realtors confidence index report october 2013

8/13/2019 Realtors Confidence Index Report October 2013

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REALTORS CONFIDENCE INDEXReport and Market Outlook

October 2013 Edition

NATIONAL ASSOCIATION OF REALTORS

Research Department

Lawrence Yun, Senior Vice President and Chief Economist

Based on Data Gathered November 18, 2013


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Table of Contents

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

I. Market Conditions .................................................................................................................................... 4

REALTOR Confidence Continues to Slide Down in October.............................................................. 4

Days on the Market Increased to 54 Days ................................................................................................ 7

Home Prices Still Firm .............................................................................................................................. 8

REALTORS Expect Prices to Increase Modestly in the Next 12 Months............................................ 9

II. Buyer and Seller Characteristics ............................................................................................................ 11

Cash Sales: 31 Percent of Residential Sales .......................................................................................... 11

Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages............................... 12

Distressed Sales at 14 Percent of Sales ................................................................................................... 12

First Time Buyers: 28 Percent of Residential Buyers............................................................................ 14

Investors, Second-home Buyers, and Relocation Buyers ....................................................................... 14

International Transactions: About 1.8 Percent of Residential Market.................................................... 15

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

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

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

Impact of the Government Shutdown .................................................................................................... 18

Access to Mortgage Financing of Sellers Previously Facing Foreclosure or Short Sale....................... 19

IV. Commentaries by NAR Research ......................................................................................................... 21

State-by-State Unemployment ................................................................................................................ 21

Commercial Sales Rise 10.7 Percent in Q3, Despite Headwinds........................................................... 23

Characteristics of Home Buyers ............................................................................................................. 24

Comments on SentriLock Data on Properties Shown by REALTORS............................................... 25


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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 issuesaffecting real estate based on information gathered from REALTOR responses to a monthlysurvey. The current report is based on the responses of 3,503 REALTORS about theirtransactions in October 2013. Questions about the characteristics of the buyer and the sale arebased on the respondents last transaction for the month. The survey was conducted duringNovember 1through November 8, 20131. All real estate is local: conditions in specific marketsmay vary from the overall national trends presented in this report.

The information gathered concerning transactions in October indicates a slowing down ofmarket activity compared to acceleration in 2012 to the middle of 2013. However, some

REALTORS saw the slowdown as a welcome brake to the rapid home price growth amid themodest growth in consumer incomes and jobs.

The October survey captured the effect of the government shutdown. The surveyindictated that about 30 percent of ongoing transactions were temporarily impacted by theclosure of agencies such as the IRS, FHA, USDA, VA.

Inventory has been increasing, but it remains tight in many states. Prices are still rising,although at a less torrid pace than previously. On the buying side of the market, REALTORScontinued to report that higher mortgage rates have impacted the level of sales and that strictermortgage standards are disqualifying even some credit worthy buyers. There is also continuedconcern that first time buyers using mortgage financing are being crowded out by buyers paying

cash and those putting in larger downpayments. The loan processing period was reported to betoo long especially in the case of short sales. With demand easing, properties were generallyon the market for a more days than was the case a few months ago. Low or inconsistent appraisalvalues continued to be reported as affecting transactions adversely, although there are reportsthat the situation is improving.

REALTORS also reported issues that they foresee as affecting demand in the comingmonths: the potential impacts of tighter fiscal and monetary policies, the steep increase in floodinsurance rates, the higher cost of homeowner insurance for FHA-guaranteed loans, and theimpact of the Affordable Care Act on housing affordability.

1 The survey was sent to a random sample of about 50,000 REALTORS.


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I. Market Conditions

REALTOR Confidence Continues to Slide Down in October

Confidence about current and future market conditions was down across all marketsalthough confidence in the single-family homes is still at above moderate reading of theREALTOR Confidence Index.The survey covered the period when major parts of the federalgovernment were closed, from October 1- October 15. Concerns about the impacts of theclosure probably factored into the confidence about current and and future conditions.

The confidence index for current market conditions dropped across all property types.This is the fourth month of consecutive decline. The index for single family sales slid to 58 (60in September), the index for townhouses dipped to 42 (44 in September), and the index forcondominium dropped to 37 (38 in September). An index of 50 marks moderate conditions.2Nonetheless, all indexes are significantly higher than was the case in previous years.

