October 2018 Housing Affordability Index

At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates rose to 4.88 percent this October, up 18.7 percent compared to 4.11 percent a year ago.

  • Housing affordability declined from a year ago in October moving the index down 9.7 percent from 162.7 to 146.9. The median sales price for a single family home sold in October in the US was $257,900 up 4.3 percent from a year ago.
  • Nationally, mortgage rates were up 77 basis point from one year ago (one percentage point equals 100 basis points).
  • The payment as a percentage of income was unchanged from last month at 17 percent this October but up from 15.4 percent from a year ago. Regionally, the West has the highest payment at 23.7 percent of income. The South had the second highest payment at 16.5 percent followed by the Northeast at 16.1 percent. The Midwest had the lowest payment as a percentage of income at 13.5 percent.

  • Regionally, the South recorded the biggest increase in home prices at 3.6 percent. The Northeast had an increase of 3.0 percent while the West had a gain of 2.5 percent. The Midwest had the smallest growth in price of 1.4 percent.
  • Regionally, all four regions saw a decline in affordability from a year ago. The Midwest had the biggest drop in affordability of 9.6 percent. The South had a decline of 9.1 percent followed by the Northeast that fell 9.0 percent. The West had the smallest drop of 7.5 percent.
  • On a monthly basis, affordability is down from last month in three of the four regions. The Northeast region had the only gain of 1.7 percent. Both the Midwest and the West shared a decline of 0.6 percent. The South had the smallest dip in affordability of 0.1 percent.

  • Despite month-to-month changes, the most affordable region was the Midwest, with an index value of 185.0. The least affordable region remained the West where the index was 105.3. For comparison, the index was 151.6 in the South, and 154.9 in the Northeast.
  • Mortgage applications are currently up. Mortgage rates continue to rise and home price growth is slowing down to catch up with incomes. Single-family homes are still moving at a face pace however tend to slow down during fall and winter season. Inventory of homes are currently up, which is a welcoming sign for potential homebuyers. Home prices are up 4.3 percent, median family incomes that are growing 3.1 percent helping reduce the pressure of home price growth.
  • What does housing affordability look like in your market? View the full data release here.
  • The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

Property Values By State from 2005-2018

Home price appreciation is an important topic in today’s economy. Using data from the American Community Survey (ACS), we can analyze the gains and losses of property values over time. I estimated the median property values by state in 2018 using the FHFA index and the median property values from the (ACS). I then calculated the growth rate from 2005 -2018. [1]

The states with the highest estimated median property values in 2018 are The District of Columbia ($677,473), Hawaii ($649,272), California ($566,311), Massachusetts ($428,161) and Washington ($384,740).

The states with the lowest estimated median property values in 2018 are Alabama ($148,827), Oklahoma ($139,385), Arkansas ($135,733), Mississippi ($123,586) and West Virginia ($120,720).

On a regional level, the estimated price growth appears to be the strongest in the South, West, and Midwest. Price growth is weakest in the Northeast states. Overall, all regions are displaying strong to moderate growth in property values. Below is a breakdown of the Census four regions by state.

 

  • In the South, which typically leads all regions in sales, The District of Columbia led the region with 76 percent estimated price growth from 2005 to 2018. Maryland experienced 1 percent annual price growth and since 2005, home prices have grown 21 percent.

  • In the West, the least affordable region[2], Montana led all states with 88 percent price growth from 2005 to 2018. Despite the strong price growth in California since 2012, prices have only increased by 19 percent since 2005. Nevada shows a 9 percent price change over this time turning around any previous loss in value.

  • In the Midwest where affordability is most favorable, North Dakota led all states with 115 percent price growth from 2005 to 2018. Illinois, while having the smallest growth in the region had an estimated 12 percent price growth over this time.

  • In the Northeast where sales and price growth is typically slow, Pennsylvania lead the region with a 48 percent price growth from 2005 to 2018. Rhode Island, while having the smallest gain of all states, increased 6 percent price change over this time. Rhode Island is one of two states that turned around a negative property value over this time compared to 2017.


[1] I used the FHFA expanded data set not seasonally adjusted data.

[2] Based on NAR housing affordability index

Can Homeowners Cope with Lower Home Prices?

