march 2014 rci
TRANSCRIPT
REALTORS® CONFIDENCE INDEX Report and Market Outlook
March 2014 Edition
NATIONAL ASSOCIATION OF REALTORS®
Research Department
Lawrence Yun, Senior Vice President and Chief Economist
Based on Data Gathered April 1 – 7, 2014
Table of Contents
SUMMARY .................................................................................................................................................. 1
I. Market Conditions .................................................................................................................................... 2
REALTORS® Confidence Buoyed Up in March By Seasonal Uptick .................................................. 2
Buyer Demand Continued to Outpace Supply in March ......................................................................... 3
Median Days on the Market At 55 Days in March .................................................................................. 4
Home Prices Rising Moderately .............................................................................................................. 4
REALTORS® Expect Prices to Increase Modestly in the Next 12 Months ............................................ 6
II. Buyer and Seller Characteristics .............................................................................................................. 7
Cash Sales: 33 Percent of Sales ............................................................................................................... 7
Down Payment: 60 Percent of First-time Buyers Put Down 6 % or Less .............................................. 8
Sales to First Time Buyers: 30 Percent of Sales ...................................................................................... 8
Investors, Second-home Buyers, and Relocation Buyers ......................................................................... 9
International Transactions: About 2.6 Percent of Residential Market .................................................... 10
Distressed Sales: 14 Percent of Sales ...................................................................................................... 11
Rising Rents for Residential Properties .................................................................................................. 12
III. Current Issues ........................................................................................................................................ 14
Comments Supplied by REALTORS® Responding to the March 2014 Survey .................................... 14
Tight Credit Conditions and Slow Lending Process ............................................................................... 15
Appraisals: Still a Concern But Process Is Better Compared to a Year Ago .......................................... 16
Reasons For Not Closing A Sale ............................................................................................................ 17
IV. Commentaries by NAR Research ......................................................................................................... 18
Job Additions, State by State .................................................................................................................. 18
Latest Mortgage Applications Data ........................................................................................................ 20
Highlights: 2014 Investment and Vacation Homes Survey ................................................................... 21
Page | 1
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 data collected in a monthly survey of REALTORS®. The current
report is based on the responses of 3,833 REALTORS® about their transactions in March
20141. The survey was conducted during April 1 -7, 2014. Questions about the characteristics of
the buyer and the sale are based on the REALTORS’® last transaction for the month. All real
estate is local: conditions in specific markets may vary from the overall national trends
presented in this report.
The March data indicate a more upbeat confidence concerning market conditions
compared to February. The improvement may reflect the seasonal uptick in demand with the
onset of spring2. Confidence about the next six months also showed a slight improvement in
March compared to February.
The major problems reported by REALTORS® were low inventories of available homes
and difficulty in obtaining mortgage financing. An exceptionally large number of respondents
across several states reported very low inventory levels relative to demand. Another major
problem is credit access. REALTORS® reported that even good credit clients were having
trouble qualifying for mortgages. There were also reports that the Qualifying Mortgage (QM)
regulations and the increase in FHA mortgage insurance premiums have had an adverse effect on
buyers. Appraisal valuation is still an issue although the survey data indicates fewer
transactions facing appraisal problems compared to previous months. The cost of obtaining flood
insurance and the sluggish job growth continued to be reported as negatively impacting the
market.
1 This is the total number of respondents for the entire survey. The number of responses to a specific
question can be less because the question is not applicable to the respondent or because of non-response. The survey
was sent to a random sample of about 50,000 REALTORS®. 2 The responses and data are not adjusted for seasonality effects.
