It appears that the Consumer Financial Protection Bureau’s (CFPB) new TILA-RESPA Integrated Disclosures (TRID) rules – also known as the “Know Before You Owe” rules – that went into effect Oct. 3 are starting to have a negative impact on closing rates.
According to data from the National Association of Realtors (NAR), existing-home sales saw a sharp decrease in November – at least in part due to delays associated with TRID.
Existing-home sales, including single-family homes, townhouses, condominiums and co-ops, were at an annual rate of 4.76 million in November – a decrease of 10.5% compared with a downwardly revised 5.32 million in October.
It was the lowest pace since April 2014, when existing-home sales were at a rate of 4.75 million.
What’s more, November sales were 3.8% below where they were in September 2014.
In a release, NAR says some of the decrease “was likely because of an apparent rise in closing time frames that may have pushed some transactions into December.”
However, Lawrence Yun, chief economist for NAR, warns that the decrease could just be an anomaly, as multiple factors contribute to the pace of existing-home sales.
For example, lack of affordability due to tight inventory and rising home prices has also been holding back the market during the past year.
According to NAR, the median existing-home price for all housing types in November was $220,300, an increase of 6.3% compared with $207,200 in November 2014.
Total housing inventory as of November was 2.04 million – a decrease of 3.3% compared with October and a decrease of 1.9% compared with November 2014. At the current sales pace, that is about a 5.1-month supply – up from 4.8 months in October.
“Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,” Yun says. “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 says NAR’s members are reporting that closing time frames are longer now compared with a year ago and that the TRID rules are likely to blame.
“It’s possible the longer time frames pushed a latter portion of would-be November transactions into December,” says Yun. “As long as closing time frames 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,” adds Tom Salomone, president of NAR. “Nonetheless, an early trend of longer lead times to closings is cause for concern. As Realtors report issues with their transactions, we will continue to work with the CFPB to ensure as little disruption as possible to the business of real estate.”
Recent research from mortgage software provider Ellie Mae also shows that TRID may have slowed closings in November. According to the firm’s Origination Insight report, it took an average of 49 days to close a loan in November, whereas it took an average of 46 days in October.