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REALTORS CONFIDENCE INDEX

Report and Market Outlook September 2013 Edition

NATIONAL ASSOCIATION OF REALTORS Research Department Lawrence Yun, Senior Vice President and Chief Economist Issued October 17, 2013

Table of Contents
SUMMARY .................................................................................................................................................. 3 I. Market Conditions .................................................................................................................................... 3 REALTOR Confidence Continues to Slide Down in September ......................................................... 3 Days on the Market Increased to 50 Days ................................................................................................ 6 Home Prices Still Firm.............................................................................................................................. 7 REALTORS Expect Prices to Increase Modestly in the Next 12 Months ............................................ 8 II. Buyer and Seller Characteristics ............................................................................................................ 11 Cash Sales: 33 Percent of Residential Sales .......................................................................................... 11 Mortgages With Down Payment of 20 Percent or More: 34 Percent of Mortgages ............................... 12 Distressed Sales Continue to Fall: 12 Percent of Sales ........................................................................... 12 First Time Buyers: 28 Percent of Residential Buyers ............................................................................ 14 Investors, Second-home Buyers, and Relocation Buyers ....................................................................... 14 International Transactions: About 2.7 Percent of Residential Market .................................................... 15 Rising Rents for Residential Properties .................................................................................................. 16 III. Current Issues........................................................................................................................................ 18 Tight Credit Conditions and Slow Lending Process ............................................................................... 18 IV. Commentaries by NAR Research ......................................................................................................... 19 Trends in the CPI and Cost of Living Adjustment.................................................................................. 19 Foot Traffic ............................................................................................................................................. 20 Latest Housing Affordability Index ........................................................................................................ 22

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 2,672 REALTORS about their transactions in September. Questions about the characteristics of the buyer and the sale are based on the respondents last transaction for the month. The survey was conducted during September 30 through October 10, 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 September indicates some easing of the recent strong market upswing. REALTORS reported that higher mortgage rates were starting to impact the level of sales. There is continued concern about tight mortgage standards that disqualify some credit worthy buyers. Inventory is still generally low, but comments from REALTORS indicate that the tightness in supply is less severe than it was last year. With demand easing, prices are not expected to increase as rapidly as had recently been the case, and properties are on the market for a longer time than was the case a few months ago. In flood zone areas, REALTORS reported that increased flood insurance rates had become a deterrent for some potential buyers.

I. Market Conditions
REALTOR Confidence Continues to Slide Down in September Confidence about current and future market conditions was down across all markets.The survey was conducted during the federal government shut down, which may have affected expectations about the future economic and real estate conditions. The confidence index for current market conditions dropped across all property types. The index for single family sales dropped to 60 in September (69 in August); the index for townhouses slid to 44 (47 in August); the index for condominiums fell to 38 (41 in August) 2. All indexes were significantly higher than was the case a few years ago. Confidence about the outlook for the next 6 months also weakened for all markets. The index for single family homes fell to 59 (65 in August); the index for townhouses slid to 44 (48 in July); the index for condominiums dropped to 38 (43 in August).

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

REALTORS Confidence Index - Current Conditions Sep 2013


80 70 60 50 40 30 20 10 0

SF: 60 TH: 44 Condo: 38

80 70 60 50 40 30 20 10 0

REALTORS provided comments that shed more insight about the dip in the confidence index. Below are some of these comments pertaining to the effect of higher mortgage rates and tight credit standards, appraisal issues, concerns about economy and job growth, and higher flood insurance rates in some areas. These comments reflect the issues affecting REALTORS in their localities.