Confidence about the outlook for the next 6 months for single-family sales was stillabove moderate with the index at 60 (59 in September). However, the outlook for townhouseand condominium sales was reported as weak: the index for townhouses slid to 45 (44 inSeptember ) and the index for condominiums was at 40 (38 in September). Concerns about theslow pace of economic recovery and job creation, the increase in flood insurance rates in someareas and higher home insurance costs continue to depress market confidence.

2 An index of 50 delineates moderate conditions and indicates a balance of respondents havingweak(index=0) and strong (index=100) expectations. The index is not adjusted for seasonality effects.

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REALTORS Confidence Index - Current Conditions

SF Townhouse Condo

Oct 2013: SF: 58 TH: 42 Condo: 37


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Buyer and Seller Traffic Index Drop

The Indexes for buyer and seller traffic reflected a slowing market. The Buyer TrafficIndex fell for the fifth straight month to 53 (55 in SeptemberAugust ) while the Seller TrafficIndex moved down for the fourth straight month to 41 (43 in September ). Some REALTORSreported that inventory conditions are better than before although still tight such as in California,Florida, New York, and Georgia.

REALTORS provided comments that shed insight about the dip in the confidenceindex. Below are some of these comments representing the gamut of concerns pertaining to theeffect of higher mortgage rates and tight credit standards, concerns about economy and jobgrowth, appraisal issues , and the increased cost of homeownership arising from higher floodinsurance rates in some areas and higher home insurance mortage. Comments reflect localconditions.

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REALTORS Confidence Index - Six Month Outlook

SF Townhouse Condo

Oct 2013: SF: 60 TH: 45 Condo: 40

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REALTORS Indexes of Buyer and Seller Traffic

Buyer Traffic Index Seller Traffic Index

Oct 2013: Buyer: 53 Seller : 41


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SOME COMMENTS FROM REALTORS - October RCI Survey

Slowing Markets

o Market has cooled off a little but is still stronger than in recent years. (NY)o Things have leveled off over the past few months. Buyers are not as strong, and home prices are

no longer increasing. (CA)

o Multi bidding for ROE properties is still abundant, however this has slowed down a bit it seems.(IL)

o Multibidding has slowed dramatically since July. There is more inventory now and more FSBOhomes.(CO)

o We seem to be getting 3 to 5 buyers for every property that goes on the market that is pricedright. We only have about 4 months of inventory. (FL)

o Higher price range is less saturated and moving well. Lower range is still saturated and continuesto compete with foreclosures. (IN)

o House prices rose too fast with current lending being restrictive. (MN)o Housing prices and owned home sales are down due to a continued glut of repossessed properties

coming to market. (OK)

o The slight bump in interest rates over the past few months has scared away some buyers it seems.As interest rates have slowly come down to near 4% in our area, activity has picked up slightly.

(PA)o While I did not personally have a sale, the government shut down affected others in my office.

The SS office being closed, delayed one of our closings by two weeks. Plus people just seemed to

put looking on hold. (TX)

o As the Desginated Broker I know the issues of all the transactions. I was surprised that none ofour transactions were impacted by the government shut down. (AZ)

o The government shutdown along with the confusing situation related to the Affordable HealthCare (Obamacare) has made both buyers and sellers anxious and cautious about making a major

decision in selling or buying homes. (OH)

o The budget impasse dramatically reduced buyer traffic, and with the new quality mortgagestandards it is going to be more difficult for buyers to qualify next year. (IN)

o There is so much more paperwork involved and the buyer has so many hoops to jump thru for thebank/finance companies. (WI)

o It is still taking too long on short sale transactions. (GA)o Both offers written last month were multiple offer situations, with offers prevailing that were cash

or above the asking price.(ME)

o USDA Loans still not available. (MO)o There are thousands of good, qualified buyers that want to buy that cannot get a loan.Lenders are

the biggest problem in our market. We would sell 10's of thousands of more homes if lenders

would loan the money. (MT)

o Debt to income ratios have put a real burden on first time buyers to get a loan. First time homebuyer market remains very weak, and we must find the answer to get them back in the housing

