may 2013 realtors confidence index report

7/28/2019 May 2013 Realtors Confidence Index Report

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REALTORS CONFIDENCE INDEXReport and Market Outlook

May 2013 Edition

Based on Data Collected May 27 through May 31, 2013

NATIONAL ASSOCIATION OF REALTORSResearch Department

Lawrence Yun, Senior Vice President and Chief Economist


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Table of Contents

SUMMARY .................................................................................................................................................. 3

REALTOR Confidence in Current Market Conditions Held Steady.................................................... 3

Demand for Properties Remains Elevated While Supply Remains Flat .................................................. 4

Prices Continued to Pick Up and Properties Sold Faster.............................................................................. 4

REALTORS Remained Optimistic Concerning the Market Outlook................................................... 5

I. Market Conditions .................................................................................................................................... 7

Confidence Is Up Across All Property Types ........................................................................................... 7

Prices Continue to Firm Up ...................................................................................................................... 8

Median Days on the Market: 41 Days ...................................................................................................... 9

Distressed Sales: 18 Percent of Sales ...................................................................................................... 11

II. Buyer and Seller Characteristics ............................................................................................................ 12

Cash Sales: 33 Percent of Residential Sales .......................................................................................... 12

First Time Buyers: 28 Percent of Residential Buyers............................................................................ 13

Residential Sales to Investors: 18 Percent of Residential Market.......................................................... 14

Second Home Buyers : 11 Percent of Residential Market ...................................................................... 14

Relocation Buyers : 13 Percent of Residential Market ........................................................................... 15

International Transactions: About 1.9 Percent of Residential Market .................................................... 15

Mortgages With Down Payments of 20 Percent or More ....................................................................... 16

Rising Rents for Residential Properties .................................................................................................. 16

REALTORS Also Reported Commercial Rentals .............................................................................. 17

III. Current Issues........................................................................................................................................ 18

Tight Credit Conditions and Slow Lending Process ............................................................................... 18

Appraisal Issues ...................................................................................................................................... 18

IV. Articles and Comments......................................................................................................................... 19

Impact of Rising Mortgage Rates on Home Sales .................................................................................. 19

Foot Traffic In May 2013 ...................................................................................................................... 21Vacancy Rates Continue Decline in Second Quarter 2013 ..................................................................... 22

Comments From REALTORS ............................................................................................................. 23


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SUMMARYJed Smith and Gay Cororaton

The REALTORS Confidence I ndex (RCI)Report provides monthly information aboutmarket conditions and expectations, buyer/seller traffic, price trends, buyer profiles, and issues

affecting real estate. The current report is based on the responses of 3,239 REALTORS to asurvey conducted during May 27 through May 31, 20131. All real estate is local: conditions inspecific markets may vary from the overall national trends presented in this report.

In May, REALTORS generally reported strong buyer demand against a low butslightly improving inventory, continued price increases, and shorter days on the market.Notwithstanding the strong performance, REALTORS kept their optimism in check andexpressed concern about the rapid increase in prices amid modest income growth as well as thesustainability of the housing market recovery in the face of rising interest rates. Low inventory,overly stringent credit standards, and regulations such as those pertaining to condominiumfinancing, higher flood insurance rates, and mortgage insurance were reported to be factors

holding back the sustained recovery of the real estate market.

REALTOR Confidence in Current Market Conditions Held Steady

REALTORS generally continued to view current conditions in the singlefamilyhomes market as strong , with the Index-Current Conditions2 slightly rising to 71. The Indexfor townhouses was unchanged at 51. The Index for condominiums remained below 50.REALTORS ascribed the low volume of condominium sales to problems in FHA financing.

1 The survey was sent to a random sample of about 50,000 REALTORS.2 The Index is calculated as a weighted average of the responses, evaluated at 0-Weak, 50-Moderate, and100-Strong.

