Optimism May Drive Home Purchase Market for Remainder of 2015

Consumer attitudes toward the current condition of the home selling market and future home rental prices may launch purchase activity forward for the rest of 2015, according to Fannie Mae’s June 2015 National Housing Survey. Optimism among consumers about the housing market has reached new survey highs and strong job and income growth are making consumers appear more favorable in the selling market, indicating a possible increase in the existing home supply.

According to the survey, an increase in housing supply from sellers along with higher rental cost expectations may be motivating more potential homebuyers to purchase. Among those questioned, 52 percent believe that now is a good time to sell a home, an increase of three percentage points, a new survey high and the first time in history this number has surpassed the 50-percent threshold. Simultaneously, 59 percent of those surveyed said they expect rental prices to go up in the next 12 months, an increase of 4 percent and also a new survey high. Tying a survey low, 63 percent of respondents say that now is a good time to buy a home.

“Our June survey results show the positive impact on housing of job and income growth,” said Doug Duncan, SVP and chief economist at Fannie Mae. “The expectation of higher rents is a natural outgrowth of increasing household formation by newly employed individuals putting upward pressure on rental rates. A complementary rise in the good time to sell measure suggests that limited inventory, which is putting upward pressure on house prices, gives an increasing advantage to sellers. Together, these results point to a healthier home purchase market, with more renters likely to find owning to be more cost-effective than renting and more sellers likely to put their homes on the market.”

Fannie Mae also reported that home price expectations among consumers is low for June, and less than half of respondents believe that home prices will increase moving forward. The average 12-month home price change expectation fell to 2.6 percent, the survey determined. The share of respondents who say home prices will increased in the next year dropped to 47 percent, while only 7 percent said that home prices will go down. Half of those surveyed believe that mortgage rates will increase in the next 12 months.

Buyers are nearly evenly split when it comes to the obtaining a home mortgage and the number of potential buyers is decreasing, while the number of potential renters is increasing, the survey says. Half of the survey responders think that getting a home mortgage will be easy, while an unchanged 46 percent are sure it will be difficult. The share who say they would buy if they were going to move fell 2 percentage points to 64 percent, while the share who would rent increased to 30 percent.

Economic conditions are also swaying survey responder opinions toward housing conditions, according to Fannie Mae. The share of respondents who say the economy is on the right track increased by 1 percentage point to 39 percent, while those who say the economy is on the wrong track fell by 1 percentage point to 51 percent. The percentage of respondents who expect their personal financial situation to get worse over the next 12 months fell back to 10 percent.

Number of Properties With Equity Is Rising While Total of Underwater Homes Declines

Approximately 254,000 properties regained equity in the first quarter of 2015, bringing the total of residential mortgaged properties with equity nationwide up to 44.9 million – approximately 90 percent of all mortgages, according to datareleased by CoreLogic on Tuesday.

While more than a quarter of a million homes regained equity during Q1, the percentage of residential properties with negative equity – commonly referred to as being "underwater" or "upside down," meaning the borrower owes more on the mortgage than the home is worth – declined year-over-year by about 19.4 percent from 6.3 million homes in Q1 2014 down to 5.1 million homes in Q1 2015. The 5.1 million homes with negative equity in Q1 represent about 10.2 percent of all residential mortgages nationwide.

"Many homeowners are emerging from the negative equity trap, which bodes well for a continued recovery in the housing market," said Anand Nallathambi, president and CEO of CoreLogic. "With the economy improving and homeowners building equity, albeit slowly, the potential exists for an increase in housing stock available for sale, which would ease the current imbalance in supply and demand. There are still about 5 million homeowners who are underwater and we estimate that a further 5 percent appreciation in home values across the U.S. would reduce the number of owners with negative equity by about one million."

The national aggregate value of homes in negative equity for Q1 was $337.4 billion, which was a year-over-year decline of 13 percent from the $388 billion reported for Q1 2014, according to CoreLogic.

About 9.7 million residential properties out of the 50 million homes nationwide with a mortgage (19.4 percent) have less than 20 percent equity, which is commonly referred to as being "under-equitied." About 2.7 percent of homes (1.3 million) have less than 5 percent equity, which is commonly referred to as having "near-negative equity." Borrowers with near-negative equity are at risk of moving into negative equity if home prices drop, according to CoreLogic. Under-equitied borrowers may have a difficult time refinancing their homes or obtaining financing for another home purchase due to underwriting constraints, CoreLogic said.

"The CoreLogic Home Price Index for the U.S. was up 2.5 percent during the first quarter of 2015, which has improved the equity position of homeowners," said Frank Nothaft, chief economist for CoreLogic. "About 90 percent of homeowners now have housing equity and, as a result, have experienced an increase in wealth, which can spur additional consumption and investment expenditures. The remaining 10 percent of owners with negative equity will find their home value rising while they continue to pay down principal on their amortizing mortgage loan."

