Thursday, December 30, 2010
Realtors® Reflect on 2010; Ready for 2011
Washington, DC, December 27, 2010
2010 has been a year of real estate contrasts. While many consumers have taken advantage of historic buying opportunities and the market has seen a gradual stabilization of sales and prices, other challenges facing the nation have led some to question the value of home ownership for families, communities, and the country.
“People are passionate about the American dream of home ownership, and this passion underscores how important home ownership is to our nation,” said National Association of REALTORS® President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “Owning a home has long-standing government support in this country because home ownership benefits individuals and families, strengthens our communities, and is integral to our economy. As we begin a new year, REALTORS® remain committed to ensuring that our public policies promote responsible, sustainable home ownership for all of our futures.”
In the first half of the year, the extended $8,000 first-time home buyer tax credit and expanded home $6,500 tax credit for repeat buyers helped encourage sales and stabilize home prices. Home buyers in 2010 have also benefited from historic affordability levels, with the combination of record low mortgage rates coupled with rising household incomes. The NAR Housing Affordability Index currently shows that a median-income family with a down payment of 20 percent has 184.2 percent of the income required to purchase a median-priced home.
“Low interest rates mean real money for today’s home buyers,” said Phipps. “Buyers who purchased a median-priced home five years ago with an FHA mortgage requiring a 3 percent down payment would have a monthly mortgage payment of $1,650. With today’s interest rates and median home prices, that same buyer would pay $1,150 per month – a $500 savings. That’s a savings of $6,000 per year.”
Despite record affordability and buyer incentives, rising foreclosure rates and concerns about proper foreclosure procedures led some to question whether owning a home was a good personal decision.
“Home ownership didn’t create the foreclosure crisis – Wall Street greed and irresponsible lending practices did,” said Phipps. “The decision to own a home is a very personal one, but over the long term, owning a home is one of the best ways to build long-term wealth, in addition to providing numerous social benefits that include reduced crime rates, improved childhood education, and increased stability. After all, a fixed-rate mortgage might last 15 to 30 years; renting is forever.”
Government support of programs and initiatives that encourage home ownership have also been called into question. The deductibility of mortgage interest is one example, with critics suggesting that the mortgage interest deduction primarily benefits the wealthy, while in fact, the MID benefits primarily middle- and lower income families – almost two-thirds of those who claim the MID are middle-income earners. Sixty-five percent of families who claim the MID earn less than $100,000 per year, and 91 percent who claim the benefit earn less than $200,000 annually.
“The ability to deduct the interest paid on a mortgage can mean significant savings at tax time,” said Phipps. “For example, a family who bought a home this year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 4.5 percent, could save nearly $3,500 in federal taxes when they file next year. That’s money they could use to pay down other debts, supplement their children’s college savings account, or put into savings themselves.”
Despite current economic challenges, most Americans still aspire to the dream of home ownership. According to a survey conducted earlier in the year by Bankrate.com, 90 percent of respondents said they had no regrets buying their current home. And just this month, a Fannie Mae survey found that most Americans – both those who currently own their homes and those who rent – strongly aspire to own a home and to maintain home ownership.
“We believe that anyone who is able and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream, and looking forward, REALTORS® will continue to engage policymakers and industry leaders on behalf of consumers in pursuit of that goal,” said Phipps.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
2010 has been a year of real estate contrasts. While many consumers have taken advantage of historic buying opportunities and the market has seen a gradual stabilization of sales and prices, other challenges facing the nation have led some to question the value of home ownership for families, communities, and the country.
“People are passionate about the American dream of home ownership, and this passion underscores how important home ownership is to our nation,” said National Association of REALTORS® President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “Owning a home has long-standing government support in this country because home ownership benefits individuals and families, strengthens our communities, and is integral to our economy. As we begin a new year, REALTORS® remain committed to ensuring that our public policies promote responsible, sustainable home ownership for all of our futures.”
In the first half of the year, the extended $8,000 first-time home buyer tax credit and expanded home $6,500 tax credit for repeat buyers helped encourage sales and stabilize home prices. Home buyers in 2010 have also benefited from historic affordability levels, with the combination of record low mortgage rates coupled with rising household incomes. The NAR Housing Affordability Index currently shows that a median-income family with a down payment of 20 percent has 184.2 percent of the income required to purchase a median-priced home.
