November 2013 Realtors' Confidence Index

8/13/2019 November 2013 Realtors' Confidence Index

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REALTORS CONFIDENCE INDEXReport and Market Outlook

November 2013 Edition

NATIONAL ASSOCIATION OF REALTORSResearch Department

Lawrence Yun, Senior Vice President and Chief Economist

Based on Data Gathered December 211, 2013


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Table of Contents

SUMMARY .................................................................................................................................................. 3

I. Market Conditions .................................................................................................................................... 4

REALTORS Confidence is Unchanged in November......................................................................... 4

Buyer and Seller Traffic Index Slightly Improved in November ........................................................... 5

Median Days on the Market Increased to 56 Days ................................................................................... 7

Home Prices Still Rising ........................................................................................................................... 8

REALTORS Expect Prices to Increase Modestly in the Next 12 Months............................................ 9

II. Buyer and Seller Characteristics ............................................................................................................ 11

Cash Sales: 32 Percent of Residential Sales .......................................................................................... 11

Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages............................... 12

Distressed Sales at 14 Percent of Sales ................................................................................................... 12

First Time Buyers: 28 Percent of Residential Buyers............................................................................ 14

Investors, Second-home Buyers, and Relocation Buyers ....................................................................... 14

International Transactions: About 1.8 Percent of Residential Market.................................................... 16

Rising Rents for Residential Properties .................................................................................................. 16

III. Current Issues........................................................................................................................................ 18

Tight Credit Conditions and Slow Lending Process............................................................................... 18

Reason For Not Closing A Sale .............................................................................................................. 18

Millenials Account for About 1 in 4 of Reported Sales.......................................................................... 19

IV. Commentaries by NAR Research ......................................................................................................... 20

Latest Loan Mortgage Applications ........................................................................................................ 20

Latest Housing Affordability Data .......................................................................................................... 22

Comments on SentriLock Data on Properties Shown by REALTORS............................................... 24


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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 issuesaffecting real estate based on information gathered from REALTOR responses to a monthlysurvey. The current report is based on the responses of 2,905 REALTORS about theirtransactions in November

1. Questions about the characteristics of the buyer and the sale are

based on the respondents last transaction for the month. The survey was conducted duringDecember 2 -11, 2013. All real estate is local: conditions in specific markets may vary from theoverall national trends presented in this report.

The information gathered concerning transactions in November indicates that the marketis still good although not as strong as before. Local conditions vary. There were reports of a

slowdown coming from states such as New York, Iowa, California, Texas, Ohio, Delaware, andFlorida, and reports of strong micro-markets from states like Wisconsin, Washington,Arkansas, and Indiana. Many REALTORS reported that the increase in interest rates, theprospect of interest rates further rising in 2014, and higher property mortgage insurance for FHAloans have put off interested homebuyers. Meanwhile, conventional loans which do not requireupfront PMI downpayments continue to be difficult to access due to stricter underwritingguidelines. REALTORS continued to report that mortgage financing is extremely difficult toobtain with the market favoring those who pay cash and who put down large downpayments. Theloan processing period was reported as extremely protracted. Low or inconsistent appraisalvalues continued to be reported as affecting transactions adversely. Lack of inventory, althougheased somewhat compared to previous months, continues to be a drag on the recovery.

REALTORS reported the dearth of REOs that could augment supply for homebuyers, giventhat REOs are instead being converted to rentals by investors. With improving inventory andslowing demand, price appreciation has eased. Properties were also generally on the marketlonger than was the case a few months ago.

REALTORS expressed anxiety about the effect of the Qualified Mortgage rules thatcome into effect in January 2014 and which are expected to further decrease credit availability.In coastal areas such as Florida, North Carolina, South Carolina, New Jersey, New York,Missouri, Washington, Oregon, and Vermont, the steep increase in flood insurance rates wasreported as the primary factor depressing demand. Another concern was the impact on consumerfinances with the implementation of the Affordable Care Act. The modest job recovery effect oftighter fiscal spending remains as a major issue affecting the recovery.

1 This is the total number of respondents for the entire survey. The number of responses to a specificquestion can be less because the question is not applicable to the respondent , non-response, or drop out. The surveywas sent to a random sample of about 50,000 REALTORS.


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I. Market Conditions

REALTORS Confidence is Unchanged in November

Confidence about current market conditions was essentially unchanged from October toNovember. The index for single family sales registered at 59 (58 in October) . The indexes fortownhouses/duplexes was at 42 while the index for condominiums stayed at 38. An index of 50marks moderate conditions.