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REALTORS Confidence Index - Current Conditions

May 2013

SF Townhouse Condo

SF: 71 TH: 51 Condo: 45


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Demand for Properties Remains Elevated While Supply Remains Flat

The Buyer Traffic Index was essentially unchanged at 71which indicated strong demand.Meanwhile, inventory/supply conditions were reported to be improving, with the Seller TrafficIndex moving up to 43 (41 in April). Notwithstanding, REALTORS reported that not enoughinventory was still coming in the market from both REOs and homeowner listings as currenthomeowners wait for prices to move up further.

Prices Continued to Pick Up and Properties Sold Faster

Amid tight inventory conditions, most REALTOR respondents reported higher salesprices and shorter days on the market. About 87 percent of respondents reported constant orincreasing prices, while median days on the market for residential sales dropped further to 41days.

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Indexes of Buyer and Seller Traffic

Buyer Traffic Index Seller Traffic Index

May 2013: Buyer: 71 Seller : 43

54% 58%

62% 64% 64%69% 71% 73% 73%

79% 83% 83%86% 86% 87%

Percentage of Respondents Reporting Constant or

Higher Prices Today Compared to a Year Ago


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REALTORS Remained Optimistic Concerning the Market Outlook

Confidence about the outlook for the next 6 months was strong although unchanged fromApril levels. Although demand was strong, REALTORS reported a confluence of factors thattempered their optimism: rising prices, rising interest rates, low inventory, and stringent creditconditions.

96 97 98 9210196 98 99 99 97

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Median Days on Market

Source: NAR, RCI Survey

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REALTORS Confidence Index - Six Month Outlook

May 2013

SF Townhouse Condo

SF: 75 TH: 54 Condo: 49


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Approximately 95 percent of REALTORS reported that they expect constant or higherprices in the next 12 months, the same percentage as in April.

NAR forecasts continued sales and price increases as are indicated by REALTOR

responses.

What Does Thi s Mean For REALTORS?

The real estate markets continue to recover from the Great Recession in terms of salesand price. Continued restrictive mortgage availability and tight underwriting standards are aproblem, but REALTORS report that loans are frequently available at smaller banks and creditunions. Tight inventories are reported as making markets increasingly competitive.

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REALTORS' Price Expectations for Next 12 Months

Constant/Rising Prices Falling Prices

May 2013: 95% expect constant/higher prices in next 12 months

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Home Sales and Prices: Actual and Forecast

EHS-Actual EHS-Forecast

Median Prices-Actual Median Prices- Forecast

Sales Prices


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I. Market Conditions

Confidence Is Up Across All Property Types

REALTORS view of current conditions as well as the six-month outlook was strong

although essentially unchanged in May compared to April. The effect of rising prices and interestrates, coupled with the continued tightness in inventory as well as stringent credit standards andthe adverse effect of the impending increase in flood insurance rates in some areas mightaccount for the unchanged expectations.

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REALTORS Confidence Index--May 2013

Current and Six Month Outlook: Single Family Properties

Current Conditions 6-Month Outlook

Current: 71 Outlook: 75

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Current and Six Month Outlook: Townhouse Properties




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Prices Continue to Firm Up

With strong buyer demand and tight inventory, 95 percent of respondents expectedconstant or rising prices in the next 12 months. Among all respondents, the median of theexpected price change was 5.3 percent.

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Current and Six Month Outlook: Condo Properties



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REALTORS' Median Expected Price Change for Home Prices

in the Next 12 Months (in %)

Source: NAR RCI Surveys

%

May 2013: 5.3%


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The map below shows the median expected price change of the respondents to the May RCIsurvey. Respondents in the Western states, Texas, Florida, Georgia, and some midwestern stateswere in the upper group of respondents that reported price increase of 5 to 9 percent.Respondents in the Northeastern states, which include several judicial states that have a largeforeclosure inventory, were in the bottom group who had the most conservative expected price

increase of less than 3.3 percent.

