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REALTORS CONFIDENCE INDEXReport and Market Outlook
July 2013 Edition
Based on Data Collected June 24 through July 3, 2013
NATIONAL ASSOCIATION OF REALTORSResearch Department
Lawrence Yun, Senior Vice President and Chief Economist
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Table of Contents
SUMMARY .................................................................................................................................................. 3
I. Market Conditions .................................................................................................................................... 3
REALTOR Confidence Dipped Across All Markets in July ................................................................ 3
Buyer and Seller Traffic Eased ................................................................................................................ 6
Days on the Market Increases to 42 Days ................................................................................................. 6
REALTORS Expect Modest Price Increases in Next 12 Months......................................................... 8
II. Buyer and Seller Characteristics .............................................................................................................. 9
Cash Sales: 29 Percent of Residential Sales ............................................................................................ 9
First Time Buyers: 29 Percent of Residential Buyers............................................................................ 10
Residential Sales to Investors: 16 Percent of Residential Market.......................................................... 10
Second Home Buyers : 11 Percent of Residential Market ...................................................................... 11
Relocation Buyers : 17 Percent of Residential Market ........................................................................... 11
International Transactions: About 2.2 Percent of Residential Market .................................................... 11
Distressed Sales Continue to Fall: 15 Percent of Sales........................................................................... 12
Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages ............................... 14
Rising Rents for Residential Properties .................................................................................................. 14
REALTORS Also Reported Commercial Rentals .............................................................................. 15
III. Current Issues........................................................................................................................................ 16
Tight Credit Conditions and Slow Lending Process ............................................................................... 16
IV. Commentaries by NAR Research ......................................................................................................... 18
Latest Mortgage Applications and GDP ................................................................................................. 18
Lending Shifting, But Still Tight ............................................................................................................ 19
International Clients Are Upscale in Their Housing Preference............................................................. 23
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SUMMARYJed Smith and Gay Cororaton
The REALTORS Confidence I ndex (RCI)Report provides monthly information aboutmarket conditions and expectations, buyer/seller traffic, price trends, buyer profiles, and issues
affecting real estate based on information gathered from REALTORS to a monthly survey.The current report is based on the responses of 3,342 REALTORS to a survey conductedduring July 29 through August 6, 20131. All real estate is local: conditions in specific marketsmay vary from the overall national trends presented in this report.
REALTORS confidence about current conditions and the outlook for the next sixmonths dipped in July. Respondents generally reported experiencing a slowing market becauseof higher mortgage rates, although there were reports of heightened buying activity from buyersseeking to lock-in at current rates in anticipation of further rate increases. Higher mortgageinsurance and flood insurance premiums in some areas were reported to have added to thenegative effect. REALTORS also reported that the rapid increase in house prices, which has
outpaced the gains in income and employment, has kept potential buyers off the market. Further,rising prices have made FHA financing more difficult because loan limits have not kept pacewith the price increase. Inventory was broadly reported to be tight, with not enough REOscoming into the market. Still, there were some reports that the tightness has eased with morehomeowners coming out of negative equity, although there are still homeowners who are waitingfor further prices increases. Underwriting standards were still generally stringent, but there wasfeedback that some lenders have eased up. FHA financing remains a major problem forcondominium buyers since many condominiums were reported to be not FHA-approved.
I. Market Conditions
REALTOR Confidence Dipped Across All Markets in July
Confidence indexes for current conditions fell across the single-family, townhouse, andcondominium markets, reflecting the effects of higher interest rates and the erosion of homeaffordability due to rising prices which have outpaced income and employment growth. Theindex for single family sales fell to 68 after three months of being above 702. Similarly, theindex for townhouses dropped to 49 after three months above 50. The index for condominiumsfell to 43.
1The survey was sent to a random sample of about 50,000 REALTORS.2An index of 50 delineates moderate conditions and indicates a balance of respondents having weakand strong expectations.
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Confidence about the outlook for the next 6 months also waned in July compared toJune for all markets. REALTORS reported a confluence of factors that tempered theiroptimism: higher mortgage rates, rapid price gains amid a slow economic recovery, lack ofinventory in many areas, and stringent credit conditions.REALTORS ascribed the low volumeof condominium sales to lack of FHA financing, with many condominiums not being FHA-approved.
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REALTORS Confidence Index - Current Conditions
July 2013
SF Townhouse Condo
SF: 68 TH: 49 Condo: 43
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REALTORS Confidence Index - Six Month OutlookJuly 2013
SF Townhouse Condo
SF: 69 TH: 51 Condo: 46
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SOME COMMENTS FROM REALTORS
Rising interest rates are cooling consumer confidence. Few first time home buyers in the market.
Buyers are taking a deep breath after the recent interest rate jump. Sellers are still waiting for more
upside.
