South was $136,600, down 2.1 percent from a year ago.

Existing-home sales in the West rose 7.9 percent to an annual level of 1.37 million in January and are 7.0 percent above January 2010. The median price in the West was $193,200, down 5.7 percent from a year ago.

The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

# # #

NOTE: NAR also tracks monthly comparisons of existing single-family home sales and median prices for select metropolitan statistical areas, which is posted with other tables at: www.realtor.org/research/research/ehsdata. For information on areas not included in the report, please contact the local association of REALTORS®.

¹Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 to 90 percent of total home sales, are based on a much larger sample – more than 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.
The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.
Single-family data collection began monthly in 1968, while condo data collection began quarterly in 1981; the series were combined in 1999 when monthly collection of condo data began. Prior to this period, single-family homes accounted for more than nine out of 10 purchases. Historic comparisons for total home sales prior to 1999 are based on monthly single-family sales, combined with the corresponding quarterly sales rate for condos.

Also released today are historic data revisions. Each February, NAR Research incorporates a normal review of seasonal activity factors and fine-tunes historic data for the past three years based on the most recent findings. Revisions have been made to monthly seasonally adjusted annual sales rates for 2008 through 2010, as well as the inventory month’s supply data; most revisions are minor with little or no impact on previous characterizations of the overall market. There are no revisions to monthly home prices or raw inventory data (beyond normal prior-month revisions).

Note on Benchmark Revisions: All major statistical data series go through periodic reviews and revisions to ensure that sampling and methodology keep up with changes in the market, such as population changes in sampled areas, to ensure accuracy; we have been examining the existing-home sales data for any issues since late 2010. NAR began its normal process for benchmarking sales earlier this year; there will be no change to median prices. In the past we’ve benchmarked to the decennial Census, most recently to the 2000 Census, because it included home sales data. However, the data are no longer included in the Census, so we’re looking at more frequent benchmarking using a new approach with independent sources to improve our process and modeling. As always, we are consulting with various outside housing economists, government agencies and academic experts for a consensus on the methodology; NAR is committed to providing accurate, reliable data. Publication of the revisions is expected this summer.

²Distressed sales, first-time buyers, investors, all-cash transactions and data for contract cancellations, etc., are from a survey for the REALTORS® Confidence Index, scheduled to be posted March 14.

³The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.

⁴Total inventory and month’s supply data are available back through 1999, while single-family inventory and month’s supply are available back to 1982 (prior to 1999, condos were measured quarterly while single-family sales accounted for more than 90 percent of transactions).

⁵Because there is a concentration of condos in high-cost metro areas, the national median condo price generally is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes.

Existing-home sales for February will be released March 21, the Pending Home Sales Index for February is scheduled for March 28, and the 2010 Vacation and Investment Home study will be published March 30; release times are 10:00 a.m. EDT.

Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section. Statistical data in this release, other tables and surveys also may be found by clicking on Research.

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Don’t Be Mystified By The Mortgage Maze

by Broderick Perkins

Years after the housing market tanked and sank the economy, more than 70 percent of Americans say getting a mortgage today is a serious national problem, according to a new study by MortgageMatch.com, a home loan and information site operated by Move, Inc.

According to the MortgageMatch.com survey, today’s lending environment is so confusing many borrowers are experiencing high levels of stress and frustration.

More than one in five recent home buyers (20.9 percent) told MortgageMatch.com, waiting to hear if they were approved for a mortgage was more stressful than waiting to hear if they got a job.

MortgageMatch.com says home buyers can significantly improve their chances of getting a mortgage application approved on the best possible terms in today’s tough lending marketplace by taking the following steps.

• Pay down your debt as much as you can before applying for a mortgage.

Lenders calculate the ratio of your debt to your income to determine how much you can afford to borrow. Your total debt-to-income is based on how much of your gross income would go toward all of your debt obligations, including mortgage, car loans, child support and alimony, credit card bills, student loans and condominium fees.

By reducing your debt as much as you can, you will improve your debt-to-income ratio and your credit score.

• Clean up your credit long before you apply for a mortgage.

Credit is critical today, not just to get a mortgage but to get the best terms. A marginal credit score can cost you tens of thousands of dollars over the life of the loan. Your score on the 850-point FICO credit rating scale must be 680 today to qualify for a prime loan and at least 720 to get the best rates.

Pull one or all of your three annual credit reports from AnnualCreditReport.com and check yourself, before you wreck yourself.

You’ll have to pay a nominal fee of $10 to $15 to each credit bureau — Equifax, Experian and TransUnion — to get your credit score. Review your report for errors and omissions.

• Don’t make a major purchase on credit and don’t apply for new credit before you apply for a mortgage or at any point before your mortgage closes. Purchases and credit accounts increase your debt and hurt your debt-to-income ratio.

