You may never have heard of something called Realogy Holdings Corp. but believe me you know about the firm. It's the corporate owner of such huge real estate brokerages as Better Homes and Gardens, CENTURY 21, Coldwell Banker, and Sotheby's International.
A firm as large as Realogy offers one way to look at real estate swings and shifts -- is the brokerage business better, worse or something in-between? The answer, for the coming year or so, looks like a downer with transactions slowing.
Sale volume also impacts mortgage rates. As transaction levels go down the natural tendency is to see easier lending standards and maybe even lower interest costs.
Slowing Sales In 2014?
Realogy has brokerage offices it owns and brokerage offices which are franchises. The price of homes sold by franchisees increased by 12 percent in 2013 while properties sold through company-owned offices saw a 14 percent price spurt.
These are substantial increases in value and very good news for current homeowners. For instance, RealtyTrac reports that since 2012 more than 2.7 million homeowners are no longer financially underwater because of rising real estate prices.
Mortgage Rates and Home Sales
A basic concept with supply-and-demand is that as prices rise unit volume declines. In other words, you might sell 1 million hot dogs at $1 apiece but only 500,000 if the price rises to $2. Sure enough, that's what happening in real estate: According to Realogy, transaction volume is likely to decline 5 percent to 7 percent year-over-year in 2014 even as property values go up.
"March data on new and existing home sales was weaker than expected and is a cause for concern as we enter the spring buying season," said Dr. Mark Fleming, chief economist for CoreLogic. "Interest rate-disenfranchised potential sellers are adding to the existing shadow inventory, while buyers who can't find what they want to buy are on the sidelines creating a new kind of 'shadow demand.' This supply and demand imbalance continues to drive home prices higher, even though transaction volumes are lower than expected."
What Fewer Sales Could Mean
Why is slowing transaction volume important? Three reasons.
First, if you're a current homeowner you're likely to see rising home values if the predictions are correct. That means more equity and even fewer people underwater, results to be cheered.
Second, sale volume in many markets could fall a consequence of basic economics -- see the hot dog discussion above. This is a problem for businesses with results tied to transaction volume such as real estate brokerages, title companies and furniture manufacturers.
An important figure to watch concerns first-time buyers. You want lots and lots of first-time purchasers in the marketplace because current homeowners cannot move up -- or move at all -- if they cannot sell their existing homes. According to the National Association of Realtors, first-time buyers represented 30 percent of all purchasers in March. On average, LendingTree is told by NAR spokesman Walt Molony that first-timers generally represent 40 percent or so of the residential market.
Third, as much as home prices have risen during the past few years they remain below the 2007 peak -- 7.6 percent below in February according to the Federal Housing Finance Agency (FHFA).
You can see the problem: Homeowners are happy when property values rise, would be elated with still-higher prices but every price increase makes things a touch harder for buyers, especially first-time purchasers. The result is that sale volume this year is likely to remain stable or actually drop.
Another result is this: Anyone look at mortgage rates lately? They rose a year ago but have froze within a small band since, in part because there are fewer borrowers in the marketplace looking for new loans.
What's amazing is where rates have stalled. They're currently about one-half the 8.6 percent average seen during the past 40 years, according to Standard & Poors.