2

However, REALTORS appear to be more confident about the outlook for the next 6months, but this appears to be tied to the seasonal upswing in the spring. The 6-month outlookindex for single family rose to 64 (60 in October). The index for townhouses surged to 56 (45 inOctober ) and the index for condominiums increased to 43 (40 in October).

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

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REALTORS Confidence Index - Current Conditions

SF Townhouse Condo

Nov 2013: SF: 59 TH: 42 Condo: 38


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Buyer and Seller Traffic Index Slightly Improved in November

The Indexes for buyer and seller traffic slightly increased in November. The BuyerTraffic Index increased to 56 (53 in October ) while the Seller Traffic Index edged up to 43 (41in October ). REALTORS reported more inventory on the market although supply is stillgenerally perceived as tight.

REALTORS provided comments about conditions in their local markets. Below aresome of these comments representing concerns such as the tight inventory, effect of highermortgage rates and tight credit standards, appraisal issues, increase in flood insurance rates andproperty mortgage insurance, and the economy and job growth.

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REALTORS Confidence Index - Six Month Outlook

SF Townhouse Condo

Nov 2013: SF: 64 TH: 56 Condo: 43

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REALTORS Indexes of Buyer and Seller Traffic

Buyer Traffic Index Seller Traffic Index

Nov 2013: Buyer: 56 Seller : 43


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SOME COMMENTS FROM REALTORS - November RCI Survey

Slowing Market

Buyers will wait until February to begin looking in earnest, and multiple offers will begin in the spring.(CA)

Buyers disappeared in November, most likely for the holidays. Hopefully we see a strong return bymid-January. (MA)

Northern VA market is still hot though not quite red hot. Instead of receiving 3-5 offers on a house asin the spring, there might be 1-3 now. (VA)

Market will continue to flourish but at a lower pace. (WI) Micro-markets predominant; conditions vary depending on price for area and property types,

condition, features. Multiple offers still common but not as prevalant as early this year. (WA)

Market has slowed down but there are still buyers shopping. (CA) Market has slowed some what but still good. If the home is in prestine condition we see multibidding.

(TX)

Market seems to continue to improve in 2013. (AR) Looks like the market is normalizing. It should remain stable as long as there are no outside pressures

applied. (WA)

Beginning of the year was very strong for Sellers. Many received multiple offers within the first month.Once June came it slowed down. (WI)

Seeing the market get slow - buyers taking lots more time even though interest rates have risen. (FL) REO's and Short Sales have all but vanished! (CA) Since mortgage rate gone up, my office very quiet. Recent transactioncould not close because its

hard to get a loan, or home inspection could not satisfy. Market not stable, buyer are not sure to buy

or price will go down. Lender takes so long to close a loan, then market changes. (VA)

Anticipating issues with new mortgage guidelines in January. Trying to get applications in progress inDec to avoid new income guidlines which we believe will slow entry level buyers which have been

fueling our market this year. (MA)

New construction is starting to show some possibilities. (WI) Lots of FSBO...more than usual. Sellers market. (MI) Sellers hear that the market is increasing and are asking much more than buyers are willing to pay.

Sellers are continuing to reduce prices to get the homes to sell. (AZ)

My cash buyers are still looking for a super bargain and are being out bid by investors or others. (GA) More cash offers in lower priced homes. (DE) Anticipating issues with new mortgage guidelines in January. Trying to get applications in progress in De

entry level buyers which have been fueling our market this year. (MA).

Bank documentation requirements, even for high scoring buyers, bank short sale process difficulty, andforeclosures are the biggest obstacles to property sales. (MN)

Loans are becoming more difficult to close, and underwriters are becoming more strict. (OR) Major decrease in foreclosures. Very minimal short sales. Decline of first time homebuyers. (TN) Increase in interest rates. Increase in prices. Decrease in debt to income ratios. Changes to FHA guidelines Decline of new home construction Higher unemployment rates Mortgages have become more complicated (paperwork) (NC) Lack of FHA approved condos is having a profound negative effect on the sale of these homes. (NJ) Economy is too fragile for people to be comfortable on making major purchases. (MA) Even buyers with excellent credit are having to jump through many hoops to get the loan to close. (KY) Flood Insurance issue has impacted this coastal area. Unknown future costs scares buyers away. (MS) Flood insurance premiums for buyers is a BIG deterrent to sale. (VT) Reverse mortgages are increasing (UT).


