It’s not just the temperatures that are rising this summer. The number of homes sold, as well as the prices they’re fetching, seemed to be shooting up higher than the mercury in June, according to a new report.
With mortgage interest rates hitting bargain-basement lows, buyers raced to the market undeterred by the record-breaking prices (or maybe in fear that they’d rise even further). Existing home sales shot up 11%, to 583,000, from May to June, according to a recent report from the National Association of Realtors®. Sales were also up 1.9% from the same time a year earlier.
The report only included existing homes, which are residences that aren’t newly constructed. And realtor.com just looked at the numbers that were not seasonally adjusted, meaning they weren’t smoothed out over a 12-month period to account for fluctuations.
June’s median existing home price also rose 4.8% year-over-year, to $247,700—breaking May’s all-time high, according to the report. It was the 52nd straight month of year-over-year price increases. “We expected the [season] to be the best in a decade and we’ve seen sales come in just as we expected,” says realtor.com’s chief economist, Jonathan Smoke. “More people signed contracts and will be closing [this summer] because of the lower mortgage rates.” But sales—and the rise of those pesky prices—are expected to slow, he says. That’s because many buyers will have already become homeowners—or they’re simply priced out of the market.
“The number of sales has to eventually hit a ceiling because there aren’t enough homes for sale,” Smoke says. “The following months, particularly September and October, could have sales declines.” On a welcome note, about a third of June buyers, 33%, were first-time homeowners, according to the report. That’s the highest percentage since July 2012. “The odds of closing on a home are definitely higher right now for first-time buyers living in metro areas with tamer price growth and greater entry-level supply—particularly areas in the Midwest and parts of the South,” NAR’s chief economist, Lawrence Yun, said in a statement.
That may help to explain why the most homes continued to sell in the South, with new owners picking up the keys to 230,000 abodes in June, according to the report. Sales were up 9.5% from May and 1.8% from the same time a year ago.
Median prices climbed 3.9% to $258,500 in June compared with a year earlier.
Sales also remained strong in the Midwest and the Northeast.
In the Midwest, 149,000 residences went under contract. That was up 12.9% from May and 2.8% compared with a year earlier. Prices in the region rose by the highest annual percentage, 6%, hitting $235,900.
Only 77,000 homes sold in the Northeast, far fewer than the rest of the country. But the number of sales represented a 11.6% jump from May and a 6.9% bump from a year ago. Median prices were also up 1.5% year-over-year to $320,500.
The only region to see an annual decline was the West, which includes super-duper expensive cities like San Francisco. New owners signed on the dotted line for 127,000 residences—representing a 1.6% drop from June 2015. However, monthly sales were up 11.4% over May.
Median prices were—unsurprisingly—also the highest in the West, hitting a heart-attack inducing $379,900. That was up 5.7% from the same time a year ago.
Buying a home is hard enough these days as wannabe homeowners have to contend with a shortage of residences in some markets—along with ever-rising prices and plenty of drag-down, no-holds-barred competition. But guess what? It’s about to get even worse.
Builders and developers applied for fewer new-home construction permits in June, according to the U.S. Department of Commerce’s monthly new residential construction report. So get ready for a continuing decrease in the supply of new homes later this year and into the next. (It takes about six to nine months to complete a residence once a permit is secured.) And, yes, that’s expected to drive prices up even higher.
The number of permits issued were down 15.4%, to just 114,000, in June compared with the same month a year earlier, according to the report. But before panic sets in, it’s helpful to realize that this was actually a 5.8% bump from May. The numbers were not seasonally adjusted, meaning they weren’t smoothed out over a 12-month period to account for fluctuations.
The reason builders are holding off on putting up more homes is because they’re worried the number of buyers could drop off if the economy falters, says Jonathan Smoke, chief economist of realtor.com®. “The presidential election poses a big wild card,” Smoke says. “At the same time, the world is teetering on entering a recession due to a number of factors, including most recently Brexit.” It’s also important to note that those newly built abodes, often with state-of-the-art appliances and electronic systems, cost more than those which have been lived in—so developers have lots to lose if those properties don’t sell.