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

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

REALTORS Confidence Index - Six Month Outlook Sep 2013


SF: 59 TH: 43 Condo: 38

SOME COMMENTS FROM REALTORS - September RCI Survey Slowing Markets


o o o o o o It seems in the past month or so, things have slowed down a bit. Homes are staying on the market a little longer. Absorption rates are beginning to extend out in most price ranges in our market. There is a general slowing of the number of sales going on. Activity is slowing down, and mortgage credit issues remain a concern. People are still having trouble finding jobs from recent layoffs. Fewer sales, higher interest rates taking some new buyers out of the market; slightly lower demand because of higher interest rates. Buyers are moving ahead and making offers. Low-end buyers are making multiple offers. More activity in the market at the present time. As a side note, I have been involved with several deals where my buyers have been in back up offer position. This has happened in all price ranges. The market is really strong right now. Higher interest rates coupled with 30% price increases have started to cool the Las Vegas market somewhat. Days on Market has started to tick upwards increasing the months of supply. increase in value and increase in interest rates are driving buyers down. Multiple Offer situations are not as common as they were January - July 2013. There was a "shift" in August for buyers...I believe due to buyer-burnout...increasing prices...and inventory remaining low. Multi Bidding on correctly priced homes, still experiencing somewhat low inventory. Inventory has gotten better. Need new inventory. Market is good if it shows well, renovated, priced right. Cash buyers are still carrying the load of the market. Condominium sales have slowed the last 3 1/2 years due to many condo neighborhoods not getting FHA Certified. A lack of Fannie Mae financing on many condo complexes is killing that market. For a variety of reasons more than 50% of our local condominiums have lost their FHA approval. This is a critical source of affordable homes here that buyers are no longer able to buy. Investors are buying and pushing the Investor ratios beyond what FHA allows, so our affordable stock is shrinking even further. Sellers are very reluctant to accept FHA financing. There is a lot of "flipping" and list prices are escalating without support from closed sales. Inventory is still low, so there are multiple offers on properties. Lenders (actually the processing dept's) have been much more difficult to work with then ever before. Repeatedly requesting the same information over and over. Lending requirements are becoming so strict that 90% of buyers that qualified in the past cannot get a loan today.There are plenty of people that want to buy. The lenders will not do the loans. Appraisal came in below offer price. Appraisals are 6 months behind the increase in prices. Lenders have too many restrictions/regulations. Corrections from the last down turn have gone too extreme in the conservative direction. Buyers are refusing to consider homes in a flood zone. Flood insurance will become a major predicament going forward.

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Buyer and Seller Traffic Index Drop The Indexes for buyer and seller traffic droped for the third straight month. The Buyer Traffic Index fell to 55 (62 in August ) while the Seller Traffic Index remained essentially unchanged at 43 (44 in August). Some REALTORS reported that inventory conditions are better than before although still tight. 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 Buyer Traffic Index Seller Traffic Index

Sep 2013: Buyer: 55 Seller : 43

Days on the Market Increased to 50 Days The median days on the market reported by REALTOR respondents who had a sale was 50 days (43 days in August). Approximately 39 percent of respondents reported that properties were on the market for less than a month (43 percent in August) . Short sales were on the market for the longest days at 93 days compared to foreclosed properties at 43 days and nondistressed properties at 49 days. Conditions varied across areas. Median Days on Market
120 100 80 60 40 20 0

Sep 2013: 50 days

Source: NAR, RCI Survey

Median Days on Market by Type of Sale


180 160 140 120 100 80 60 40 20 0

Sep 2013: Foreclosed: 43; Shortsale: 93 ; Not distressed: 49; All: 50

Foreclosed Source: NAR, RCI Survey

Short Sales

Not distressed

All

Distribution of Reported Sales by Time On Market


50% 40% 30% 20% 10% 0% <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 201209 201308 201309 14%16%13% 11%10% 9% 39%

8% 6% 7% 5% 5% 4% 6% 5% 5% 3%

Home Prices Still Firm Home price are still generally rising, but with demand easing a smaller percentage of respondents reported constant or higher prices compared to a year ago, about 84 percent in September (87 percent in August). Approximately 14 percent of REALTOR respondents (17 percent in August) reported selling at a premium compared to the original listing price.

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% Sep 2013: 84%

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Percent of Reported Sales Sold at Discount or Premium Compared to Original Listing Price
Percent of Reported Sales 80% 70% 60% 50% 40% 30% 20% 10% 0% 70%

16%

14%

Sold at Net discount 201212 201305 201301 201306

Sold at Original Listing Price 201303 201308 201304 201309

Sold at a Net premium

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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 (92 percent in August). The median expected price increase is about 4 percent3.

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.

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REALTORS' Price Expectations for Next 12 Months


100% 80% 60% 40% 20% 0% Sep 2013: 90% expect constant/higher prices in next 12 months

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Constant/Rising Prices

Falling Prices

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% Sep 2013: Prices expected to increase 3.9% in next 12 months

Across the states4, the median expected price changes are most upbeat in the Western states, Texas, and Florida with increases at approximately 5 to 8 percent. Tight inventory and the drop in foreclosure inventory have provided much of the lift in prices.