We are up 21% in sales and down 16% in inventory. Mortgage financing options are very limited for
condominiums, which hurts sales of these units in our college market. Multiple offers are common on
new listings right now because of the low inventory.
Homes are selling in days or weeks.
We are starting to see more move-up buyers enter the market. We have had multibidding going on on
average priced homes.
First time homebuyers are dissappearing from the market due to the increase in upfront MIP and theextended MIP payment to the full length of the loan.
Buyers are still very uncertain about the economy and are reluctant to commit to a mortgage.
Prices are too high now. ..There is no job stability nor well paid jobs for most of the workers. There is
no way that an average worker/family can afford a home if increases continue as they were in 2002/3 to
2006/7.
Sellers are scared to relocate or sell because the replacement properties are the same cost to own. No
incentive to move up or down, so many are staying in place waiting for something special to happen.
Sellers are not realistic about the market; they think that prices will continue to rise in the next couple
of years, which I do not think will happen due mostly to higher interest rates.
Inventory is slowing increasing as sellers have equity again.
REO properties being held off the the market inflate prices because of reduced inventory.
Most of my buyers have FHA's or are low cash buyers. Home prices have gone up higher than their true
value and there are few homes you can purchase with an FHA. This has made it impossible to sell what
is on the market, and my first time buyers have not been able to buy.
There have been a few times where my clients had to step away from the market to save-up,moredown payment to be considered a strong buyer.
Condominium communities where I have sold a lot over the years are not currently FHA Certified. It
has caused a slower market and values of condos have decreased.
Some appraisals are lagging behind the upturn in market, and there have been some mortgage issues.
Inventory is still limited, and good homes are going quickly.
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Buyer and Seller Traffic Eased
The Indexes for buyer and seller traffic both dipped in July, another indicator of marketdeceleration. The Buyer Traffic Index dipped to 66 (69 in June) while the Seller Traffic Indexalso slightly fell to 45 (46 in May). REALTORS reported that not enough inventory was stillcoming on the market from both REOs and homeowner listings as current homeowners wait forprices to move up further. In the June survey, 47 percent of REALTORS reported havingpotential sellers waiting for further price appreciation.
Days on the Market Increases to 42 Days
With buyer demand reported to have slowed in July, the median days on the marketincreased to 42 days in July (37 days in June). Local conditions vary. Approximately 45 percentof REALTORS reported that properties were on the market for less than a month . Short saleswere on the market for the longest days at 72 days compared to foreclosed properties at 50 daysand non-distressed properties at 40 days. Conditions vary across areas.
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REALTORSIndexes of Buyer and Seller Traffic
Buyer Traffic Index Seller Traffic Index
Jul 2013: Bu er: 66 Seller : 45
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Median Days on Market
Source: NAR, RCI Survey
July 2013: 42 days
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Foreclosed Short Sales Not distressed AllSource: NAR, RCI Survey
July 2013: Foreclosed: 50; Shortsale: 72 ; Not distressed: 40; All: 42
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Distribution of Reported Sales by Time On Market
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II. Buyer and Seller Characteristics
Cash Sales: 29 Percent of Residential Sales
Approximately 29 percent of REALTORS who made a sale reported a cash sale.
International homebuyers and investors typically paid cash. Only 10 percent of REALTORSreporting a sale to a first-time buyer reported a cash sale compared to 72 percent for investorsand 65 percent for international clients.
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Cash Sales as Percent of Market
July 2013: 29%
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FTHBuyer Investor Second home Relocation International Distressed
Percent of Sales That are All-Cash, by Type of Buyer-- July
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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 (sameas in June) . Normally, first time buyers are in the neighborhood of 40 percent.3 Of thosereporting a sale to a first time home buyer, approximately 10 percent reported a cash sale.
Residential Sales to Investors: 16 Percent of Residential Market
Approximately 16 percent of respondents reported making a sale to investors who wereactive in buying distressed properties and paying cash. Of respondents reporting a sale to aninvestor, 71 percent reported a cash sale.
3 Based on data fromNARsProfile of Homebuyers and Sellers.
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First Time Buyers as Percent of Market
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Sales to Investors as Percent of Market
July 2013: 16%
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Second Home Buyers : 11 Percent of Residential Market
Relocation Buyers : 17 Percent of Residential Market
International Transactions: About 2.2 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 internationalsale, 65 percent reported a cash sale.
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Second-Home Buyers as Percent of Market
July 2013: 11%
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Relocation Buyers as Percent of Market
July 2013: 17%
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Distressed Sales Continue to Fall: 15 Percent of Sales
Approximately 15 percent of respondents who reported a sale sold a distressed property,substantially down from levels a few years ago. REALTORS continued to report that notenough REOs are coming into the market.