• Increase your down payment. The more you put down the better your rate and your chances at scoring on that loan application. If you can’t increase your money down, buy a cheaper home. Now is not the time to stretch.

• Get all your docs in a row before you apply for a mortgage. Don’t waste time or raise the ire of lenders who are tougher than ever on documentation for income, assets, financial obligations and more. When you apply, have your paperwork ready.

• Know and prepare for your cash requirements. Cash expenses, beyond the down payment can crush you. Closings costs are on the rise. They can include transfer taxes, lenders fees, title insurance, escrow, settlement and home inspection costs. Also upfront property taxes, homeowner association dues homeowner insurance and other costs could come due before you close.

• Larger loans raise your costs. So called “jumbo mortgages” exceed the $417,000 “conforming loan level” in most parts of the country. In high cost areas like New York City, Washington D.C., Miami, and many parts of California, jumbos begin at $729,750. Larger mortgages are more risky so they cost more, require better credit and demand larger down payments.

• Negotiate tough. Ask for a purchase price lower than the value. A lower price serves both you by lowering your loan-to-value ratio and your lender, by reducing its risk. In today’s marketplace, many sellers are willing to deal. Go for it.

• Don’t get taken. When you see rates attractive rates advertised on the Internet or TV don’t froth. They could be come-on or teaser rates with lots of strings attached. In addition, rates change several times during the day and differ by locale, by borrower, by loan-to-value ratio and due to a host of other factors. Advertised rates maybe be what you see, but they are often not what you get.

Thought of the Day

Keeping our motives honest

Motives are important in dealing with other people. If we’re frank with someone and that person gets upset, we might think he or she just can’t handle our directness, our honesty. But “honesty” without love is more like brutal frankness. If we want to be confrontational, we have to put up with the consequences.

But what is the real reason for being confrontational (“honest”), for pointing out others’ flaws? Are we perhaps afraid that our own flaws will be discovered? Are we protecting ourselves by focusing attention on others?

Are my motives always honest?

Higher Power, help me see where my motives are selfish or mean or petty, so that I stay honest in my program. 

Realty Times – Homeownership’s Amazing Benefits

Homeownership’s Amazing Benefits

by Carla Hill

Homeownership brings with it a host of amazing benefits. It’s the American Dream for good reason. From health to wealth, it stands out as a great long-term investment, and that’s why 67 percent of American households are owner-occupied.

The National Association of Realtors (NAR) knows a little something about how homeownership affects American lives. And that’s why they are getting the word out about why you should be a homeowner. According to NAR:

 
• Homeowners are happier and healthier and enjoy a greater feeling of control over their lives. 
• Homeowners pay 80% to 90% of federal income taxes, contributing to federal programs that benefit all Americans. 
• Most homeowners enjoy stable housing costs—a fixed rate mortgage payment might not change for 15 or 30 years while rent typically increases 3% a year. 
• Children of homeowners … are more likely to participate in organized activities and spend less time in front of the television. 
• People who own their own homes … volunteer more and contribute more to their neighborhoods. 
• Home owners do not move as frequently as renters, providing more neighborhood stability. In turn, this stability helps reduce crime and supports neighborhood upkeep. Children of home owners do better in school, stay in school longer …

Many economists have been touting a jobs recovery as the key to the housing recovery, but perhaps it is the other way around.

Recent indicates that housing makes up more than 15 percent of our Gross Domestic, and for every home purchased, up to $60,000 is pushed into the economy over time in improvements and furniture.

Additionally, each home sale touches 80 different occupations!

According to the NAR, “America needs jobs. Housing creates jobs. That’s one of the many reasons home ownership matters to people, to communities, to America. Strong federal government support of home ownership equals strong support for American jobs. We urge the Obama Administration and the U.S. Congress—as they debate the new federal budget and reform proposals for the nation’s mortgage finance system—to continue federal support for home ownership.”

The Real Estate Report

February 2011

Volume 22 No. 2

Valentine’s Day at Home Between the Champagne, prix fixe dinner and a dozen roses, the costs of a romantic night out for Valentine’s Day can quickly add up and might end up being more than you can afford in these tough economic times. This year if money is tight, consider treating your sweetheart to a romantic evening in your own home. This DIY alternative is not only more intimate and less expensive, it also allows you to be more creative and thoughtful in showing your appreciation for your significant other. Here are a couple ideas for celebrating Valentine’s Day in your own home: If you have a fireplace, light it up! If you don’t, this is the perfect occasion to use the soy candle set your sister got you for Christmas. If you’re not an experienced chef, don’t worry—there are plenty of simple recipes for beginners that will still look impressive arranged on your best dinnerware. Many Italian dishes like pizza or spaghetti are cost-effective and fun to make. If you are looking for a less traditional alternative, have breakfast in bed or a picnic on your living room floor. Champagne is typically seen as an expensive drink, but this doesn’t have to be the case. Skip the French vintage and opt for a nice Spanish cava or Italian prosecco, both of which offer many quality selections under $25. This Valentine’s Day, don’t just think pink—think green! What better way to show your sweetheart you care than by showing your love for the planet you inhabit? Make your meal from organic ingredients, buy a recycled card and buy your flowers from a local farmer. This year for Valentine’s Day, don’t stress over trying to get a reservation at an expensive steakhouse. Instead, celebrate your love in the most romantic and intimate setting possible—your own home. Back to the top

