The Three Percent Solution

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Existing-Home Sales Topple to Six-Month Low Just a month after hitting a 2014 high, sales continued their yearlong rollercoaster ride. S ales of pre-owned homes stalled out in November, plunging to their slowest pace in half a year only one month after hitting a 2014 high. The National Association of Realtors (NAR) reported that existing-home sales fell 6.1 per- cent from October to November, landing at a seasonally adjusted annual rate of 4.93 million. The association also cut October's estimated sales rate slightly to 5.25 million. "Fewer people bought homes … despite interest rates being at their lowest levels of the year," said NAR Chief Economist Lawrence Yun. "The stock market swings in October may have impacted some consumers' psyche and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market." Despite the stumble, home resales in November were still up 2.1 percent from year-ago levels, making it just the second month in 2014 to see sales rise year-over-year. It's been a year of starts and stops for home sales, which have struggled under the weight of rising mortgage rates (a trend that has reversed in recent months), a tighter lending envi- ronment, declining affordability, and a lack of housing stock available for buyers. In November, the total inven- tory of existing homes for sale was 2.09 million, NAR estimates, down 6.7 percent from October. "Lagging homebuilding activity continues to hamstring overall housing supply and is still too low in relation to this year's promising job growth," Yun said. "Much faster price and rent ap- preciation—easily exceeding wage growth—will occur next year unless new construction picks up measurably." About one-quarter of resale transactions in November were made entirely in cash, down from nearly one-third last year, NAR reported. Individual inves- tors, who account for many cash sales, were responsible for 15 percent of total sales. Meanwhile, the percentage of first-time homebuyers climbed slightly to 31 percent, the highest share since October 2012. With Fannie Mae and Freddie Mac opening the door for low down payments, the association hopes to see the share of first- time homebuyers pick up to a more normal level. "NAR applauds Fannie and Freddie's commitment to home- ownership by serving credit- worthy borrowers who lack the resources for substantial down payments plus closing costs with its new down payment pro- gram," said NAR President Chris Polychron. "The new program mitigates risk with strong under- writing and ensures that respon- sible buyers have access to safe and affordable mortgage credit." Existing-home sales fell month- over-month in November in all four census regions, led by a 9.6-percent drop in the West to a yearly rate of 1.03 million. That was followed by declines of 8.9 percent in the Midwest (to 1.13 mil- lion), 4.2 percent in the Northeast (to 680,000), and 3.2 percent in the South (to 2.09 million). Compared with a year ago, sales were up in the Northeast and South, outperforming November 2013 by 4.6 percent and 5 percent, respectively. At the same time, sales were down 1.7 percent in the Midwest and 1 percent in the West. 50 | Th e M Rep o RT o r i g i naT i o n S E r v i c i n g a na Ly T i c S S E c o n da r y M a r k E T ANALYTICS The laTesT Pending Home Sales inch Up in november Measure But what do these gains really mean for the housing market? c ontract signings for home sales picked up slightly in November, turning around as October activity took a down- ward revision. The National Association of Realtors (NAR) reported a 0.8-percent month-over-month increase in its Pending Home Sales Index to a reading of 104.8 in November. The index, which tracks contract signings as an indicator of future sales volume, measured 104 in October (down slightly from an originally reported 104.1). With the most recent increase, the index has now posted annual gains for three straight months, lining up with re- cent improvements in existing-home sales activity. "The consistent economic growth and steady hiring we've seen the second half of this year is giving buyers enough assurance to con- sider purchasing a home before year's end," said NAR Chief Economist Lawrence Yun. With the cost of renting on the rise and mortgage rates still scraping historically low levels, Yun says he expects homebuy- ers will become more engaged in the coming months. On the other hand, despite increasing consumer confidence, sentiment toward the housing market remains tepid as rising home prices present a hurdle for those struggling to meet down payment requirements. In its 2014 profile of homebuyers and sellers, NAR reported that the median down payment ranged from about 6 percent for first-time homebuyers to 13 percent for repeat buyers. "There's still misperception out there that a much higher down payment is needed, while that's not the reality," Yun said. Except for the Midwest, all major regions posted higher pending sales numbers in November, led by a 1.4-percent gain in the Northeast, which reported an index value of 89.1. Pending sales in the South were up 1.3 percent to an index of 119.7, while pend- ing sales in the West were up 0.4 percent to 98.5. The Midwest's pending sales index slipped 0.4 percent, end- ing the month at 100. For all of 2014, NAR fore- casts existing-home sales will come in around 4.94 million, a drop of 3 percent from 2013 thanks to a slow first half of the year. Sales are expected to jump to 5.3 million this year. "There's still misperception out there that a much higher down payment is needed, while that's not the reality." —Lawrence Yun, NAR

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