REALTORS CONFIDENCE INDEX

Report and Market Outlook May 2013 Edition

Based on Data Collected May 27 through May 31, 2013

NATIONAL ASSOCIATION OF REALTORS Research Department Lawrence Yun, Senior Vice President and Chief Economist

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 ...................................................................................................................... 21 Vacancy Rates Continue Decline in Second Quarter 2013 ..................................................................... 22 Comments From REALTORS ............................................................................................................. 23

SUMMARY
Jed Smith and Gay Cororaton The REALTORS Confidence Index (RCI) Report provides monthly information about market 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 a survey conducted during May 27 through May 31, 20131. All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. In May, REALTORS generally reported strong buyer demand against a low but slightly improving inventory, continued price increases, and shorter days on the market. Notwithstanding the strong performance, REALTORS kept their optimism in check and expressed concern about the rapid increase in prices amid modest income growth as well as the sustainability 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 condominium financing, 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 single family homes market as strong , with the Index-Current Conditions2 slightly rising to 71. The Index for 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. REALTORS Confidence Index - Current Conditions May 2013
80 70 60 50 40 30 20 10 0

SF: 71 TH: 51 Condo: 45

1
2

The survey was sent to a random sample of about 50,000 REALTORS. The Index is calculated as a weighted average of the responses, evaluated at 0-Weak, 50-Moderate, and 100-Strong.

200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 SF Townhouse Condo

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 Traffic Index moving up to 43 (41 in April). Notwithstanding, REALTORS reported that not enough inventory was still coming in the market from both REOs and homeowner listings as current homeowners wait for prices to move up further. Indexes of Buyer and Seller Traffic
80 70 60 50 40 30 20 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 Buyer Traffic Index Seller Traffic Index

May 2013: Buyer: 71 Seller : 43

Prices Continued to Pick Up and Properties Sold Faster

Amid tight inventory conditions, most REALTOR respondents reported higher sales prices and shorter days on the market. About 87 percent of respondents reported constant or increasing prices, while median days on the market for residential sales dropped further to 41 days. Percentage of Respondents Reporting Constant or Higher Prices Today Compared to a Year Ago
86% 86% 87% 79% 83% 83%

62% 64% 64% 54% 58%

69% 71% 73% 73%

Median Days on Market

120 100 80 60 40 20 0 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 Source: NAR, RCI Survey 96 97 98 9210196 98 99 99 97 91 83

72 70 69 70 70 71 70 73 71 74

62 46 41

REALTORS Remained Optimistic Concerning the Market Outlook Confidence about the outlook for the next 6 months was strong although unchanged from April levels. Although demand was strong, REALTORS reported a confluence of factors that tempered their optimism: rising prices, rising interest rates, low inventory, and stringent credit conditions. REALTORS Confidence Index - Six Month Outlook May 2013
80 70 60 50 40 30 20 10 0

SF: 75 TH: 54 Condo: 49

200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 SF Townhouse Condo

Approximately 95 percent of REALTORS reported that they expect constant or higher prices in the next 12 months, the same percentage as in April. REALTORS' Price Expectations for Next 12 Months
100% 80% 60% 40% 20% 0% 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 May 2013: 95% expect constant/higher prices in next 12 months

Constant/Rising Prices

Falling Prices

NAR forecasts continued sales and price increases as are indicated by REALTOR responses.
Sales
8000000 7000000 6000000 5000000 4000000 3000000 2000000 Jan/00 Jul/00 Jan/01 Jul/01 Jan/02 Jul/02 Jan/03 Jul/03 Jan/04 Jul/04 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10 Jan/11 Jul/11 Jan/12 Jul/12 Jan/13 Jul/13 Dec/14
EHS-Actual Median Prices-Actual EHS-Forecast Median Prices- Forecast

Home Sales and Prices: Actual and Forecast

Prices
240000 220000 200000 180000 160000 140000 120000 100000

What Does This Mean For REALTORS? The real estate markets continue to recover from the Great Recession in terms of sales and price. Continued restrictive mortgage availability and tight underwriting standards are a problem, but REALTORS report that loans are frequently available at smaller banks and credit unions. Tight inventories are reported as making markets increasingly competitive.
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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 interest rates, coupled with the continued tightness in inventory as well as stringent credit standards and the adverse effect of the impending increase in flood insurance rates in some areas might account for the unchanged expectations.

