This Month in Real Estate for U.S. Market - December 2011


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This Month in Real Estate for U.S. Market - December 2011

  1. 1. Commentary 2 Released: The Numbers That Drive Real Estate 3December 2011 This Month in Washington 8 Topics for Home Buyers, Sellers, and Owners 11Brought to you by:KW Research
  2. 2. Commentary One of the key drivers of homes sales, the employment rate, is beginning to show promising signs of a turnaround. The four-week average for jobless claims, as of November 19, was 394,250, a drop of 3,250 from the previous four weeks, and at the lowest levels since April. Consumer confidence also rose 15 points in the last month, and is now at its highest point since July of this year. Eric Green, Chief Market Economist at TD Securities Inc. said, “The trend remains very constructive. Jobless claims are back below 400,000, which seems to be the pivot point in terms of a strengthening labor market as opposed to a weakening one.” In addition to improving employment conditions, home affordability also improved as interest rates fell further, opening the door for more first-time home buyers who accounted for 34% of the sales in October, an increase from 32% last month and over loast year. The western United States saw the greatest increase in home sales, which were up 4.4% month to month and up over 15% from last year. A strengthening job market, along with encouraging signs from the housing sector, including a 10% jump in pending sales for October, are strong economic forces. While mortgage lending still remains a challenge, these forces may send a signal to banks to relax lending regulations and allow for a more rapid recovery.Sources: US Department of Labor, Bloomberg, National Association of Realtors KW Research 2
  3. 3. Home Sales 4 The Numbers That Home Price 5 Drive Real Estate Supply of Inventory Mortgage Rates 6 7Brought to you by:KW Research
  4. 4. Home Sales In Millions Existing homes sales improved 1.4% in October, or to an annual pace of 4.97 million, a 13.5% increase from October of last year. Even more dramatic, was the jump in pending home sales, which surged in October by 10.4% from September, and were up 9.2% from October 2010. This jump in pending sales could lead to a strong fourth quarter as signs continue to point to a pent-up demand brought on by current lending conditions of mortgage providers. Original Tax Credit Scheduled to Expire 5.2 5.1 4.9 5.0 4.4 5.0 4.8 Expanded Tax Credit Expired Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep OctLatest Data Release: October 20, 2011. Source: National Association of Realtors “Home Sales” refer to transactions that includesingle-family, townhomes, condominiums, and co-ops. “Contract Failures” refer to those caused by declined mortgage applications, failures in loan underwriting from KW Research 4appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.
  5. 5. Home Price In Thousands The national median home price in the U.S. saw a small decline in October to $162,500, from $165,800 in September. This number can be affected by the sale of distressed properties, which typically sell at discounted prices. Distressed properties accounted for 28% of homes sales in October. Yet despite a drop in the median price from last September, the Federal Housing Finance Authority reported that seasonally adjusted prices rose 0.2% in the third quarter from the second quarter in 2011, which could be an early sign of appreciating home prices.$170.6 $168.8 $171.2 October ’10-’11 October ’09-’10 $169.3 $159.8 $162.5 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep OctLatest Data Release: October 20, 2011Source: National Association of Realtors KW Research 5
  6. 6. Supply of Inventory In Months By the end of October, the total number of homes on the market had fallen 2.2% to 3.33 million homes, which represents 8 months of inventory at the current sales pace. Since a record high of 4.58 million homes in July 2008, the inventory of homes for sale has been steadily declining. When homes sell faster than they come on the market, the market comes from its current favor toward buyers into balance or in favor of sellers. This can trigger an appreciation in home prices and lead the way to a stronger recovery.. Tax Credit Expired 10.6 9.6 9.5 9.1 8.3 8.0 8.3 More than 6 months = Buyer’s Market Less than 6 months = Seller’s Market Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep OctLatest Data Release: October 20, 2011Source: National Association of Realtors KW Research 6
  7. 7. Mortgage Rates 30-Year Fixed Mortgage rates continue to push lower, dropping to 3.98% from 4.23% in October of 2010, offering historic affordability to today’s home buyers. While mortgage lending conditions continue to be a challenge, more and more people are seeing the advantage of buying a home sooner rather than later. Lawrence Yun, NAR chief economist, said, “Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this indicates more buyers are taking advantage of the excellent affordability conditions.” Type Rate 30-Year Fixed 3.98% 15-Year Fixed 3.30% 5/1 ARM 2.91% Historical Average 8.90%Source: Freddie Mac; December 1, 2011 KW Research 7
  8. 8. This Month in WashingtonBrought to you by:KW Research
