Existing-home sales declined in September, but prices rise.

After hitting the highest level in nearly four years, existing-home sales declined in September, but limited inventory conditions continued to pressure home prices in much of the country, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.9 percent to a seasonally adjusted annual rate of 5.29 million in September from a downwardly revised 5.39 million in August, but are 10.7 percent above the 4.78 million-unit pace in September 2012. Sales have remained above year-ago levels for the past 27 months.

Lawrence Yun, NAR chief economist, said a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.49 percent in September from 4.46 percent in August, and is the highest since July 2011 when it was 4.55 percent; the rate was 3.47 percent in September 2012.
The national median existing-home price for all housing types was $199,200 in September, up 11.7 percent from September 2012. This is the 10th consecutive month of double-digit year-over-year increases.

Distressed homes – foreclosures and short sales – accounted for 14 percent of September sales, up from 12 percent in August, which was the lowest share since monthly tracking began in October 2008; they were 24 percent in September 2012. Lower levels in the share of distressed sales account for some of the growth in median price.

Nine percent of September sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in September, while short sales were discounted 12 percent.

Data from realtor.com®, NAR’s listing site, show some of the strongest increases in listing price from a year ago are in the Detroit area, up 44.6 percent; Las Vegas, up 30.7 percent; and Sacramento, up 28.9 percent.

Total housing inventory at the end of September was unchanged at 2.21 million existing homes available for sale, which represents a 5.0-month supply at the current sales pace, compared with a 4.9-month supply in August. Unsold inventory is 1.8 percent above a year ago, when there was a 5.4-month supply.

NAR President Gary Thomas said there are far-ranging consequences from the repeating stalemates in Washington. “Just one impact of the recent government shutdown – delays in tax transcripts needed for approval of mortgage loans – put a monkey wrench in the transaction process and could negatively impact sales closings in next month’s report,” he said.

Thomas said flood insurance also is a concern. “Realtors® report that approximately 10 percent of transactions in September were located in flood zones, and that nearly one out of 10 of those transactions were delayed or canceled due to concerns over rising insurance rates.” Notably higher flood insurance rates went into effect on October 1, and could impact future sales in flood zones.
The median time on market for all homes was 50 days in September, up from 43 days in August, but much faster than the 70 days on market in September 2012. Short sales were on the market for a median of 93 days, while foreclosures typically sold in 43 days, and non-distressed homes took 49 days. Thirty-nine percent of homes sold in September were on the market for less than a month.
First-time buyers accounted for 28 percent of purchases in September, unchanged from August, but down from 32 percent in September 2012.

All-cash sales comprised 33 percent of transactions in September, up from 32 percent in August, and 28 percent in September 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in September, up from 17 percent in August, and 18 percent in September 2012. Last month, 74 percent of investors paid cash.

Single-family home sales slipped 1.5 percent to a seasonally adjusted annual rate of 4.68 million in September from 4.75 million in August, but are 10.9 percent above the 4.22 million-unit pace in September 2012. The median existing single-family home price was $199,300 in September, which is 11.4 percent higher than a year ago.

Existing condominium and co-op sales fell 4.7 percent to an annual rate of 610,000 units in September from 640,000 in August, but are 8.9 percent above the 560,000-unit level a year ago. The median existing condo price was $198,600 in September, up 14.2 percent from September 2012.
Regionally, existing-home sales in the Northeast declined 2.8 percent to an annual rate of 690,000 in September, but are 15.0 percent above September 2012. The median price in the Northeast was $240,900, up 2.3 percent from a year ago.

Existing-home sales in the Midwest fell 5.3 percent in September to a pace of 1.25 million, but are 12.6 percent higher than a year ago. The median price in the Midwest was $158,400, which is 9.0 percent above September 2012.

In the South, existing-home sales declined 1.4 percent to an annual level of 2.10 million in September, but are 9.9 percent above September 2012. The median price in the South was $171,600, up 13.9 percent from a year ago.

