REALTORS CONFIDENCE INDEX

Report and Market Outlook April 2013 Edition

Based on Data Collected April 29 through May 6, 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 Up Strongly Across All Markets .................... 3 Demand for Properties Continues to Heat Up While Supply Remains Flat ............................................ 4 Prices Continued to Pick Up and Properties Sold Faster .............................................................................. 4 REALTORS Are Increasingly 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: 43 Days ...................................................................................................... 9 Distressed Sales: 18 Percent of Sales ...................................................................................................... 11 II. Buyer and Seller Characteristics ............................................................................................................ 13 Cash Sales: 32 Percent of Residential Sales .......................................................................................... 13 First Time Buyers: 29 Percent of Residential Buyers ............................................................................ 14 Residential Sales to Investors: 19 Percent of Residential Market.......................................................... 14 Second Home Buyers : 11 Percent of Residential Market ...................................................................... 15 Relocation Buyers : 13 Percent of Residential Market ........................................................................... 15 International Transactions: About 2.3 Percent of Residential Market .................................................... 16 Mortgages With Down Payments of 20 Percent or More ....................................................................... 16 Rising Rents for Residential Properties .................................................................................................. 17 REALTORS Also Reported Commercial Rentals .............................................................................. 18 III. Current Issues........................................................................................................................................ 18 Tight Credit Conditions and Slow Lending Process ............................................................................... 18 Appraisal Issues ...................................................................................................................................... 19 IV. Articles and Comments......................................................................................................................... 20 Higher Home Sales With Falling Homeownership Rate ........................................................................ 20 Housing Starts ......................................................................................................................................... 22 Comments From REALTORS ............................................................................................................. 24

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 2,891 REALTORS to a survey conducted during April 29 through May 6, 20131. All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. The RCI April survey points to a real estate market that is headed for stronger gains in the coming months. The REALTORS Confidence Index-Current Conditions, the RCI-SixMonth Outlook, and the Buyer Traffic Index all rose strongly in April. Respondents generally reported rising prices and shorter days on the market. However, inventory shortages and tight credit conditions remained as major threats to the broader and sustained recovery of the real estate market. REALTOR Confidence in Current Market Conditions Up Strongly Across All Markets The Confidence Index-Current Conditions rose strongly across all types of market compared to their previous levels in March as well as a year ago. The Index2 for single family properties registered at 70. For the first time, the Index for townhouses crossed over the 50 mark, which delineates moderate market conditions . The Index for condominiums went up as well.

REALTORS Confidence Index - Current Conditions April 2013

80 70 60 50 40 30 20 10 0

SF: 70 TH: 51 Condo: 44

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 TH Condo

Demand for Properties Continues to Heat Up While Supply Remains Flat The Buyer Traffic Index hit a high of 72, signifying increasing demand. However, the Seller Traffic Index, an indicator of supply conditions, was unchanged at 41. REALTORS reported low inventory levels of homes for sale with not enough REOs and listings coming into the market. Indexes of Buyer and Seller Traffic
80 70 60 50 40 30 20

Apr 2013: Buyer: 72 Seller : 41

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Buyer Traffic Index

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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 86 percent of respondents reported constant or increasing prices while median days on the market for residential sales fell sharply to 46 days. Percentage of Respondents Reporting Constant or Higher Prices Today Compared to a Year Ago
86% 86% 79% 83% 83%

64% 64% 58% 62%

69% 71% 73% 73%

201301

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 Source: NAR, RCI Survey 96 97 98 92 101 96 98 99 99 97 91 83

72 70 69 70 70 71 70 73 71 74

62 46

REALTORS Are Increasingly Optimistic Concerning the Market Outlook Confidence about the outlook for the next 6 months rose in April for all property types. The Confidence Index for single family homes rose to 75, while the Index for townhouses went past 50, which delineates moderate expectations. REALTORS Confidence Index--Six-Month Outlook April 2013
SF: 75 TH: 55 Condo: 49

80 70 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 SF TH Condo

Approximately 95 percent of REALTORS reported that they expect constant or higher prices in the next 12 months. REALTORS' Price Expectations for Next 12 Months
100% 80% 60% 40% 20% 0% Apr 2013: 95% expect constant/higher prices in next 12 months

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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 continued to go up in April across all property types. REALTORS Confidence Index--April 2013 Current and Six Month Outlook: Single Family Properties
80 70 60 50 40 30 20 10 0

Current: 70 Outlook: 75

60 50 40 30 20 10 0

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Current Conditions

6-Month Outlook

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REALTORS Confidence Index--April 2013 Current and Six Month Outlook: Townhouse Properties
Current: 51 Outlook: 55

REALTORS Confidence Index--April 2013 Current and Six Month Outlook: Condo Properties
50

Current: 44 Outlook: 49
40 30 20 10 0

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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. The expected price change ranged from 2 to 8.5 percent with a median of about 5 percent.
REALTORS' Median Expected Price Change for Home Prices in the Next 12 Months (in %)
Median Price Change in %

6.0 5.0 4.0 3.0 2.0 1.0 0.0

Apr 2013: 4.9%

Source: NAR RCI Surveys

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Respondents in the Western states, Florida, and Georgia had the highest expected price increase of 5 to 8.5 percent. Respondents in states that continue to have high foreclosure inventory such as New York, Vermont, and Maine were in the lower group where the expected price increase ranged from 2 to 3.4 percent. Median Expected Price Change in Next 12 Months of Respondent REALTORS in the April 2013 RCI Survey

Median Days on the Market: 46 Days Given the tight supply, the median days on the market for all residential properties dropped to 46 days in April. Short-sales had the longest days on market at 73 days (81 days in March) while foreclosed properties were on the market for 43 days (46 days in March). The median days on the market for non-distressed properties was 44 days (66 days in March).