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Sales to International Clients as Percent of Market
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Percent of Respondents Reporting Distressed Sales
Foreclosed Short Sale
July 2013: Foreclosed: 9 % Shortsale: 6 %
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Foreclosed property sold at a 16 percent average discount to market , while short salessold at a 12 percent average discount.4 The discount varies by house condition. Properties inabove average condition are discounted by 12-13 percent, while properties in the poorestcondition are discounted above 20 percent.
4The estimation of the level of discount is based on an estimate of what the property would have sold for if
it had not been distressed (possibly in better condition, absent any taint of being distressed).
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Mean Percentage Price Discount ofReported Distressed Sales (in %)
Foreclosed Shortsale
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Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages
Approximately 37 percent of respondents whose clients obtained a mortgage during thesale reported a down payment of 20 percent or more.
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 12months ago. About 22 percent of REALTORS reported conducting an apartment rental.
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July 2013: Rising rent: 54%
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REALTORS Also Reported Commercial Rentals
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Percent of Respondents Conducting
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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. Inthe 2001-04 time frame approximately 40 percent of residential loans went to applicants withcredit scores above 740. Currently the percentage is in the 50 percent range. Estimates by NAReconomists have indicated that an additional 500,000 to 700,000 additional sales could be madeif credit conditions returned to normal.
The meaning f or REALTORS is clear: In many cases lenders are not making loans topotential 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, tryagain at a different financial institution.
Accidental Landlords Seeking to Sell Rental Property
In recent years, some underwater owners opted to rent their property to avoid the loss ofequity and/or impact on credit of a short-sale . With prices rising, these accidental landlordsare now in a better position to sell their rental properties. Although construction of new homes
will make the biggest dent on easing the inventory crunch, the sale of these properties can helpease the constraint. Based on information gathered in the July survey, 21 percent ofREALTORS reporting working with an accidental landlord to sell their rental property.
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FICO Scores: Recent Scores vs. 2005
lt 620 740+ Fannie/Freddie 740+
July 2013: 54% of reported credit scores are 740+
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IV. Commentaries by NAR Research
Latest Mortgage Applications and GDPLawrence Yun, Chief Economist
In each Economic Update, the Research staff analyzes recently released economic indicators and
addresses what these indicators mean for REALTORS and their clients. Todays update
discusses mortgage applications and GDP.
The number of people applying for mortgages to buy a home fell for the second straightweek, though it still remains 5% higher than one year ago. Though mortgage rates did not
meaningfully change over the past week, the recent higher rates compared to the beginning
of the year are giving some would-be homebuyers pause. All-cash sales are not picked up in
this data and cash has been making up about a third of all transactions.
Refinance applications, meanwhile, are tanking. They are down 60% from one year ago.Though depressing for mortgage brokers, one positive piece of news for REALTORS in
this collapsing refinance activity is that resources and staff time are freed up to handle
purchasing application with more focus.
Be warned that mortgage rates will tick higher over time. There may be a few weeks of areverse trend, but the general direction will be higher mortgage rates. NARs forecasting
model predicts rates rising to 4.7% on a 30-year mortgage by year end and to 5.3% by the
end of 2014.
In separate economic news, the GDP rose at a sluggish clip of 1.7% in the second quarter.Past datagoing all the way back to 1929were revised, though modestly. The prior
quarter data revision was notable, as it showed a growth of a meager 1.1%. The historicalnormal growth rate is 3% and should be closer to 4% to 6% after a recession. Unfortunately
we do not yet have decent economic expansion.
Housing is one bright spot and is doing its job. The residential investment portion of theGDP rose by a healthy 13% in the latest quarter. Consumer spending was also helped as
housing wealth rose. In short, without the housing market recovery the U.S. economy would
more closely resemble Europe, where they face economic recession with job losses.
Generally, economic growth will be the key to greater income mobility, and naturally greaterresidential mobility of wanting better houses. In countries with slow expanding or non-
existent GDP growth, people on the bottom generally stay at the bottom while people on the
top remain at the top. In countries with fast GDP growth, many of the previously poor rise tothe middle class ranks or even higher. China, for example, through its growth-oriented policy
after the death of Chairman Mao, has lifted 500 million people out of poverty with some
becoming millionaires (who then buy houses in the U.S.). Strong economic growth not only
creates jobs, but it is the way to really shake things up in terms of income mobility. NAR
forecasts that GDP will steadily improve and growth will be 2.6% in 2014.
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Lending Shifting, But Still Tight
Ken Fears, Manager, Regional Economics
The Federal Reserve released its survey of senior loan officers (SLOOS) earlier this week. On its
face, the survey suggests a modest loosening of credit for prime and non-traditional lending.
However, the picture is a little more mixed for those groups and credit for borrowers with lessthan pristine credit remains tight.