Existing-home sales in the West rose 1.6 percent to a pace of 1.25 million in September, and are 7.8 percent higher than a year ago. With ongoing inventory restrictions, the median price in the West rose to $286,300, which is 16.8 percent above September 2012.

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How long does it take to build a house?

Thinking about building a new home, weighing the pros and cons of building versus buying, or simply curious about the building process? The 2012 Survey of Construction (SOC) from the Census Bureau shows that on average it takes about 7 months from obtaining a building permit to completing a new single-family home. Looking at the houses completed in 2012, houses built for sale, on average, register the shortest time from permits to completion – between 5 and 6 months. Houses built on owner’s land take longer – about 8 months if built by a contractor and more than 11 months if they are owner-built (i.e., where the owner of the land serves as a general contractor). Single-family homes built for rent take, on average, between 8 and 9 months from permits to completion.

In most cases, no time is wasted from the moment a permit is obtained and construction is started. Most homes built for sale and on owners’ land are started prior or within the same month as authorization. Houses built for rent, on average, register a slight delay of one month before construction is started.

The time from permits to completion varies across the nine Census divisions. New England and Middle Atlantic register longer times of between 9 and 10 months. Pacific and East North Central division also show above average time of 8 months to completion. Builders in the East South Central Division manage to complete a home in 7 months, on average. The rest of the country registers times between 5 and 6 months.

For houses built for sale, the SOC also gathers information on sales, registered at the time when a buyer signs a sale agreement or makes a deposit on the home, not the final closing. For new single-family homes sold in 2012, the average time from completion to sale is under one month. However, this average is highly skewed by a relatively small number of homes that are not sold prior or while under construction.

Looking at new single-family homes completed in 2012, more than three quarters of these properties were sold before or during the completion month, including 30 percent that were pre-sold (i.e., sold before being started). Only 6 percent of homes completed in 2012 remain unsold as of the first quarter of 2013. So, for most new single family homes there is no additional lag from completion to sale.

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5 Things Every Home Buyer Should Know

A house is the biggest asset that the majority of Americans will ever own. But while most of us delude ourselves into thinking that we actually know something about real estate, the truth is that few of us have any idea what we're talking about.
It's for this reason that I solicited the advice of several highly respected real estate professionals to help our readers navigate the process of both buying and selling their homes. What follows, in turn, are five things that most homebuyers should know, but don't.

1. When you buy a home, you're making two purchases
Of all the advice that I came across, this was probably the most insightful: "When you buy a home, you actually are making two purchases," Dave Ness of Denver's Thrive Real Estate Group told me. "You are buying the home, and you are buying the money to buy the home."

It's tempting for homeowners to think of a mortgage as an incidental expense. But the reality is that the loan itself may be the most significant piece of the transaction. "For every 1% rise in interest rates, home prices must fall by 10% in order for you to maintain the same monthly mortgage payment," Ness says. "And at the end of the day, that's what matters, the monthly payment. So take advantage of low rates; they add much more buying power to your purchase than low prices."

2. Homes are like people -- they all have problems
This was a point multiple real estate professionals that I spoke with made. "All houses have issues," Hilary Bourassa of Portland's Oregon First Real Estate told me. "Some just have more than others."
The shock generally comes when prospective buyers get their inspection reports back. "Inspectors are professional pessimists, which is why we love them," Bourassa said. "But many issues only require simple and/or inexpensive fixes."

Along the same lines, Ness analogized the experience to "when someone knocks over the DJ table at a wedding and the music stops." All of a sudden, the bliss from going under contract goes away.
"Most inspection reports will be 40 to 50 pages long, and most inspectors will take close-up, HD photos of problems," Ness went on to note. "So while the actual listing shows gorgeous pictures of granite countertops, the inspection report will show awful pictures of a cracked driveway. By the end of the report you'll be thinking, 'This house is a total and complete lemon.'"