Among states in Q1, Nevada had the highest percentage of residential properties with a mortgage with negative equity with 23.1 percent. The top five states in that category – Nevada, Florida, Illinois, Arizona, and Rhode Island – accounted for about 31.4 percent of all the negative equity in the country, according to CoreLogic. The state with the highest percentage of residential mortgages in positive equity in Q1 was Texas at 97.7 percent.

Most of the positive equity is concentrated at the high end of the housing market, according to CoreLogic. About 94 percent of homes valued at more than $200,000 have equity as of Q1, compared to 85 percent for homes valued at less than $200,o00.

Among core-based statistical areas (CBSAs) in Q1, Tampa-St. Petersburg-Clearwater, Florida, had the highest percentage of residential properties with a mortgage in negative equity at 23.1 percent; the CBSA with the highest percentage of residential properties in positive equity was Houston-The Woodlands-Sugar Land, Texas, at 97.9 percent.

First liens without home equity loans accounted for more than half of the national total of $337 billion in negative equity for Q1 ($181 billion, or 53 percent). First liens with home equity loans accounted for about $157 billion (about 47 percent) of the negative equity total. According to CoreLogic, about 3.1 million underwater borrowers have first liens without home equity loans; those 3.1 million borrowers have an average mortgage balance of $229,000 and are an average of $58,000 underwater. Also according to CoreLogic, about 2 million underwater borrowers have both first and second liens; those 2 million borrows have an average mortgage balance of $295,000 and are underwater by an average of $78,000.

Strong Housing Market In Urban Areas Drives More Positive Outlook on Local Economies

Minorities were found to generally have a more positive outlook toward their local economy and job situation than Whites across all income brackets, according to a survey released this week byNeighborWorks America, a Washington, D.C.-based community development non-profit and grant maker.

The differences in attitudes were generally split regionally, with those who live in urban areas responding more positively toward their local economies and job situations and those who live in rural areas responding more negatively, according to NeighborWorks. About 48 percent of those living in suburban areas and 57 percent living in urban areas said they thought their local economy was performing better overall than the national economy, compared to just 33 percent who live in rural areas.

"Given the strength of the housing market in most urban and suburban areas, and the connection many make to home prices and a strong economy, it's not too surprising that people living in those areas have a more positive economic outlook as reported by our survey," said Doug Robinson of NeighborWorks. "Moreover, job growth is a key driver of home prices, so it also makes sense that people who are seeing strong home price growth also would say that their local job outlook is strong."

Overall, about 50 percent of adults surveyed nationwide said their local economy was doing better than the national economy. About 32 percent said their local economy was doing worse than the national economy, according to NeighborWorks.

The survey found that 68 percent of Hispanics and 54 percent of African-Americans said their local economy is performing better than the national economy compared to 45 percent of Whites. NeighborWorks reported that the marked difference in the assessment of the local economy and job situation by region was driving the results. A larger percentage of African-Americans and Hispanics live in urban and suburban areas, where the attitudes are generally more positive toward the local economy and job situation. About 82 percent of rural residents are White, where the attitudes are generally more negative.

NeighborWorks also reported that the majority of those in higher income brackets were more positive toward their local economy; 64 percent of Americans with a household income of more than $100,000 per year believed that the local economy was doing better than that of the nation overall. For those with incomes between $75,000 and $100,000, the number dropped to 55 percent; it fell to 45 percent for Americans with a household income below $75,000, according to NeighborWorks.

For this survey, Anderson Robbins Research interviewed 1,308 adults living in the United States between April 30 and May 11, 2015.  The sample polled included 1,005 adults and 303 interviews with Gulf Coast residents in Mississippi and Louisiana.

Consumer Attitudes Toward Housing Improve Amid Positive Jobs Report

Amidst the positive May job report from the Bureau of Labor and Statistics (BLS), consumer attitudes concerning the housing market showed vast improvement for the month of May, according to results from Fannie Mae's May 2015 National Housing Survey. These positive changes also support the case for an increase in housing activity this year.

The BLS’s May jobs report showed an acceleration in average hourly earnings and reflected recent trends of firming personal income growth, revealing that the share of survey respondents reporting a significant increase in their household income climbed 4 percentage points to a near all-time high, Fannie Mae reported.

“Things are looking up for housing,” said Doug Duncan, SVP and chief economist at Fannie Mae. “Those saying it is a good time to sell a house hit a survey high of 49 percent. Also, the percentage of consumers telling us their household income is significantly higher than 12 months ago grew six percentage points to 28 percent over the past two months.”