Median Days on Market by Type of Sale

180 160 140 120 100 80 60 40 20 0

Apr 2013: Shortsale: 73; Foreclosed: 43; Not distressed: 44; All: 46

Short Sales Source: NAR, RCI Survey

Approximately 44 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 17 percent from 27 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 Foreclosed Not distressed All

Distribution of Reported Sales by Time On Market

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 44%

13%

9%

8%

5%

4%

6%

4%

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 201204 201303 201304

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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. REALTORS continued to report strong demand for REOs from investors who reportedly win against first time homebuyers. About 37 percent of reported sales made to investors were distressed properties compared to about 17 percent in the case of 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 Foreclosed As % of Sales Short Sale As % of Sales

Apr 2013: Foreclosed: 11% Shortsale: 7%

Percent of Purchases that are Distressed, By Buyer

Type of Buyer First-time Investor Second home Relocation International April 2013 RCI Survey % distressed 17% 37% 13% 12% 19%

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Foreclosed property sold at a 16 percent average discount to market, while short sales sold at a 14 percent average discount.3 Data from May 2012 thru April 2013 shows that below average foreclosed homes were discounted by at least 20 percent and short sales by at least 16 percent. Mean Percentage Price Discount of Distressed Sales (in %)
Apr 2013: Foreclosed: 16%; Shortsale: 14%

%
30 25 20 15 10 5

%
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 31.4 27.4 21.2 13.6 12.4 15.3 16.4 12.5 21.5 21.0

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).

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

Percent Price Discount by Property Condition (%) Unweighted Average for May 2012 to Apr 2013

Above average

Average

Below average

Well below average

Bottom 1%

Foreclosed

Shortsale

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II. Buyer and Seller Characteristics

Cash Sales: 32 Percent of Residential Sales Approximately 32 percent of REALTORS who made a sale reported a cash sale (30 percent in March ). International homebuyers and investors typically paid cash. Cash Sales as Percent of Market
40% 35% 30% 25% 20% 15% 10% 5% 0%

Apr 2013: 32%

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Percent of Cash Sales by Type of Buyer- Apr 2013

80% 70% 60% 50% 40% 30% 20% 10% 0% FTHBuyer Investor Second home Relocation International Distressed 10% 28% 51% 49% 74% 75%

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First Time Buyers: 29 Percent of Residential Buyers Approximately 29 percent of respondents made a sale to a first time home buyer (30 percent in March). Normally, first time buyers are in the neighborhood of 40 percent.4 Of those reporting a sale to a first time home buyer, approximately 10 percent reported a cash sale. First Time Buyers as Percent of Market
60% 50% 40% 30% 20% 10% 0%

Apr 2013: 29%

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Residential Sales to Investors: 19 Percent of Residential Market Approximately 19 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, 37 percent reported a sale of a distressed property and 74 percent reported a cash sale. Sales to Investors as Percent of Market
30% 25% 20% 15% 10% 5% 0%

Apr 2013: 19%

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Based on data from NARs Profile of Homebuyers and Sellers. 14

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Relocation Buyers : 13 Percent of Residential Market

Second Home Buyers : 11 Percent of Residential Market

10%

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0% 0% 2% 4% 6% 8%

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Second-Home Buyers as Percent of Market

Relocation Buyers as Percent of Market

Apr 2013: 12%

Apr 2013: 11%

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 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

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International Transactions: About 2.3 Percent of Residential Market Approximately 2.3 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, 75 percent reported a cash sale. Percent of Sales to International Clients
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

Apr 2013: 2.3%

Mortgages With Down Payments of 20 Percent or More Approximately 35 percent of respondents who had a mortgage sale reported a down payment of 20 percent or more. Percent of Mortgage Sales With Downpayment of At Least 20 Percent
Apr 2013: 35%

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

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

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Rising Rents for Residential Properties Demand for rental units appears to remain strong based on rental price trends. Approximately 54 percent of REALTORS reported higher residential rents compared to 12 months ago. About 24 percent of REALTORS reported conducting an apartment rental.