market. (TN)

o The economy is still too fragile, and people are still nervous about their future. (MA)o # 1. Credit issues #2. Appraisals coming in low #3. Comps for Foreclosures. (AL)o International investors and all-cash buyers overbidding the typical buyer needing a loan. (CA)o Appraisals are getting more fair and not as many problems as in previous months. (FL).o Appraisers are more conservative and are not giving value to newly rising home prices. (NV)o Complaints on the new additional information required for FHA/VA loans. Flood insurance and

sellers not purchasing elevation certificates for their homes. Buyers avoiding flood properties. (FL)

o Flood insurance is killing sales in our area. (NC)o Too many baby boomers downsizing; not enough buyers for larger homes for sale by baby

boomers. (VA)


7/26

Days on the Market Increased to 54 Days

Since June, properties have stayed longer on the market. The median days on the marketreported by REALTOR respondents who had a sale was 54 days (50 days in September), upfrom its lowest point of 37 days in June 2013. Approximately 36 percent of respondents

reported that properties were on the market for less than a month (39 percent in September) .Short sales were on the market for the longest days at 93 days compared to foreclosed propertiesat 44 days and non-distressed properties at 53 days. Conditions varied across areas.

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Median Days on Market

Source: NAR, RCI Survey

Oct 2013: 54 days

36%

17%13%

10%

5% 4%6%

3%6%

0%

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25%

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35%

40%

45%

=12

mo

Distribution of Reported Sales by Time On Market

201210 201309 201310


8/26

Home Prices Still Firm

Home price are still generally rising with about 85 percent of respondents reportingcosntant or rising prices in October (84 percent in September). Approximately 13 percent ofreported sales were of properties that sold at a net premium compared to the original listingprice. In mid-2013, about 20 percent of REALTORS reported selling properties at a premium.

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Median Days on Market by Type of Sale

Foreclosed Short Sales Not distressed AllSource: NAR, RCI Survey

Oct2013: Foreclosed: 44; Shortsale: 93 ; Not distressed: 53; All: 54

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Percentage of Respondents Reporting Constant or

Higher Prices Today Compared to a Year Ago

Oct 2013: 85%


9/26

REALTORS Expect Prices to Increase Modestly in the Next 12 Months

About 90 percent of REALTOR respondents expect constant or higher prices in the next12 months (same as in September). The median expected price increase is about 4 percent3.

3 The median is the middle value. A median expected price change of 4 percent means that 50 percent of

respondents expect prices to increase above 4 percent while the other 50 percent expect prices to increase (or

decrease) at less than 4 percent.

12% 13%

16% 16%

19% 19% 19%18%

17%14%

13%

0%

5%

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15%

20%

25%

Percent of Resported Sales Where Property Sold at a Net

Premium Compared to the Original Listing Price

0%

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100%

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REALTORS' Price Expectations for Next 12 Months

Constant/Rising Prices Falling Prices

Oct 2013: 90% expect constant/higher prices in next 12 months


10/26

The graph below shows the median expected price change across the states which aregrouped into those with low, middle and high price expectations4. Tight inventory and thedrop in foreclosure inventory have provided much of the lift in prices.

State Median Price Expectation for Next 12 Months (in%)

Based on REALTORS Confidence Index Survey, Aug-Oct 2013 Surveys

4 The median expected price increase at the state level is based on the last 3 surveys to increase the sample

size for each state.

0.0%

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REALTORSMedian Expected Price Change for Next 12Months, in Percent

Oct 2013: Prices expected to increase 3.8% in next 12 months


11/26

II. Buyer and Seller Characteristics

Cash Sales: 31 Percent of Residential Sales

Approximately 31 percent of REALTOR respondents who made a sale reported a cashsale5. International homebuyers and investors typically paid cash. About 10 percent ofREALTOR respondents reporting a sale to a first-time buyer reported a cash sale compared toabout about 70 percent for investors and international clients.