“Low interest rates mean real money for today’s home buyers,” said Phipps. “Buyers who purchased a median-priced home five years ago with an FHA mortgage requiring a 3 percent down payment would have a monthly mortgage payment of $1,650. With today’s interest rates and median home prices, that same buyer would pay $1,150 per month – a $500 savings. That’s a savings of $6,000 per year.”
Despite record affordability and buyer incentives, rising foreclosure rates and concerns about proper foreclosure procedures led some to question whether owning a home was a good personal decision.
“Home ownership didn’t create the foreclosure crisis – Wall Street greed and irresponsible lending practices did,” said Phipps. “The decision to own a home is a very personal one, but over the long term, owning a home is one of the best ways to build long-term wealth, in addition to providing numerous social benefits that include reduced crime rates, improved childhood education, and increased stability. After all, a fixed-rate mortgage might last 15 to 30 years; renting is forever.”
Government support of programs and initiatives that encourage home ownership have also been called into question. The deductibility of mortgage interest is one example, with critics suggesting that the mortgage interest deduction primarily benefits the wealthy, while in fact, the MID benefits primarily middle- and lower income families – almost two-thirds of those who claim the MID are middle-income earners. Sixty-five percent of families who claim the MID earn less than $100,000 per year, and 91 percent who claim the benefit earn less than $200,000 annually.
“The ability to deduct the interest paid on a mortgage can mean significant savings at tax time,” said Phipps. “For example, a family who bought a home this year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 4.5 percent, could save nearly $3,500 in federal taxes when they file next year. That’s money they could use to pay down other debts, supplement their children’s college savings account, or put into savings themselves.”
Despite current economic challenges, most Americans still aspire to the dream of home ownership. According to a survey conducted earlier in the year by Bankrate.com, 90 percent of respondents said they had no regrets buying their current home. And just this month, a Fannie Mae survey found that most Americans – both those who currently own their homes and those who rent – strongly aspire to own a home and to maintain home ownership.
“We believe that anyone who is able and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream, and looking forward, REALTORS® will continue to engage policymakers and industry leaders on behalf of consumers in pursuit of that goal,” said Phipps.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
Seasonality, Home Sales and Home Prices
December 1, 2010
By Gregg Stratton, Research EconomistIt is no surprise that there is a large level of seasonality in home sales data. Sales in existing homes tend to spike in warmer months, June through August, and reach their nadir in colder months, December through February. On average, homes sales are approximately 80 percent higher during their peak in August than they are during their January trough.
To illustrate this dynamic, quarterly unadjusted sales and price data is presented below for two cities with distinctly different climates, Atlanta and Minneapolis. While there is significantly more seasonal volatility in sales in Minneapolis versus Atlanta as is expected, there is only negligible difference in the seasonal volatility of median prices in the two cities.
This reinforces the point that price seasonality is caused by changes in mix rather than climate. In Atlanta, for example, sales of homes with four or more bedrooms comprise, on average, 45 percent of the total sales in August, while they only comprise 41 percent of the total in February.
The Profile of Home Buyers and Sellers: Focus on Sellers
The Profile of Home Buyers and Sellers: Focus on Sellers
by Jessica Lautz, Research EconomistThe National Association of REALTORS® surveys home buyers and sellers annually to gather detailed information about the home buying and selling process. These surveys provide information on buyer and seller demographics, housing characteristics and the experience of consumers in the housing market. Buyers and sellers also share information on the role that real estate professionals play in home sales transactions. NAR’s Profile of Home Buyers and Sellers reports – based on results of those surveys – provide real estate professionals with insights into needs and expectations of their clients. The latest 2010 NAR Profile of Home Buyers and Sellers* was released in November.
Last month's Market Intelligence column highlighted some of the profile data on home buyers. In this edition, we focus on home sellers and how they may have “traded up” in purchasing another home.
(Note: sellers who responded to the survey were also home buyers; consequently, the information on home sellers can also be useful for real estate professionals who are looking at that portion of their clientele who are repeat buyers. For the first time since NAR Research began conducting the annual home buyer/seller survey, NAR Research asked sellers if this was their first selling experience. Nearly two-fifths of sellers were selling for the first-time. Slightly more than three-fifths were repeat sellers.)