REALTORS Confidence Index--May 2013 Current and Six Month Outlook: Single Family Properties
80 70 60 50 40 30 20 10 0

Current: 71 Outlook: 75

60 50 40 30 20 10 0

200810

200901

200904

200907

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201004

201007

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200801

200804

200807

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Current Conditions

6-Month Outlook

201304

200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 Current Conditions 6-Month Outlook

REALTORS Confidence Index--May 2013 Current and Six Month Outlook: Townhouse Properties
Current: 51 Outlook: 54

REALTORS Confidence Index--May 2013 Current and Six Month Outlook: Condo Properties
60 50 40 30 20 10 0 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304

Current: 45 Outlook: 49

Current Conditions

6-Month Outlook

Prices Continue to Firm Up With strong buyer demand and tight inventory, 95 percent of respondents expected constant or rising prices in the next 12 months. Among all respondents, the median of the expected price change was 5.3 percent.
REALTORS' Median Expected Price Change for Home Prices in the Next 12 Months (in %)
%

6.0 5.0 4.0 3.0 2.0 1.0 0.0

May 2013: 5.3%

Source: NAR RCI Surveys

The map below shows the median expected price change of the respondents to the May RCI survey. Respondents in the Western states, Texas, Florida, Georgia, and some midwestern states were 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 large foreclosure 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 properties dropped to 41 days in April. Short-sales had the longest days on market at 79 days (73 days in April) while foreclosed properties were on the market for 43 days (unchange from April) . The median days on the market for non-distressed properties was 39 days (44 days in April ).

Median Days on Market by Type of Sale

180 160 140 120 100 80 60 40 20 0

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

Short Sales Source: NAR, RCI Survey

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

201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 Foreclosed Not distressed All

Distribution of Reported Sales by Time On Market

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 45%

14% 8% 7% 5% 4% 6% 4% 7%

<1 mo 1-2 mo 2-3 mo 3-4 mo 4-5 mo 5-6 mo 6-9 mo 9-12 mo >=12 mo 201205 201304 201305

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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. REALTORS continued to report strong demand for REOs from investors who reportedly win when bidding against first time homebuyers.
Percent of Respondents Reporting Distressed Sales
50% 40% 30% 20% 10% 0% 200905 200907 200909 200911 201001 201003 201005 201007 201009 201011 201101 201103 201105 201107 201109 201111 201201 201203 201205 201207 201209 201211 201301 201303 201305 Foreclosed As % of Sales Short Sale As % of Sales

May 2013: Foreclosed: 11 % Shortsale: 7 %

Foreclosed property sold at a 15 percent average discount to market , while short sales sold at a 12 percent average discount.3 Data from June 2012 thru May 2013 shows that below average foreclosed homes were discounted by21 percent, with below average short sales discounted by 16 percent.
%
30 25 20 15 10 5 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210 201212 201302 201304 Foreclosed Shortsale
3

Mean Percentage Price Discount of Distressed Sales (in %)

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

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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Percent Price Discount by Property Condition (%) Unweighted Average for June 2012 to May 2013 %
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 30.3 26.7 20.8 13.6 12.2 15.2 16.0 12.4 21.5 14.5

Above average

Average

Below average

Well below average

Bottom 1%

Foreclosed

Shortsale

Mean Percent Below Market Value May 2013 RCI Survey House Condition Above average Average Below average Well below ave Bottom 1% Foreclosed 13 13 16 20 31 Short Sale 12 11 15 16 3

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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Cash Sales as Percent of Market

40% 35% 30% 25% 20% 15% 10% 5% 0%

May 2013: 33%

201001

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201301 201210

First Time Buyers: 28 Percent of Residential Buyers Approximately 28 percent of respondents made a sale to a first time home buyer (29 percent in April). Normally, first time buyers are in the neighborhood of 40 percent.4 Of those reporting a sale to a first time home buyer, approximately 12 percent reported a cash sale.

