REALTORS CONFIDENCE INDEX

Report on the February 2015 Survey

NATIONAL ASSOCIATION OF REALTORS

Research Department
Lawrence Yun, Senior Vice President and Chief Economist

The REALTORS Confidence Index (RCI) Report provides monthly information about
real estate market conditions and expectations, buyer/seller traffic, price trends, buyer profiles,
and issues affecting real estate based on a monthly survey of REALTORS. The February 2015
report is based on the responses of 3,735 REALTORS about local market conditions in
February. Of these, 2,077 respondents closed a sale and provided information about the
characteristics of their last transaction in February. The data on a combined basis, are viewed to
be representative of the sales for the month1. Responses were received from March 2-9, 2015.
All real estate is local: conditions in specific markets may vary from the overall national trends
presented in this report. REALTORS may be interested in comparing their markets against the
national summary.
The Report also contains commentaries by the Research Department on recent economic
data releases and policies affecting housing. This weeks commentaries look at the impact of the
strengthening of the dollar on housing (Dr. Lawrence Yun), lenders response to recent
regulatory changes to improve credit availability (Ken Fears), and the rebound in building permit
activity by metro areas (Nadia Evangelou).

Lawrence Yun, Senior Vice President and Chief Economist

Jed Smith, Managing Director, Quantitative Research
Gay Cororaton, Research Economist
Meredith Dunn, Research Communications Representative

The survey was sent to 50,000 REALTORS who were selected through simple random sampling. To
increase the response rate, the survey is also sent to respondents in the previous three surveys and who provided
their email addresses. The number of responses to a specific question varies because the question is not applicable
to the respondent or because of non-response. To encourage survey participation, eight REALTORS are selected
through simple random sampling drawing to receive a gift card.

Table of Contents
Summary .................................................................................................................................................... 1
I. Market Conditions ................................................................................................................................. 2
Market Activity Improved in Most Markets in February 2015................................................................. 2
REALTORS Confidence About the 6-Month Outlook Improved ........................................................ 3
Buyer Traffic Continued to Outpace Seller Traffic in February 2015 ...................................................... 6
REALTORS Reported Stronger Home Price Growth in February 2015 .................................................. 8
REALTORS Expect Prices to Increase Modestly in the Next 12 Months ............................................. 9
Properties Stayed for Shorter Days on the Market at 62 Days in February 2015 .................................. 10
II. Buyer and Seller Characteristics ......................................................................................................... 12
Sales to First Time Buyers: 29 Percent of Sales .................................................................................... 12
Sales for Investment Purposes: 14 Percent of Sales ............................................................................... 14
Distressed Sales: 11 Percent of Sales ...................................................................................................... 15
Cash Sales: 26 Percent of Sales ............................................................................................................ 16
First time Home Buyers Who Put Down Low DownPayment: 66 Percent ......................................... 17
International Transactions: 1.7 Percent of Residential Market ............................................................. 18
III. Current Issues .................................................................................................................................... 19
Credit Conditions Slowly Easing ........................................................................................................... 19
IV. Commentaries by NAR Research ...................................................................................................... 21
Strong Dollar and Housing Costs............................................................................................................ 21
Lenders Optimistic on Changes .............................................................................................................. 23
Rebounding Building Permit Activity By Metro Area ............................................................................ 25

Summary
The information provided by REALTORS in February 2015 indicated an improvement
in most local markets compared to conditions in January 2015. The REALTOR Confidence
Index-Current Conditions, the REALTOR Confidence Index-Six-Month Outlook, and the Buyer
Traffic Index increased, indicating an overall improvement in sales despite harsher winter
weather in the Midwest, South, and Northeast regions. More REALTORS reported rising
prices and shorter days properties were on the market.
REALTORS continued to report tight inventories, especially for affordable and in good
condition properties. Qualifying for a mortgage remained generally difficult under tight
qualification standards used by financial institutions. The reduction in FHA mortgage
insurance premiums was reported to be increasing home affordability for potential homebuyers.
REALTORS were optimistic about the outlook for the next six months , possibly due
to the improving job market and the efforts to ease access to and lower the cost of credit.
However, they noted several issues of concern:
o extremely low inventory in many markets especially for affordable homes that are also
move-in ready, leading to rising prices and multibidding (most states)
o buyers still have a hard time qualifying for a mortgage, although credit tightness is easing
(e.g., TX,WI, CA, WI)
o appraisal issues relating to valuation and delays, especially in states where prices are
rising strongly ( e.g., CA, TX, WA), and for VA loans and Fannie Mae-backed loans;
o home inspection and repair issues are causing delays and terminations, and cost of home
insurance is increasing for older homes (SC,MO,CT);
o adverse impact of low oil prices in states with oil/gas production (TX, CO, OK, WY)
o impact of the TILA/RESPA that will take effect August 2015 as the market participants
adjusts to the disclosure/loan processing timeline requirements (TX, OK, PA, NJ, MN)
o increase in flood insurance (e.g. MA, FL, NY)
o Slowing demand from international buyers (e.g., Canadians) due to strong US dollar (FL,
CA)
o Negative effect of impending increase in mortgage rates
February 2015 REALTORS Confidence Index Survey Highlights
Feb 2015
RCI Current Conditions: Single Family Sales /1
RCI- 6 Month Outlook: Single Family Sales /1
RCI Buyer Traffic Index /1
RCI-Seller Traffic Index /1
First-time Buyers, as Percent of Sales (%) /2
Sales to Investors, as Percent of Sales (%)
Cash Sales, as Percent of Sales (%)
Distressed Sales, as Percent of Sales (%)
Median Days on Market
Median Expected price growth in next 12 months (%)

