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REALTORS CONFIDENCE INDEX

Report and Market Outlook September 2012 Edition


Based on Data Collected August 27 through September 4, 2012

NATIONAL ASSOCIATION OF REALTORS


Research Department Lawrence Yun, Senior Vice President and Chief Economist

Table of Contents
SUMMARY .................................................................................................................................... 3 Current Conditions ...................................................................................................................... 3 Market Outlook ........................................................................................................................... 5 I. Market Conditions ...................................................................................................................... 7 REALTORS Confidence Index Declines in September .......................................................... 7 Seventy-one Percent of REALTORS Report Constant or Higher Prices on Recent Transactions Compared to a Year Ago ....................................................................................... 8 Eighty-eight Percent of Responding REALTORS Expect Constant or Higher Residential Prices in the Next 12 Months. ..................................................................................................... 9 Thirty-Two Percent of Houses Sold in One Month .................................................................. 10 Median Days on Market Continued to Decline in September...11 Distressed Sales Continued to Decline in Market Share ........................................................... 11 Distressed Real Estate--Below Market Prices...12 Property Condition Affects the Selling Price of Distressed Properties..12 II. Buyer and Seller Characteristics .............................................................................................. 13 Cash Sales: 27 Percent of Residential Sales............................................................................. 13 First Time Buyers: 31 Percent of Residential Buyers .............................................................. 14 Buyers Due to Relocation/Job Changes: 16 Percent of Residential Market ............................. 14 Residential Sales to Investors: 18 Percent of Residential Market ............................................ 15 Second Home Purchases: 12 Percent of Residential Market .................................................... 15 Thirty-seven Percent of Sales with Mortgages Had Down Payments of 20 Percent or More . 16 Fifty-Seven Percent of Responding REALTORS Report Rising Rents for Residential Properties................................................................................................................................... 17 International Transactions: Two Percent of Residential Market ............................................... 17 III. Current Issues.......................................................................................................................... 18 AppraisalsA Continuing Problem ......................................................................................... 18 Tight Credit Conditions and Slow Lending Process ................................................................. 18 IV. Recent NAR Articles ............................................................................................................... Home Prices versus Rent, Lawrence Yun, Chief Economist20 Foot Traffic and Showings, Ken Fears, Manager, Regional Economics...21
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SUMMARY
Jed Smith and Gay Cororaton The REALTORS Confidence Index (RCI) report provides monthly information pertaining to expectations about overall market conditions, buyer/seller traffic, price, buyer profiles, and issues affecting real estate. The September edition is based on responses of over 3,400 REALTORS to a survey conducted during September 24 through October 1, 2012.1 All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. Current Conditions: Major Indicators Despite the recent upturn in the housing markets, REALTORS current confidence index for single family homes and condominiums dipped in September and only slightly rose for townhouses. Weighing down REALTORS confidence were the tight credit conditions, appraisal issues, and lack of inventory. Many REALTORS expressed dissatisfaction about bank lending conditions, that banks are not lending , banks taking way too long to give approval, banks requesting more paperwork and records, and banks need to lower credit standards . Economic issues such as the weak job market and the fiscal/growth problems in Europe, and regulatory and political uncertainties prior to the November elections have also had an impact on the housing markets.
REALTORS Confidence Index--Sept 2012 Current Conditions
70.0 60.0 50.0

Sept '12: SF: 53 TH: 36 Condo 30

40.0 30.0 20.0 10.0 0.0

Oct08

Oct11

Oct09

Oct10

Jan08

Jan09

Jan10

Jan11

Jan12

Jul08

Jul09

Jul10

Jul11

Apr10

Apr08

Apr09

Apr11

SF

TH

Condo

There were 3,421 respondents to the September survey, which was sent to approximately 50,000 REALTORS.

Apr12

Jul12

The buyer and seller traffic indexes were also down. Seller traffic continued to be significantly lower than buyer traffic, reflecting the tight inventory supply as banks continue to release distressed property at a measured pace and as sellers apparently wait for prices to pick up further .
Indexes of Buyer and Seller Traffic -- Sept 2012
60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0

Buyer: 53 Seller : 38

200910

201204

200801

200804

200807

200810

200901

200904

200907

201001

201004

201007

201010

201101

201104

201107

201110

201201

Buyer Traffic

Seller Traffic

The tight inventory of homes for sale has strengthened prices, with 71 percent of REALTORS reporting constant or increasing prices compared to the same time a year ago, and 88 percent of REALTORS expecting constant or rising prices in the next 12 months.