With interest rates on the rise, home prices have started cooling off.[1] On the one hand, the cooling of home prices in high-priced metro areas makes a home purchase more affordable, saving households nearly $50/month on a median-priced home.[2] On the other hand, falling prices also erodes the wealth (home equity gains) of current homeowners and can drive homeowners in a negative equity position (when the value of the home is lower than the remaining loan balance). How will declining home prices affect current homeowners and how does the current decline in home prices in some areas compare with the home equity gains?

The table below shows the home equity gains for homeowners who purchased a home in 2012 Q1 as of 2018 Q3. The home equity gained is the difference between the estimated value of the property purchased in 2012 Q1 in 2018 Q3 less the outstanding loan balance as of 2018 Q3.[3] Nationally, over the period 2012 Q1 through 2018 Q3, a homeowner who purchased a median-priced home in 2012 Q1 has gained $96,187 in home equity, which is equivalent to 41 percent of the estimated value of the home in 2018 Q3, at $235,119.

Of the 160 metro areas for which NAR calculates the median sales price, the metro areas where homeowners accumulated the largest home equity gains during 2012 Q1 – 2018 Q3 based on the purchase of a median-priced home in 2012 Q1 were San Jose-Sunnyvale-Sta. Clara ($591,576;56% of the estimated home value of $1.06 million as of 2018 Q3); San Francisco-Oakland-Hayward ($527,610; 57% of the current home value of $920,715); Urban Honolulu, HI ($337,013; 35% of current home value of $990,009); Los Angeles-Long Beach-Glendale ($374,565;49% of current home value of $768,634); and Boulder, CO ($329,608; 50% of current home value of $657,692).

The metro areas with the lowest home equity gains during 2012 Q1- 2018 Q3 based on the purchase of a median-priced home in 2012 Q1 were Cumberland, MD ($4,847; 6% of current home value of $79,343); Decatur, IL ($10,753; 12% of current home value of $86,302); Fayetteville, NC ($15,431; 11% of current home value of $138,627); Montgomery, AL ($17,641; or 15% of $119,252); and Peoria, IL ($17,679; or 14% of current home value of $128,818).

 

How do these equity gains compare with the price declines in high-cost metro areas thus far?  

We use the median list price in October 2018 on Realtor.com and look at the year-over-year change and compare these changes to the equity gains as a share of the current home values. In October 2018, median list prices declined in several high-priced metro areas compared to one year ago, but these declines are modest compared to the equity gains measured as a percent of the current home value: San Jose-Sunnyvale-Sta. Clara (-0.1%); San Francisco-Oakland-Hayward (0%); Sta. Maria-Sta. Barbara (-7.8%); Salinas ( -6%); Sta. Rosa ( -7.1%); Oxnard-Thousand Oaks-Ventura ( -2.1%). Among the 500 metros tracked by Realtor.com, the steepest decline in the median list price in October from one year ago was Denver-Aurora-Lakewood (10%).

In 301 of the 500 metro areas tracked by Realtor.com (60 percent), the median list price of homes for sale on Realtor.com were still up in October 2018 compared to one year ago.  List prices rose in areas such as Seattle-Tacoma-Bellevue where prices are more affordable than in California ($555,050; 12.1%); Boise City, ID ($330.048; 15%); Indianapolis-Carmel-Anderson, IN ($241,450; 15%); Greensboro-High Point, NC ($223,625; 14.5%);Las Vegas-Henderson-Paradise ($325,000; 14.5%), and Harrisburg-Carlisle, PA ($216,760; 14%).

 

In summary, homeowners have built up a sizable equity since 2012 that is larger relative to the price declines that have occurred thus far in several high-priced metro areas. Moreover, home prices are still appreciating in lower-priced metro areas. Given the strong underlying economic fundamentals in 2018— strong employment growth, the demographic boost from the 25-44 age group which includes the millennials, and safer underwriting standards and level of household debt—it does not yet appear likely that home prices will crash to a level that will wipe out this home equity gain. NAR Chief Economist Lawrence Yun forecasts no recession ahead that could cause a collapse in job growth which will impact the demand for housing.