63
75
61
41
29
14
26
11
62
3.4

Jan 2015
58
72
56
41
28
17
27
11
69
3.2

Feb 2014
60
68
59
41
28
21
35
16
62
3.9

/1
An index of 50 indicates a balance of respondents having weak(index=0) and strong (index=100) expectations. An index above 50
means there are more respondents with strong than weak expectations. The index is not adjusted for seasonality effects.
/2
NARs 2014 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 33 percent were first-time
homebuyers. The HBS surveys primary residence home buyers, while the monthly RCI Survey surveys REALTORS and captures purchases for
investment purposes and vacation/second homes.

Page | 1

I. Market Conditions
Market Activity Improved in Most Markets in February 2015
Despite the heavy winter snow that hit the Midwest, North, and South regions, the
REALTORS Confidence Index-Current Conditions increased for all property types in
February 2015 compared to January 2014 and a year ago. The index for single-family homes was
63 (58 in January 2015; 60 in February 2014). The indexes for townhomes and condominiums
also improved although they are still below 50. REALTORS reported that FHAs and the
GSEs (Fannie Mae and Freddie Mac) financing eligibility regulations continued to make
condominium financing difficult to obtain2. An index above 50 indicates that the number of
respondents who viewed their markets as strong outnumbered those who viewed them as
weak.3
REALTORS reported that the reduction in the FHA monthly mortgage insurance
premium and the introduction of the 3% downpayment conventional mortgages appear to be
helping the market.There are reports that the credit tightness is starting to ease.

REALTORS Confidence Index - Current Conditions-as of Feb 2015 RCI Survey

(50="Moderate" Conditions)
80
60
40
20

SF

Townhouse

Condo
63
44
40

200801
200805
200809
200901
200905
200909
201001
201005
201009
201101
201105
201109
201201
201205
201209
201301
201305
201309
201401
201405
201409
201501

These regulations pertain to ownership occupancy requrements, delinquent dues, project approval process,
and use for commercial space. Read the Statement of NAR Sumbitted for the Record to the Senate Committee
Housing and Banking Affairs on December 9, 2015 at
htttp://www.ksefocus.com/billdatabase/clientfiles/172/1/2180.pdf
3
An index of 50 delineates moderate conditions and indicates a balance of respondents having
weak(index=0) and strong (index=100) expectations or all respondents having moderate (=50) expectations.
The index is not adjusted for seasonality effects.

Page | 2

REALTORS Confidence About the 6-Month Outlook Improved

Confidence about the outlook for the next six months improved in February across all
property types. In the single family market, the REALTORS Confidence Index - Six-month
Outlook increased to 75 (72 in January 2015; 68 in February 2014). The index for townhomes
rose to 55 (53 in January 2015; 50 in February 2014), while the index for condominiums hit the
50 mark (47 in January 2015; 46 in February 2014). An index greater than 50 indicates that the
number of respondents who view the townhomes market as strong outnumber those who view
the market as weak.
The anticipated seasonal uptick in sales in the spring, the positive effect of low mortgage
rates, and lower mortgage insurance premium payments underpinned the increased confidence.
For loans originated starting January 26, 2015, FHA charges a monthly mortgage insurance
premium of 0.85 percent on the outstanding loan balance, down from 1.35 percent. The GSEs
(Fannie Mae and Freddie Mac) also increased the maximum loan to 97 of the houses value, up
from 95 percent, easing access to credit.
REALTORS Confidence Index - Six Month Outlook-as of Feb 2015 RCI Survey
(50="Moderate" Outlook)
80

SF

Townhouse

Condo

75

60

55

40

50

20

200801
200805
200809
200901
200905
200909
201001
201005
201009
201101
201105
201109
201201
201205
201209
201301
201305
201309
201401
201405
201409
201501

The following maps show the REALTOR Confidence Index-Six-Month-Outlook by

state 4 as well as employment growth, a key driver of housing demand. For the first time, across
all states, the index was greater than 50, which means that the number of respondents who have a
strong outlook outnumbered those with weak outlook. Although there is increasing concern
about the negative effect of the decline in oil prices, the number of REALTORS who expect a
strong market in the next six months outnumber those who expect a weak market in North
Dakota, Colorado, and Texas. In Okalahoma, expectations in the single-family market were also
broadly strong.