3. Your real estate agent is a partner, not a salesman
My industry sources were obviously biased on this point, but there's a lot of truth to what they said.
"Your Realtor should be focused on helping you find a great property, not selling you something," Bourassa advises. Before settling on one, she urges homebuyers to "interview at least a few in order to find the fight match." The flipside of the coin is that you, too, are a partner in the relationship. And that means knowing and respecting the boundaries.

"Sometimes clients forget (particularly first-time buyers) that Realtors have other clients and lives outside of work," Ness says. The key is to make sure that both parties have a clear understanding of communication expectations. "What is their normal response time? How much lead time do they need to arrange showings? What medium of communication is best -- text, call, email, or something else?" These are the types of questions that Ness encourages homebuyers and real estate agents to settle at the outset.

4. HGTV does not resemble reality
My wife and I love to watch cooking shows. We've watched so many, in fact, that we've deceived ourselves into believing that we could actually compete on them. Of course, given the opportunity, we would most certainly -- and I do mean "most certainly" -- crash and burn in the most humiliating fashion. And the same can be said about the proliferation of "realty" television shows on real estate -- think HouseHunters, Flip That House, Holmes on Homes, Property Virgins, and Property Brothers, among others.

"The reality is, hundreds of hours or footage is shot and edited down to a 16-minute show (when you take out the Lowe's commercials)," Ness pointed out. "Yes, they're real buyers, but you don't see the half of it. So don't think you're going to waltz into your market and find the perfect house right away, beat out all the other offers, and then walk into the sunset with your significant other. Finding a home can be tough, and take time." Ness' advice? "Gear up for the homebuying process. It's worth it, but it ain't Hollywood!"

5. Always think about resale
This final piece is something that all people buying assets should always keep in mind: At some point you're going to resell it and will want to maximize what you eventually get.
"When you're buying your home, you're probably not thinking of the day that you will have to sell it," Bourassa said, "but you will be thanking yourself one day if you remember three little things ... location, location, location!"

The bottom line
Most if not all of us will buy at least one house in our lives. With that in mind, you should save yourself the trouble of making the same mistakes that most of your peers will. Take these five pieces of information into consideration. You'll be doing yourself a favor if you do.

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U.S. Default Seen Pushing Housing to the Brink

Housing largely dodged a bullet on the government shut down that went into effect October 1. The pending default, however, is an entirely different matter. As the October 17 default deadline nears, knuckles in the housing industry are turning white.

All the progress that the housing recovery has achieved since the crashed could be erased overnight if the U.S. defaults on its debts, according to the president of the National Association of REALTORS®. But Gary Thomas is not the only housing leader raising alarms and the debt default clock ticks down.

In testimony before the Senate Committee on Banking, Housing and Urban Affairs, NAR president Gary Thomas said that unless the debt ceiling is raised in “a timely manner,” the country would face a recession that would wipe out the recent progress made in home prices, home sales and new residential construction.

Robert Dietz, Vice President for Tax and Market Analysis for the National Association of Homebuilders, says the primary effect of a default or downgrade would be increased uncertainty. “Home buyers are making purchase of a capital asset that they will own, on average, for ten years. Given other sources of uncertainty, particularly from the labor market, the largest impact from a failure to reach a deal that increases the debt ceiling would be to further increase concern and anxiety of families attempting to make long-term economic decisions.

“What the housing market needs now is more, not less, certainty, with respect to housing policy and access to capital via the mortgage markets. This will help stabilize housing prices, thereby helping households repair balance sheets and set the stage for more robust economic growth.”

Writing in Friday’s New York Times, economist Paul Krugman argues that a default would create a shock to the economy on a scale of the Great Recession or the Housing Crash of 2007. The default would put the burden of paying interest on Treasury bonds. Currently the cash-flow deficit is a bit more than 4 percent of GDP, which would have to be closed immediately and the government would then fall even further behind on its bills, he says.