Page | 2
I. Market Conditions
REALTORS® Confidence Buoyed Up in March By Seasonal Uptick
Confidence about current market conditions improved in March 2014 compared to
February 2014, reflecting in part the seasonal uptick in spring. The REALTORS® Confidence
Index - Current Conditions for single family sales rose to 71 (60 in February) . The indexes for
townhouses/duplexes also rose to 49, while the index for condominiums improved to 42 although
still below 50 which indicates “moderate” conditions . 3
Confidence about the outlook for the next six months slightly improved compared to
February but is still lower compared to the same period a year ago. REALTORS® remained
concerned about the low levels of inventory, difficult credit conditions, and uncertainty about
flood insurance regulation. The six-month Outlook Index for single family homes was at 69 (68
in February), the index for townhouses at 51 (50 in January) , and the index for condominiums
at 47 (46 in February).
3 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 calculated as a weighted average using the
share of respondents for each index as weights. The index is not adjusted for seasonality effects.
71
49 42
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REALTORS® Confidence Index - Current Conditions
SF Townhouse Condo
Page | 3
Buyer Demand Continued to Outpace Supply in March
With the onset of spring , the Buyer Traffic Index notched up to 63 (59 in February)
although demand was softer compared to a year ago as buyers faced higher prices and the
continued difficulty in getting a mortgage. Still, demand continued to exceed supply with the
Seller Traffic Index at 42 (43 in January). In many states, REALTORS® expressed frustration
about the low inventory levels. An index of 50 indicates “moderate” traffic conditions4.
4 The index is constructed from a survey of REALTORS® reporting on whether they
perceive traffic as “weak”, “moderate”, or “strong.”
69
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REALTORS® Confidence Index - Six Month Outlook
SF Townhouse Condo
63
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REALTORS® Indexes of Buyer and Seller Traffic
Buyer Traffic Index Seller Traffic Index
Page | 4
Median Days on the Market At 55 Days in March
With little inventory relative to demand, properties sold faster for the fourth straight
month at 55 days (62 days in February)5. Short sales were on the market for the longest, at 112
days (98 February), and foreclosed properties were on market at 55 days (60 days in February).
Non-distressed properties were on the market at 53 days (61 days in February). Conditions
varied across areas.
Approximately 37 percent of respondents reported that properties were on the market
for less than a month when sold (34 percent in February) .
Home Prices Rising Moderately
REALTORS® continued to report that prices are generally still on an uptrend. About 68
percent of respondents reported that the price of their “average home transaction” is higher
today compared to a year ago (65 percent in February). About 23 percent reported constant
prices, and 9 percent reported lower prices.
5 A median of say 60 days means that half of the properties were on the market for less than 60 days and another
half of properties were on the market for more than 60 days.
0
20
40
60
80
100
120
140
160
180
20
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Median Days on Market by Type of Sale
All Foreclosed Short Sales Not distressedSource: NAR, RCI Survey
Mar 2014: All: 55; Foreclosed: 55; Shortsale: 112 ; Not distressed: 53
Page | 5
Approximately 14 percent of reported sales were of properties that sold at a net premium
compared to the original listing price (same as in February). In mid-2013, about 20 percent of
REALTOR® respondents reported selling properties at a premium.
68%
9%
23%
0%
10%
20%
30%
40%
50%
60%
70%
80%
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Percentage of Respondents Reporting Price Change from a Year Ago
Higher Lower Unchanged
14%
0%
5%
10%
15%
20%
25%
Percent of Resported Sales Where Property Sold at a Net Premium Compared to the Original Listing Price
Page | 6
REALTORS® Expect Prices to Increase Modestly in the Next 12 Months
REALTORS® generally expect prices to increase over the next 12 months with a median
expected price increase of 4.2 percent6. Low inventory compared to demand is expected to
continue to buttress prices , as well as the declining share of distressed sales in the market.
Relatively strong economic growth in some states is also a factor propping up housing demand
and prices.
The states with the most upbeat expected price increases of 5 to 7 percent are California,
Oregon, Nevada, Georgia, Florida, and Hawaii (red). In states with booming economies like
Washington, North Dakota, Texas, Michigan, the DC-Metro Area , and NY the expected price
increase is about 3 to 5 percent range (orange). In the rest of the states, the expected price growth
is less than 3 percent (blue).