The market outlook for each state is based on data for the last 3 months to increase the observations for
each state. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30
observations.

Page | 3

REALTORS(c) Confidence Index: Outlook in Next Six Months for Single-Family Homes
Based on Dec 2014-Feb 2015 RCI Surveys

REALTORS(c) Confidence Index: Outlook in Next Six Months for Townhouses

Based on Dec 2014-Feb 2015 RCI Surveys

Page | 4

REALTORS(c) Confidence Index: Outlook in Next Six Months for Condominiums

Based on Dec 2014-Feb 2015 RCI Surveys

Non-farm Employment
Year-on-Year Growth in Dec 2014

Page | 5

Buyer Traffic Continued to Outpace Seller Traffic in February 2015

REALTORS reported a severe inventory shortage in most areas, especially for
properties in the lower price range and for those that are move-in ready. The Seller Traffic Index
remained flat at 41, indicating weak supply in many markets ( same as in January 2015 and a
year ago) Although prices have been rising, many homeowners are still reluctant to list as they
wait for prices to pick up further to build up more equity. About 19 percent of mortgaged
properties, mostly lower priced homes, have equity below 20 percent.5
Buyer traffic broadly increased in many local markets in February 2015 compared to
January 2015. The Buyer Traffic Index registered at 61 (56 in January 2015; 59 in February
2014) , outpacing the Seller Traffic Index of 41. Respondents attributed the increased
homebuying to the low mortgage rates and noted that the reduction in FHA mortgage insurance
premiums and the introduction of the 3 percent downpayment loans were making homes more
affordable for potential homebuyers.
REALTORS Buyer and Seller Traffic Indexes-as Feb 2015 RCI Survey
(50="Moderate" Conditions)
Buyer Traffic Index

80

Seller Traffic Index

70

61

60
50
40
41

30

201501

201409

201405

201401

201309

201305

201301

201209

201205

201201

201109

201105

201101

201009

201005

201001

200909

200905

200901

200809

200805

200801

20

The following maps show the buyer and seller traffic index by state . An index below 50
indicates that more REALTOR respondents viewed traffic conditions as weak compared to
those who viewed conditions as strong. Buyer traffic was broadly strong in most states,
while the weak buyer traffic in the Northeast was likely due to the bad winter conditions.
Buyer traffic was also broadly strong even in the states that are major producers of oil/gas such
as Texas, North Dakota, Oklahoma, and Louisiana. Meanwhile, the Seller Traffic Index
registered below 50 in all states, except Vermont. The supply of existing homes has been tight,
and construction of new homes has been significantly below the normal pace of 1.5 million units.

Based on Corelogics Third Quarter 2014 Equity Report, 19 percent of mortgaged residential properties
have less than 20 percent equity (under equitied) and 10.3 percent are in negative equity. Home equity is
concentrated at the upper end of the market; about 94 percent of homes priced at $200,00 and above have positive
equity, while only 85 percent of homes priced at below $200,000 have positive equity.
http://www.corelogic.com/research/negative-equity/corelogic-q3-2014-equity-report.pdf

Page | 6

REALTORS(c) Buyer Traffic Index

Based on Dec 2014-Feb 2015 RCI Surveys

REALTORS(c) Seller Traffic Index

Based on Dec 2014-Feb 2015 RCI Surveys

Page | 7

NAR also tracks data on the number of properties shown by REALTORS using
Sentrilock, LLC data6. Based on this data, foot traffic eased for the second consecutive month in
February. Heavy snow falls, and tight supplies likely weighed against historically low mortgage
rates and new affordable mortgage products. Despite the moderation, the trend suggests at least
as much strength as last spring. Showings need not necessarily translate to sales, but foot traffic
has a strong correlation with future contracts and home sales.

REALTORS Reported Stronger Home Price Growth in February 2015

Amid tight inventory conditions, approximately 51 percent of REALTOR respondents
reported that the price of their average home transaction was higher in January 2015
compared to a year ago (47 percent in January 2015; 65 percent in February 2014). Tight supply
and the decline of availabilty of distressed properties appear to have had an upward pressure on
prices. REALTORS have reported about the lack of affordable and good condition
homes. On the other hand, the increase in prices has put more homeowners in positive equity
position, enabling current homeowners to use the equity gain as a downpayment or to pay cash
for a move-up or move-down purchase. Some REALTORS have reported that first-time
homebuyers are losing out to those move-up or move-down buyers.
6

For more information on this data, please contact Ken Fears at kfears@realtors.org. Every month
SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR.
Lockboxes made by SentriLock, LLC. are used in roughly a third of home showings across the nation. Foot traffic
has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two
to three months into the future. The index surged above the 50 mark which indicates that more than half of the
roughly 200 markets in this panel had stronger foot traffic in December of 2014 than the same month a year earlier.
This reading does not suggest how much of a change in traffic there was, just that more than half of the markets
tracked experienced more foot traffic in December of 2014 than 12 months earlier.