The median expected price increase at the state level is based on the last 3 surveys so the estimate is based on more responses.

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State Median Price Expectation for Next 12 Months (in%) Based on REALTORS Confidence Index Survey, July-Sept 2013 Surveys

II. Buyer and Seller Characteristics


Cash Sales: 33 Percent of Residential Sales Approximately 33 percent of REALTOR respondents who made a sale reported a cash sale . International homebuyers and investors typically paid cash. Only 12 percent of REALTOR respondents reporting a sale to a first-time buyer reported a cash sale compared to more than 70 percent for investors and international clients.
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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

Sep 2013: 33%

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


90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 74% 56% 78% 55%

24% 12%

FTHBuyer

Investor

Second home

Relocation International Distressed Sale

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

Mortgages With Down Payment of 20 Percent or More: 34 Percent of Mortgages Close to a third of REALTOR respondents who reported a mortgage financing reported a down payment of 20 percent or more. Percent of Mortgage Sales With Downpayment of At Least 20 Percent
Sep 2013: 34%

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

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Distressed Sales Continue to Fall: 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
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 200905 200908 200911 201002

Sep 2013: Foreclosed: 9% Shortsale: 5%

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Foreclosed

Short Sale

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Foreclosed property sold at a 16 percent average discount to market , while short sales sold at a 12 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 10-11 percent, while properties in below average condition were discounted at an average of 15-20 percent. Mean Percentage Price Discount of Distressed Sales Reported by REALTORS (in %)
Sep 2013: Foreclosed: 16%; Shortsale: 12%
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 Foreclosed Shortsale 25 20 15 10 5 0 Above average Average Below average 11 12 10 10

%
30

Percent Price Discount by Property Condition of Reported Distressed Sales (in percent) Unweighted Average for Oct 2012 to Sep 2013
20 15

Foreclosed

Short sale

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 First-time buyers continue to struggle under tighter credit standards with REALTORS continuing to report that first time buyers who generally use mortgage financing are finding it hard to compete against investors who typically pay cash. Approximately 28 percent of REALTOR respondents who had a sale was made by a first time home buyer7 .

First Time Buyers as Percent of Market


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

Sep 2013: 28%

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Investors, Second-home Buyers, and Relocation Buyers About 19 percent of REALTOR respondents reported a sale to an investor, 11 percent reported a sale to a second-home buyer, and 15 percent reported a sale to a relocation buyer. Sales to Investors as Percent of Market
30% 25% 20% 15% 10% 5% 0%

Sep 2013: 19%

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First time buyers account for about 40 percent of all homebuyers based on data from NARs Profile of Home Buyers and Sellers.

Second-Home Buyers as Percent of Market


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

Sep 2013: 11%

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Relocation Buyers as Percent of Market


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

Sep 2013: 15%

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International Transactions: About 2.7 Percent of Residential Market Approximately 2.7 percent of REALTOR respondents 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, 64 percent reported a cash sale. Based on NARs 2013 Profile of International Homebuying Activity, the major buyers were from Canada, China, Mexico, India, and the United Kingdom.

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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

Sep 2013: 2.7%

Rising Rents for Residential Properties With first-time potential home owners finding it tough to buy their first home, there is still strong demand for rental units, judging by rental price trends. About 21 percent of REALTORS reported conducting an apartment rental and about 4 percent reported a commercial rental transaction. Among those REALTORS involved in a rental, pproximately half reported higher residential rents compared to 12 months ago. Percent of Respondents Reporting Changing Rent Levels as Compared to 12 Months Ago
80% 70% 60% 50% 40% 30% 20% 10% 0%

Sep 2013: 52%

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Percent of Respondents Conducting An Apartment Rental


35% 30% 25% 20% 15% 10% 5% 0% 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210 201212 201302 201304 201306 3% 201308 4% 3% 3% 201309

Sep 2013: 21%

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 well above 50 percent. Estimates by NAR economists have indicated that a significant nu mber of additional salespossibly 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-Sep'12 660-699 RCI-Aug '13 700-739 RCI_Sep'13 740+ 9% 1% 10% 23% 58%

Issue Question: Impact of Flood Insurance Rates As significant changes in flood insurance rates go into effect, this months edition of the RCI survey included questions concerning flood insurance. The conclusions are based on sample data from REALTORS as collected in early October, and conclusions may change in forthcoming months as flood insurance program effects become increasingly widespread. REALTORS reported that approximately 10 percent of transactions in September were located in flood zones, and that nearly one out of 10 of those transactions were delayed or canceled due to concerns over rising insurance rates. Higher flood insurance rates went into effect on October 1, and could impact sales in flood zones in the months ahead.

