REALTORS® CONFIDENCE INDEX

Report 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 1 – 8, 2013

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

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 based on information gathered from REALTOR® responses to a monthly survey. The current report is based on the responses of 3,503 REALTORS® about their transactions in October 2013. Questions about the characteristics of the buyer and the sale are based on the respondent’s last transaction for the month. The survey was conducted during November 1through November 8, 20131. All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. The information gathered concerning transactions in October indicates a slowing down of market 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 the modest growth in consumer incomes and jobs. The October survey captured the effect of the government shutdown. The survey indictated that about 30 percent of ongoing transactions were temporarily impacted by the closure 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, REALTORS® continued to report that higher mortgage rates have impacted the level of sales and that stricter mortgage standards are disqualifying even some credit worthy buyers. There is also continued concern 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 be “too long” especially in the case of short sales. With demand easing, properties were generally on the market for a more days than was the case a few months ago. Low or inconsistent appraisal values continued to be reported as affecting transactions adversely, although there are reports that the situation is improving. REALTORS® also reported issues that they foresee as affecting demand in the coming months: the potential impacts of tighter fiscal and monetary policies, the steep increase in flood insurance rates, the higher cost of homeowner insurance for FHA-guaranteed loans, and the impact of the Affordable Care Act on housing affordability.

1

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

I. Market Conditions
REALTOR® Confidence Continues to Slide Down in October Confidence about current and future market conditions was down across all markets although confidence in the single-family homes is still at “above moderate” reading of the REALTOR® Confidence Index.The survey covered the period when major parts of the federal government were closed, from October 1- October 15. Concerns about the impacts of the closure 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 (60 in September), the index for townhouses dipped to 42 (44 in September), and the index for condominium dropped to 37 (38 in September). An index of 50 marks “moderate” conditions.2 Nonetheless, 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 still above “moderate” with the index at 60 (59 in September). However, the outlook for townhouse and condominium sales was reported as weak: the index for townhouses slid to 45 (44 in September ) and the index for condominiums was at 40 (38 in September). Concerns about the slow pace of economic recovery and job creation, the increase in flood insurance rates in some areas and higher home insurance costs continue to depress market confidence.

REALTORS® Confidence Index - Current Conditions
80 70 60 50 40 30 20 10 0

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

2

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

200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 SF Townhouse Condo

REALTORS® Confidence Index - Six Month Outlook
80 70 60 50 40 30 20 10 0

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

Buyer and Seller Traffic Index Drop The Indexes for buyer and seller traffic reflected a slowing market. The Buyer Traffic Index fell for the fifth straight month to 53 (55 in SeptemberAugust ) while the Seller Traffic Index moved down for the fourth straight month to 41 (43 in September ). Some REALTORS® reported that inventory conditions are better than before although still tight such as in California, Florida, New York, and Georgia. REALTORS® 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 201307 201310 Buyer Traffic Index Seller Traffic Index

REALTORS® provided comments that shed insight about the dip in the confidence index. Below are some of these comments representing the gamut of concerns pertaining to the effect of higher mortgage rates and tight credit standards, concerns about economy and job growth, appraisal issues , and the increased cost of homeownership arising from higher flood insurance rates in some areas and higher home insurance mortage. Comments reflect local conditions.

200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 201307 201310 SF Townhouse Condo

Oct 2013: Buyer: 53 Seller : 41

SOME COMMENTS FROM REALTORS® - October RCI Survey Slowing Markets
o o o o o o o o o Market has cooled off a little but is still stronger than in recent years. (NY) Things have leveled off over the past few months. Buyers are not as strong, and home prices are no longer increasing. (CA) Multi bidding for ROE properties is still abundant, however this has slowed down a bit it seems. (IL) Multibidding has slowed dramatically since July. There is more inventory now and more FSBO homes.(CO) We seem to be getting 3 to 5 buyers for every property that goes on the market that is priced right. We only have about 4 months of inventory. (FL) Higher price range is less saturated and moving well. Lower range is still saturated and continues to compete with foreclosures. (IN) House prices rose too fast with current lending being restrictive. (MN) Housing prices and owned home sales are down due to a continued glut of repossessed properties coming to market. (OK) 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) 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) As the Desginated Broker I know the issues of all the transactions. I was surprised that none of our transactions were impacted by the government shut down. (AZ) The government shutdown along with the confusing situation related to the Affordable Health Care (Obamacare) has made both buyers and sellers anxious and cautious about making a major decision in selling or buying homes. (OH) The budget impasse dramatically reduced buyer traffic, and with the new quality mortgage standards it is going to be more difficult for buyers to qualify next year. (IN) There is so much more paperwork involved and the buyer has so many hoops to jump thru for the bank/finance companies. (WI) It is still taking too long on short sale transactions. (GA) Both offers written last month were multiple offer situations, with offers prevailing that were cash or above the asking price.(ME) USDA Loans still not available. (MO) 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) Debt to income ratios have put a real burden on first time buyers to get a loan. First time home buyer market remains very weak, and we must find the answer to get them back in the housing market. (TN) The economy is still too fragile, and people are still nervous about their future. (MA) # 1. Credit issues #2. Appraisals coming in low #3. Comps for Foreclosures. (AL) International investors and all-cash buyers overbidding the typical buyer needing a loan. (CA) Appraisals are getting more fair and not as many problems as in previous months. (FL). Appraisers are more conservative and are not giving value to newly rising home prices. (NV) 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) Flood insurance is killing sales in our area. (NC) Too many baby boomers downsizing; not enough buyers for larger homes for sale by baby boomers. (VA) I believe the rate increase combined with increased health insurance rates have had (and will continue to have) an impact on the market in a negative way. However, I think it might be good overall as it has taken the sudden burst of activity and slowed it to a more realistic healthy pace. (NC)