Page | 8

Percentage Distribution of Price Change from a Year

Ago Reported by REALTOR Respondents -as of Feb 2015 RCI Survey
80%
Higher

Lower

Unchanged

60%

51%

40%
38%
20%

201411

201409

201407

201405

201403

201401

201311

201309

201307

201305

201303

201301

201211

201209

201207

201205

201203

201501

11%

0%

REALTORS Expect Prices to Increase Modestly in the Next 12 Months

REALTORS expected prices to increase modestly in the next 12 months, with the
median at about 3.4 percent, slightly up from 3.2 percent in January 2015. The map shows the
median expected price change in the next 12 months by the state of REALTOR respondents
in the Dec 2014 Feb 2015 surveys7. All real estate is local. State-level data is provided for
REALTORS who may want to compare local markets against the state trend.
States with the most upbeat price expectations (red) included the District of Columbia,
Florida, Nevada, and Colorado where prices are expected to increase at about 4 to 5 percent. In
most of the West Coast region and South Atlantic states, prices are expected to increase 3-4
percent. REALTORS expect more modest price growth along the Midwest region from
North Dakota to Oklahoma, possibly on account of the concerns about the effect of falling oil
prices. Prices in the Northeast , where demand is growing at a more modest pace compared to
other regions, are expected to increase modestly within 2-3 percent.

In generating the median price expectation at the state level, we use 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 the D.C. may have less than
30 observations.

Page | 9

Median Expected Price Change of REALTORS in Next 12 Months, By State

Based on Dec 2014-Feb 2015 RCI Surveys

Properties Stayed for Shorter Days on the Market at 62 Days in February 2015
With tight inventory supply, properties that closed in February were typically on the
market for a relatively short period of time at 62 days (69 days in January 2015; 62 days in
February 2014)8.
Short sales were on the market for the longest time at 120 days (128 days in January
2015; 98 days in February 2014) . Foreclosed properties were on market at 58 days (63 days in
January 2015; 60 days in February 2014). Non-distressed properties were on the market at 61
days (68 days in January 2015; 61 days in February 2014).

This is the median days on the market. A median of say 30 days means that half of the properties were on
the market for less than 30 days and another half of properties were on the market for more than 30 days.

Page | 10

Median Days on Market of Sales Reported By REALTOR

Respondents--as of Feb 2015 RCI Survey
200

All

All: 62

Foreclosed

Foreclosed: 58

Short Sales

Shortsale: 120

Not distressed

Not distressed: 61

150
100
50

201105
201107
201109
201111
201201
201203
201205
201207
201209
201211
201301
201303
201305
201307
201309
201311
201401
201403
201405
201407
201409
201411
201501

Source: NAR, RCI Survey

Approximately 34 percent of properties were on the market for less than a month when
sold (30 percent in January 2015; 34 percent in February 2014).

Distribution of Time on Market for Sales Reported by

REALTOR Respondents -as of Feb 2015 RCI Survey
40%
35%
30%
25%
20%
15%
10%
5%
0%

34%

15%

13%

11%
6%

4%

7%

4%

5%

<1 mo 1 to < 2 2 to < 3 3 to < 4 4 to < 5 5 to < 6 6 to < 9 9 to < >=12

mos
mos
mos
mos
mos
mos 12 mos mos
201402
201501
201502

By state, properties typically sold within 30 to 60 days in the West Coast states
(California, Washington, Oregon), the Midwest states running from North Dakota to Texas,
except for Kansas and Oklahoma , the Southern states of Florida, West Virginia, and Georgia,
and in the District of Columbia and Massachusetts. All real estate is local. State-level data is
provided for REALTORS who may want to compare local markets against the state trend.

Page | 11

Median Days on Market for Sales Reported by REALTORS, By State

Based on Dec 2014-Feb 2015 RCI Surveys

II. Buyer and Seller Characteristics

Sales to First Time Buyers: 28 Percent of Sales
The share of first-time homebuyers decreased to 28 percent of existing home sales (29
percent in December 2014; 26 percent in January 2014 ) .9 REALTORS reported extremely
low inventory levels especially for affordable and good properties. With more homeowners
now in positive equity position, first-time homebuyers are also competing against move-down
buyers paying cash. Interested homebuyers continue to find it challenging to obtain financing
under tougher and more cautious underwriting standards. REALTORS reported that the 0.5
percentage point reduction in FHA monthly mortgage premium is helping to make homes more
affordable for potential homeowners. NAR estimated that for a borrower with a $200,000
mortgage, the borrower will save $83 monthly, nearly $1,000 after the first year, and $18,000
over 30 years.10
9

First time buyers accounted for about 33 percent of all homebuyers based on data from NARs 2014 Profile
of Home Buyers and Sellers(HBS). The HBS is a survey of primary residence homebuyers and does not capture
investor purchases but does cover both existing and new h
ome sales. The RCI Survey is a survey of REALTORS about their transactions and captures purchases for
investment purposes and second homes for existing homes.
10
Ken Fears, FHA Lowers Pricing to Reflect Less Risk,
http://economistsoutlook.blogs.realtor.org/2015/01/08/fha-lowers-pricing-to-reflect-less-risk/

Page | 12

First Time Buyers as Percent of Market*-as of Feb 2015 RCI Survey

60%
50%
40%

29%

30%
20%
10%

201502

201410

201406

201402

201310

201306

201302

201210

201206

201202

201110

201106

201102

201010

201006

201002

200910

200906

200902

200810

0%

*Based on most recent sale of the month of REALTOR respondents.