State Median Price Expectation for Next 12 Months (in%)
Based on REALTORS Confidence Index Survey, Jan 2014 – Mar 2014 Surveys
6 The median expected price change is the value such that 50 percent of respondents expect prices to change
above this value and 50 percent of respondents expect prices to change below this value. A median expected price
change is computed for each state based on the respondents for that state. The graph shows the range of these state
median expected price change.
Page | 7
II. Buyer and Seller Characteristics
Cash Sales: 33 Percent of Sales
Approximately 33 percent of respondents reported cash sales (35 percent in February). 7
Move-up buyers, investors, buyers of second homes, and foreign clients are more likely to pay
cash. About 14 percent of reported sales to first-time buyers were cash sales compared to about
60 to 75 percent for international buyers and buyers of property for investment or second home
purposes.
7 The RCI Survey asks about the most recent sale for the month.
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
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Cash Sales as Percent of Market
14%
71%
64%
21%
72%
51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
FTHBuyer Investor Second home Relocation International Distressed Sale
Percent of Sales That are All-Cash, by Type of Buyer-- Mar 2014
Page | 8
Down Payment: 60 Percent of First-time Buyers Put Down 6 % or Less
Fewer first time home buyers are putting low downpayments. About 60 percent of first
time home buyers put down 6 percent or less compared to about 74 percent in 2009. Under tight
underwriting standards, REALTORS® have reported that buyers who pay cash or put down
large downpayments generally win against those offering lower downpayments. REALTORS®
also reported that in some cases financing is approved for a lower amount. For buyers with
sufficient financial resources, a higher downpayment also means saving on mortgage insurance
premium payments.
Sales to First Time Buyers: 30 Percent of Sales
Approximately 30 percent of respondents reported a sale to a first time home buyer8 (28
percent in February). The tighter underwriting standards are especially challenging for first-time
buyers who generally need mortgage financing with low downpayment terms, who may be
paying off student debt, and who have credit scores that are not top-notch . REALTORS® have
also reported that the increase in FHA mortgage insurance costs is discouraging buyers or
making loans unaffordable9.
8 First time buyers account for about 40 percent of all homebuyers based on data from NAR’s Profile of Home
Buyers and Sellers. NAR’s survey of buyers and sellers captures only buyers buying for residential purposes. 9 Borrowers can shift to conventional financing, but are in general likely to come up against more stringent
underwriting standards.
60%
50%
55%
60%
65%
70%
75%
80%
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Percent of Reported First-Time Buyers Who Had Down Payment of 6 Percent or Less*
*Based on NAR_RCI Survey of Realtors who reported a sale to a first-time buyer. The survey asks about the last sale for the onth. The shares are based on a rolling 3-mos data to smooth the series .
Page | 9
Investors, Second-home Buyers, and Relocation Buyers
About 17 percent of respondents reported a sale to an investor, 11 percent reported a sale
to a second-home buyer, and 13 percent reported a sale to a relocation buyer. The share of sales
to investors has remained fairly stable, an indicator of continued investor interest for rental
housing.
Regarding the demand for properties for relocation purposes, there has been feedback
from REALTORS® that many baby boomers would like to downsize, but there are not enough
buyers for larger homes. Due to the tight inventory, sellers who want to move up or down are
having trouble finding a suitable property.
30%
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60%
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First Time Buyers as Percent of Market
17%
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Sales to Investors as Percent of Market
Page | 10
International Transactions: About 2.6 Percent of Residential Market
Approximately 2.6 percent of REALTOR® respondents reporting on their last sale was
of a purchase by a foreigner not residing in the U.S. International buyers typically pay cash. In
NAR’s 2013 Profile of International Homebuying Activity, the major buyers were reported as
being from Canada, China, Mexico, India, and the United Kingdom.