 


[1] The earliest indicator of the direction of home prices—NAR’s median home prices— rose 4.3 percent in 2018 Q3, the slowest average rate for the quarter since 2012 Q1. The home price indices of the Federal Housing Finance Agency, S&P CoreLogic Case-Shiller, and the U.S. Census Bureau for new 1-family homes also show a slower price appreciation in 2018 Q3 (FHFA, 6.3%; S &P CoreLogic Case-Shiller, 5.7%; U.S. Census Bureau 1-family homes, 2.3%) compared to the pace of appreciation in 2018 Q1.In 500 metro areas tracked by Realtor.com, the median list price of homes for sale declined in 199 metro areas (40 percent), with the largest declines occurring in high-priced metro areas.

[2] At the current 30-year fixed mortgage rate of 4.83 percent with a 10 percent down payment, every $10,000 decline in home prices results in a saving of $47/month.

[3] I estimated home equity by subtracting the loan balance as of 2018 Q3 to the current home value as of 2018 Q3. I estimated the current home value by applying a home price appreciation factor using FHFA House Price Index (FHFA HPI 2018 Q3/ FHFA HIP 2012 Q1). I assumed that a homeowner purchased a median-priced home in 2012 Q1 at the average median price in 2012 Q1 of $158,333 financed by a 30-year fixed rate mortgage of 3.6 percent (2012 Q1 average) and a 10 percent down payment.

October 2018 Pending Home Sales

  • NAR released a summary of pending home sales data showing that October’s pending home sales pace was down 2.6 percent last month and fell 6.7 percent from a year ago.
  • Pending sales represent homes that have a signed contract to purchase on them but have yet to close. They tend to lead existing-home sales data by 1 to 2 months.
  • All four regions showed declines from a year ago. The West had the biggest drop in sales of 15.3 percent. The Midwest fell 4.9 percent followed by the South with a decline of 4.6 percent. The Northeast had the smallest dip in sales of 2.9 percent.
  • From last month, three of the four regions showed declines in sales. The West region had the biggest drop of 8.9 percent. The Midwest fell 1.8 percent followed by the South with a dip of 1.1 percent. The only region with an incline in sales was the Northeast, which had a modest gain of 0.7 percent.
  • The U.S. pending home sales index level for the month was 102.1. September’s data was revised up to 104.8.

  • In spite of the decline, this is the pending index’s 54th consecutive month over the 100 level.
  • The 100 level is based on a 2001 benchmark and is consistent with a healthy market and existing-home sales above the 5 million mark.

REALTORS® Confidence Index Survey: October 2018 Highlights

The REALTORS® Confidence Index (RCI) survey[1] gathers monthly information from REALTORS® about local real estate market conditions, characteristics of buyers and sellers, and issues affecting homeownership and real estate transactions.[2] This report presents key results about market transactions from October 2018. View and download the full report here.

Market Conditions and Expectations

  • The REALTORS® Buyer Traffic Index registered at 45 (60 in October 2017).[3]
  • The REALTORS® Seller Traffic Index registered at 40 (45 in October 2017).
  • The REALTORS® Confidence Index—SixMonth Outlook Current Conditions registered at 49 for detached single-family, 42 for townhome, and 40 for condominium properties. An index above 50 indicates market conditions are expected to improve.
  • Properties were typically on the market for 33 days (34 days in October 2017).
  • Seventy-six percent of respondents reported that home prices remained constant or rose in October 2018 compared to levels one year ago (89 percent in October 2017).

Characteristics of Buyers and Sellers

  • First-time buyers accounted for 31 percent of sales (32 percent in October 2017).
  • Vacation and investment buyers comprised 15 percent of sales (13 percent in October 2017).
  • Sales of distressed properties (foreclosed or sold as a short sale) accounted for three percent of sales (four percent in October 2017).
  • Cash sales made up 23 percent of sales (20 percent in October 2017).
  • Eighteen percent of sellers offered incentives such as providing warranty (8 percent), paying for closing costs (8 percent), and undertaking remodeling (3 percent).[4]

Issues Affecting Buyers and Sellers

  • From August–October 2018, 74 percent of contracts settled on time (73 percent in October 2017).
  • Among sales that closed in October 2018, 72 percent had contract contingencies. The most common contingencies pertained to home inspection (58 percent), obtaining financing (43 percent), and getting an acceptable appraisal (40 percent).
  • REALTORS® report “interest rate” and “low inventory” as the major issues affecting transactions in October 2018.