For example, the median price of a new home was $290,400 in May, according to the most recent Commerce data available. Existing (i.e., not new) homes went for a median of $239,700 in May, according to the National Association of Realtors®.
It wasn’t just permits to build single-family homes that were down. Permits to put up sorely needed condo and apartment buildings, with five units or more, also dropped year over year by about 39.2%, to just 36,600 in June. But, on the bright side, the number was up nearly 4.9% from May. “This environment is good for the landlord and property owner, but not so much for virtually everybody else,” Smoke says. “It’s going to be even harder to find an affordable place to rent than it has been.” In a welcome bit of good news, June saw the completion of the greatest number of new residences over the past year, according to the report.
The number of finished abodes surged 16.5%, hitting 99,500 residences, in June compared with a year earlier, according to the report. It was also up 19% from May.
In addition, the number of completed condo and apartment buildings, with five units or more, were also up 14.5% from a year ago and 46.5% from May, according to the report.
But with permits down, the number of new homes hitting the market simply can’t—and won’t—continue. “We’re just not seeing the growth in new construction that would be necessary to improve the shortage of apartments for rent and homes for sale,” Smoke says. So “we’re likely to see continued rent and home price increases.”
As home prices and rents continue to rise, confidence in the housing market is starting to wane. It is showing up in weaker traffic at open houses and less interest in taking on a mortgage as some worry about their student debt loads. The numbers are dropping, and a new survey from the National Association of Realtors only adds fodder to the current market’s failings. While three-quarters of Americans surveyed in the second quarter of this year still think now is a good time to buy a home, the numbers are slipping, especially among renters. Just 62 percent of renters said now is the time to move to homeownership, down from 68 percent at the end of last year. Those under the age of 35 were the least confident. Millennials today have the lowest homeownership rate of their age group in recorded history.
On the flip side, nearly 4 out of 5 people who currently own a home, as well as respondents over the age of 55, said now is a good time to buy. That is likely because homeowners have seen their equity increase dramatically in just the past year, as prices rise. In fact, home equity jumped by a collective $260 billion in just the first quarter of this year, according to Black Knight Financial Services. “Existing-home prices surpassed their all-time peak this spring and have climbed on average over 5 percent nationally through the first five months of the year and even faster in areas with severe supply shortages,” said Lawrence Yun, chief economist of the Realtors. “Most homeowners appear to realize that if they’re ready to sell, they’ll likely find a buyer rather quickly and be able to use the sizable equity they’ve accumulated in recent years towards their next home purchase. Meanwhile, renters interested in buying continue to face minimal choices, strong competition and home prices growing faster than their incomes.”
Those with student debt, according to the Realtors’ report, are far less likely to want to take on a home loan. Half of respondents with student debt and under the age of 35 said that not only did they not want a mortgage, they doubted they would qualify. “The financial and emotional impact of repaying student debt is contributing to a delay in purchasing a home for many would-be buyers,” wrote Yun. “At a time of quickly rising rents, mortgage rates at all-time lows and increasing housing wealth, a lot of young adults in their prime buying years are struggling to enter the market and are ultimately missing out on the stability and wealth accumulation that owning a home can provide.” Jorge Alborta, 32, rented in northern Virginia for seven years before finally buying a home this spring. He and his sister own a restaurant, and his income is below $100,000 annually. He did not have student loan debt, and that played a role in helping him become a homeowner. Still, it was a long and arduous process. “It was a little bit too pricey, all I could afford was an efficiency, one-bedroom apartment, so I started looking in different places, also in D.C. and it was a very long process, and it took a long time,” said Alborta.
He also found the mortgage process long and tedious. Alborta wouldn’t have been able to afford to buy, but for a low-income housing program in D.C. that helped with closing costs and allowed him to qualify for a lower price in the townhouse community where he purchased. Still, saving for the down payment was arduous — “Yes, it was very hard,” he said.
First-time homebuyers are still at a historically low share, less than one-third of buyers in June, compared to the historical norm of about 40 percent. The supply of homes for sale on the lower end of the housing market continues to fall; homebuilders are concentrating largely on the move-up buyer, due to higher costs of construction. This is only pushing prices higher for first-time buyers, and sidelining them longer.