5 The RCISurvey asks about the most recent sale for the month.

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Cash Sales as Percent of Market

Oct 2013: 31%

10%

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56%

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FTHBuyer Investor Second home Relocation International Distressed Sale

Percent of Sales That are All-Cash, by Type of Buyer-- Oct 2013


12/26

Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages

About 37 percent of REALTOR respondents who reported a mortgage financingreported a down payment of 20 percent or more. REALTORS have reported that buyers whopay cash or put down large downpayments generally win against those offering lower

downpayments.

Distressed Sales at 14 Percent of Sales

Approximately 14 percent of REALTOR respondents reported a sale of a distressed

property, substantially down from levels a few years ago. This trend is in line with the broaddecline in foreclosure inventory.

29%

30%31%

32%

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38%

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Percent of Mortgage Sales With Downpayment of

At Least 20 Percent

Oct 2013: 37%

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Distressed Sales, As Percent of Sales Reported by REALTORS

Foreclosed Short Sale

Oct 2013: Foreclosed: 9% Shortsale: 5%


13/26

Foreclosed property sold at a 14 percent average discount to market , while short salessold at a 10 percent average discount.6 The discount varies by house condition. For the past 12months, properties in above average condition have been discounted by an average of 9-12percent, while properties in below average condition were discounted at an average of 16-20percent.

6 The 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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Mean Percentage Price Discount of

Distressed Sales Reported by REALTORS(in %)

Foreclosed Shortsale

Oct 2013: Foreclosed: 14%; Shortsale: 10%

%

12 12

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16

0

5

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Above average Average Below average

Percent Price Discount by Property Condition

of Reported Distressed Sales (in percent)

Unweighted Average for Nov 2012 to Oct 2013

Foreclosed Short sale

%


14/26

First Time Buyers: 28 Percent of Residential Buyers

Approximately 28 percent of REALTOR respondents reported a sale to a first timehome buyer7. REALTORS continue to report that first time buyers who generally usemortgage financing are finding it hard to compete against investors who typically pay cash.

Investors, Second-home Buyers, and Relocation Buyers

About 19 percent of REALTOR respondents reported a sale to an investor, 10 percentreported a sale to a second-home buyer, and 13 percent reported a sale to a relocation buyer.There is feedback from REALTORS that many baby boomers are or would like to downsize ,but there are not enough buyers for larger homes.

7 First time buyers account for about 40 percent of all homebuyers based on data from NARs Profile of

Home Buyers and Sellers.

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First Time Buyers as Percent of Market

Oct 2013: 28%

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Sales to Investors as Percent of Market

Oct 2013: 19%


15/26

International Transactions: About 1.8 Percent of Residential Market

Approximately 1.8 percent of REALTOR respondents had a sale to foreigners notresiding in the U.S. International buyers typically pay cash . Based onNARs 2013 Profile ofInternational Homebuying Activity, the major buyers were from Canada, China, Mexico, India,

and the United Kingdom.

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Second-Home Buyers as Percent of Market

Oct 2013: 10%

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Relocation Buyers as Percent of Market

Oct 2013: 13%


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Rising Rents for Residential Properties

Among those REALTORS involved in a rental, close to half reported higher residentialrents compared to 12 months ago. About 21 percent of REALTORS reported conducting anapartment rental and about 4 percent reported a commercial rental transaction.

0.0%

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Sales to International Clients as Percent of Market

Oct 2013: 1.8%

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Percent of Respondents Reporting Rising Rent Levels as

Compared to 12 Months Ago

Oct 2013: 48%


17/26

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Percent of Respondents Conducting

An Apartment Rental

Oct 2013: 21%

3%4%

3%4% 4%

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3%

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Percent of Respondents Conducting

A Commercial Rental


18/26

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, only 40 percent of residential loans acquired by theGovernment Enterprises (Fannie Mae and Freddie Mac) went to applicants with credit scoresabove 740. In the 2013 Second Quarter report, Fannie Mae reported that 70.1 percent of itssingle-family acquisitions had credit score of at least 740.

Approximately slightly more than half of the survey respondents who provided creditscore information reported FICO credit scores of 740 and above. Estimates by NAR economistshave indicated that a significant number of additional salespossibly as high as 500,000--couldbe made if credit conditions returned to normal.