o

o o

o o o o o o

o

o o o o o o o o o

Days on the Market Increased to 54 Days Since June, properties have stayed longer on the market. The median days on the market reported by REALTOR® respondents who had a sale was 54 days (50 days in September), up from 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 properties at 44 days and non-distressed properties at 53 days. Conditions varied across areas. Median Days on Market
120 100 80 60 40 20 0 201105 201107 201109 201111 201201 201203 201205 201207 201209 201211 201301 201303 201305 201307 3% 201309 6%

Oct 2013: 54 days

Source: NAR, RCI Survey

Distribution of Reported Sales by Time On Market
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

36%

17%

13%

10% 5% 4%

6%

<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 201210 201309 201310

Median Days on Market by Type of Sale
180 160 140 120 100 80 60 40 20 0

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

Foreclosed Source: NAR, RCI Survey

Short Sales

Not distressed

All

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

Percentage of Respondents Reporting Constant or Higher Prices Today Compared to a Year Ago
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Oct 2013: 85%

201211

201310

201203

201204

201205

201206

201207

201208

201209

201210

201212

201301

201302

201303

201304

201305

201306

201307

201308

201309

Percent of Resported Sales Where Property Sold at a Net Premium Compared to the Original Listing Price
25% 20% 15% 10% 5% 0% 12% 13% 19% 16% 16% 19% 19% 18% 17% 14% 13%

REALTORS® Expect Prices to Increase Modestly in the Next 12 Months About 90 percent of REALTOR® respondents expect constant or higher prices in the next 12 months (same as in September). The median expected price increase is about 4 percent3. 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 201307 201310 Oct 2013: 90% expect constant/higher prices in next 12 months

Constant/Rising Prices

Falling Prices

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.

REALTORS® Median Expected Price Change for Next 12 Months, in Percent
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Oct 2013: Prices expected to increase 3.8% in next 12 months

201105

201011

201101

201103

201107

201109

201111

201201

201203

201205

201207

201209

201211

201301

201303

201305

201307

The graph below shows the median expected price change across the states which are grouped into those with “low”, “middle” and “high” price expectations4. Tight inventory and the drop 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.

201309

II. Buyer and Seller Characteristics
Cash Sales: 31 Percent of Residential Sales Approximately 31 percent of REALTOR® respondents who made a sale reported a cash sale . International homebuyers and investors typically paid cash. About 10 percent of REALTOR® respondents reporting a sale to a first-time buyer reported a cash sale compared to about about 70 percent for investors and international clients.
5

Cash Sales as Percent of Market
40% 35% 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 201307 201310 49%

Oct 2013: 31%

Percent of Sales That are All-Cash, by Type of Buyer-- Oct 2013
80% 70% 60% 50% 40% 30% 20% 10% 0% FTHBuyer Investor Second home Relocation International Distressed Sale 10% 24% 67% 56% 71%

5

The RCI Survey asks about the most recent sale for the month.

Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages About 37 percent of REALTOR® respondents who reported a mortgage financing reported a down payment of 20 percent or more. REALTORS® have reported that buyers who pay cash or put down large downpayments generally win against those offering lower downpayments. Percent of Mortgage Sales With Downpayment of At Least 20 Percent
Oct 2013: 37%

38% 37% 36% 35% 34% 33% 32% 31% 30% 29% 201104

201204

201304

201106

201108

201110

201112

201202

201206

201208

201210

201212

201302

201306

201308 201307

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 broad decline in foreclosure inventory.
Distressed Sales, As Percent of Sales Reported by REALTORS®
60% 50% 40% 30% 20% 10% 0%

Oct 2013: Foreclosed: 9% Shortsale: 5%

201104

200810

200901

200904

200907

200910

201001

201004

201007

201010

201101

201107

201110

201201

201204

201207

201210

201301

201304

Foreclosed

Short Sale

201310

201310

Foreclosed property sold at a 14 percent average discount to market , while short sales sold at a 10 percent average discount.6 The discount varies by house condition. For the past 12 months, properties in “above average” condition have been discounted by an average of 9-12 percent, while properties in “below average” condition were discounted at an average of 16-20 percent. Mean Percentage Price Discount of Distressed Sales Reported by REALTORS® (in %)
Oct 2013: Foreclosed: 14%; Shortsale: 10%
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 201306 201308 201310 Foreclosed Shortsale

%
30

%
25 20 15 10 5 0

Percent Price Discount by Property Condition of Reported Distressed Sales (in percent) Unweighted Average for Nov 2012 to Oct 2013
20 16 12 9 12 10

Above average

Average

Below average

Foreclosed

Short sale

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).

First Time Buyers: 28 Percent of Residential Buyers Approximately 28 percent of REALTOR® respondents reported a sale to a first time home buyer7 . REALTORS® continue to report that first time buyers who generally use mortgage financing are finding it hard to compete against investors who typically pay cash. First Time Buyers as Percent of Market
60% 50% 40% 30% 20% 10% 0%

Oct 2013: 28%

200904

200910

200810

200901

200907

201001

201004

201007

201010

201101

201104

201107

201110

201201

201204

201207

201210

201301

201304 201301

201307 201304

Investors, Second-home Buyers, and Relocation Buyers About 19 percent of REALTOR® respondents reported a sale to an investor, 10 percent reported 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. Sales to Investors as Percent of Market
30% 25% 20% 15% 10% 5% 0%

Oct 2013: 19%

201204

200810

200901

200904

200907

200910

201001

201004

201007

201010

201101

201104

201107

201110

201201

201207

201210

201307

201310 201310

7

First time buyers account for about 40 percent of all h omebuyers based on data from NAR’s Profile of Home Buyers and Sellers.

Second-Home Buyers as Percent of Market
16% 14% 12% 10% 8% 6% 4% 2% 0%

Oct 2013: 10%

201305
201306

201009

201011

201101

201103

201105

201107

201109

201111

201201

201203

201205

201207

201209

201211

201301

201303

201307 201308

Relocation Buyers as Percent of Market
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210

Oct 2013: 13%

201212

201302

201304

International Transactions: About 1.8 Percent of Residential Market Approximately 1.8 percent of REALTOR® respondents had a sale to foreigners not residing in the U.S. International buyers typically pay cash . Based on NAR’s 2013 Profile of International Homebuying Activity, the major buyers were from Canada, China, Mexico, India, and the United Kingdom.

201310

201309

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 201005 201007 201009 201011 201101 201103 201105 201107 201109 201111 201201 201203 201205 201207 201209 201211 201301 201303 201305 201307 201309

Oct 2013: 1.8%

Rising Rents for Residential Properties Among those REALTORS® involved in a rental, close to half reported higher residential rents compared to 12 months ago. About 21 percent of REALTORS® reported conducting an apartment rental and about 4 percent reported a commercial rental transaction.

Percent of Respondents Reporting Rising Rent Levels as Compared to 12 Months Ago
80% 70% 60% 50% 40% 30% 20% 10% 0%

Oct 2013: 48%

201012

201310

201102

201104

201106

201108

201110

201112

201202

201204

201206

201208

201210

201212

201302

201304

201306

201308

Percent of Respondents Conducting An Apartment Rental
35% 30% 25% 20% 15% 10% 5% 0%

Oct 2013: 21%

201108

201210

201012

201102

201104

201106

201110

201112

201202

201204

201206

201208

201212

201302

201304

201306

201308 201309

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% 3% 3% 3% 4% 4%

201307

201207

201208

201209

201210

201211

201212

201301

201302

201303

201304

201305

201306

201308

201310

201310

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, only 40 percent of residential loans acquired by the Government Enterprises (Fannie Mae and Freddie Mac) went to applicants with credit scores above 740. In the 2013 Second Quarter report, Fannie Mae reported that 70.1 percent of its single-family acquisitions had credit score of at least 740. Approximately slightly more than half of the survey respondents who provided credit score information reported FICO credit scores of 740 and above. Estimates by NAR economists have indicated that a significant number of additional sales—possibly as high as 500,000--could be made if credit conditions returned to normal. Distribution of Reported FICO Scores-- RCI Surveys
70% 60% 50% 40% 30% 20% 10% 0% lt 620 620 - 659 RCI-0ct'12 660-699 RCI_Sep'13 700-739 RCI_Oct'13 740+ 2% 7% 9% 25% 57%