Even for an experienced home seller, selling one's home can often be just as complicated and confusing as buying a home can be for a first-time seller. The recent economic recession presented challenges to many households, and this was certainly true for those households who wanted to sell a property in order to purchase and move into another home. As in the past, however, most home sellers turn to real estate professionals to help them sell their properties as well as to purchase another home in which to live.
Selected Demographics of Home SellersAs has been the case for the last several years, married couple households account for three-quarters of home sellers. Single male or female households represented about one in five recent sellers, with single females accounting for more than 2.5 times as many sellers as single males. Reversing a trend from recent years, the proportion of single female sellers increased in 2010. Two-fifths of seller households have a least one child under 18; this is slightly more than the share of home buyer households with children (35 percent).
The median age of home sellers was older in 2010 than in 2009. The typical age of a seller who sold a home between mid-2009 and mid-2010 was 49 – compared to 46 the previous year
One reason we look at the age factor for home sellers is that a variety of other seller demographics may correlate to the age cohort. For instance, younger sellers tended to be buyers of larger homes. Those sellers aged 18-34 years old purchased a home 100 square feet larger (median) than the home they sold, and sellers aged 35-44 years old traded up to a home that was 200 square feet larger than the home they had recently sold. The contrary is also true: older sellers tended to purchase homes that were smaller, with those aged 55-64 years old trading down the most.
Younger sellers also tended to purchase homes that were more expensive than the residence that they sold. In fact, for the youngest home sellers – those aged 18 to 34 years old – the median purchase price of the home they bought was $98,300 more than the price they achieved for the home they sold.
Tenure and Equity EarnedThe typical home seller has owned their home for eight years, up from seven years in 2009, and 6 years in 2008. Sellers of detached single-family homes, which account for the largest share of homes sold, owned their home for a median of nine years. sellers of condos in buildings with five or more units had the shortest tenure at the median—6 years. Age of the home owner also corresponds with tenure. Sellers under age 34 have typically lived in their home for 5 years before selling compared with a 12-year tenure for those sellers 55 to 64 years old.
Not surprisingly, the longer tenure in a home usually generates a higher equity earned from the home when sold. The median equity in dollar value in a home sold between mid-2009 and mid-2010, that is, the difference between the purchase price and the selling price -- was $33,000, which is 24 percent higher than when the seller purchased the home.. Sellers who owned a home for one year or less typically reported a greater gain when the home sold than did those whose tenure in their home was 2-3 or 4-5 years. One explanation for these large gains is that they result from the rehabilitation and resale of formerly distressed properties.
Why They SoldSellers have many reasons for moving, and these reasons also vary by age. Selling a home because it was too small was the motivation for 21 percent of recent sellers. In fact, wanting to trade up to a larger home was the most frequently cited reason among all sellers, but especially for younger sellers (46 percent). Job relocation was the second most cited reason for selling a home -- cited by 15 percent of survey respondents, but a decrease from the 21 percent of sellers who reported this reason in the previous profile. Job relocation was the most frequent reason for selling a home among those aged 45 to 54. Among those sellers 55 years old or older, moving closer to friends and family was the chief reason for selling a home, and it becomes an even more commonly cited reason among older groups.
The Role of Real Estate ProfessionalsBy and large, most sellers – the majority of whom have worked before with a real estate professional – understand the value a real estate agent brings to the transaction. This is especially true in a still-stabilizing housing market. Nearly 9 out of 10 home sellers sold their home with the assistance of a real estate agent.
In comparison, in 2001, only 79 percent of home sellers sold their home using an agent or broker. By 2009 that percentage had increased to 85 percent, and in 2010 to 88 percent.
For more informationMore information is available online. NAR members may download a PDF copy of this profile at http://www.blogger.com/wps/wcm/connect/RO-Content/ro/research/index. Others interested in purchasing a copy of the full report may do so by visiting the web site and clicking on “new reports.”
*In July of 2010, the National Association of REALTORS® mailed an eight-page questionnaire to 111,004 consumers who purchased a home between July 2009 and June 2010. The survey yielded 8,449 usable responses with a response rate, after adjusting for undeliverable addresses, of 7.9 percent. Consumer names and addresses were obtained from Experian, a firm that maintains an extensive database of recent home buyers derived from county records. All information in the Profile is characteristic of the 12-month period ending June 2010, with the exception of income data, which are reported for 2009.
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