Higher prices, however, may finally be getting potential sellers to take the plunge. More current homeowners, 61 percent, responding to the Realtors’ survey said now is a good time to sell, compared to 56 percent who felt that way in the first quarter of this year.
— CNBC’s Stephanie Dhue contributed to this report.
OCC’s Thomas Curry says watchdog is monitoring lending risks
Report points to longer maturities and loosening covenants
A leading U.S. banking regulator wants lenders to do more to manage their exposure to commercial real estate.
As property lending accelerates, the Office of the Comptroller of the Currency — which oversees American banks alongside the Federal Reserve Board and the Federal Deposit Insurance Corp. — is actively monitoring banks’ stress tests and risk-management practices, Comptroller Thomas Curry said in an interview with Bloomberg Television on Friday.
“With commercial real estate lending, we’re signaling a flashing yellow or a caution light,” Curry said. “We think that if banks act now and if supervisors are vigilant, this type of potential risk can be managed effectively.” Curry’s comments echo a report from the OCC this week that highlighted a rise in credit risk from increased lending and looser underwriting. Lending growth for large banks accelerated to 5.9 percent in 2015, up from 3.6 percent a year earlier, the regulator wrote in its report. Smaller institutions have also bulked up their loan portfolios, focusing on both commercial and residential properties, the OCC wrote.
Longer loan maturities, interest-only payment periods, and less restrictive covenants are adding to risks, the OCC wrote in its report. The regulator expressed similar concerns in December. With the credit cycle deteriorating, managing this exposure is increasingly important, Curry said.
“That’s what we’re trying to emphasize,” he said. “That if you’re going to ease underwriting standards, you’ve got to have an effective risk-management framework in place.”
Before it’s here, it’s on the Bloomberg Terminal.
Founded in late 2012, Compass led by Ori Allon and Robert Reffkin, is one of the most innovative startups in the real estate space today. The technology-driven real estate brokerage is based in New York City and has offices in Los Angeles, Santa Barbara, Washington DC, Boston, Miami, the Hamptons, and Aspen. Compass provides clients with comprehensive brokerage services that are combined with exceptional agents who use the best in-class technology that makes the process of buying, selling, or renting property simple, seamless, and intelligent. The company has raised $135 million in investor capital and lately confirmed it’s in early stages of raising series D funding, speculated to be at a valuation of $1.2B. Robert Reffkin is the Founder & CEO of Compass and before starting the company, he worked at Goldman Sachs as Chief of Staff to the President & COO following five years working in the firm’s private equity arm. Prior to Goldman Sachs, he worked at Lazard and McKinsey & Company. In 2005, he was appointed as a White House Fellow to serve as special assistant to the Secretary of the Treasury.
It’s not all business with Reffkin, however. He founded the most time-intensive career mentoring program in NYC, New York Needs You, and Bronx Success Academy 1 elementary school. He recently completed 50 marathons, one in each U.S. state, to raise $1 million for youth education and enrichment programs.
We recently met for a fascinating chat about technology, real estate and the future of the industry:
Omri Barzilay: I believe that we have to start our conversation with Zillow. Things have become very different in the industry since it launched in 2005. In your opinion, how did Zillow change the market for consumers?
Robert Reffkin: Zillow was the first company to provide aggregated information to the consumer. So for the first time, consumers felt empowered during the real estate transaction. Just the ability to search for property on their own gave consumers more control and more freedom throughout the process. Both buyers and sellers have more information at their fingertips and can be much more in charge of the transaction.
Barzilay: Continuing the discussion on Zillow, how did it affect real estate agents?
Reffkin: It completely reshaped how agents grow their businesses, introducing the idea of bought-leads. To grow their business in the past, agents relied primarily on networking and creating relationships with other providers along the real estate value chain for leads as well as past clients or friends for referrals. Now, in addition to these channels, agents can purchase ad space or “premier” status on Zillow and other aggregators that give them preference when consumers are seeking an agent. For agents that have been able to convert these leads, Zillow is a lucrative growth channel – and significantly more effective broad-based advertising as it is specifically targeted at a captive, interested audience.
Barzilay: What is the role of the real estate agent in 2016?