About 28 percent of all buyers were in the age group 34 and under, a group that has
typically included first-time homebuyers.
Age Distribution of Buyers for Sales Reported by REALTOR
Respondents-- as of Feb 2015 RCI Survey
Age 34 and under

Age 35-55

56+

26%

23%

26%

25%

24%

23%

25%

24%

23%

23%

23%

52%

49%

53%

46%

51%

47%

48%

47%

46%

50%

50%

50%

26%

25%

24%

28%

24%

29%

29%

28%

31%

26%

27%

28%

201311

201404

201407

201408

201409

201410

201411

201412

201501

201502

60%

22%

201309

80%

201307

100%

40%
20%
0%

Source: NAR, RCI Surveys

Page | 13

About 38 percent of buyers were previously renters, a group that includes first-time
homebuyers.

Living Status of Home Buyers at Time of Home Purchase

for Sales Reported by REALTOR Respondents-as of Feb 2015 RCI Survey*
Lives with parents, relatives, or friends
Lives in own home
Rents an apartment or house
100%

9%

9%

9%

9%

9%

9%

9%

55%

54%

54%

53%

54%

53%

53%

36%

38%

37%

38%

37%

38%

38%

201408

201409

201410

201411

201412

201501

201502

80%
60%
40%
20%
0%
* Based on the most recent sale of the month of REALTOR respondents.

Sales for Investment Purposes: 14 Percent of Sales

Approximately 14 percent of REALTORS reported that their last sale was for
investment purposes (17 percent in January 2015; 21 percent in February 2014). Purchases for
investment purposes have been on the decline as fewer properties are foreclosed.

30%

Sales to Investors as Percent of Market*-as of Feb 2015 RCI Survey

25%
20%

14%

15%
10%
5%

200810
200901
200904
200907
200910
201001
201004
201007
201010
201101
201104
201107
201110
201201
201204
201207
201210
201301
201304
201307
201310
201401
201404
201407
201410
201501

0%

*Purchase of property for investment purposes.* Based on most recent sale of the month
of REALTOR respondents.

Page | 14

Distressed Sales: 11 Percent of Sales

With rising home values and fewer foreclosures, sales of distressed properties have
generally been on the decline compared to the magnitude in the wake of the Great Recession. In
February 2015, distressed sales accounted for 11 percent of sales: 8 percent of reported sales
were foreclosed properties, and about 3 percent were short sales.11 Fewer foreclosed properties
on the market explains to some degree why investment sales have generally been on the decline.
Distressed Sales, As Percent of Sales Reported by
REALTOR Respondents*-- as of Feb 2015 RCI Survey
60%

Foreclosed

50%

Short Sale

Foreclosed: 8% Shortsale: 3%

40%
30%
20%
10%
201502

201410

201406

201402

201310

201306

201302

201210

201206

201202

201110

201106

201102

201010

201006

201002

200910

200906

200902

200810

0%

* Based on most recent sale of the month of REALTOR respondents.

Foreclosed property sold at a 17 percent average discount, while properties sold as

short sales sold at an average of 15 percent discount. For the past 12 months, distressed
properties in above average condition were discounted by an average of 9-11 percent, while
properties in below average condition were discounted at an average of 14-20 percent.

11

The survey asks respondents to report on the characteristics of the most recent sale for the month.

Page | 15

Mean Percentage Price Discount of

Distressed Sales Reported by REALTOR Respondents*
(in %)--as of Feb 2015 RCI Survey

%
30

Foreclosed

25

Shortsale

20

17

15
10

15
200902
200905
200908
200911
201002
201005
201008
201011
201102
201105
201108
201111
201202
201205
201208
201211
201302
201305
201308
201311
201402
201405
201408
201411
201502

* Based on most recent sale of the month of REALTOR respondents.

Mean Percent Price Discount by Property Condition

of Distressed Sales Reported by REALTOR
Respondents --Average for Mar 2014 - Feb 2015
25

20

20
15
10

11

14

13
10

5
0
Above average

Average

Foreclosed

Below average

Short sale

Cash Sales: 26 Percent of Sales

Approximately 26 percent of REALTOR respondents reported that their last

transaction was a cash sale (27 percent in January 2015; 35 percent in February 2014). Buyers
of homes for investment purposes and second homes and foreign clients are more likely to pay
cash than first time home buyers. Less than 10 percent of first-time homebuyers make an all
cash purchase. Sales for investment purposes have been on the decline as prices have increased
and with fewer distressed sales coming in the market.

