Buyers Taking Charge of Housing Market

Mike Sorohan msorohan@mba.org

April 05, 2019

With the spring real estate market in full swing, buyers appear have more leverage and purchase power, according to several reports released this week.

To wit:

Ellie Mae: Purchase Share Jumps to 87%
Ellie Mae, Pleasanton, Calif., said purchases accounted for 87 percent of all closed loans in February, a slight uptick from 85 percent in January, according to its Millennial Tracker. Refinances fell by 2 percentage points to 11 percent of all loans to Millennial borrowers. While they remained the most popular loan product among Millennial borrowers, share of conventional loans slightly decreased from the month prior, representing 68 percent of all loans.

Ellie Mae reported the time for Millennial borrowers to close conventional loans peaked in February to 46 days on average, up from 44 days in January, the longest average time to close since January 2017. Conversely, the average time to close all loans decreased from 44 days in January to 42 days in February. During the same period, average time to close FHA loans decreased slightly to 42 days from 44 days in January, while average time to close VA loans increased from 53 days to 59 days month-to-month.

"The percentage of purchase loans is on the rise with Millennials continuing to enter the home buying market for their first or maybe even second purchase," said Joe Tyrrell, Ellie executive vice president of strategy and technology. "The increase in days-to-close we saw in February is relative to the percentage increase in purchases versus refinances, as purchases typically take longer to close."

FICO scores across all loan types slightly increased in February to an average of 723, up from 722 in January. For purchases, the average FICO score was 745 for a Conventional loan, 678 for an FHA loan and 740 for a VA loan.

Redfin: Rising Inventories Give Buyers More Clout
Redfin, Seattle, said it took the typical home buyer this winter 73 days to find and close on their new home after their first home tour, down from 76 days last year and from a peak of 84 days in winter 2016.

"This year, there are more homes for sale relative to the number of buyers, so a buyer is more likely to have their first offer accepted, while sellers are having to wait longer for their home to sell," said Redfin chief economist Daryl Fairweather. "It's like a 1950s-era school dance with more boys than girls--the girls can quickly find a dancing partner, but more boys are waiting around with no one to dance with."

Redfin also reported buyers this year are also having to see fewer homes in person and write fewer offers before successfully landing a home. Nationally, buyers toured an average of about 10 homes this winter before closing on a home, and made an average of 1.6 offers, compared to touring about 11 homes and making 1.8 offers a year ago.

"The housing market isn't as daunting for first-time homebuyers," added Fairweather. "If you put in a fair offer, there is a good chance that offer will be accepted. Also, because mortgage interest rates are lower than they've been in over a year, home buying is more affordable, especially in expensive places like San Francisco and San Jose where home prices have fallen."

First American: Home Buyer Power on Rise
First American Financial Corp., Santa Ana, Calif., said its Real Home Price Index showed real house prices decreased by 1.9 percent between December and January. Real house prices increased by 7.0 percent year over year.

First American reported consumer house-buying power increased by 2.3 percent between December and January, but declined by 1.6 percent year over year.

"While 2018 was largely characterized by declining affordability, ending the year with a five percent yearly decline in house-buying power, this trend reversed sharply in early 2019," said First American Chief Economist Mark Fleming. "Moderating home prices, in conjunction with gains in household income and declining mortgage rates, boosted affordability for potential home buyers.

RealEstate.com: Cooling Market Provides New Opportunity for First-Time Buyers
RealEstate.com, Seattle, said home shoppers searching for entry-level homes are finding more homes to choose from and slowing home value appreciation

The Entry-Level Market Report said entry-level home values are growing at their slowest pace since mid-2016, giving first-time home shoppers a little more breathing room during the home search process. At the same time, inventory is showing consistent positive growth, which means that buyers will have more choices and likely face less competition when looking for the right home.

"Potential buyers who tested the waters in recent years should have an easier time now, which should be especially good news for anyone who made an offer but lost their bid for a home," said RealEstate.com General Manager Justin LaJoie. "First-time buyers can give themselves an extra boost by being well-informed, prepared buyers. And the work they do--contacting more agents, doing more research and visiting open houses--should pay off this year."