First Time Buyers as Percent of Market

60% 50% 40% 30% 20% 10% 0% 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201301 201304

May 2013: 28%

Based on data from NARs Profile of Homebuyers and Sellers. 13

201304

Residential Sales to Investors: 18 Percent of Residential Market Approximately 18 percent of respondents reported making a sale to investors who were active in buying distressed properties and paying cash. Of respondents reporting a sale to an investor, 74 percent reported a cash sale. Sales to Investors as Percent of Market
30% 25% 20% 15% 10% 5% 0% 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304

May 2013: 18%

Second Home Buyers : 11 Percent of Residential Market

Second-Home Buyers as Percent of Market

16% 14% 12% 10% 8% 6% 4% 2% 0% 201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305

May 2013: 11%

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Relocation Buyers : 13 Percent of Residential Market Relocation Buyers as Percent of Market

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

May 2013: 13%

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 international sale, 82 percent reported a cash sale. Sales to International Clients as Percent of Market
4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304

201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305

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 the sale reported a down payment of 20 percent or more. Percent of Mortgage Sales With Downpayment of At Least 20 Percent
May 2013: 35%

38% 36% 34% 32% 30% 28%

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 12 months ago. About 24 percent of REALTORS reported conducting an apartment rental.

60% 50% 40% 30% 20% 10% 0%

201104

201112

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Rising Rents

Lower Rents

Constant

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201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 >=20%

Percent of Respondents Reporting Changing Rent Levels as Compared to 12 Months Ago

May 2013: Rising rent: 53%

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Percent of Respondents Conducting An Apartment Rental

35% 30% 25% 20% 15% 10% 5% 0%

May 2013: 24%

REALTORS Also Reported Commercial Rentals Percent of Respondents Conducting A Commercial Rental
4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 4% 3% 4% 3% 4% 4% 3% 4% 4% 3% 3%

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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. In the 2001-04 time frame approximately 40 percent of residential loans went to applicants with credit scores above 740. Currently the percentage is in the 50 percent range. Estimates by NAR economists have indicated that an additional 500,000 to 700,000 additional sales could be made if credit conditions returned to normal.

FICO Scores: Recent Scores in 2012 vs. 2005

80% 70% 60% 50% 40% 30% 20% 10% 0%

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

lt 620

740+

Fannie/Freddie 740+

The meaning for REALTORS is clear: In many cases lenders are not making loans to potential 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, try again at a different financial institution. Appraisal Issues Approximately 32 percent of respondents reported having had appraisal problems in the past 3 months. About 9 percent of respondents reported a contract cancellation due to appraisal issues, 10 percent of respondents reported a contract delay, and 13 percent of respondents reported a lower price renegotiation .

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Percent of Respondents Reporting Appraisal Problems

80% 70% 60% 50% 40% 30% 20% 10% 0%

May 2013: No problems: 68%; With problems: 32 %

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No Problems

With Problems

IV. Articles and Comments

Impact of Rising Mortgage Rates on Home Sales
Lawrence 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 2015 and 2016. Certainly, rising rates are bad news for buyers and some potential homebuyers will be pushed 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 drops to 14.9 million at a 5.0 percent mortgage rate, which is a decline in percentage terms of 16 percent.

But there is one major compensating factor that can easily neutralize the negative impact of rising rates. As REALTORS well know, there are many good potential buyers who have been denied a mortgage that in past normal years would have easily qualified. The comparison is with normal years and not the bubble years of no standards whatsoever. The Federal Reserve has also
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201305

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 originations due 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 in an 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 into the marketplace. My estimation says there would be an additional 15 to 20 percent more homebuyers who qualify by returning to normal underwriting standards from the current very tight conditions. The table below shows the average credit score of those who obtained mortgage approvals 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 Fanniebacked mortgage in the past, but is currently getting denied today.