“So, when did we last see a spending shock this big? As it happens, we’re looking at something just about the size of the post-bubble housing bust, which was also about 4 percent of GDP:
NAR’s Lawrence Yun describes a similar scenario. “Should the government decide to pay bills other than interest obligations, we can expect interest rates on Treasury bonds to rise as investors look for more return to compensate for the increased risk of their not getting paid. And if that happens, mortgage rates will rise, because mortgage rates follow Treasury rates.” Yun says home sales can be expected to drop by 350,000 to 450,000 units for each 100 basis-point rise in mortgage rates.

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Taming the Debt Monster

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Shutdown Will Mostly Affect FHA Mortgages

Now that the government has effectively shut down, what does it mean for housing?

The answer essentially depends on how long the federal government remains closed. The longer the shutdown persists, the deeper the impacts on both housing and the economy as a whole. But the agency that is likely to be most affected the biggest is the Federal Housing Administration (FHA).

Since Congressional leaders in both parties have failed to reach an agreement to fund the federal government this fiscal year (which began Tues., Oct. 1), all non-essential government employees have been ordered not to work, including the majority of employees otherwise tasked with approving and underwriting federal mortgages.

The federal government backs roughly 90 percent of mortgages in the U.S., through various government agencies including the FHA, Dept. of Veterans Affairs and through Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

The good news is that mortgages backed by Fannie Mae and Freddie Mac – the majority of mortgages in the country – should not be impacted by the federal closure, since Fannie and Freddie fund their operations independent of taxpayer and federal money. But mortgages secured through the FHA do require federal funds and need to be processed by federal employees, and so will likely be affected.

According to the Dept. of Housing and Urban Development (HUD), which oversees the FHA and other federal housing programs, only 67 of the FHA’s 2,972 employees are approved to work during the federal closure. As a result, the approval of mortgage applications through FHA will be severely slowed down.

According to Zillow Chief Economist Dr. Stan Humphries, a short-term disruption in some FHA loans is certainly not ideal, but shouldn’t have much long-term impact on overall housing demand or housing affordability. But the longer the shutdown drags on, the larger the backlog of mortgages needing approval will get, and the bigger the impact will be.

It is estimated that roughly 800,000 federal employees have been furloughed, uncertain when they will return to work and begin earning wages again. This will undoubtedly impact household budgets, leading many to consider postponing large purchases like a home or undergo large home improvement projects. This impact will be especially felt in areas with a high number of federal employees, like the Washington, D.C. area.

“A week or two of shutdown won’t be a huge deal, but the longer it goes on the bigger the impact on consumer confidence which, in turn, affects household formation rates and consumer appetite for buying homes,” Humphries said. “And, of course, it has an even more acute impact on the plans and resources of federal workers.”

It is estimated the U.S. economy as a whole will lose about $300 million in economic output every day the government is shut down, according to research firm IHS Inc. That’s not much compared to the $15.7 trillion the economy produces annually, but over time that adds up, and will likely grow as business and consumers delay plans for big purchases.

The government shutdown comes just two weeks before an even more important deadline to decide on the nation’s debt ceiling. Unless the Treasury is given approval to borrow more money before Oct. 17, it will run out of money needed to pay everything from outstanding treasury bills to Social Security, military salaries and more. This would deal a huge blow to both the national and world economies, as many economic and financial decisions are based on the “full faith and credit” of the United States to pay its bills on time.

“If there has to be a stand-off, it’s better to have it now over the funding of the government, rather than later over raising the debt ceiling,” Humphries said. “The latter has unknown but potentially extremely large effects on the overall economy and, therefore, housing itself.”

The last time Congress debated the debt ceiling, the contentious fight led to a downgrade of the nation’s credit rating, even though an eleventh hour agreement was eventually reached. Another such downgrade could lead to a spike in mortgage interest rates and a stock market plunge, at a time when consumers can ill afford it.

“With the budget debate, we’re seeing a contest of wills, but it’s essentially a fist-fight,” Humphries concluded. “With the debt ceiling, we start playing with guns, and the likelihood of innocent bystanders getting seriously hurt goes way up.”

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