Percentage of Respondents Reporting Constant or Higher Prices Today Compared to a Year Ago
80% 70% 60% 50% 54% 58% 62% 64% 64% 69% 71%

40%
30% 20%

10%
0% 2012 Mar 2012-Apr 2012-May 2012-June 2012-Jul 2012-Aug 2012-Sept

201207

The median days on the market has hovered near 70 days since May.

Median Days on the Market for All Sales


120
100 96 97 98 92 101 96 98 99 99 97 91 83 72 70 69 70 70

80
60 40 20 0

Source: NAR, RCI Survey

Market Outlook REALTORS conficence in single family sales continues above 50, reflecting moderate market conditions. The six-Month Outlook Confidence Index for townhouses improved although the market was still generally viewed as weak. An index of 50 indicates moderate expectations.
REALTORS Confidence Index--Sept 2012 Six-Month Outlook
70.0

60.0
50.0 40.0 30.0 20.0 10.0

Sept '12: SF: 56 TH: 39 Condo 33

0.0

Oct08

Oct11

Oct09

Oct10

Jan08

Jan09

Jan10

Jan11

Jan12

Jul08

Jul09

Jul10

Jul11

Apr10

Apr08

Apr09

Apr11

SF

TH

Condo

Apr12

Jul12

NARs latest economic projction is for continued increases in residential home sales along with continued price improvement (although sales and price trends will vary from market to market). Existing home sales are projected to expand to 4.6 million in 2012 ( 5 million in 2013). Housing starts are projected to rise to 769,000 in 2012 and to 1.12 million in 2013. New home sales are projected at 600,000 by 2013. The median price for existing home sales is forecasted at $174,100 in 2012, ($182,800 in 2013). Shadow inventory is still high, but it is about 1 million fewer homes than two years ago and is anticipated to steadily diminish over time. Decreases in months of inventory of homes for sale and a decline in percentages of existing home sales that are distressed are projected to lead to a higher median price for all homes.
Existing Home Sales: Actual and Forecast Outlook for 2012: 4.64 Million Home Sales
8000000
6000000 4000000 2000000 0

250000 200000 150000

100000
50000 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Median Price Forecast

The forecast is based on an economy expected to grow at 2.2 percent in 2012 (2.5 percent in 2013) and with mortgage rates at 3.7 percent (3.9 percent in 2013) .
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1999 - Dec 2000 - Aug 2001 - Apr 2001 - Dec 2002 - Aug 2003 - Apr 2003 - Dec 2004 - Aug 2005 - Apr 2005 - Dec 2006 - Aug 2007 - Apr 2007 - Dec 2008 - Aug 2009 - Apr 2009 - Dec 2010 - Aug 2011 - Apr 2011 - Dec 2012 - Aug 2013 - Apr 2013 - Dec
Twelve Month Roll Forecast

Prices by Month, Not Statistically Adjusted Outlook Projecting Improvement

2012Forecast: $174.1K; 2013Forecast: $182.8 K

Economic Uncertainties The potentially adverse economic effects of the fiscal cliff(expiration of Bush tax cuts, mandated spending cuts, and increased taxes in the absence of legislative action) are both political and economic issues: potentially major impacts that are impossible to forecast. The slowdown in economic growth in the Euro countries and the possibility of recession in Europeare major downside risks.

What Does This Mean For REALTORS? The real estate market continues to recover both in terms of sales and price. Continued restrictive mortgage availability with tight underwriting standards, appraisal problems, and tight inventories of homes for sale are posing a drag to the expansion of home sales.

I. Market Conditions
REALTORS Confidence Declines in September The REALTORS Confidence Index (RCI) is an indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Respondents indicate whether conditions are, or are expected to be "strong" (100 points), "moderate" (50 points), and "weak" (0 points). A score of 50 for the index is the threshold between strong" and weak conditions. The RCI indexes declined for single-family and condomiumium, but is slightly up for townhouses.

REALTORS Confidence Index--Sept 2012 Current and Six Month Outlook: Single Family Properties
70.0 60.0 50.0 40.0 30.0

Sept '12: Current: 53 Outlook: 56

20.0
10.0 0.0

Oct08

Oct11

Oct09

Oct10

Jul08

Jul09

Jul10

Jul11

Jan08

Jan09

Jan10

Jan11

Apr10

Apr08

Apr09

Apr11

Jan12

Current Confidence

Confidence in Outlook

Apr12

Jul12

REALTORS Confidence Index--Sept 2012 Current and Six Month Outlook: Townhouse Properties
50.0 40.0 30.0 20.0 10.0 0.0