Median Expected Price Change in Next 12 Months of

Respondent REALTORS in the May 2013 RCI Survey

Median Days on the Market: 41 Days

Given the tight supply, the median days on the market for all residential propertiesdropped to 41 days in April. Short-sales had the longest days on market at 79 days (73 days inApril) while foreclosed properties were on the market for 43 days (unchange from April) . Themedian days on the market for non-distressed properties was 39 days (44 days in April ).


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Approximately 45 percent of REALTORS reported that properties were on the marketfor less than a month when sold compared to 30 percent in the same month last year. Thepercentage of REALTORS reporting that the house sold had been on the market for 6 monthsor longer was down to 18 percent from 28 percent a year ago.

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Median Days on Market by Type of Sale

Short Sales Foreclosed Not distressed AllSource: NAR, RCI Survey

May 2013: Shortsale: 79; Foreclosed: 43; Not distressed: 39; All: 41

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Distribution of Reported Sales by Time On Market

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Distressed Sales: 18 Percent of Sales

Approximately 18 percent of respondents who reported a sale sold a distressed property,substantially down from levels a few years ago, but unchanged from April. REALTORScontinued to report strong demand for REOs from investors who reportedly win when biddingagainst first time homebuyers.

Foreclosed property sold at a 15 percent average discount to market , while short salessold at a 12 percent average discount.3 Data from June 2012 thru May 2013 shows that belowaverage foreclosed homes were discounted by21 percent, with below average short salesdiscounted by 16 percent.

3The estimation of the level of discount is based on an estimate of what the property would have sold for if

it had not been distressed (possibly in better condition, absent any taint of being distressed).

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Percent of Respondents Reporting

Distressed Sales

Foreclosed As % of Sales Short Sale As % of Sales

May 2013: Foreclosed: 11 % Shortsale: 7 %

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Mean Percentage Price Discount of

Distressed Sales (in %)

Foreclosed Shortsale

May 2013: Foreclosed: 15%; Shortsale: 12%

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II. Buyer and Seller Characteristics

Cash Sales: 33 Percent of Residential Sales

Approximately 33 percent of REALTORS who made a sale reported a cash sale (32

percent in April ). International homebuyers and investors typically paid cash.

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Percent Price Discount by Property Condition (%)

Unweighted Average for June 2012 to May 2013

Foreclosed Shortsale

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Mean Percent Below Market Value

May 2013 RCI Survey

House Condition Foreclosed Short Sale


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First Time Buyers: 28 Percent of Residential Buyers

Approximately 28 percent of respondents made a sale to a first time home buyer (29percent in April). Normally, first time buyers are in the neighborhood of 40 percent.4 Of thosereporting a sale to a first time home buyer, approximately 12 percent reported a cash sale.

4 Based on data fromNARsProfile of Homebuyers and Sellers.

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Cash Sales as Percent of Market

May 2013: 33%

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First Time Buyers as Percent of Market

May 2013: 28%


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Residential Sales to Investors: 18 Percent of Residential Market

Approximately 18 percent of respondents reported making a sale to investors who wereactive in buying distressed properties and paying cash. Of respondents reporting a sale to aninvestor, 74 percent reported a cash sale.

Second Home Buyers : 11 Percent of Residential Market

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Sales to Investors as Percent of Market

May 2013: 18%

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Second-Home Buyers as Percent of Market

May 2013: 11%


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Relocation Buyers : 13 Percent of Residential Market

International Transactions: About 1.9 Percent of Residential Market

Approximately1.9 percent of respondent who had a sale reported it to be a U.S.residential real estate to foreigners not residing in the U.S. Of those reporting an internationalsale, 82 percent reported a cash sale.

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Relocation Buyers as Percent of Market

May 2013: 13%

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Sales to International Clients as Percent of Market

May 2013: 1.9%


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Mortgages With Down Payments of 20 Percent or More

Approximately 35 percent of respondents whose clients obtained a mortgage during thesale reported a down payment of 20 percent or more.

Rising Rents for Residential Properties

Demand for rental units appears to remain strong based on rental price trends.Approximately 53 percent of REALTORS reported higher residential rents compared to 12months ago. About 24 percent of REALTORS reported conducting an apartment rental.