Page | 16

Cash Sales as Percent of Market*-as of Feb 2015 RCI Survey

40%
35%
30%

26%

25%
20%
15%
10%
5%
201502

201410

201406

201402

201310

201306

201302

201210

201206

201202

201110

201106

201102

201010

201006

201002

200910

200906

200902

200810

0%

* Based on most recent sale of the month of REALTOR respondents.

Percent of Sales Reported by REALTOR Respondents

That are All-Cash By Type of Buyer-- Feb 2015 RCI Survey
90%
76%

80%
67%

70%
60%

52%

50%

50%
40%
30%
20%
10%

15%

9%

0%
FTHBuyer

Investor

Second
home

Relocation International Distressed

Sale

First time Home Buyers Who Put Down Low DownPayment: 66 Percent
The majority of first-time homebuyers make a low downpayment. Among first-time
buyers reported to be obtaining a mortgage in the months of December 2014February 2015,
about 66 percent made a downpayment of 6 percent or less. 12 Although this is a decline from
the 77 percent figure in early 2009, this is higher than the 61 percent figure at the beginning of
2014, indicating some easing of credit.

12

Based on the REALTOR respondents most recent sales for the survey months, which altogether are
viewed to be a representative sample of all sales for these months.

Page | 17

REALTORS have reported that the reduction in FHAs monthly mortgage insurance
premium (from 1.35 percent to 0.85 percent) is likely to help interested homebuyers acquire a
home sooner. The GSEs also introduced the 3 percent downpayment loan early this year to ease
acces to credit. However, a lower downpayment may not necessarily make a home mortgage
more affordable because of the effective increase in the mortgage rate. GSEs charge fees on the
amount of the loan for risk factors such as low down payment (a.k.a loan level pricing
adjustments or LLPA)13. On top of the LLPA, borrowers obtaining low downpayment loans also
need to get and pay mortgage insurance.

77%
66%

200906
200909
201002
201005
201008
201011
201102
201105
201108
201111
201202
201205
201208
201211
201302
201305
201308
201311
201402
201405
201408
201411
201502

0.9
0.85
0.8
0.75
0.7
0.65
0.6
0.55
0.5

Percent of Reported First-time Buyers Obtaining a

Mortgage Who Had a Down Payment of 0% to 6%*-as of Feb 2015

Based on past three NAR -RCI surveys. NAR's RCI survey asks characteristics about the
REALTOR's last sale for the month.

International Transactions: 1.7 Percent of Residential Market

Approximately 1.7 percent of REALTOR respondents reported their last sale was a
purchase by a foreigner not residing in the U.S. International buyers frequently pay cash as well
as purchase properties above the median price of the domestic buyer. There were reports that the
strengthening of the dollar against most currencies, including the Canadian dollar, has caused a
decline in homebuying by Canadian clients.

13

For example, Fannie Mae charges 0.25 percent of the loan amount for borrowers with credit score of 740+
to as high as 3.25 percent of the loan amount for those with credit scores of less than 620.13 (Ex: a borrower
obtaining a $200,000 mortgage gets charged $6,500 which is converted as an adjustment in the mortgage rate).

Page | 18

Sales to International Clients as Percent of Market*-as of Feb 2015 RCI Survey

4.0%
3.5%
3.0%

1.7%

2.5%
2.0%
1.5%
1.0%
0.5%

201003
201005
201007
201009
201011
201101
201103
201105
201107
201109
201111
201201
201203
201205
201207
201209
201211
201301
201303
201305
201307
201309
201311
201401
201403
201405
201407
201409
201411
201501

0.0%

*Based on most recent sale of the month of REALTOR respondents.

III. Current Issues

Credit Conditions Slowly Easing
Credit conditions are slowly easing, although credit continued to flow to those
with high credit scores. About 52 percent of REALTORS providing transaction credit score
information reported FICO credit scores in the range of 620-740; in 2013, the share was hovering
at about 40 percent. About 2 percent of REALTORS reported a purchase by a buyer with
credit score of less than 620, up from about 1-2 percent in 2012-2014. In a normal market, the
share of credit scores below 620 would be closer to 5 percent. Potential buyers facing credit
limitations might want to consider a mortgage origination by community banks and credit
unions.
Distribution of FICO Scores Reported by REALTOR
Respondents --as of Jan 2015 RCI Survey
< 620