Reffkin: Trusted advisor. With all of this information readily available, the agent’s role has evolved to more than just providing information to their clients, but more so, digesting, dissecting and translating information in the market for their clients. The agent needs to be able to take all of the data a client can find on their own and make sense of it. For example, a buyer can see the price at which transactions have closed recently or witness how crowded open houses are, but they likely do not know how that translates into negotiability in the current market or how these transactions trend as it relates to the market as a whole. The agent, or advisor, can look at these trends or anecdotes and synthesize this data into actionable recommendations for their clients.
Barzilay: What kind of technologies are changing the agent’s role and position?
Reffkin: The aggregators, the third-party product providers and the brokerages – each is addressing the shifting role differently. A modern-day brokerage needs to provide an environment which allows agents to save time, make smarter recommendations for their clients, and produce beautiful products to deliver to their clients.
Barzilay: What tech advantages do Compass agents have today that other agents don’t have?
Reffkin: One of the biggest frustrations from a tech perspective for agents at other companies is the lack of integrated and unified systems in the industry. There are over 250 outsourced tech products and tools for real estate agents out there but they don’t work cohesively together. One of the primary benefits of Compass’s platform is that it is all built in-house and therefore, all part of one unified platform. Additionally, having our own engineering and technology team means we can act quickly and respond to our agents’ feedback in real-time, so we can make sure the tools we are building are tools agents will use. One such example is our Compass markets app, which launched in New York last year. Compass Markets is a real-time research report, incorporating real-time data for the market, by neighborhood, property type, price point, property size, etc. Research reports are so important in this industry, but a typical brokerage’s research report goes stale the minute it hits the shelf, since it is a retrospective on the previous quarter and. as such, is on average 6 weeks old. In today’s market, with aggregators inundating consumers with information, agents need to be able to provide timely, relevant data to their clients, which is exactly what the app does, also allowing agents to send reports directly via text, email, or PDF.
The technologies we create are focused on saving agents time. The average agent can only spend 11% of their time with clients because 89% of the time they are burdened by non-core and administrative tasks. We are creating software to reduce the amount of time it takes to create buyer tours, to building listing presentations, to do comparative market analysis and more.
Barzilay: What should we expect from Compass in the near future?
Reffkin: In the near future Compass will continue to grow. Over the last year, we have launched more than one office per month and we are looking at San Francisco as our next market. Right now, we are focused on growing in our existing markets and have seen tremendous results year-to-date, with our agent population more than doubling in the last twelve months. Further down the road, we will be looking at international expansion.
Barzilay: Are you considering partnering with other startups in the industry?
Reffkin: We love collaborating with other forward thinkers so we would absolutely welcome the opportunity to partner with other great startups in this space. Barzilay: What opportunities do you see in the real estate technology market?
Reffkin: One of the biggest opportunities is on the support side. Technology is extremely important but we wouldn’t be where we are today without building a solid support infrastructure for our agents as well. How valuable is a new tool on our platform if we don’t have the people in place to train our agents and address any issues related to it? We focus equally on building the technology as well as the support for our agents. We created a team internally called “Agent Operations” which acts as the liaison between the agents and staff of the company, ensuring a seamless transition when onboarded as well as ongoing support throughout the agent’s time at Compass.
Barzilay: Do you think that in the future real estate agents may become obsolete?
realestate_iq**Continued👉** Reffkin: Agents will never become obsolete, however, they will have to adapt and grow to compete with increasingly innovative agents. With the influx of data and technology, the agent’s role becomes even more important and only great agents will excel. Consumers will look for a true advisor and those that don’t meet their expectations will become obsolete.
Furthermore, agent teams will become even more important as this industry trend takes shape. I believe that every person should make the best use of their time. Each person has individual strengths and should play to those strengths. Teams allow each agent to do that. One team member may be more analytical, so that person handles comparables analysis, valuation, and data aggregation. Another team member may have stronger interpersonal skills so that person manages the client relationship aspect of the business. A third team member has a creative & design background and owns the staging, photography and marketing components. Each person on the team is fulfilling a key task. The end product is far superior than if one person was responsible for all of those tasks on their own.
