Monthly Archives: April 2016

Drive increase in existing home

Existing home sales increased in September driven mainly by the drastic increase in first-time homebuyers, which reached the highest share of homebuyers in four years, according to a new report from the National Association of Realtors.

Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2% to a seasonally adjusted rate of 5.47 million in September. This is up from a downwardly-revised 5.3 million in August. Sales are actually at their highest pace since June, and 0.6% above last year’s 5.44 million.

“The home search over the past several months for a lot of prospective buyers, and especially for first-time buyers, took longer than usual because of the competition for the minimal amount of homes for sale,” NAR Chief Economist Lawrence Yun said.

“Most families and move-up buyers look to close before the new school year starts,” Yun said. “Their diminishing presence from the market towards the end of summer created more opportunities for aspiring first-time homeowners to buy last month.”

First-time homebuyers increased to 34% of the market share, the highest share since July 2012. It is up from 31% in August and 29% last year.

A new survey from Zillow shows the importance of Millennials in the housing market. This new generation may not only be fueling the housing market, but also changing it, according to the survey.

“There’s hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring,” Yun said. “The market fundamentals – primarily consistent job gains and affordable mortgage rates – are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate.”

All major regions saw an increase in closings in September, according to the report. Furthermore, distressed sales fell to a new low of 4% of market sales.

The median existing home price also increased 5.6% annually for all housing types in September to $234,200, up from $221,700 last year. This is the 55th consecutive month with year-over-year gains.

“The result of increasing housing demand coupled with limited supply is that house prices are rising, as indicated by all measures of house price appreciation,” NationwideChief Economist David Berson said. “While house prices are highly seasonal, compared with prices from a year ago, median existing home prices are up solidly.”

“The downside of above-average house price gains is that affordability suffers, although the other elements of housing demand are offsetting this,” Berson said. “The upside of above-average house price gains is that current homeowners, about 63% of all households, are wealthier. This is a big reason why the Federal Reserve noted that household assets and net worth have risen to all-time highs.”

Housing inventory actually increased monthly in September by 1.5% to 2.04 million homes for sale. This is still down 6.8% from last year’s 2.19 million. This marks the 16th consecutive annual decrease in inventory. Unsold inventory is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August.

“Existing inventory in September rebounded from record lows in August, when controlling for seasonality and household formation, Trulia Chief Economist Ralph McLaughlin said. “That said, September was the second lowest on record.”

Yun expects that inventory will only continue to decline this year.

“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in,” he said. “Unfortunately, there won’t be much relief from new home construction, which continues to be grossly inadequate in relation to demand.”

Single family home rentals

Single-family rental returns dropped to the lowest level in nine years for homes purchased so far in 2016 among the 473 counties analyzed in the Q3 2016 Single Family Rental Market Report from ATTOM Data Solutions, a source for housing data and the parent company of RealtyTrac.

The average annual gross rental yield, defined as the monthly rent, annualized, divided by the median home price, came in at 8.7% in the first seven months of 2016, according to the report. This is down from 8.8% in 2015, and the lowest level since 2007’s 7.3%.

“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” ATTOM Senior Vice President Daren Blomquist said. “After a drop-off in single family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.”

“Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single-family homes, one in every four single-family homes, these single-family rental investors will be an important and likely growing force in the real estate market for years to come,” Blomquist said.

During the first seven months of 2016, 2.7% of all single-family home sales were purchased by institutional investors. This is an increase of 29% from the 2.1% share in 2015.

“The single-family rental operations have been proven in a public market,” said Gary Beasley, CEO and co-founder at Roofstock, an online marketplace for performing, tenant-occupied single-family rental homes. “These homes can be managed like apartments.”

“When we first got started, we thought we could do that, but in the last year or so investors are really starting to believe it,” Beasley said. “You’ve seen a couple of the public companies ramp back up on buying along with other institutional investors who have been on the sidelines who now want to get involved.”

Does home cheaper than renting

Home prices are rising across the nation to levels not seen since before the housing crisis and yet, it’s still cheaper to buy than rent, according to a new study by online real estate listing service Trulia.

Buying a home is 37.7% cheaper than renting on a national basis for those who move every seven years and place 20% down. This is even more affordable than last year’s 37.2%.

Buying is becoming more affordable than renting even while the median home prices continues to rise. The median existing home price increased 5.6% annually for all housing types in September to $234,200, according to the National Association of Realtors.

Buying is actually cheaper than renting in all 100 of the largest metropolitan areas in the U.S.

How much cheaper ranges from 20% in Honolulu and San Francisco to 50% in Miami and Ft. Lauderdale, Florida.

While the Fed may raise interest rates this year, rising home prices actually pose a larger threat to affordability. In order to wipe out the financial advantage of buying, mortgage rates would need to more than double, according to the report. On the other hand, prices would need to increase 67%.

In areas like San Jose, California, prices would only need to increase 24%, and rates would have to increase by 45% for buying to cost the same as renting.

Mortgage rates increased this week to pre-Brexit levels, however they still remain historically low.