70%
60%
50%
40%
30%
20%
10%
0%

740+
52%
45%

201502

201412

201410

201408

201406

201404

201402

201312

201310

201308

201306

201304

201302

201212

201210

201208

201206

201204

201202

2%

Source: NAR RCI Surveys

Page | 19

620-740

Problems Encountered in Closing a Sale

REALTORS reported that for contracts that went into settlement or were terminated
during the past 3 month period, the major problems encountered prior to contract settlement or
termination were issues related to obtaining financing, inspection, and appraisal14. Of the most
recent contracts that went into settlement (on-time or delayed ) or were terminated during the
past 3 month period , 13 percent encountered issues relating to obtaining financing, 9 percent had
home inspection issues, and 7 percent faced appraisal issues.
Problems* Encountered for Contracts That Went Into Settlement
(On Time or Delayed) or Were Terminated in the Past 3 Months -Feb 2015 RCI Survey
no problems encountered
appraisal issues
6.9%
issues related to obtaining financing
13.3%
buyer lost job
0.3%
issues in buy/sell distressed property
3.7%
home inspection/environmental issues
8.8%
titling/deed issues
4.1%
home/hazard/flood insurance issues
0.8%
contingencies stated in the contract
3.4%
Other
10.3%

54.9%

* Multiple responses allowed. Based on the most recent sales contract that closed or terminated in the
past 3 months , which are viewed to be a representative sample for closed or terminated contracts .
"Other" includes buyer or seller backing out, builder delays, financing/approval delays.

Looking at contracts that were terminated (which account for 7 percent of all contracts
settled and terminated) , home inspection issues were the major problems. About 29 percent of
terminated contracts had home inspection issues, 25 percent had financing issues , and 8 percent
had appraisal issues.

14

Respondents were asked about the outcome of their most recent contract that went into settlement or was
terminated in the past three months. The 3-month period is deemed to provide a period of time for problems to
evolve or cure during which time the contract will either go into settlement or be terminated. Contracts that remain
pending will not be captured during this period of time.

Page | 20

Problems* Encountered for Contracts That Terminated in the

Past 3 Months --Feb 2015 RCI Survey
(Note: Terminated Contracts Represent 7 Percent of Sales Contracts
that Went into Settlement or Terminated in the Past 3 Months)
no problems encountered
appraisal issues
issues related to obtaining financing
buyer lost job
issues in buy/sell distressed property
home inspection/environmental issues
titling/deed issues
home/hazard/flood insurance issues
contingencies stated in the contract
Other

4%
8%
24%
3%
7%

29%
5%
2%
6%
25%

* Multiple responses allowed. Based on the most recent sales contract that terminated in the past 3
months , which are viewed to be a representative sample for terminated contracts . "Other" includes
buyer or seller backing out, builder delays, financing/approval delays.

IV. Commentaries by NAR Research

Strong Dollar and Housing Costs
Lawrence Yun, Chief Economist
o

The Almighty Dollar is showing the world who is the boss. The dollar has strengthened
against nearly all other foreign currencies in the past year. The strong dollar is a reflection of
better economic conditions and greater confidence in the U.S. versus the rest of the
world. The dollar now carries a bigger purchasing power. But the impact is not necessarily
positive.

Numerically, on average the U.S. dollar has strengthened by 11 percent in the past 12 months
to February and even by more over the past few years. Against some currencies the gains
have been even more dramatic. The U.S. Dollar is up 25 percent compared to recent years
against the Canadian counterpart; up 17 percent against the Euro; up 47 percent against the
Japanese Yen; and up by more than 100 percent against the Russian Ruble. In the simplest
term this gain means Americans traveling abroad will see bargains everywhere and will be
extra proud of their home country. For Americans staying at home, many of the foreignmade products at Walmart, for example, will be cheaper.

The strong dollar unfortunately will not translate into lower housing costs. Why? Land
cannot be shipped across oceans and construction workers demand dollar
compensation. That is why rents are rising at 3.4 percent, essentially at a 7-year high, and
home prices are appreciating at more than 5 percent.

Page | 21

One way the stronger dollar will help the real estate market is that the interest rates can stay
low for longer. The Federal Reserve will raise interest rates sometime this year. The date of
interest rate hike is likely being pushed further away because the strong dollar has tamed
inflation (outside of housing costs). Even with the likely delay by the Fed on rate hike, the
mortgage rates will be on an upward path, reaching possible 4.5 to 4.7 percent by the end of
the year (though not likely over 5 percent as previously forecasted before the dollar gains).

Today, the U.S. dollar is the unrivaled global reserve currency. Britain, about 100 years ago,
had the global currency status where one British Pound could command $5. In the long
distant past, Venice held the global reserve currency and thereby its economy
flourished. The importance of the global reserve currency was noted by Shakespeare in his
play Merchant of Venice. It would have been very easy for a short-term gain to simply
default on the loan rather than pay with a pound of flesh. But the Venetians knew that
default on a contract meant that they would lose their global reserve currency status and end
its economic prosperity. So there was to be no debasing or shaving of Venetian coins and
the rule of law and not rule of passion was to be the mainstay of Venetian society.