IV. Commentaries by NAR Research


Trends in the CPI and Cost of Living Adjustment
Lawrence Yun, Chief Economist

Because of the government shutdown, there is no data on the consumer price index (CPI). The CPI is used to compute the Cost-of-Living-Adjustment (COLA) for social security payments beginning next year. The rise would likely have been 1.3 percent to 1.6 percent. A tame inflation permits the Federal Reserve to continue the ultra-loose monetary policy of keeping short-terms rates low and continuing Quantitative Easing (printing of the money to buy bonds) for a longer period. Low inflation is also good to keep longer-term interest rates low as the lenders do not have to mark-up extra in order to compensate for the future loss in purchasing power of money. With no data, we dont know what happened last month, but a very long trend is not much impacted by a single month of data. Over the past 30 years, price growths have been the following for select items below. Note that prices more than doubled for all items and services (+133%). Colleges may be ripping off students, particularly acute now given the great underemployment among many recent college graduates. Of note for housing (in green below), rents rose by 167% while home prices rose by 197%. For those locked-in to 30-year fixed rate mortgages, the payment never changed. Property taxes, lawn care, and other maintenance costs no doubt rose, however.

Foot Traffic
Ken Fears, Director, Housing Finance and Regional Economics Every month NAR Research monitors foot traffic in roughly 160 markets across the country. The number of visits to actively listed homes has a strong correlation with future trends in contracts and closing for home sales. After a sharp decline in year-over-year growth of foot traffic last month, the trend shift toward stabilzation in September. This months measure is a more clear indication of the impact of mortgage rates on consumer interest in home purchases.

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 September, the diffusion index for foot traffic rose 26.3 points to 50.6. Mortgage rates rose sharply in the late spring, but stabilized by August and drifted modestly lower in September after the Federal Reserves Open Market Committee announced that it would not tapper its purchases of mortgage backed securities. The stabilization pattern in rates helped, but the strong traffic pattern suggests that there is more robust demand in the market place. This months reading partially offsets the previous sharp decline. 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 September 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 September of 2013 compared to a year earlier. The figure for August was partially influenced by the abnormal strength of traffic in August of 2012. Consequently, this months figure more actually depicts the impact of the increase in mortgage rates and tight inventories. On a metro level, many of the markets that shifted to a decline in the last reading either were modestly positive this month or had a much smaller yearover-year decline compared to last month. This trend suggests a leveling off in traffic. Tight inventories, higher mortgage rates or a combination of factors are driving this pattern. Foot traffic shifted toward recovery in September after the sharp decline in August. This months reading is a clearer picture of the impact from higher mortgage rates and tight inventories as last years abnormal end-of-summer strength abates. The decline in rates over the last three weeks may help to ease some buyer anxiety and to preserve affordability in the near term, but rates are likely to rise over the winter and into the spring of 2014.

Latest Housing Affordability Index


Michael Hyman, Research Assistant At the national level, housing affordability is down due to higher mortgage rates and prices though rates are set to stabilize for weeks to come. What is affordability like in your market?

Housing affordability is down for the month of August in the U.S. as prices are up 14.4 percent from August 2012. The median home price is down from last month but August marks the strongest year-over-year price gain since October 2005. Mortgage rates are up slightly from last month and up 19.2% from a year ago. Job growth and less restriction to lending will bring more consumers back into the market. By region, affordability is down from one month ago in all regions, with the Northeast having the biggest drop. From one year ago, affordability is down in all regions. The West has had the largest price gain at 17.7 % while the Northeast had the smallest at 7.6%. Affordability may rise next month if the lower rates equalize home prices. The Feds decision to continue to purchase bonds will likely result in a break from rising mortgage rates. Home buyers will have a few more weeks to lock in lower rates as they are expected to continue to increase once the Fed scales back on those purchases. Check out the full data release here. The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.