11%
0%
2%
4%
6%
8%
10%
12%
14%
16%
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Second-Home Buyers as Percent of Market
13%
0%
2%
4%
6%
8%
10%
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14%
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18%
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Relocation Buyers as Percent of Market
Page | 11
Distressed Sales: 14 Percent of Sales
With rising home values, the market is seeing fewer distressed sales. In March, about 10
percent of reported sales were foreclosed properties, and about 4 percent were short sales.
Foreclosed property sold at a 16 percent average discount to market , while short sales
sold at a 11 percent average discount.10
The discount varied by house condition. For the past
12 months, properties in “above average” condition have been discounted by an average of 10-
10
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).
2.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
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Sales to International Clients as Percent of Market
0%
10%
20%
30%
40%
50%
60%
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Distressed Sales, As Percent of Sales Reported by REALTORS®
Foreclosed Short Sale
Mar 2014: Foreclosed: 10% Shortsale: 4%
Page | 12
12 percent, while properties in “below average” condition were discounted at an average of 15-
19 percent.
Rising Rents for Residential Properties
Demand for rentals remained strong. Among those REALTORS® involved in a rental,
48 percent (46 percent in February) reported higher residential rents compared to 12 months ago.
About 20 percent of REALTORS® reported conducting an apartment rental, and about 4
percent reported a commercial rental transaction. While rising rents make home ownership more
attractive, it slows the ability of current renters to save for a home purchase.
18
12 5
10
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25
30
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02
Mean Percentage Price Discount of
Distressed Sales Reported by REALTORS® (in %)
Foreclosed Shortsale
%
%
%
%
12 12
19
10 10
15
0
5
10
15
20
Above average Average Below average
Mean Percent Price Discount by Property Condition of Reported Distressed Sales (in percent)
Unweighted Average for Apr 2013 to Mar 2014
Foreclosed Short sale
Page | 13
48%
0%
10%
20%
30%
40%
50%
60%
70%
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02
Percent of Respondents Reporting Rising Rent Levels Compared to 12 Months Ago
22%
0%
5%
10%
15%
20%
25%
30%
35%
20
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Percent of Respondents Conducting An Apartment Rental
4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
20
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01
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03
Percent of Respondents Conducting A Commercial Rental
Page | 14
III. Current Issues
Comments Supplied by REALTORS® Responding to the March 2014 Survey
Jed Smith, Managing Director, Quantitative Research
Every month REALTORS® provide a variety of comments on the state of the market
when responding to the RCI survey. In general, REALTORS® noted that uncertainity about
economic conditions, rising prices, weather, the limited inventories of available homes, and flood
insurance were negatively impacting the home sales markets.
Comments received this month provided mixed messages—low available inventories in
many areas, more buyers than sellers, and a market that is still producing sales but that also
seems to have lost momentum, and an active market in many areas (in some cases multiple bids)
and a slowing market in other areas. Buyers were reported as increasingly cautious. As stated
repeatedly, all real estate is local, so the summary of the comments has many exceptions to it,
based on regional differences and the underlying economies. Weather, higher prices, and credit
availability/interest rates were mentioned as problems. In some areas, REALTORS® noted low
consumer confidence coupled with problems in the local economies. The overall message from
REALTORS® was that the housing markets are cautious, and demand is slower but still
substantial.
The market has slowed. In particular, buyers are reported as resistant to higher prices, are more
demanding, extremely cautious, and looking for properties in perfect condition. In many cases
buyers are approaching sellers markets as if they were buyers markets, offering unrealistic and
unobtainable prices.
Limited inventories are reported as a major problem. An exceptionally large number of
respondents noted that inventories of available homes were very low. This was reported to be a
major problem.
REALTORS® reported credit availability as very tight with unrealistic underwriting
standards. REALTORS® reported that cash is king: a cash offer or major down payment has
a major impact on contract acceptance. REALTORS® reported that good clients were having
trouble qualifying for mortgages. This was repeatedly mentioned. Many good credit clients
were reported as being unable to buy a home due to unrealistically high credit standards.
Appraisals continue to slow/kill contracts. Appraisals have again shown up as a major issue.