The report said the typical entry-level home is worth $130,200, up 9.2 percent from a year ago, the slowest pace of annual appreciation on record since June 2016. Last February, entry-level homes were gaining value at a 12.5 percent annual pace. Forty-two of the 50 largest U.S. metros saw slower entry-level home value appreciation compared with a year ago. Jacksonville and Tampa, Florida saw the biggest declines in appreciation, with each slowing by more than 16 percentage points from breakneck paces of more than 25 percent a year earlier, but both markets are still appreciating faster than the national average.

Redfin: Bidding Wars Down to 16%
Redfin, Seattle, said just 16 percent of offers written by Redfin agents on behalf of their home buying customers in the first three weeks of March faced a bidding war, down from 61 percent for the first three weeks of March 2018 and a slow uptick from the record low of 12 percent in December.

"If the rate of bidding wars begins to increase in a meaningful way this spring, it will be one of the earliest signs that the market is heating back up, since buyers making offers is the earliest stage of the home buying process," Redfin said.

The report noted the faster homes find buyers, the more intense the market is for buyers. The typical home that sold in February spent a median of 59 days on market, up two days from a year ago, the largest year-over-year increase in time on market since January 2015 and the first February to post an annual increase in days on market climb since at least 2011.

The rate of bidding wars is down considerably in every market that Redfin agents serve. The largest percentage-point declines in the first three weeks of March compared to a year earlier were posted in the San Francisco Bay Area (-64 points), Boston (-60 points) and Seattle (-56 points). The smallest declines were in Atlanta (-14 points), Houston (-18 points) and Phoenix (-27 points).

ATTOM: Median-Priced Homes Not Affordable in 71% of Housing Markets
ATTOM Data Solutions, Irvine, Calif., said median home prices in the first quarter were not affordable for average wage earners in 335 of 473 (71 percent) U.S. counties analyzed.

"We are seeing a housing market in flux across the United States, with a mix of tailwinds and headwinds that are pricing many people out of the housing market, but also are creating potentially better conditions for buyers," said Todd Teta, chief product officer with ATTOM Data Solutions. "Continually rising home prices in many areas do remain a financial stretch--or simply unaffordable--for a majority of households."

Teta noted, however, quarterly wage gains have been outpacing prices increases for more than a year and mortgage rates are falling, which have helped make homes a bit more affordable now than they've been in a year. "Affordability may improve because of the simple fact that homes are out of reach for so many home seekers, suggesting that prices need to moderate up in order to attract buyers," he said. "Of course, a few quarters do not a long-term trend make. The economy could slow. The impact of last year's tax cuts could fade, and interest rates could go back up, but the signs point to the possibility of an impending buyers' market."

ATTOM said among counties analyzed in the report, 232 (49 percent) were less affordable than their historic affordability averages in the first quarter, down from 76 percent of counties in the previous quarter but up from 42 percent of counties a year ago.

ATTOM: Single-Family Property Taxes Jump 4% in 2018
ATTOM also reported property taxes levied on single family homes in 2018 totaled $304.6 billion, up 4 percent from $293.4 billion in 2017 and an average of $3,498 per home--an effective tax rate of 1.16 percent.

"While many states across the country have imposed caps on how much taxes can go up, which probably contributed to a slower increase in 2018 versus 2017," Teta said. "There are still many factors at play that can contribute to local property tax hikes, and without major changes in the way a community runs public services, tax rates must rise to pay for them."

The report said states with the highest effective property tax rates were New Jersey (2.25 percent), Illinois (2.22 percent), Texas (2.18 percent), Vermont (2.16 percent) and Connecticut (2.02 percent). Among 219 metropolitan statistical areas analyzed in the report with a population of at least 200,000, those with the highest effective property tax rates were Binghamton, N.Y. (3.19 percent); Syracuse, N.Y. (2.89 percent); Rochester, N.Y. (2.88 percent); Rockford, Ill. (2.83 percent); and Atlantic City, N.J. (2.74 percent).

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