About the RCI Survey

  • The RCI Survey gathers information from REALTORS® about local market conditions based on their client interactions and the characteristics of their most recent sales for the month.
  • The October 2018 survey was sent to 50,000 REALTORS® who were selected from NAR’s 1.3 million members through simple random sampling and to 9,121 respondents in the previous three surveys who provided their email addresses.
  • There were 3,863 respondents to the online survey which ran from November 1-9, 2018. The survey’s overall margin of error at the 95 percent confidence level is two percent. The margins of error for subgroups and sample proportions of below or above 50 percent are larger.
  • NAR weighs the responses by a factor that aligns the sample distribution of responses to the distribution of NAR membership.

The REALTORS® Confidence Index is provided by NAR solely for use as a reference. Resale of any part of this data is prohibited without NAR’s prior written consent. For questions on this report or to purchase the RCI series, please email: Data@realtors.org


[1] Thanks to George Ratiu, Managing Director, Housing and Commercial Research and Gay Cororaton, Research Economist for their data analysis and comments to the RCI Report.

[2] Respondents report on the most recent characteristics of their most recent sale for the month.

[3] An index greater than 50 means more respondents reported conditions as “strong” compared to one year ago than “weak.” An index of 50 indicates a balance of respondents

who viewed conditions as “strong” or “weak.”

[4] The difference in the sum of percentages to the total percentage of sellers who offered incentives is due to rounding.

With Higher Mortgage Rates, REALTORS® Expect Slightly Weaker Market Conditions Over the Next Six Months According to NAR October 2018 Survey

With interest rates on the rise, REALTORS® expect the housing market to slightly weaken over the next six months compared to current conditions, according to NAR’s  October 2018 REALTORS® Confidence Index Survey. For the first time since January 2012, the REALTORS® Confidence Index: Six-Month Outlook[1] registered below 50 across all family types: detached single-family homes, 49; townhomes, 42; and condominiums, 40. One year ago, all the values were above 50 (single-family home index, 67; townhomes, 56; condominiums, 53). The sharpest expected weakening is in the detached single-family homes market which accounts for about 80 percent of closed sales. An index below 50 means more respondents expect market conditions to weaken than to strengthen over the next six months compared to current conditions.

In 42 states, the six-month outlook indices compiled from respondents in the August-October 2018 surveys are lower compared to the six-month outlook indices compiled from the August-October 2017 surveys.[2] The lower the index, the less optimistic is the six-month outlook.

With employment still growing strongly and housing construction increasing, albeit modestly, rising interest rates appear to be the primary driving force behind the slowdown in home closings. Higher interest rates negatively affect both would-be home buyers and sellers, as homebuyers have to shell out more for the monthly mortgage and to bring a bigger down payment to the table, while current homeowners who are considering selling their home may find their current mortgage payment more affordable unless they make a bigger down payment. It is worth pointing out that the 30-year fixed rate for mortgages is still low compared to historical levels, including during the period 2000-2008, but rates are now about 100 basis higher from the level one year ago, and the rate increase, along with higher home prices homes, has added about $163 dollars in monthly mortgage payment on a median priced home financed with a 30-year fixed rate and a 10% down payment.

Rate-Lock Effect on Would-be Home Sellers

For some homeowners who may initially have wanted to move, the higher mortgage payment may be enough disincentive for them to stay in their current home. How many current home owners and would-be sellers may not want to move to keep their current mortgage payment?

We can start by looking at the number of homebuyers during 2012 -2013 when mortgage rates were low. There were 6.6 M homebuyers during January 2012-May 2013 when the average mortgage rate was 3.61 percent. According to NAR’s REALTORS® Confidence Index Survey, 20 percent of homebuyers during this period were for investment purpose, so 80 percent or 5.2 million were for primary residential use. According to NAR’s 2013 Profile of Home Buyers and Sellers, six percent of the primary residential buyers who purchased a property in 2012 had an expected tenure of five to six years, or in 2018. Using the six percent ratio on the 5.2 million primary residential buyers in January 2012- May 2013, we get an upper bound estimate of 317,088 homeowners who may decide not to move due to the rate lock effect, which is equivalent to six percent of the 2017 existing home sales. This is an upper bound because the decision to move is related to other factors such as changes in family situation, job relocation, the desire to move to a new school district or to a neighborhood more fitted to the household’s lifestyle or needs, or other reasons.