Impact of the Government Shutdown

In the October survey, NAR asked a question on the impact of the government shutdownon REALTOR transactions. Overall, the responses indicate that the shutdown had a minimal

and temporary effect on ongoing transactions. Of the respondents who had an ongoingtransaction, 71 percent reported no impact while 17 percent reported a delay in the closing.About 3 percent reported a termination in the contract or a buyer losing the bid.

Of the respondents who experienced an impact, about 25 percent reported that the impactwas caused by waiting on IRS income verification, 43 percent reported they could not accessFHA/USDA financing, while 11 percent reported jobs loss, furlough, or a reduction in income.About 29 percent cited other factors that included factors not directly related to the shutdown.

2%7% 9%

25%

57%

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70%

lt 620 620 - 659 660-699 700-739 740+

Distribution of Reported FICO Scores-- RCI Surveys

RCI-0ct'12 RCI_Sep'13 RCI_Oct'13


19/26

Access to Mortgage Financing of Sellers Previously Facing Foreclosure or Short Sale

In the August RCI survey, NAR asked a question to gauge how homeowners whoexperienced a foreclosure or short sale since 2005 are returning as homebuyers.

The results indicate that they are facing a tough time returning to the mortgage market.About 22 percent of respondents reported working with a buyer who previously experienced aforeclosure or short sale since 2005. This indicates only a fifth of sellers who were previouslydistressed are turning as homeowners again.In reference to thse sellers who are coming back asbuyers, 46 percent of respondents reported that these buyers they worked with could not obtain

71%

17%

1%

2%

3%

6%

No impact on contract signing, closing, or

price.

Closing was delayed.

Contract was terminated.

Lost bid-could not access FHA/VA

financing

Weaker offers received

Others

Impact of Federal Shutdown Among REALTOR

Respondents Who Had An Ongoing Transaction

24.4%

43.3%

11.4%

28.8%

Waiting on IRS income verification.

FHA/USDA were closed.

Job loss, furlough, or reduction of

income.

Other (please specify)

REALTOR Respondents Reported these Factors that

Impacted their Ongoing Transaction*

Multiple responses allowed.


20/26

mortgage financing. In reference to these buyers who did not obtain mortgage financing, 65percent of respondents reported that the reason is related to the previous foreclosure or shortsale.

Yes (obtained

mortgage

financing)

54%

No (Did not

obtain

mortgage

financing)

46%

Acess to Mortgage Financing of Buyers Who

Experienced a Foreclosure or Short Sale

Beginning in 2005 -- Aug 2013 RCI Survey

due to buyer's

previous

foreclosure/

short sale

situation

65%

the buyer did

not need

financing35%

Reasons for Not Obtaining a Mortgage Among Buyers

Experiencing a Foreclosure or Short Sale Beginning in

2005 Who Did Not Obtain a Mortgage

Aug 2013 RCI Survey


21/26

IV. Commentaries by NAR Research

State-by-State UnemploymentLawrence Yun, Chief Economist

Jobs will become ever more critical in supporting the housing expansion as housingaffordability declines.

Some states are doing better than others in this regard. As one would expect, where there arejobs, good stuff is occurring in those states: retail vacancy rates decline, the state budgetsituation improves, mortgage delinquencies rapidly fall, wages rise quickly, among others.

The following table presents the ranking of state-by-state job growth over the past 12months.

North Dakota has been quite amazing in terms of job growth, not only over the past year butover the past 5 years. It even skipped the recession experienced by the rest of thecountry. The state budget surplus is huge. The unemployment rate is 3 percent, or

essentially non-existent. The starting wage rate at McDonalds to flip a burger is said to be$18 per hour. The minimum wage mandate becomes non-relevant if the job market is robust. Alaska is the only state with fewer jobs now versus one year ago. It is unclear what the

reasons are. But dont feel too much pity, though: Alaska would rank near the top in jobgrowth if viewed over the past 5 years.


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http://economistsoutlook.blogs.realtor.org/files/2013/10/102513b.jpghttp://economistsoutlook.blogs.realtor.org/files/2013/10/102513a.jpg


23/26

Commercial Sales Rise 10.7 Percent in Q3, Despite Headwinds

George Ratiu, Director, Commercial Research

With lackluster employment growth, third quarter fundamentals in REALTOR commercialmarkets maintained a positive trajectory. However, the specter of government shutdown and the

budget debate added headwinds to the market performance. The results of theOctoberCommercial Real Estate Market Surveyindicated modestly rising absorption and newconstruction, accompanied by changing vacancies.