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Percent of Mortgage Sales With Downpayment of

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May 2013: 35%

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Percent of Respondents Reporting Changing Rent Levels

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Rising Rents Lower Rents Constant

May 2013: Rising rent: 53%


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REALTORS Also Reported Commercial Rentals

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Percent of Respondents Conducting

An Apartment Rental

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III. Current Issues

Tight Credit Conditions and Slow Lending Process

REALTORS continued to express concern over unreasonably tight credit conditions.

Mortgage lenders appear to continue to display an unnecessarily high level of risk aversion. Inthe 2001-04 time frame approximately 40 percent of residential loans went to applicants withcredit scores above 740. Currently the percentage is in the 50 percent range. Estimates by NAReconomists have indicated that an additional 500,000 to 700,000 additional sales could be madeif credit conditions returned to normal.

The meaning f or REALTORS is clear: In many cases lenders are not making loans topotential buyers with less than perfect credit scores but who are well qualified to buy a home.A potential home buyer who is rejected by one bank or financial institution should try, try, tryagain at a different financial institution.

Appraisal Issues

Approximately 32 percent of respondents reported having had appraisal problems in thepast 3 months. About 9 percent of respondents reported a contract cancellation due to appraisalissues, 10 percent of respondents reported a contract delay, and 13 percent of respondentsreported a lower price renegotiation .

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FICO Scores: Recent Scores in 2012 vs. 2005

lt 620 740+ Fannie/Freddie 740+

May 2013: 57% of reported credit scores are 740+


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IV. Articles and Comments

Impact of Rising Mortgage Rates on Home SalesLawrence Yun, Chief Economist

Mortgage rates will continue to rise. They will probably be near 5 percent by this time next year,compared to the 3.5 percent average of the past 12 months. The rates will be even higher in 2015and 2016. Certainly, rising rates are bad news for buyers and some potential homebuyers will bepushed out of the market. For example, the number of renter households that have sufficient

income to buy a $177,000 home at a 3.5 percent mortgage rate is 17.8 million. The number dropsto 14.9 million at a 5.0 percent mortgage rate, which is a decline in percentage terms of 16percent.

But there is one major compensating factor that can easily neutralize the negative impact ofrising rates. As REALTORS well know, there are many good potential buyers who have beendenied a mortgage that in past normal years would have easily qualified. The comparison is withnormal years and not the bubble years of no standards whatsoever. The Federal Reserve has also

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Percent of Respondents Reporting Appraisal Problems

No Problems With Problems

May 2013: No problems: 68%; With problems: 32 %
http://economistsoutlook.blogs.realtor.org/files/2013/06/chart1.png


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often commented about the excessively tight underwriting standards in todays mortgage market.At the same time, banks have been reporting a strong profit growth from mortgage originationsdue to exceptionally low default rates on recently originated mortgages, particularly since 2010.Such well-performing recent mortgages should not be surprising since defaults do not happen inan environment with rising home prices. It appears then more loan originations, at least at the

margin, will bring more profits for the lenders and correspondingly bring more buyers out intothe marketplace. My estimation says there would be an additional 15 to 20 percent morehomebuyers who qualify by returning to normal underwriting standards from the current verytight conditions. The table below shows the average credit score of those who obtained mortgageapprovals in recent years. The credit scores are much higher now than in past normal times. So,for example, someone with a credit score of 730 would have had no trouble obtaining a Fannie-backed mortgage in the past, but is currently getting denied today.

There are other factors that can also help alleviate the rising interest rate conditions. Theeconomy is adding jobs. A total of 2 million net new jobs were added in the past 12 months andanother 2 million new ones are likely over the next 12 months. More jobs always lead to morehome sales as long as rates do not spike.