Green RemodelingIf you are looking for an exotic way to spruce up your home in 2011, consider using natural building materials. Not only are many of the choices in green building more cost-effective than synthetic alternatives, many times they are more stylish and better for your planet. If you are trying to be environmentally conscious in your home redesign, recycled materials should be used whenever possible. You can find carpets made from 100% recycled content and even countertops, walls and floors that blend recycled glass with concrete. When choosing lumber, look for materials that come from certified and managed forests, like Brazilian Cherry or White Tigerwood, or recycled or reclaimed wood. You can also seek out wood floors made from wood and sisal, a natural grasslike fiber. Another great way to give back to the environment without breaking the bank is with a tankless water heater. They are either gas or electric, although electric tankless water heaters cost less, while gas is more cost efficient. Tankless water heaters only heat water on demand, so you never run out of hot water and you aren’t wasting electricity by heating water when you aren’t using it. Installing a programmable thermostat, which you can program to automatically adjust to your heating or cooling needs up to four times a day, can also help lower your electric bill. If you’re thinking of repainting, be sure to choose a line with low- or no-VOCs. VOCs are volatile organic compounds, an air pollutant that includes toxic solvents and formaldehyde. These components are dangerous for you, your family and the environment, so try to avoid them if at all possible. Back to the top

18.4 Million Vacant Homes in the U.S.A.

If you are still trying to understand why the housing market in the United States is in trouble just read the following paragraph.

Now to vacancies. There were 18.4 million vacant homes in the U.S. in Q4 ’10 (11 percent of all housing units vacant all year round), which is actually an improvement of 427,000 from a year ago, but not for the reasons you’d think.

The number of vacant homes for rent fell by 493 thousand, as rental demand rose. 471,000 homes are listed as “Held off Market” about half for temporary use, but the other half are likely foreclosures. And no, the shadow inventory isn’t just 200,000, it’s far higher than that.

So think about it. Eleven percent of the houses in America are empty. This as builders start to get more bullish, and renting apartments becomes ever more popular. Vacancies in the apartment sector have been falling steadily and dramatically, why? Because we’re still recovering emotionally from the toll of the housing crash. via Diana Olick at CNBC

11 percent or 18.4 million homes in the United States are empty.

To put this in perspective there is only 329,000 homes expected to be built this year.

So lets do the math.

Used Vacant homes / New Home Construction

18,400,000 / 329,000

This means there are 55 EMPTY HOMES for every NEW HOME BEING BUILT THIS YEAR.

Now lets do one last bit of math:

Used Vacant Homes / Home Sales for 2010

18,400,000 / 5,000,000

There is 3.86 empty homes for every home sold last year.

Gulp…

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Priced at $188,900

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Good News Bad News on New Home Sales

by Tom Royce on January 27, 2011

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What do you want first, the good news or the bad news regarding new home sales for 2010?

Good news? Great. First 2010 is over. That is the best news.

The other good news released this week is that new home sales jumped 17.5%  to a seasonally adjusted 329,000 homes for the month of December according to the National Association of Home Builders. They did preface that most of the increase came out of the west, which gained at a 71% rate, and most likely will have to be adjusted.

New Home sales were down 5.0% in the Northeast and up 3.2% in the Midwest and 1.8% in the South.

Now for the Bad News:

Sales for the year 2010 were down 14.4% for the year and ended up at 321,000 homes. This was the lowest number of new homes sold in the United States on record in the country. We started keeping track of new home sales in 1963…

New home sales construction is also at a record low rate. There are only 191,000 new homes in inventory nationwide. For reference, in the heat of the bubble, there were 528,000 new homes for sale in January, 2006. 2005 saw 1.28 million new homes sold.

——

So what does this mean?

Builders are doing the right thing. Until the market returns it is crazy to expose yourself to building homes on spec. My guess is that most of the homes being built right now are on contract and those contracts are much tighter than in 2006.

If you are looking to buy land this is probably a great time, prices are low and demand is weak. Eventually new home construction is going to come back and getting your raw land, or even partially completed properties, will significantly lower your cost basis.