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

60% 50% 40% 30% 20% 10% 0% 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210 201212 201302 201304

Apr 2013: Rising rent: 54%

Rising Rents

Lower Rents

Constant

Percent of Respondents Conducting An Apartment Rental

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

Apr 2013: 24%

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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% 3% 4% 4% 3% 4% 4% 3% 4% 4% 3%

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%

lt 620

740+

Fannie/Freddie 740+

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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 31 percent of respondents reported having had appraisal problems in the past 3 months. About 8 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 . Percent of Respondents Reporting Appraisal Problems
80% 70% 60% 50% 40% 30% 20% 10% 0% 201003 201005 201007 201009

Apr 2013: No problems: 69%; With problems: 31 %

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No Problems

With appraisal problems

Percent of Respondents Reporting Appraisal Problems in Past 3 Months

50% 40% 30% 20% 10% 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 Contract Cancelled Contract Delayed Negotiated to Lower Price

Apr 2013: 29%

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IV. Articles and Comments

Higher Home Sales With Falling Homeownership Rate
Lawrence Yun, Chief Economist Home buyers have emerged and home sales have been pushed higher. Existing home sales rose by 9 percent in 2012 and are higher still by another 9 percent in 2013 year-to-date. New home sales always the more cyclical figure increased 20 percent in 2012 and are up 5 percent in 2013 year-to-date. Many REALTORS have indicated that sales transactions would be even higher if there were a greater inventory of homes. While buying activity remains solidly higher, the nations homeownership rate continues to trend down. The latest homeownership rate of 65.0 percent in the first quarter of this year is the lowest since 1995. More home sales yet falling homeownership rate: whats going on? Could it be the investors are eating up everything in sight?

The data clearly shows investor activity picking up since 2011, after having fallen big time from 2005 to 2010. Another reason for rising home sales yet falling homeownership rate is the legacy impact of foreclosures. When a first-time homebuyer buys a distressed property, there is no net increase in the number of homeowners, though a home sale has occurred. Currently, there are 1.6 million distressed homeowners still in the foreclosure process and nearly all will switch into being renters.

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. All the while the U.S. population is growing and households are being formed. Some of the new households will be renters while others will be first-time home buyers. Renters immediately show up in statistics as renters. The new homeowners however are getting neutralized by foreclosed homeowners. But there will likely be a bursting out of household formation over the next five years. That is almost a given because household formation growth had been deeply suppressed at half the normal rate when young adults moved in with their parents over the prior 5 years. Its time for 20- and 30-somethings to move out of their parents basement. Steady job additions to the economy will facilitate that move. What then is the outlook for home sales and homeownership? Home sales will continue to march forward. Single-digit gains this and next year. (REALTOR net business revenue will rise in double-digit gains of 10 to 15 percent because of solid price gains.) The number of homeowners looks to rise somewhat by year end compared to the current level my best guess at 300,000 net new homeowners. But the number of renters will rise faster my best guess at 700,000 net new renters. Therefore, the homeownership rate will fall further to 64.7 percent sometime this year

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Housing Starts
Ken Fears, Manager, Regional Economics In a strong showing, total housing starts crested the 1,000,000 mark in April, the first time since June of 2008. However, the bulk of the improvement was on the multi-family side, with a modest decline on the single-family side. Housing starts have a strong impact on job creation and sales and thus jobs in related industries. Furthermore, they directly impact housing supply. Single family construction eased 4.8% from February to March, but is still up 28.7% relative to last year. Likewise, permits for construction of single family units eased 0.5% over the same time frame to 595,000, but are up 27.7% compared to last year. While housing starts are strong relative to recent history, they remain well below the historic average. Inventories for both new homes and existing homes are tight in tandem with falling delinquencies and foreclosure starts. These trends are combining to help fuel strong price appreciation and to curb consumers options. An expansion of construction would help to ease price spikes in some local markets. While multifamily construction is on the rise, research by the Federal Reserve has shown that most post-foreclosure renters who were in single-family homes prefer to remain in
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them. Consequently, the increase in multi-family construction is not anticipated to destabilize supplies in markets that have experienced strong investor demand for single family homes in recent years.

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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 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.
Low single family inventory, lots of buyers, and many multi-offer situations. Condo market is still sluggish, but improving. Days in market have dropped considerably from this time last year. Homes in good shape and priced right are seeing lots of traffic, multiple offers and quick contracts. Buyers are having to adjust to offering list price or higher instead of less than asking price. The majority of the other bidders have been all cash or with significant downpayments, especially in the "starter" home, first time buyer markets.

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 is still too harsh on buyers/investors with great FICO scores. Lenders need to loosen up on their unrealistic requirements so more end-user buyers can buy the foreclosed homes. Short sales continue to have excessive waits for contract acceptances. The 45 day bank application process from start to finish now goes beyond the 45 days to around 60 days.

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.
Banks are sending appraisers that are not familiar with the area to determine their value. We need to get the actual value of the property and not just what the mortgage company wants to cover the loan. Appraisals have not risen to where the market appears to be. A lot of foreclosure comparables being used by appraisers in the area; sort of giving a depressed affect on non-depressed properties.

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4. Regulatory and Economic Issues REALTORS expressed concern about the adverse effects of fiscal/financial regulation, the state of the economy.
Lack of FHA approval for condo associations is killing this market. I've seen value drop 30-50+%. Sequestration fears have led to some softness in our market, as we depend heavily on military spending. My clients are concerned about the PMI remaining for the life of the loan with an FHA loan. Pocket listings a problem. Appraiser should not see the contract.

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