Sept '12: Current: 36 Outlook: 39

Oct08

Oct09

Jan10

Oct10

Oct11

Jan08

Jan09

Jan11

Jan12

Jul08

Jul09

Jul10

Jul11

Current Confidence

Confidence in Outlook

REALTORS Confidence Index--Sept 2012 Current and Six Month Outlook: Condo Properties
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

Sept '12: Current: 30 Outlook: 33

Oct08

Oct09

Jan10

Oct10

Oct11

Apr12

Jan08

Jan09

Jan11

Apr08

Apr09

Apr10

Apr11

Jan12

Jul08

Jul09

Jul10

Jul11

Apr12

Apr08

Apr09

Apr10

Apr11

Current Confidence

Confidence in Outlook

Seventy one Percent of REALTORS Reported Constant or Higher Prices on Recent Transactions Compared to a Year Ago Home prices continue to firm up as demand for existing home sales is reported to be increasing faster than the supply of available homes. About 30 percent of REALTORS reported constant home prices while 41 percent reported rising prices . About 5 percent reported seeing price increases of 10 percent or more.

Jul12

Jul12

Prices on Recent Transactions Relative to a Year Ago


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

2012 Mar 2012 Jul

2012-Apr 2012-Aug

2012 May 2012-Sept

2012 Jun

Eighty-eight Percent of Responding REALTORS Expect Constant or Higher Residential Prices in the Next 12 Months. Eighty-eight percent of respondents reported the expectation of constant or higher prices in the next year. Many REALTORS noted a significant increase in multi-bidding on properties, especially for lower priced houses .

REALTORS Price Expectations-Next 12 Months


100% 80% 60%

40%
20% 0%

200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208
Constant/Rising Prices Falling Prices

Thirty-Two Percent of Houses Sold in One Month Time on the market for a property to sell has been declining. Approximately a third of REALTORS noted that recently sold properties were on the market for less than a month when sold, and 59 percent were sold within 3 months. The proportion of REALTORS who responded that the house had been on the market for 6 months or more when sold fell to 19 percent from 28 percent a year ago.

Time On Market When Sold


35% 32%

30%
25% 20%

15%
10% 5% 0%

14%

13% 10% 7% 5% 6% 5% 8%

<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

Apr-12

May-12

June-12

Jul-12

Aug-12

12-Sep

On Market 3 Months or Less


53% 57% 58% 59% 59% 59%

48% 48% 48% 49% 46% 47% 47% 47% 47% 48% 50%

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Median Days on Market Continued to Decline in September Median days on market declined to 70 in September, down from 101 days two years ago. Short sales were at a median 81 days on market, down from 144 days in February of 2012. Foreclosures were at 50 median days on market. Median Days on Market
180 160 140 120 100 80 60 40 20 0

All

Short Sales

Foreclosed

Distressed Sales Continued to Decline in Market Share Twenty-four percent of respondents reported selling distressed property (foreclosed and short sales), down substantially from what had been the case a year or two ago. Cash sales accounted for roughly 40 percent of distressed sales (39 percent in August 2012).
Percent of Respondents Reporting Distressed Sales
60% 50%

Sept '12: Foreclosed: 13% Shortsale: 11%

40%
30% 20% 10% 0%

200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208
Foreclosed Short Sale

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Distressed Real EstateBelow Market Prices Distressed properties typically sell below the market price of similar property in nondistressed condition. The level of discount fluctuates depending on sales location, type of property, and property condition. Foreclosed property sold on the average at a 21 percent discount, while shortsale properties sold at a 14 percent average discount, slightly up from 13 percent the previous month.

Distressed Sales Mean Percentage Discount


25.00

Sept'12: Foreclosed: 21%; Shortsale : 14%

20.00
15.00 10.00 5.00

0.00

Property Condition Affects the Selling Price of Distressed Properties The discount to market experienced by distressed property is affected by the propertys physical condition. Well maintained properties tend to sell at a lower discount than is the case for properties in poor condition. The un-weighted average price discounts to market are presented for the current survey month of September as well as the 12 month period from October 2011 through September 2012. Prices for distressed houses with above average condition are discounted at about 13 15 percent, while prices for the properties in the poorest condition are discounted at 36 37 percent.

House Condition 1-Above average 2-Average 3-Below average 4-Well below ave 5-Bottom 1%

200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208
Foreclosed Shortsale

Mean Percent Below Market Value Sept 2012 RCI Survey Foreclosure 12.3 18.6 21.3 34.4 35.4 Short Sale 14.6 12.1 13.7 17.9 .