If current homeowners do need to move for non-financial reasons, they need to put in a bigger down payment so that the future monthly mortgage is about the same as the existing mortgage. Nationally, the “break even” down payment needed is about 40 percent (see Table below) which is still feasible if all the equity gained since 2012 is put in as a down payment on the new home. (Equity calculations: A homeowner who purchased a median priced home in 2012 Q1 at $158,333 at a 30-year fixed rate of 3.92 percent and who put in a 10 percent down payment gained an equity of $92,153, which is 40 percent of the estimated value of that same home in 2012 Q2 of $231,621, with the estimate derived by applying a 42 percent home price growth rate from 2012 Q1- 2018 Q2 using the Expanded Data-FHFA House Price Index (SA) for the US).

About the Realtors® Confidence Index Survey

The RCI Survey gathers information from REALTORS® about local market conditions based on their client interactions and the characteristics of their most recent sales for the month. The October 2018 survey was sent to 50,000 REALTORS® who were selected from NAR’s1.3 million members through simple random sampling and to 9,121 respondents in the previous three surveys who provided their email addresses, with 3,863 respondents. NAR weights the responses by a factor that aligns the sample distribution of responses to the distribution of NAR membership. The REALTORS® Confidence Index is provided by NAR solely for use as a reference. Resale of any part of this data is prohibited without NAR’s prior written consent. For questions on this report or to purchase the RCI series, please email: Data@realtors.org.


[1] In a monthly survey of REALTORS®, respondents are asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you conduct most of your business?” Respondents rate conditions as “Stronger” (100), “Stable” (50), or “Weaker” (0) and the responses are compiled into a diffusion index. An index greater (lower) than 50 means more (fewer) respondents reported “stronger” than “weaker” conditions in the reference month compared to the conditions in the same month last year. A higher value of the index in any reference month compared to the value in another reference month means a larger fraction of respondents reported “stronger” conditions in the former period than the fraction of respondents who reported “stronger” in the latter period.

[2] In generating the indices, NAR uses data for the last three surveys to have close to 30 observations. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations.  

 

October 2018 Existing-Home Sales

  • NAR released a summary of existing-home sales data showing that housing market activity this October, bounced back after six straight months of declines and was up 3.4 percent from last month, but dropped 5.1 percent from last year. October’s existing-home sales reached a 5.22 million seasonally adjusted annual rate.

  • The national median existing-home price for all housing types was $255,400 in October, up 3.8 percent from a year ago. This marks the 80th consecutive month of year-over-year gains.

  • Regionally, all four regions showed growth in prices from a year ago, with the South leading all regions with 3.8 percent. The Northeast had a gain of 3.0 percent followed by the Midwest with a gain of 2.4 percent. The West had the smallest gain of 1.9 percent from October 2017.
  • October’s inventory figures are down from last month 1.6 percent to 1.85 million homes for sale. Compared with October of 2017, there was a 2.8 percent increase in inventory levels. It will take 4.3 months to move the current level of inventory at the current sales pace. It takes approximately 32 days for a home to go from listing to a contract in the current housing market, down from 34 days a year ago.

  • From September 2018, only the Midwest experienced declines in sales of 0.8 percent. The West had the biggest incline of 2.8 percent followed by the South with a gain of 1.9 percent. The Northeast had the smallest increase of 1.5 percent.
  • All four regions showed declines in sales from a year ago. The West had the biggest drop in sales of 11.2 percent. The Northeast had a decline of 6.8 percent followed by the Midwest with a decline of 3.1 percent. The South had the smallest drop in sales of 2.3 percent. The South led all regions in percentage of national sales, accounting for 41.2 percent of the total, while the Northeast had the smallest share at 13.2 percent.

  • In October, single-family sales were up 0.9 percent and condominiums sales were up 5.3 percent compared to last month. Single-family home sales fell 5.3 percent and condominium sales were down 3.2 compared to a year ago. Single-family homes had an increase in price up 4.3 percent at $257,900 and condominiums fell 0.2 percent at $236,200 from October 2017.

FHA will not cut mortgage insurance premiums

The Federal Housing Administration released details on the health of its flagship Mutual Mortgage Insurance Fund on Thursday, revealing a positive economic net worth of $34.86 billion and an acceptable ratio of capital reserves at 2.76%. The numbers are markedly better than last year, but FHA Commissioner Brian Montgomery said that doesn’t mean the agency will be reducing mortgage insurance premiums any time soon.