Leasing activity increased 2.0 percent higher over the previous quarter. On the supply side, newconstruction maintained momentum, increasing 5.0 percent over the second quarter. Vacanciesdeclined for industrial and hotel properties. Office vacancies inched up 9 basis points, to 17.8percent, while retail availability rose 110 basis points, to 15.7 percent. Multifamily vacancyreached 7.3 percent, as new supply entered the market and the residential rental market addedcompetition.

With sliding vacancies, landlords found fewer reasons to offer rent concessions. In addition,rental rates rose 2.0 percent during the second quarter. In terms of space requirements, tenantdemand remained strongest in the 5,000 square feet and below, accounting for 70.0 percent ofleased properties. Lease terms remained steady, with 36-month and 60-month leases capturingthe bulk of the market.
http://www.realtor.org/reports/commercial-real-estate-market-surveyhttp://www.realtor.org/reports/commercial-real-estate-market-surveyhttp://www.realtor.org/reports/commercial-real-estate-market-surveyhttp://www.realtor.org/reports/commercial-real-estate-market-surveyhttp://economistsoutlook.blogs.realtor.org/files/2013/10/Capture14.pnghttp://www.realtor.org/reports/commercial-real-estate-market-surveyhttp://www.realtor.org/reports/commercial-real-estate-market-survey


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Characteristics of Home Buyers

Jessica Lautz, Director, Survey Research

The characteristics of home buyers has changed, likely due to tightened credit conditions. Thereis a higher share of married couples and a suppressed level of single buyers. There is also a lower

than historical share of first-time buyers, and higher incomes among buyers in general. Here aretwo charts that display this trend.
http://economistsoutlook.blogs.realtor.org/files/2013/10/hhhhh.pnghttp://economistsoutlook.blogs.realtor.org/files/2013/10/gggggg2.png


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Comments on SentriLock Data on Properties Shown by REALTORS

Ken Fears, Director, Regional Economics and Housing Finance

In no surprise, the sharp rise in mortgage rates from June through September had an impact on

the market. The July and August readings of the diffusion index for foot traffic reflected the

impact by way of a sharp decline. However, by September the decline had reversed course with

slightly lower mortgage rates, making up some of the ground. This recovery trend was modestly

extended in October suggesting a bottom or plateau at a strong level by recent standards.

Every month SentriLock, LLC. provides NAR Research with data on the number of propertiesshown by a REALTOR. Foot traffic has a strong correlation with future contracts and homesales, so it can be viewed as a peek ahead at sales trends two to three months into the future. Forthe month of October, the diffusion index for foot traffic rose 0.6 points to 51.2.

Mortgage rates ticked upward in the first half of October as MBS and Treasury prices fell in thebuildup to the Federal debt limit, but were still down from the 4.5% to 4.7% levels seen in latesummer. Furthermore, furlough and job uncertainties as well as financing issues due to thegovernment shutdown should have impact consumer sentiment. However, foot traffic inchedupward for a second consecutive month contrary to some anecdotes. Inventories remain tight insome markets, which could limit the upside to foot traffic until additional nascent inventorycomes to the market.

This months reading extended last months recovery. The index inched just above the important

50 mark in August which indicates that more than half of the markets in this panel had

stronger foot traffic in October of 2013 than the same month a year earlier. This reading does


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not suggest how much of an increase in traffic there was, just that the majority of marketsexperienced more foot traffic in October of 2013 compared to a year earlier.

The recovery in foot traffic appears to have taken hold suggesting a more steady market at a highplateau by recent historical standards through winter months. However, this months reading

provides a clearer picture of the impact from higher mortgage rates as the modest decline in ratesfrom the summer rates provided some lift to the market, even during potential disruptions fromthe government shutdown. A longer sustained period of mortgage rates north of 4.5% couldhave a stronger impact on foot traffic, contracts, and home sales.

realtors confidence index report october 2013

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