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Percent Price Discount by Property Condition


Unweighted Average for Oct 2011 to Sept 2012
40.0 36.7 36.1

30.0 20.0
10.0 0.0 1-Above average 2-Average 3-Below average 15.2 12.6 17.0 12.6 19.9 16.8

29.4
25.1

4-Well below 5-Bottom 1% ave

Foreclosed

Shortsale

II. Buyer and Seller Characteristics


Cash Sales: 28 Percent of Residential Sales Approximately 28 percent of REALTORS reported making cash sales in September, relatively unchanged since August (27 percent) and almost at par with the same period of last year of 30 percent . The high preponderance of all-cash sales appears to be due to stricter mortgage underwriting standards, and purchases by investors and second home buyers, who frequently pay cash, possibly edging out buyers needing to secure a mortgage.

Cash Sales as Percent of Market


40% 35% 30% 25% 20%

Sept '12: 28%

15% 10%
5% 0%

200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208
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First Time Buyers: 32 Percent of Residential Buyers Approximately 32 percent of responding REALTORS reported making a sale to first time home buyers (31 percent in August). Normally first time buyers are in the neighborhood of 40 percent of total residential sales, according to NARs Profile of Home Buyers and Seller. The proportion of first-time homebuyers hit a peak of approximately 50 percent in 2009. Most first time buyers obtain a mortgage: About 11.4 percent of REALTORS who made a first time home buyer sale reported a cash sale (compared to 8.7 percent in August). The decrease in first time buyers from the typical 40 percent share in part reflects the difficulty of securing mortgage financing, delays with distressed sales, and purchases of lower priced properties by investors. REALTORS have noted that that investors offering all-cash sales to sellers have crowded out first-time buyers in some cases, particularly in the case of distressed properties. Unsuccessful first-time buyers typically continue their property search, sometimes making a number of bids before securing a property.

First Time Buyers as Percent of Total Buyers


60% 50%

Sept '12: 32%

40%
30% 20% 10% 0%

Buyers Due to Relocation/Job Changes: 14 Percent of Residential Market

REALTORS reported that 14 percent of residential sales were to buyers for relocation purposes, i.e., a job move, retirement, etc. About 17 percent of REALTORS who made a sale to a relocation buyer reported a cash sale (compared to 18 percent in August).

200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208

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Relocation Buyers as Percent of Market


14% 14% 13%

15% 15% 15% 15%

14% 14%

15% 15% 15%


13% 11% 12% 13%

16%

14%

Residential Sales to Investors: 18 Percent of Residential Market REALTORS reported that investors accounted for 18 percent of total residential sales in September (unchanged from August). Approximately 74 percent of respondents who reported a sale to an investor reported a cash sale (compared to 67 percent in August ).

Sales to Investors as Percent of Total Sales


30%

Sept '12: 18%


25% 20% 15%

10%
5% 0%

Second Home Purchases: 12 Percent of Residential Market Second home sales accounted for 12 percent of responses (same as in August). Approximately 46 percent of second home sales were for cash (compared to 40 percent in August).
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200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208

Second Home Buyers as Percent of Market


Sept '12: 12%

Thirty-seven Percent of Sales with Mortgages Had Down Payments of 20 Percent or More Approximat ley 35 percent of mortage sales involved a down payment of 20 percent or more (compared to 37 percent in August). Down payments of 11-19 percent were at 5 percent.

5% 4% 4% 5% 4% 5% 5% 4% 5% 4% 4% 5% 5% 5% 4% 6% 6% 5%

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

Percent of Transactions by Downpayment Levels


34%
37% 36% 32% 34% 35% 34% 34% 36% 35% 32% 34% 33% 37% 36% 34% 37%

35%

11-19%

>=20%

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Fifty-seven Percent of Responding REALTORS Report Rising Rents for Residential Properties Higher residential rents compared to a year ago were reported by 57 percent of REALTORS in September (55 percent in August) .

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


60% 50% 40% 30% 20%

Sept '12: Rising rent: 57%

10%
0%

International Transactions: Two Percent of Residential Market Approximately 2.5 percent of REALTORS reported sales of U.S. residential real estate to foreigners not residing in the U.S. Approximately 80 percent of respondents who reported transactions with international clients reported cash sales (73 percent in August). Percent of Sales to International Clients
4 3.5 3 2.5 2 1.5 1 0.5 0

201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209
Higher Rents Lower Rents Constant rents

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III. Current Issues


AppraisalsA Continuing Problem Appraisals continued to be a problem in moving transactions to closure. Many REALTORS expressed frustration that reported appraisal values are not keeping pace with the appreciation in market values and that appraisers are not taking into account the condition of the home. REALTORS also reported encounters with out-of-town appraisers who have little knowledge of the neighborhood/local conditions. REALTORS also expressed frustration at the slow turn around time from appraisers and appraisal requirements that are an uncessary expense on the buyer. Thirty-five percent of REALTORS reported having had a problem with an appraisal in the past 3 months (34 percent in August). Approximately 11 percent of the respondents reported that appraisal problems led to contract cancellation; 9 percent reported a delay as a result of an appraisal problem, and 15 percent reported that the appraisal problems led to lower prices.

