Existing-home sales dropped off considerably in November to the slowest pace in 19 months, but the National Association of Realtors said some of the decrease was likely due to the “Know before you owe” or the TILA-RESPA Integrated Disclosures rule (TRID), which took effect October 3. The rule requires lenders and service providers to provide binding estimates and final accounting of closing costs before closings take place.
Total existing-home sales fell 10.5 percent to a seasonally adjusted annual rate of 4.76 million in November (lowest since April 2014 at 4.75 million) from a downwardly revised 5.32 million in October. After last month’s decline (largest since July 2010 at 22.5 percent), sales are now 3.8 percent below a year ago – the first year-over-year decrease since September 2014. Four major regions saw large sales declines in November.
November also marked the second straight month home sales have fallen on a monthly basis. In October, home sales fell 3.4 percent to a seasonally adjusted annual rate of 5.36 million in October from 5.55 million in September but were still 3.9 percent above October 2014.
Lawrence Yun, NAR chief economist, said “Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,” he said. “However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore, it’s highly possible the stark sales decline wasn’t because of sudden, withering demand.” Yun said the longer timeframes anticipated by the new rule pushed some closings into December.
However, most reports of TRID implementation show the new rule is having minimal impact.
According to a survey by Campbell Surveys found that the total average closing time including delays for most loan types stayed relatively level or showed only a slight increase between September and October.
“While there was apprehension about TRID, so far impacts are minor,” said Tom Popik, research director of Campbell Surveys. Popik noted that measuring the effects of TRID is still in the early stages as many more TRID-compliant transactions are scheduled to close this month.
According to the most recent Origination Insight Report by Ellie Mae, TRID has yet to significantly dent the origination process.
“It is still too early to see if there will be impacts stemming from the Know Before You Owe changes that went into effect just last month,” said Jonathan Corr, president and CEO of Ellie Mae.
“The time to close loans remained a constant 46 days for yet another month, while the closing rate on purchased loans has stayed above 70%. We may begin to see time to close increase in the November data as the new closing disclosures are utilized for the first time,” Corr said.
However, according to NAR’s Realtors® Confidence Index, 47 percent of respondents in November reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in October.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” says Yun. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.”
“Realtors® worked hard to prepare for Know Before You Owe, and we knew there would be some near-term challenges as the industry continues to adapt,” says NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. “Nonetheless, an early trend of longer lead times to closings is cause for concern. As Realtors® reports issues with their transactions, we will continue to work with the Consumer Financial Protection Bureau to ensure as little disruption as possible to the business of real estate.”
Properties typically stayed on the market for 54 days in November, a decrease from 57 days in October and below the 65 days in November 2014. Short sales were on the market the longest at a median of 91 days in November, while foreclosures sold in 47 days and non-distressed homes took 54 days. Thirty-seven percent of homes sold in November were on the market for less than a month.
Matching the highest share since January, all-cash sales rose to 27 percent of transactions in November (24 percent in October) and are also up from 25 percent a year ago. Individual investors, who account for many cash sales, purchased 16 percent of homes in November (also the highest since January), up both from 13 percent in October and 15 percent a year ago. Sixty-four percent of investors paid cash in November.
Distressed sales4 – foreclosures and short sales – climbed to 9 percent in November, up from 6 percent in October but unchanged from a year ago. Seven percent of November sales were foreclosures and 2 percent were short sales. Foreclosures sold for an average discount of 15 percent below market value in November (18 percent in October), while short sales were discounted 15 percent (8 percent in October).