While job growth continues to push meaningful income growth, the outlook for housing market growth is also improving, the GSE says. Of those surveyed, the share of respondents who say home prices will go up in the next 12 months increased to 49 percent, while the share who say home prices will go down dropped to 6 percent. Those who say it is a good time to buy a house rose back up to 66 percent, while those who say it is a good time to sell went up to a new survey high of 49 percent.

Additionally, the survey found that 66 percent of respondents noted that they would prefer to buy rather than rent a home on their next move, while the share who would rent fell to 27 percent. The percentage of respondents who expect home rental prices to go up rose to 55 percent. Those who think it would be easy to get a home mortgage decreased to 50 percent, while those who think it would be difficult remained at 46 percent.

The survey found that 47 percent of consumers say that mortgage rates will go up in the next 12 months. The average 12-month home price change expectation remained at 2.8 percent, while the average 12-month rental price change expectation rose to 4.3 percent. The share of respondents who say the economy is on the right track decreased by 4 percentage points to 38 percent, while those who say the economy is on the wrong track rose by 3 percentage points to 52 percent, the survey says.

“We have found that these two indicators–good time to sell and income growth–are key drivers for the performance of the housing market and play an important role in our soon to be released Home Purchase Sentiment Index (HPSI),” Duncan said. “The increase in these indicators suggests our forecast of moderate improvement in the housing market in 2015 is on course and mirrors the near-term performance of other leading market data, including mortgage applications and pending home sales.”

Fed Reports Household Wealth Rose to $85 Trillion in Q1

Increases in home prices and the stock market pushed household wealth to nearly $85 trillion for the first quarter of 2015, according to the Federal Reserve’s statistical release titled “Financial Accounts of the United States” released Thursday.

The net worth of households and nonprofits rose increased by $1.63 trillion to $84.9 trillion during the first quarter of 2015. Meanwhile, the value of directly and indirectly held corporate equities increased $487 billion and home values rose $503 billion.

Stocks and pension-fund holdings values increased by $1.07 trillion in the first quarter among Americans and non-profit groups, the Fed report says. The Standard & Poor’s 500 Index experienced an increase of 0.4 percent for the first quarter. The index is already up 1.8 percent to begin the second quarter as of yesterday.

Household real estate assets increased by $472.5 billion, according to the data. While owners’ equity as a share of total household real estate holdings increased to 55.6 percent last quarter.

Americans appear to be keeping borrowing to a minimum and evading debt as the report noted that household borrowing was at its lowest rate since the end of 2013. Household debt increased at an annual rate of 2.2 percent in the first quarter of 2015 totaling $13.6 trillion.

Recent mortgage rate and home price increases have many Americans saving the wealth for themselves and being cautious of an ever-changing housing market.

In response to the positive Bureau of Labor Statistics (BLS) employment data released on Monday, the 30-year fixed-rate mortgage rose above four percent this week for the first time since November 2014. Freddie Mac’s Primary Mortgage Market Survey (PMMS), revealed today that the average fixed mortgage rates averaged 4.02 percent for the week ending June 11, 2015.

"Mortgage rates rose above 4 percent for the first time since November 2014 as Treasury yields surged,” said Len Kiefer, deputy chief economist at Freddie Mac. “Markets are responding to strong employment data. In May, the U.S. economy added 280,000 jobs. Moreover, job openings surged to 5.4 million in April, up over 20 percent from a year ago."

Last week, CoreLogic, Inc. released its April 2015 Home Price Index (HPI), which showed that home prices nationwide, including distressed sales, increased by 6.8 percent in April 2015 compared with April 2014. Month-to-month home prices also increased by 2.3 percent compared with March 2015.

These rises will mark 38 months of consecutive year-over-year increases in home prices nationally, according to the index. Home prices increased by 2.7 percent from last year, and 30 states plus the District of Columbia were at or within 10 percent of their peak prices in April.

"Old fashion supply and demand, fueled by historically low mortgage rates and improving consumer finances and confidence, continue to push home prices up," said Anand Nallathambi, president and CEO of CoreLogic. "We expect continued price appreciation throughout 2015 and into next year. Over the longer term, household formation, up by more than one million over the past year alone, will drive down vacancy rates and create tighter housing markets in many metropolitan areas. This should provide the necessary underpinning for rising prices for the foreseeable future.

Outlook for Housing and Economy Remain Positive Despite Q1 GDP Contraction

In its second of three estimates of real gross domestic product (GDP) growth for the first quarter released Friday, the U.S. Bureau of Economic Analysis (BEA) issued a downward revision of what analysts had already deemed "paltry" growth of 0.2 percent in the advance estimate for Q1 reported at the end of April.