Otherwise, the construction industry is just in a waiting mode for things to settle down.

How Much Home Can I Afford?

Home prices skyrocketed in the early 2000’s, with things really heating up between 2005 and 2007. According to the New York Times, HUD conducted a survey in 2007, finding that home values had risen 16 percent in just those two years. The housing bubble burst in the Spring of 2007 and markets tanked.

Now house values are resetting, with some areas still experiencing declines. In high boom areas, such as Florida, Arizona, and California, homes are having to correct from staggering rises of 20, 30 and even 40 percent in home values. This means values rose, and millions of homeowners bought at the top of the market, now finding themselves upside down in their loans.

Despite the crisis, there are still buyers on the market. But many are wary to make a mistake of buying a home they can’t pay for. How much home can you really afford? Home affordability, in general, is dependant on a range of factors. These include:

Employment status: Do you have a stable job and income? Lenders will want to know if they can rely on you to make monthly payments for many years to come. With an unemployment rate near 10 percent, it’s no wonder a record number of homes are currently in foreclosure. Another way lenders assess your risk is by examining your credit score.

Credit Score: Over your adult life you have been building up a credit score. Every card and loan you have opened has figured into a 3 digit number from 300 – 850. The higher your number, the less “risk” you are perceived to be, and thus, the more likely you’ll be extended higher sums of credit for a lower rate. Car loans, student loans, home loans, credit cards, and personal loans. How faithfully you’ve repaid them, and how many of them you have open, dictates your score.

Number of Dependants: Do you have children or aging parents for whom you are financially responsible? If so, consider medical bills, schools tuition, and daycare when calculating a reasonable budget.

Desired Location: A 2,000 square foot home in rural Nebraska costs dramatically less than the same 2,000 square foot home in the heart of New York City. Prices even range widely by suburb and neighborhood.

Savings: You will need money for a downpayment. Financial Expert Suze Orman recommends you put at least 20 percent down. That means on a $200,000 house, for example, you should have $40,000 in cash to put down. You will also need additional cash for closing costs, as well as repairs and maintenance that are inevitable with homeownership.

Emergency Fund: Do you have a separate savings account worth 8 months of bills? You must have an emergency fund. Just ask the 15 million unemployed. Things do and will happen. If you don’t have this fund, you can’t afford a house. You may be able to “borrow” money for a house … but in reality you really can’t afford one.

Interest Rates: Interest rates are at historical lows. At this writing, the 30-year fixed rate mortgage is 4.74 percent. To put this in perspective, rates in the 1980’s were anywhere from 13 to 18 percent. This means big savings if you are in the position to buy.

Monthly Payments: If you have ever bought a car, one of the first things a salesman will ask you is, “Where do you want your monthly payment to be?” It’s all about rates and downpayments with lenders. Yes, it is important that your monthly mortgage payment is no more than 1/3 of your monthly income, but don’t be coaxed into buying a home you can’t really afford just because the monthly payments are appealing (hello, subprime mortgage crisis).

Now, all that said, this next idea may seem a bit radical for some of you. There is a movement among some Americans to not only reduce their debt, but to get completely out from under it. This translates implicitly into the home buying process.

We have become a nation increasingly driven by the bigger and better. Need we say more than “McMansions.” It is a culture of debt, where even the national government owes $14 trillion. And no, not every country has national debt. The United States, though, leads the way.

So, what if you could buy a much smaller house, or a house in a much less prominent neighborhood, and avoid a mortgage payment altogether?

The idea is nearly unheard of in this country. But it could be one that will begin to gain ground as many families struggle to makes ends meet, and even more families learn the hard lesson about home affordability. The truth of the matter is this. If you are paying a mortgage, you do not own your home. It doesn’t matter if you’ve paid on a loan for 1 year or 29, if you default, the home is property of the bank.

“But what about Joe Smith, who works in the same office and makes $150,000 a year. He just bought that $500,000 house. I should have that same standard of living.” This is what is partially responsible for the bubble we saw in the last decade. Keeping up with the Jones.

Consider for a moment what it is in your life that is really important. No doubt you will quickly pull to mind your family and closest friends. You may think about a full refrigerator, a safe city, and a clean bill of health. These are things found in small homes, the same as large.

Success is not measured by the size of house you own. So, if you are in the market to become a homeowner, be sure to consider what it could mean to buy truly within your means. Does it mean saving for a few more years and then buying a fixer upper? Does it mean the smaller house in the less prestigious neighborhood is in your budget?

In recent years, “What can I afford?” has turned into “How much monthly payment can I afford?” or “How much credit am I approved for?” These do not equate with affordability. Perhaps it is time to think long and hard about what kind of home is appropriate for you and your family. You may find that travertine and granite can be forgone for a nice kitchen table and family meals.

Published: January 26, 2011