Impact of the Government Shutdown In the October survey, NAR asked a question on the impact of the government shutdown on REALTOR® transactions. Overall, the responses indicate that the shutdown had a minimal and temporary effect on ongoing transactions. Of the respondents who had an ongoing transaction, 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 impact was caused by waiting on IRS income verification, 43 percent reported they could not access FHA/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.

Impact of Federal Shutdown Among REALTOR® Respondents Who Had An Ongoing Transaction
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 1% 2% 3% 6% 17% 71%

REALTOR® Respondents Reported these Factors that Impacted their Ongoing Transaction*
Waiting on IRS income verification. 24.4%

FHA/USDA were closed. Job loss, furlough, or reduction of income. Other (please specify) Multiple responses allowed.

43.3%

11.4%

28.8%

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 who experienced 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 a foreclosure or short sale since 2005. This indicates only a fifth of sellers who were previously distressed are turning as homeowners again.In reference to thse sellers who are coming back as buyers, 46 percent of respondents reported that these buyers they worked with could not obtain

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

Acess to Mortgage Financing of Buyers Who Experienced a Foreclosure or Short Sale Beginning in 2005 -- Aug 2013 RCI Survey
No (Did not obtain mortgage financing) 46%

Yes (obtained mortgage financing) 54%

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
the buyer did not need financing 35%

due to buyer's previous foreclosure/ short sale situation 65%

IV. Commentaries by NAR Research
State-by-State Unemployment
Lawrence Yun, Chief Economist
 

 

Jobs will become ever more critical in supporting the housing expansion as housing affordability declines. Some states are doing better than others in this regard. As one would expect, where there are jobs, good stuff is occurring in those states: retail vacancy rates decline, the state budget situation 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 12 months. North Dakota has been quite amazing in terms of job growth, not only over the past year but over the past 5 years. It even skipped the recession experienced by the rest of the country. 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 don’t feel too much pity, though: Alaska would rank near the top in job growth if viewed over the past 5 years.

Commercial Sales Rise 10.7 Percent in Q3, Despite Headwinds
George Ratiu, Director, Commercial Research With lackluster employment growth, third quarter fundamentals in REALTOR® commercial markets maintained a positive trajectory. However, the specter of government shutdown and the budget debate added headwinds to the market performance. The results of the October Commercial Real Estate Market Survey indicated modestly rising absorption and new construction, accompanied by changing vacancies. Leasing activity increased 2.0 percent higher over the previous quarter. On the supply side, new construction maintained momentum, increasing 5.0 percent over the second quarter. Vacancies declined for industrial and hotel properties. Office vacancies inched up 9 basis points, to 17.8 percent, while retail availability rose 110 basis points, to 15.7 percent. Multifamily vacancy reached 7.3 percent, as new supply entered the market and the residential rental market added competition. 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, tenant demand remained strongest in the 5,000 square feet and below, accounting for 70.0 percent of leased properties. Lease terms remained steady, with 36-month and 60-month leases capturing the bulk of the market.

Characteristics of Home Buyers
Jessica Lautz, Director, Survey Research The characteristics of home buyers has changed, likely due to tightened credit conditions. There is 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 are two charts that display this trend.

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 properties shown by a REALTOR®. 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. For the 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 the buildup to the Federal debt limit, but were still down from the 4.5% to 4.7% levels seen in late summer. Furthermore, furlough and job uncertainties as well as financing issues due to the government shutdown should have impact consumer sentiment. However, foot traffic inched upward for a second consecutive month contrary to some anecdotes. Inventories remain tight in some markets, which could limit the upside to foot traffic until additional nascent inventory comes to the market. This month’s reading extended last month’s 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

not suggest how much of an increase in traffic there was, just that the majority of markets experienced 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 high plateau by recent historical standards through winter months. However, this month’s reading provides a clearer picture of the impact from higher mortgage rates as the modest decline in rates from the summer rates provided some lift to the market, even during potential disruptions from the government shutdown. A longer sustained period of mortgage rates north of 4.5% could have a stronger impact on foot traffic, contracts, and home sales.

Sign up to vote on this title
UsefulNot useful