In particular, there was concern that current appraisals do not reflect changing and improving
market conditions. Appraised values were reported as coming in too low. In addition, there was
major concern in some cases about the lack of knowledge of local conditions by the appraisers.
A major function provided by REALTORS® was reported to be buyer/seller education.
The survey highlighted the value of REALTORS® in changing markets. In particular, both
buyers and sellers have extensive access to on-line websites, news stories, and media reports;
however, local markets are very site specific and the data and conclusions from public sources
Page | 15
are reported to be frequently out of data and inaccurate. REALTORS® mentioned the needs in
many situations to address buyer and seller expectations, unrealistic due to selective and
inaccurate news reports.
A number of regulatory problems were reported as impacting the real estate markets.
FHA and VA condo financing—seen as a problem in a number of cases.
Flood insurance—Mentioned by a number of respondents even though premium issues have
been to some degree ameliorated. The reclassifications of flood plains has been a problem
and in some cases is seen as inaccurate/inappropriate.
Dodd Frank debt ratios—reported as unrealistic for a number of clients, preventing sales
from going through for credit-worthy clients.
Tight Credit Conditions and Slow Lending Process
REALTORS® continued to express concern over unreasonably tight credit conditions.
Mortgage lenders were reported as continuing to display an unnecessarily high level of risk
aversion. In the 2001-04 time frame approximately, 40 percent of residential loans acquired by
the Government Enterprises (Fannie Mae and Freddie Mac) went to applicants with credit scores
above 740. Slightly more than half of survey respondents who provided credit score
information reported FICO credit scores of 740 and above.
1%
11% 16%
23%
48%
0%
10%
20%
30%
40%
50%
60%
lt 620 620 - 659 660-699 700-739 740+
Distribution of Reported FICO Scores-- RCI Surveys
RCI-Mar '13 RCI_Dec'13 RCI_Mar '14
Page | 16
Appraisals: Still a Concern But Process Is Better Compared to a Year Ago
Appraisals remain a major issue although the problem appears to have lessened compared
to a year ago. Approximately 24 percent of respondents reported encountering appraisal
problems in March 2014 compared to about 40 percent in 2010. Of those who had problems, 9
percent reported a price renegotiation, 6 percent had a contract delayed, 9 percent a contract
cancelled.
24% 20%
25%
30%
35%
40%
45%
20
10
03
20
10
05
20
10
07
20
10
09
20
10
11
20
11
01
20
11
03
20
11
05
20
11
07
20
11
09
20
11
11
20
12
01
20
12
03
20
12
05
20
12
07
20
12
09
20
12
11
20
13
01
20
13
03
20
13
05
20
14
03
Percent of Respondents Reporting Appraisal Problems
9%
6%
9%
76%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Contract Cancelled
Contract Delayed
Negotiated to Lower Price
No Problems
Percent of REALTORS® With Appraisal Issues/Problems in March 2014
Page | 17
Reasons For Not Closing A Sale
Lack of access to credit was often cited as a deterrent to home buying. About 14 percent
of REALTORS® who did not close a sale in February reported having clients who could not
obtain financing. About 6 percent reported that the buyer gave up while 8 percent reported that
the buyer continued to seek new/other financing. Lack of agreement on price accounted for 11
percent. Another 10 percent reported that the buyer lost the competition. Appraisal issues were
reported as accounting for 4 percent of failures to close a sale.
Page | 18
IV. Commentaries by NAR Research
Job Additions, State by State
Lawrence Yun, Chief Economist
North Dakota has been dethroned, knocked from the top as the best job creating state in the latest
state level jobs data. Nevada moved to the top with a 3.8 percent job addition rate over the past
12 months versus North Dakota’s 3.7 percent. Despite this change, North Dakota is still the king
in terms of longer-term job growth.
Colorado, Florida, and Oregon round out the top-five fastest job creating states.