REALTORS Reporting Appraisal Problems With A Contract in Past 3 Months


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

Sept '12: 35%

Tight Credit Conditions and Slow Lending Process

One of the most frequent comments by REALTORS was a concern over unreasonably tight credit conditions. Respondents indicated that credit conditions continue to be too tight, that lenders are taking too long in approving an application, and that information and documentation required by lenders is excessive. Respondents expressed frustration that some financial institutions appear to lend only to individuals with the highest levels of credit scores. It is well known that a number of financial institutions have weak loan portfolios due to previous lending standards now perceived as having been too loose. The lending pendulum
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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

Contract Cancelled

Contract Delayed

Negotiated to Lower Price

appears to have swung to the other extreme in some cases, resulting in some institutions decreasing their overall lending efforts and/or imposing unrealistically high credit standards. There appears to be an unnecessarily high level of risk aversion. In the 2001-04 time framea time of normal residential real estate markets before the Great Recession-approximately 40 percent of Fannie Maes and Freddie Macs loans went to applicants with credit scores above 740. In contrast, REALTORS responding to the RCI survey indicated that over 50 percent of loans went to borrowers with credit scores above 740 in September, including Fannie, Freddie, and other lenders. In the case of Fannie and Freddiewhich are now a smaller part of the marketin 2011 approximately 75 percent of loans had credit scores of 740 and above. Estimates by NAR economists have indicated that an additional 500,000 to 700,00 additional sales could be made if credit conditions returned to normal. This would reprent an additional 250-350 thousand additional jobs on an annual basis, because existing home sales generate jobs across a wide spectrum of the economyi.e., attorneys, painters, plumbers, landscapers, title companies, furniture manufacturers, etc. These are jobs that could be generated at no cost and almost immediately.
FICO Scores: Recent Scores in 2012 vs. Scores in 2005
75% 74% 49%

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

60% 57% 53% 58% 54% 53% 53% 42% 44%

2%

2%

1%

1%

1%

1%

1%

3%

0%

1%

5%

4%

lt 620

740+

The meaning for REALTORS is clear: In many cases lenders are not making loans to potential buyers with less than perfect credit scores. A potential home buyer who is rejected by one bank or financial institution should try, try, try again at a different financial institution. Rejection of a loan application may be more indicative of the financial state of the lending institution than of the applicants credit worthiness. There are a variety of potential lending sources in addition to large banks and mortgage brokers. For example, a number of REALTORS noted that regional and community banks and credit unions could be good potential alternative sources of mortgages.
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Home Price versus Rent, Lawrence Yun, Senior Vice President and Chief Economist
Home prices swung too high and then crashed badly. But there was no notable fluctuation in rents. The chart below compares the two data points and clearly shows how home prices overcorrected in relation to rent from 2009 to 2011. Beginning this year, home prices steadily made positive gains, and are now catching up to the rise in rents. Given that rents are expected to further rise because of falling apartment vacancy rates, home values would need to continue upward movement in order to catch up fully to rent trends. This simple home price-to-rent comparison does not even take into account the impact of home buying from lower interest rates. So even not factoring in generational low mortgage rates, homes remain a good buy. But please, stay well within your budget.

Foot Traffic and Showings


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Ken Fears, Manager, Regional Economics & Housing Finance

Every month SentriLock, LLC. provides NAR Research with data on the number of showings. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. In the latest reading, the diffusion index for foot traffic fell sharply in September hitting 46.0, down from 70.3 in August. The decline of the diffusion index in September indicates that slightly more than half of the markets in this panel had lower foot traffic in September of 2012 than the same month a year earlier. While this suggests that the decline in year-over-year growth for foot traffic was widespread, it does not indicate that foot traffic or that these markets have reversed course. First, foot traffic was strong in the fall of last year, so Septembers figure is being compared to what was a strong early fall market in 2011 as mortgage rates slipped under 4.0% for the first time. Whats more, there is less inventory available for home shoppers as the months supply of homes for sale, the supply relative to the most recent sales pace, fell from 7.1 months in August of 2011 to 6.1 in August of 2012, a level last scene in 2006. Record low mortgage rates and stable to modest employment growth have helped to inspire homebuyer confidence despite headwinds from tight lenders.

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