Furthermore, there could be room for a reduction in fees associated with obtaining government-backed mortgages. The high profits generated by Fannie and Freddie in recent quarters areimplying excessive add-on fees charged to consumers by these two effectively governmentagencies. A pure for-profit company should have the right to innovate and earn any profit it canobtain as long as there are no barriers to entry into the business. But Fannie and Freddie, as wehave learned, are not and should not be for-profit entities. They got into a mess because of thehyper-gambling mindset of heads we win and tails taxpayers lose. Fannie and Freddie need tostick to the simple business plan of guaranteeing soundly underwritten, mostly boring 30-yearmortgages, as they are currently doing. These simple 30-year fixed rate mortgages served ourgrandparents well and they subsequently will serve our grandkids well. No major innovation isrequired, which is the reason why being an effectively government agency can work fine. (Weshould, however, never trust the government to come up with an innovative product. Todays

iPhone and similar competitive products are worlds apart from the phones that our grandparents
http://economistsoutlook.blogs.realtor.org/files/2013/06/chart2.png


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used.) The point is that Fannie and Freddie are making good profits now. They should firstspeedily repay the taxpayer bailout money. But afterwards, excess profits only mean excessiveconsumers fees. So a reduction in fees in the near future should occur, just in time to help offsetthe higher mortgage rate environment.

Foot Traffic In May 2013Ken Fears, Manager, Regional Economics

The modest decline in May is more a reflection of fluctuations in traffic last spring. Trafficdipped sharply in April of 2012 before rising in May of that year, so this pattern, which measurestraffic relative to last year, includes the jump last May. This months reading once again comesin above the important 50 mark. The 50 mark indicates that more than half of the markets in

this panel had stronger foot traffic in May of 2013 than the same month a year earlier. Thisreading does not suggest how much of an increase in traffic there was, just that the majority of

markets experienced more foot traffic in May of 2013 compared to a year earlier. New YorkState experienced some of the sharper declines, but remains positive relative to last spring.

Potential homebuyers are flocking to the market to take advantage of record low mortgage rates.Even with rates jumping at the end of May, they remain historically low. Combined withresilient consumer confidence and tight inventories driving price gains, buyer interest shouldremain strong through the summer.


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Vacancy Rates Continue Decline in Second Quarter 2013

George Ratiu, Manager, Commercial Research

Economic activity posted a steady pace of growth over the past few months, as consumers andbusinesses seemed committed to moving forward. Gross domestic product rose 2.4 percent in the

first quarter of the year. Riding the moderate temperature of a mild winter, consumers opened uptheir wallets at the fastest pace since the fourth quarter 2010.Behind an improving economy lies a subtle uplift in consumers wealth. Consumers have been

paying off debt over the past few years, while cutting back on discretionary spending. At thesame time, household wealth tied to financial assets has been rising steadily post-recession, withthe Dow recently crossing the 15,000 threshold. Household wealth tied to housing has seen anoticeable improvement in 2012 and the first quarter of 2013. Sale of existing homes rose 9.8percent in the first quarter of this year, following the 9.0 percent rise in 2012. Due to very tightinventories, multiple bids have returned to the market, and price escalation clauses are pushinghome prices up. Based on NAR data, the median sales price of existing homes jumped 11.2percent in the first quarter of the year.

With vacancy rates falling and rents rising, market fundamentals have improved. Nationalvacancy rates over the coming year are expected to continue declining in most property sectors.The average multifamily vacancy rate is forecast to rise 0.2 percentage point, although the sectorstill shows the tightest availability and largest rent increases.

Net absorption of office space is projected to total 31.7 million square feet by year end. Officevacancies are expected to decline to 15.6 percent by the end of 2013. The markets with the

lowest forecasted office vacancy rates are Washington, D.C., New York and Little Rock, withavailability rates of 9.4 percent, 9.9 percent and 12.0 percent, respectively. Rents for officeproperties are expected to increase 2.6 percent over the year.