  9. 9. This Month in Washington“Reform” is the Word A slow economic recovery, sub-par home sales, and upcoming elections have ignited a plethora of ideas on Capitol Hill regarding housing affordability and financing reform. Many of these conversations revolve around the government backed and largest sources of mortgage funds, Fannie Mae and Freddie Mac. From elected officials to presidential hopefuls, it seems everyone is talking reform these days. A group of Democrats from the House of Representatives have challenged the government backed and largest sources of mortgage funds in the US, Fannie Mae and Freddie Mac, to produce a strong argument as to why these institutions have refused to reduce principal for borrowers, whose homes are worth less than the mortgage amount. Up to this point both organizations have argued that reducing the principal amounts on these upside down mortgages would have detrimental effects on the overall housing market, and say that their other programs have been more effective and less costly than writing down these loans. Whether or not this is true is what the House of Representatives wants to determine, and they have given Fannie Mae and Freddie Mac until December 9 to prove it. KW Research 9
  10. 10. This Month in Washington“Reform” is the Word (cont.) This challenge from Congress is only the latest of many, as Fannie Mae and Freddie Mac have been under fire since the beginning of the housing crisis in 2006-2007. Congressman Scott Garrett recently introduced a bill that would entirely replace these government sponsored entities with a private alternative. Presidential hopeful Rick Perry also champions the privatization of these institutions, to remove the tax burden from the citizens. While it is still unclear if and what will happen, there is a large building consensus regarding the level of compensation received by the executives at Fannie Mae and Freddie Mac. Congress and the Senate are both expected to send legislation to the desk of President Obama by the end of this year, ending hefty bonuses paid to these executives and aligning their salaries with federal workers. This legislation would be a substantial pay decrease, considering that total compensation (salary and bonuses) for 12 executives at these firms totaled more than $35 million in 2009 and 2010. Sources: Reuters, Huffington Post, Rick, Associated Press KW Research 10
  11. 11. This Month in WashingtonConforming Loan Limits Extended The President signed a bill reinstating loan limits for FHA and VA loans through the end of 2013. Before expiring in October, the previous maximum loan limit was $729,750 in the priciest areas for government-backed or sponsored entities including FHA, VA, Fannie Mae, and Freddie Mac. On October 1, the limit returned to $625,500 in those most expensive areas. The return to the $729,750 level does not extend to Fannie Mae and Freddie Mac. Overall, this is expected to have minimal impact as loans in this range account for a small share of overall loans. However, buyers and sellers in high-end markets with homes in that price range now have more mortgage options, which can lead to a more affordable mortgage. Sources:, KW Research 11
  12. 12. Topics for Home Buyers, Sellers, and OwnersBrought to you by:KW Research
  13. 13. Deciding to Buy When first-time home buyers decide they are ready to buy, it is important for them to begin the process by carefully assessing their values, wants, and needs—both for the short and long term. This is a critical step since consultation sessions normally start with the buyers’ values. Afterward, buyers can explore their wants and needs and, once defined, determine actual criteria. A recent study shows how important the following home-buying factors were to buyers: • List Price: 72% • Location: 69% • Neighborhood: 55% • Floor Plan: 37% • Square Footage: 28% • Schools: 22% By having the home-buying criteria in mind before walking into a consultation, buyers are off to a better start when meeting with their real estate agent. The consultation allows buyers to fill in any missing gaps within their values, wants, and needs.Source: KW Market Navigator and KW Research KW Research 13
  14. 14. Your Local MarketAlthough it is important to stay informed about what is going on in thenational economy and housing market, many different factors impact yourreal estate market. Talk to your KW associate for assistance interpreting the conditions in your local market.KW associates are equipped with the knowledge and information to helpyou navigate the home-buying or selling process in this challengingmarket. KW Research 14
  15. 15. About Keller Williams RealtyKeller Williams Realty Inc. is the second-largest real estatefranchise operation in the United States, with 700 offices and morethan 80,000 associates in the United States and Canada. Thecompany has grown exponentially since the opening of the firstKeller Williams Realty office in 1983, and continues to cultivate itsagent-centric culture that emphasizes access to leading-edgeeducation and promotes an economic model that rewardsassociates as stakeholders. The company also provides specializedagents in luxury homes and commercial real estate properties. Formore information, or to search for homes for sale visit KellerWilliams Realty online at KW Research 15
  16. 16. The opinions expressed in This Month in Real Estate are intended to supplement opinions on real estate expressed bylocal and national media, local real estate agents, and other expert sources. You should not treat any opinionexpressed in This Month in Real Estate as a specific inducement to make a particular investment or follow a particularstrategy, but only as an expression of opinion. Keller Williams Realty, Inc., does not guarantee and is not responsiblefor the accuracy or completeness of information, and provides said information without warranties of any kind. Allinformation presented herein is intended and should be used for educational purposes only. Nothing herein should beconstrued as investment advice. You should always conduct your own research and due diligence and obtainprofessional advice before making any investment decision. All investments involve some degree of risk. KellerWilliams Realty, Inc., will not be liable for any loss or damage caused by your reliance on information contained in ThisMonth in Real Estate. KW Research 16