Respondents to the SLOOS survey indicated an improvement in mortgage lending to prime and
non-traditional borrowers. However, lending to subprime borrowers tightened from last quarter.
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While respondents indicated a loosening of prime borrowing, this may not represent an
expansion of credit to the market as opposed to a shift from FHA backing to conventional
backing. As depicted below, the share of mortgages backed by either Fannie Mae or Freddie Mac
that had a down payment less than 10% bottomed at 8% in 2010. Rising foreclosures put
pressures on private mortgage insurers some of which became illiquid over this period and
stopped issuance of new policies as a result. However, this trend reversed course in 2012 before
rising sharply in 2013. The excellent performance of loans made in recent years has helped these
companies to recapitalize as problematic older loans aged off company books. Furthermore,
some companies restructured or received new infusions of capital, while a few new, freshly
capitalized companies entered the industry. As a result, private insurers reintroduced support for
lower downpayment mortgages and/or reduced pricing for it. Combined with better prospects for
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the market in 2013, the effect has been an increased willingness of lenders to originate loans for
backing by the GSEs since pricing has improved and the counterparty risk from a weak or
insolvent mortgage insurer has declined significantly. In short, if a borrower goes into default,
the lender can count on the mortgage insurer to cover the cost. This change and improved pricing
has shifted originations to the GSEs rather than to the Ginnie Mae which securitizes loans that
are insured by the FHA. The shift from the FHA to private MIs helps elligible borrowers as
private mortgage insurance rates are significantly lower.
While this shift signals a thaw in originators and insurers perception of risks, the change does
not impact lending down the credit spectrum, so the credit box as a whole remains tight. Recent
trends in FICOs and DTIs of purchase mortgages in the conventional market bear out this trend
as the average FICO on conventional and FHA purchase originations remain significantly higher
than prior to the period of loosened credit standards.
An interesting insight from the SLOOS this quarter is that lenders have become modestly more
willing to originate non-traditional mortgages, which includes ALT-A or limited documentation,
interest only, ARMs with multiple payment options, longer terms than 30-years or other such
features. This is partly a reflection of new specialized entrants into the servicing industry.
However, with home prices rising sharply and affordability softening, this might reflect
consumers seeking to stretch their dollars. Many of these feastures would fall into the non-QM
space, which sadles lenders with significantly more legal liability. It has been argued that few
lenders would originate in this space, but it appears that a niche market has developed though its
size is not clear. This trend may reflect close relationships between particular originators and
specialty services, which would help to mitigate risk through information sharing and high touch
with the borrower.
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Finally, the SLOOS survey included several special questions this quarter regarding lenders
willingness to originate in the 2nd quarter of 2013 as compared to the average for the entire
period from 2005 to present. In general, lenders are near or slightly more conservative than the
midpoint of this period. However, the difference in willingness to lend was notably tighter
outside of the large banks, even for originating FHA product which provides a 100% backstop
for these originators.
The housing market is on the rebound while the glacial pace of regulatory reform of housing
finance is beginning quickening and the mortgage market is beginning to thaw. As a result,
private capital is returning in the form of mortgage insurers, but private securitizations remainanemic in number and skewed to pristine borrowers, while lenders remain cautious against
oversight and litigation. As rates rise, lenders are likely to push the credit box wider as higher
rates and limited refinancing make purchase lending more profitable. However, until then access
remains tight.
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International Clients Are Upscale in Their Housing Preference
Jed Smith, Managing Director, Quantitative Research
International buyers are generally upscale when buying a residential property in the U.S.
Based on information in the2013 Profile of International Home Buying Activity, which covers
the 12-month period ending March 2013, the mean price of reported international purchases was
$354,193, compared to a nationwide mean price for all home sales of $228,383.
The international non-resident client is likely to be substantially wealthier than the median
domestic buyer, may be looking for a trophy property, and is probably looking for a property to
be purchased after having met essential living needs. The international residential client may be
looking for a property in a specialized niche, for example, a larger property suitable for multi-
generational living, or a property that establishes the individuals presence and standing in the
community.
What Does This Mean to REALTORS?
There is a good chance of having a foreign buyer, whose expectations and needs may differ from
those of U.S. buyers. The sitehttp://www.realtor.org/globalprovides a substantial amount of
information that may be of help to REALTORS not experienced in dealing with international
clients.
http://www.realtor.org/reports/profile-of-international-home-buying-activityhttp://www.realtor.org/reports/profile-of-international-home-buying-activityhttp://www.realtor.org/reports/profile-of-international-home-buying-activityhttp://www.realtor.org/globalhttp://www.realtor.org/globalhttp://www.realtor.org/globalhttp://economistsoutlook.blogs.realtor.org/files/2013/07/Capture13.pnghttp://www.realtor.org/globalhttp://www.realtor.org/reports/profile-of-international-home-buying-activity