Industrial markets are benefiting from rising international trade, which drives demand forwarehouse space. Net absorption of industrial space is projected to total 107.1 million square feetby the end of 2013, driving vacancy rates to 9.3 percent. The metro areas with the lowestindustrial vacancy rates are Orange County, at 3.9 percent, followed by Los Angeles with 4.1
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percent, and Miami, at 5.8 percent. Rents for industrial buildings are expected to grow 2.4percent this year.

With consumers continuing a cautiously optimistic approach to spending, retail spaces have beenon the rebound. Net absorption of retail buildings is expected to total 12.5 million square feet this

year. With the supply of new buildings still constrained, vacancies are expected to drop to 10.4by year-end. Markets with the lowest retail vacancy rates are led by San Francisco, at 3.6percent. Rounding the top three are Fairfield County, CT, at 4.1 percent, and Long Island, NY,along with Orange County, CA, both at 5.3 percent. Rent for retail properties are projected toincrease 1.4 percent over the year.

The apartment market has seen the strongest demand and lowest vacancies, driven by a recoveryof household formation towards long-term averages. Net absorption is expected to total 276,320units this year. Against a supply of only 136,342 new units, vacancy rates are estimated todecline to 3.8 percent by the end of 2013. Metro areas with the lowest vacancy rates are NewHaven, CT, at 2.0 percent and New York City, at 2.2 percent. Sharing the number three spot,

Minneapolis and San Diego, each record 2.3 percent. Apartment rents are projected to increase4.6 percent in 2013.

Comments From REALTORS

Jed Smith, Managing Director, Quantitative Research

REALTORS continued to report that lack of inventory, tight financing, appraisal issues,and regulatory/economic issues are constraining the current housing recovery.

1.

Low Inventory/multiple bidding

Inventory generally remains tight, with increased multi-bidding. REOs do not appear to becoming to the market sufficiently to meet demand. Sellers are reported as waiting for prices topick up further. There are reports of homes selling above asking prices. Investors who pay cashfrequently win over first time home buyers.

Inventory is still very low but appears to be strengthening. It is a great sellers market but with the inventory this low, my buyers are very frustrated. Inventory is low so finding the right property for clients has become more competitive and

sometimes prices are driven above list price due to the shortage of homes and multiple bids.

No inventory-investors/hedge funds are buying them up as quickly as they come on the marketor before.

In eastern NC, the inventory is still high. It is a Buyer's market.


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2. Tight Financing/CreditAccess to financing continues to be reported as tight and overly stringent even for those with

reasonably good credit scores. The process of obtaining a mortgage remains protracted,especially for short sales, causing delayed closings and risking cancellations.

Lending process for well qualified buyers needs to improve. Money is still pretty tight. Need at least a 700 rating in all 3 bureaus to assure a good loan. Mortgages are cheap but hard to get for a larger portion of the population. Standards are stiffer. Mortgage credit is an issue we are facing due to the economic downturn (in) the last few years

with people having low credit scores.

3. Appraisal issuesThe most common reports are of appraisal values that do not reflect the current state of the

market. The pricing issue is compounded by reports of out-of- area appraisers who are reportedin some cases to have poor knowledge of local conditions.

Appraisers are taking up to 3 weeks to get a report back, which delays closings. They need to bemore timely so we can proceed with original closing dates.

Appraisals don't seem to be keeping up with increased prices due to increased demand andlower inventory.

Appraisers from two counties away are showing up.

4. Regulatory and Economic IssuesREALTORS expressed concern about the adverse effects of fiscal/financial regulation, the

state of the economy.

FHA condo HOA certification still a problem for first time buyers who are not able to obtainfinancing.

FHA PMI and MMI are killing the people who can least afford it. Flood insurance requirements from our local lenders is negatively affecting our market values by

as much as 20+%. The lenders are requiring the flood insurance premium to be based on

replacement value and not mortgage amount. We need flood insurance reform now!

Foreclosures are taking too long to close. There is a very clear problem with listing being withheld from the MLS and for those that make it

into the MLS, access is being denied through a number of lame excuses.

may 2013 realtors confidence index report

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