There are other factors that can also help alleviate the rising interest rate conditions. The economy is adding jobs. A total of 2 million net new jobs were added in the past 12 months and another 2 million new ones are likely over the next 12 months. More jobs always lead to more home sales as long as rates do not spike. Furthermore, there could be room for a reduction in fees associated with obtaining governmentbacked mortgages. The high profits generated by Fannie and Freddie in recent quarters are implying excessive add-on fees charged to consumers by these two effectively government agencies. A pure for-profit company should have the right to innovate and earn any profit it can obtain as long as there are no barriers to entry into the business. But Fannie and Freddie, as we have learned, are not and should not be for-profit entities. They got into a mess because of the hyper-gambling mindset of heads we win and tails taxpayers lose. Fannie and Freddie need to stick to the simple business plan of guaranteeing soundly underwritten, mostly boring 30-year mortgages, as they are currently doing. These simple 30-year fixed rate mortgages served our grandparents well and they subsequently will serve our grandkids well. No major innovation is required, which is the reason why being an effectively government agency can work fine. (We should, 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
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used.) The point is that Fannie and Freddie are making good profits now. They should first speedily repay the taxpayer bailout money. But afterwards, excess profits only mean excessive consumers fees. So a reduction in fees in the near future should occur, just in time to help offset the higher mortgage rate environment.

Foot Traffic In May 2013

Ken Fears, Manager, Regional Economics The modest decline in May is more a reflection of fluctuations in traffic last spring. Traffic dipped sharply in April of 2012 before rising in May of that year, so this pattern, which measures traffic relative to last year, includes the jump last May. This months reading once again comes in 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. This reading 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 York State 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 with resilient consumer confidence and tight inventories driving price gains, buyer interest should remain 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 and businesses 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 up their 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 the same time, household wealth tied to financial assets has been rising steadily post-recession, with the Dow recently crossing the 15,000 threshold. Household wealth tied to housing has seen a noticeable improvement in 2012 and the first quarter of 2013. Sale of existing homes rose 9.8 percent in the first quarter of this year, following the 9.0 percent rise in 2012. Due to very tight inventories, multiple bids have returned to the market, and price escalation clauses are pushing home prices up. Based on NAR data, the median sales price of existing homes jumped 11.2 percent in the first quarter of the year.

With vacancy rates falling and rents rising, market fundamentals have improved. National vacancy 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 sector still 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. Office vacancies 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, with availability rates of 9.4 percent, 9.9 percent and 12.0 percent, respectively. Rents for office properties are expected to increase 2.6 percent over the year. Industrial markets are benefiting from rising international trade, which drives demand for warehouse space. Net absorption of industrial space is projected to total 107.1 million square feet by the end of 2013, driving vacancy rates to 9.3 percent. The metro areas with the lowest industrial 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 2.4 percent this year. With consumers continuing a cautiously optimistic approach to spending, retail spaces have been on 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 10.4 by year-end. Markets with the lowest retail vacancy rates are led by San Francisco, at 3.6 percent. 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 to increase 1.4 percent over the year. The apartment market has seen the strongest demand and lowest vacancies, driven by a recovery of household formation towards long-term averages. Net absorption is expected to total 276,320 units this year. Against a supply of only 136,342 new units, vacancy rates are estimated to decline to 3.8 percent by the end of 2013. Metro areas with the lowest vacancy rates are New Haven, 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 increase 4.6 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 be coming to the market sufficiently to meet demand. Sellers are reported as waiting for prices to pick up further. There are reports of homes selling above asking prices. Investors who pay cash frequently 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 market or before. In eastern NC, the inventory is still high. It is a Buyer's market.

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2. Tight Financing/Credit Access 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 issues The 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 reported in 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 be more timely so we can proceed with original closing dates. Appraisals don't seem to be keeping up with increased prices due to increased demand and lower inventory. Appraisers from two counties away are showing up.

4. Regulatory and Economic Issues REALTORS 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 obtain financing. 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.

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