Page | 22

Lenders Optimistic on Changes

Ken Fears, Director, Regional Economics and Housing Finance Policy
In recent months, two changes were made to government financing that were intended to
improve credit availability. Mortgage lenders who took part in the 4th quarter Survey of
Mortgage Originators agreed that both programs, the new 3% down payment loan at Fannie Mae
and Freddie Mac as well as the reduction of fees at the FHA, will provide a boost to the housing
market.
In November, the FHFA which oversees Fannie Mae and Freddie Mac, announced that it would
once again allow the two entities to finance loans with as little as 3%. These loans would be for
first-time buyers, require buyer education, require strong underwriting, and would be priced to
reflect their risk. As discussed in an earlier blog, this 3% product would only be accessible by a
relative slim portion of the market. A 71.4% majority of lenders who participated in the
4th quarter survey felt that the 3% product will help to expand access to credit.

In early January, the FHA announced a reduction in the annual mortgage insurance premium
charged from 1.35% to 0.85%. The vast majority of respondents indicated that this would boost
production with a production-weighted average increase of 8.5%. 10% of respondents indicated
that the change would simply shift demand from the GSEs to the FHA as lender overlays would
limit new entrants to the market. No respondents indicated that the fee reduction would not have
an impact.

Page | 23

NAR Research estimated that the pricing change would price in an additional 90,000 to 140,000
potential homeowners who cannot afford to purchase in the current market. The 8.5% increase
that lenders cited correlates to an increase in purchase volume of more than 300,000 purchase
mortgages[1]. Overlays are a wild card in the current market that could hamper the impact of the
rate reduction, though the administration has made overtures to this end.
FHA and GSEs have made significant changes to improve credit availability in recent
months. Lenders who took part in the 4th quarter survey indicate that these changes should help
to improve access and affordability to consumers. Overlays will remain a headwind, limiting the
full benefit of these changes, until the FHA and GSE can ameliorate lender concerns about
certain legal risks.
[1] The 8.5% change is assumed equal for purchase and refinance volume. This might not be the
case as the question asks for the impact on total volume suggesting that the unit impact on
purchase volume could be smaller or larger.

Page | 24

Rebounding Building Permit Activity By Metro Area

Nadia Evangelou, Research Economist
Building permits have trended up during the past several months indicating that U.S. residential
construction will likely strengthen in 2015. Since building permits are an important leading
indicator for developments in the economy, it is worthwhile to take a closer look at the number
of building permits at the metropolitan level.

The visualization (http://economistsoutlook.blogs.realtor.org/2015/02/03/rebounding-buildingpermit-activity/) tracks the number of building permits issued in the 100 largest Metropolitan
Areas for the following four periods:
2000 2003: Pre Bubble period,
2004 2006: Bubble period,
2007 2011: Bust period,
2012 2014: Recovery period.
The first page of the visualization shows the annual growth of building permits for each of these
periods. We see that:
2000 2003 (Pre Bubble period):
Eight out of ten metro areas had positive growth while Portland South Portland, ME had the
highest annual growth (31.3%). In contrast, building permits decreased by 21.1% in Greensboro
High Point, NC.
2004 2006 (Bubble period):
The number of metro areas with positive annual growth of building permits dropped to one out
four metro areas. Baton Rouge, LA showed the highest growth (32.3%) while Toledo, OH had
the largest decline (-30.8%).
2007 2011 (Bust period):
None of the 100 largest metro areas exhibited annual growth in this period while Modesto, CA
was the metro area with the largest decrease (-45.5%).
Page | 25

2012 2014 (Recovery period):

Three out of four metro areas had positive annual growth while Grand Rapids Wyoming, MI
took the lead with annual growth of 48%. However, Scranton Wilkes Barre Hazleton, PA
had the largest decrease among the 100 largest metro areas (-39.3%).

The second page of the visualization

(http://economistsoutlook.blogs.realtor.org/2015/02/03/rebounding-building-permit-activity/)
shows the change in the median number of building permits in each period compared with the
pre bubble period (2000-2003). The data seek to answer the question: In which metro areas has
building permit activity returned to the pre-bubble level? Comparing the median number of the
building permits during the pre bubble period and the following periods, we observe that:
Bridgeport Stamford Norwalk[1], CT, El Paso, TX, and Shreveport Bossier City, LA had
permit activity that exceeded the pre-bubble period in each of the following three periods. For
example, in El Paso, TX the median number of building permits was higher by 15.8% in the
bubble period, 16.2% in the bust period and 14.6% in the recovery period compared with the prebubble period. Thus, those areas continued to experience solid levels of building permit activity
throughout each phase of the cycle.
Austin Round Rock San Marcos, TX and Fayetteville Springdale Rogers, AR-MO
recovered from the effects of the bust period and the number of building permits exceeded prebubble levels during the recovery period.
However, Greensboro High Point, NC, Denver Aurora Broomfield, CO and Grand- Rapids
Wyoming, MI were not able to return to the pre-bubble level of building permit activity. For
instance, in Grand Rapids Wyoming, MI the median number of building permits decreased by
43.7% in the bubble period, by 87% in the bust period and by 78.5% in the recovery period
compared with the pre-bubble level of building permit activity.
Page | 26