Category: real estate market

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—Six–Month 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 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.  

• 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.

The workforce is moving to less affordable areas.

– In the last 12 months, more than 1.7 million LinkedIn members who lived in the 20 largest metropolitan areas moved from a more affordable place to a less affordable place.

– Denver, San Francisco and Seattle were the top destinations for LinkedIn members.

Although housing affordability is still weakening in many local areas, particularly in the West, as a result of the ongoing supply and demand imbalances, a NAR analysis shows that many workers are actually moving to less affordable areas such as San Francisco and Seattle. According to LinkedIn migration data[1], more than 1.7 million LinkedIn members[2] moved to a less affordable area in the last 12 months. In 13 of the largest 20 areas, a majority of the workforce moved from a less expensive place to a more expensive place.

For instance, the San Francisco area was the most popular destination for workers moving from Detroit. More than 36,000 LinkedIn members from Detroit moved to the San Francisco area in the last 12 months. Based on the REALTORS® Affordability Distribution Curve and Score (RADCS), the affordability score for Detroit was 0.95 in September 2018 while the affordability score for the San Francisco area was 0.48. But what does this mean? The higher the score, the more affordable the area is. For example, a household earning $100,000 in Detroit can afford to buy 72% of homes currently listed for sale while the same household can afford to buy only 8% of homes for sale in San Francisco area.

San Francisco was also the top destination for workers from Philadelphia. Although Philadelphia is more affordable than San Francisco, nearly 27,000 LinkedIn members moved from Philadelphia to San Francisco in the last 12 months. The visualization below allows you to compare the affordability of the area of origin with the affordability of the destination area. Among the 20 largest areas, see in which areas workers decided to move to a less affordable place. Please bear in mind that the higher the score, the more affordable the area is.

While people in general are moving less these days, we also see that fewer people move for an employment-related reason. However, due to a strong economy, it seems that people get better jobs and decide to move to the most attractive areas across the United States.  The good news is that new construction is increasing even in areas with serious housing supply issues. For example, the three-year issuance of single-family permits increased 2 percent in the San Francisco metro area. Based on the NAR Housing Shortage Tracker, when we compare permit issuance with employment growth, we see that in November 2018 a single-family permit was issued for every 12 new jobs compared to 15 jobs in November 2017.

[1] LinkedIn Workforce Report (October 2018).

[2] From the 20 largest areas as far as LinkedIn membership.

In a monthly survey of REALTORS®, respondents reported that properties were typically on the market for 32 days (34 days on year ago), according to the  September 2018 REALTORS® Confidence Index Survey.[1]  However, the difference in median days in the current month compared to the same month last year has started to narrow as homebuying demand has eased and the inventory of homes for sale has slightly increased. In January and February of this year, properties were selling about one week less compared to the length of time in the same period one year ago.

During the July–September 2018, properties typically sold within one month in 27 states (32 states in August 2018).  Properties sold most quickly in South Dakota (20 days), Idaho (21), Washington (21 days), Rhode Island (21 days), Indianapolis (22 days), Kansas (23), Massachusetts (23), Ohio (23), Utah (23), Colorado (24), Nevada (24), Nebraska (24), Maine (24), and Michigan (24).  

That properties are still selling faster compared to one year ago is an indication that the supply of homes for sale is still inadequate compared to the demand for homes. Based on the REALTORS® Seller Traffic Index[2], home selling conditions were “weak” during July, August, and September 2018 compared to one year ago in the District of Columbia and in 28 states including California, Oregon, Colorado, New York, New Jersey, Massachusetts, Virginia, North Carolina, South Carolina, Georgia, Tennessee, and Florida.

[1] In generating the median days on market at the state level, 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.

[2] An index greater than 50 means that more respondents reported conditions relative to one year ago as “strong” than those that reported “weak.” Due to sampling, we categorize the index as “very weak” for 0 to 25; “weak” for values 25+ to 45; “stable” for values 45+ to 55; “strong” for values 55+ to 75; and “very strong” for values 75+.

At the national level, housing affordability is up from last month but down from a year ago. Mortgage rates rose to 4.77 percent this September, up 14.9 percent compared to 4.15 percent a year ago.

• Housing affordability declined from a year ago in September moving the index down 8.4 percent from 160.1 to 146.7. The median sales price for a single family home sold in September in the US was $260,500 up 4.6 percent from a year ago.
• Nationally, mortgage rates were up 62 basis point from one year ago (one percentage point equals 100 basis points).

• The payment as a percentage of income was down to 17 percent this September but up from 15.6 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 16.4 percent. The Midwest had the lowest payment as a percentage of income at 13.5 percent.

• Regionally, the West recorded the biggest increase in home prices at 7.0 percent. The Northeast had an increase of 5.3 percent while the South had a gain of 4.2 percent. The Midwest had the smallest growth in price of 2.2 percent.
• Regionally, all four regions saw a decline in affordability from a year ago. The Northeast had the biggest drop in affordability of 9.0 percent. The South had a decline of 7.3 percent followed by the West that fell 6.8 percent. The Midwest had the smallest drop of 5.8 percent.
• On a monthly basis, affordability is up from last month in all of the four regions. The Northeast had biggest gain of 5.5 percent. The Midwest had an incline of 4.2 percent followed by the South with an increase of 2.3 percent. The West had the smallest gain in affordability of 1.9 percent.
• Despite month-to-month changes, the most affordable region was the Midwest, with an index value of 185.3. The least affordable region remained the West where the index was 105.4. For comparison, the index was 151.4 in the South, and 152.3 in the Northeast.

• Mortgage applications are currently down. Mortgage rates are rising and home price growth is starting to slow down. Despite higher mortgage rates, lower home prices and increases inventory levels will help renters and potential home buyers enter the housing market. Home prices are up 4.6 percent outpacing median family incomes that are growing 3.1 percent.
• 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.