On the bottom, New Mexico and Kentucky encountered very modest net job losses. New Jersey,
Virginia, and Alaska had minimal or no job creation.
Large cities are doing relatively well. That means traffic jams are getting worse in these markets,
simply a byproduct of more people driving to work. San Jose in particular is red hot, with a 4.4
percent job growth rate. That is why both rent and home prices are escalating as more people
seek housing in areas where there is minimal new home construction.
Detroit is reversing some of its recent gains in jobs. In the latest data, Detroit shed 4,200 jobs.
But the western part of the state is doing well, with Grand Rapids job growth rising by 3.0
percent.
Irrespective of short-term job market trends, over the long haul job creation will favor large
major cities because job growth will be faster in professional services than in manufacturing or
agriculture. Jobs like accounting, software development, legal services, management consultants,
and medical services will principally be in cities. Moreover, people are drawn to large cities
because of cultural amenities that only a large city can justify, such as concerts, museums, and
zoos. Companies, knowing that talented workers are drawn to cities, will want to be based in
large cities to have access to a large pool of potential job candidates. Traffic unfortunately will
get hellish. That is why developers of condominiums near downtowns in traffic congested cities
can anticipate turning a good profit.
Page | 19
Page | 20
Latest Mortgage Applications Data
Ken Fears, Director, Regional Economics and Housing Finance Policy
Seasonally adjusted applications to purchase homes rose 2.7% for the week ending April 4th, the
4th consecutive increase. The purchase index is 13.9% lower than the same time in 2013.
Purchase applications appear to have bottomed relative to last year and are clawing their way
back if only modestly.
The average rate for a 30-year fixed rate mortgage as reported by the Mortgage Bankers
Association was unchanged from the prior week at 4.56%. The average rate a year ago this week
was 3.68%.
A strong increase in applications for government financing, up 3.6% relative to last week, led the
improvement, though applications for conventional financing rose for the 3rd consecutive week
with an increase of 2.3%. The cost of FHA insurance remains high by recent standards, but it is
the only option for most borrowers with low down payments and credit scores less than 700. The
high cost of FHA mortgage insurance combined with the general rise in rates since last year is
crimping affordability on this portion of the market…particularly first-time borrowers and some
minority groups.
This week’s reading suggests a very modest thaw in the weak year-over-year trend for purchase
applications. The index improved for the 4th consecutive weak but remains anemic relative to
last year’s strength which was driven by sub-3.5% rates. Strong price growth and higher rates
since last spring impacted affordability. However, the strong trend last spring also muted the
normal seasonal pattern, suggesting that part of the trend this spring is a restoration of the normal
seasonal pattern. Sales and applications will continue to pick up as we move towards summer in
the typical seasonal pattern, but may remain muted relative to last summer until credit overlays
ease and mortgage insurance pricing improves.
Page | 21
Highlights: 2014 Investment and Vacation Homes Survey
Jessica Lautz, Director, Member and Consumer Survey Research
On April 2, NAR released its annual Investment and Vacation Home Buyers Survey, covering
existing- and new-home transactions in 2013. Below are the highlights and select charts from
the report. The press release can be found here.
Vacation home sales rose strongly in 2013, while investment purchases fell below the
elevated levels seen in the previous two years.
Vacation-home sales jumped 29.7 percent to an estimated 717,000 last year from 553,000 in
2012.
Investment-home sales fell 8.5 percent to an estimated 1.10 million in 2013 from 1.21
million in 2012.
Owner-occupied purchases rose 13.1 percent to 3.70 million last year from 3.27 million in
2012.
The sales estimates are based on responses from households and exclude institutional
investment activity.
Vacation-home sales accounted for 13 percent of all transactions last year, their highest
market share since 2006, while the portion of investment sales fell to 20 percent in 2013
from 24 percent in 2012.
The median investment-home price was $130,000 in 2013, up 13.0 percent from $115,000 in
2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000
in 2012.
All-cash purchases remained fairly common in the investment- and vacation-home market:
46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home
buyers.