According to the BEA's second estimate for Q1, which is based on more complete source data than were available for the advance estimate, the GDP contracted at an annual rate of minus 0.7 percent. Despite economic growth taking a step backward, the forecast for housing for the rest of the year remains positive, according to Fannie Mae SVP and chief economist Doug Duncan. New home sales increased by 6.8 percent in April up to 517,000 annualized units; the National Association of Realtors' Pending Home Sales Index has risen by 14 percent in the last 12 months; existing home sales are at a nine-year high; and purchase applications recovered at the end of May from a slow first half of the month up near a two-year high.

"Housing indicators look good," Duncan said. "Pending home sales, new home sales, and starts look good. An underlying number in the GDP, the gross domestic income, was positive. And the confidence numbers seem to be doing well (the Conference Board's Index rose 1.1 points up to 95.4 in May). The GDP seems to be inconsistent with the underlying trend line."

The contraction of GDP in the first quarter was largely driven by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Positive contributions from personal consumption expenditures, private inventory investment, and fixed residential investment partly offset the aforementioned negative contributions. Also contributing to the GDP's contraction was an increase in imports, a subtraction in the calculation of GDP.

One more estimate for Q1 GDP growth will be coming out at the end of June, but economists such as Duncan are already looking ahead to Q2.

"People looking at the data for the second quarter are predicting that it's going to be around 2 percent," Duncan said, adding that he expects the GDP growth to continue on a modest path in Q2 and by the end of the year achieve the level of Fannie Mae's original forecast for the full year of 2015, which was an annualized rate of 2.6 percent.

While the downward revision of April's already weak advance estimate was disappointing, housing is still a bright spot in the economy, according to Freddie Mac deputy chief economist Len Kiefer.

"While the tracking data signaled a weaker GDP reading, it’s still discouraging to see it and to see the economy struggle with the same reoccurring first quarter story for the past few years," Kiefer said. "Overall, we estimate real GDP will grow 2.3 percent in 2015, revised from a 2.6 percent growth previously estimated. The one silver lining in the GDP numbers was residential construction was boosted to a 5.0 percent pace from the prior 1.3 percent showing that housing is beginning to contributor more to the overall economy."

Real GDP grew at an annualized rate of 2.2 percent in the fourth quarter of 2014 and 2.4 percent for the entire year.

WASHINGTON (March 30, 2015) – Pending home sales in February increased to their highest level since June 2013 as sizeable gains in the Midwest and West offset smaller declines in the Northeast and South, according to the National Association of Realtors^®.

The Pending Home Sales Index,^* a forward-looking indicator based on contract signings, rose 3.1 percent to 106.9 in February from a slight downward revision of 103.7 in January and is now 12.0 percent above February 2014 (95.4). The index is at its highest level since June 2013 (109.4), has increased year-over-year for six consecutive months and is above 100 – considered an average level of activity – for the 10^th consecutive month.

Lawrence Yun, NAR chief economist, says demand appears to be strengthening as we head into the spring buying season. “Pending sales showed solid gains last month, driven by a steadily-improving labor market, mortgage rates hovering around 4 percent and the likelihood of more renters looking to hedge against increasing rents,” he said. “These factors bode well for the prospect of an uptick in sales in coming months. However, the underlying obstacle – especially for first-time buyers – continues to be the depressed level of homes available for sale.”

According to NAR’s monthly Realtors^® Confidence Index, the percent share of first-time buyers increased slightly for the first time in February since November 2014, up to 29 percent from 28 percent in January.

“Several markets remain highly-competitive due to supply pressures, and Realtors^® are reporting severe shortages of move-in ready and available properties in lower price ranges,” adds Yun. “The return of first-time buyers this year will depend on how quickly inventory shows up in the market.”

The PHSI in the Northeast fell 2.3 percent to 81.7 in February, but is 4.1 percent above a year ago. In the Midwest the index leaped 11.6 percent to 110.4 in February, and is now 13.8 percent above February 2014.  

Pending home sales in the South decreased 1.4 percent to an index of 120.2 in February, but is still 10.8 percent above last February. The index in the West climbed 6.6 percent in February to 102.1 (highest since June 2013 at 111.4) and is now 18.3 percent above a year ago.

Total existing-homes sales in 2015 are forecast to be around 5.25 million, an increase of 6.4 percent from 2014. The national median existing-home price for all of this year is expected to increase around 5.6 percent. In 2014, existing-home sales declined 2.9 percent and prices rose 5.7 percent.

The National Association of Realtors^®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

# # #

^*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.

NOTE:  Existing-home Sales for March will be reported April 22, and the next Pending Home Sales Index will be April 29; release times are 10:00 a.m. EDT. 

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