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Median Days on the Market Increased to 56 Days

With a slowdown in demand, properties stayed longer on the market. The median days onthe market reported by REALTOR respondents who had a sale was 56 days (54 days inOctober), up from its lowest point of 37 days in June 2013.

Approximately 35 percent of respondents reported that properties were on the marketfor less than a month (36 percent in October) . Short sales were on the market for the longestdays at 120 days (93 days in October), and foreclosed properties were on market at 59 days (44days in October) . Non-distressed properties had a median stay of of 55 days (53 days inOctober). Conditions varied across areas.

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Median Days on Market

Source: NAR, RCI Survey

Nov 2013: 56 days

35%

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Distribution of Reported Sales by Time On Market

201211 201310 201311


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Home Prices Still Rising

Home price are still generally rising although at a tempered pace. About 87 percent ofrespondents reporting constant or rising prices (85 percent in October). Approximately 12percent of reported sales were of properties that sold at a net premium compared to the originallisting price. In mid-2013, about 20 percent of REALTORS reported selling properties at apremium.

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Median Days on Market by Type of Sale

All Foreclosed Short Sales Not distressedSource: NAR, RCI Survey

Nov2013: Foreclosed: 59; Shortsale: 120 ; Not distressed: 55; All: 56

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Percentage of Respondents Reporting Constant or

Higher Prices Today Compared to a Year Ago

Nov 2013: 87%


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REALTORS Expect Prices to Increase Modestly in the Next 12 Months

Prices are still expected to generally increase although at a slower pace. About 90 percent ofREALTOR respondents expect constant or higher prices in the next 12 months (same as inSeptember). The median expected price increase is 3.7 percent3.

3 The median is the middle value. A median expected price change of 4 percent means that 50 percent of

respondents expect prices to increase above 4 percent while the other 50 percent expect prices to increase (or

decrease) at less than 4 percent.

12% 13%

16% 16%

19% 19% 19% 18%17%

14%13% 12%

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Percent of Resported Sales Where Property Sold at a Net

Premium Compared to the Original Listing Price

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REALTORS' Price Expectations for Next 12 Months

Nov 2013: 90% expect constant/higher prices in next 12 months


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The graph below shows the median expected price change across the states which aregrouped into those with low, middle and high price expectations

4. Tight inventory

continues to prop up prices.

State Median Price Expectation for Next 12 Months (in%)

Based on REALTORS Confidence Index Survey, Sep-Nov 2013 Surveys

4 The median expected price increase at the state level is based on the last 3 surveys to increase the sample

size for each state.

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REALTORSMedian Expected Price Change for Next 12Months, in Percent

Nov 2013: 3.7%


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II. Buyer and Seller Characteristics

Cash Sales: 32 Percent of Residential Sales

Approximately 32 percent of reported sales were cash sales 5. About 12 percent ofreported sales made by a first-time buyer were cash sales compared to about 70 percent forinvestors and 85 percent for international buyers.

5 The RCISurvey asks about the most recent sale for the month.

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Cash Sales as Percent of Market

Nov 2013: 32%

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FTHBuyer Investor Second home Relocation International Distressed Sale

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


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Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages

About 37 percent of REALTOR respondents who reported a mortgage financingreported a down payment of 20 percent or more. REALTORS have reported that buyers whopay cash or put down large downpayments generally win against those offering lower

downpayments.

Distressed Sales at 14 Percent of Sales

Approximately 14 percent of REALTOR respondents reported a sale of a distressed

property, substantially down from levels a few years ago. This trend is in line with the broaddecline in foreclosure inventory.

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Percent of Mortgage Sales With Downpayment of

At Least 20 Percent

Nov 2013: 37%

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Distressed Sales, As Percent of Sales Reported by REALTORS

Foreclosed Short Sale

Nov 2013: Foreclosed: 9% Shortsale: 5%


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Foreclosed property sold at a 17 percent average discount to market , while short salessold at a 13 percent average discount.

6 The discount varied by house condition. For the past 12

months, properties in above average condition have been discounted by an average of 10-11percent, while properties in below average condition were discounted at an average of 16-20percent.

6 The estimation of the level of discount is based on an estimate of what the property would have sold for if

it had not been distressed (possibly in better condition, absent any taint of being distressed).

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Mean Percentage Price Discount of

Distressed Sales Reported by REALTORS(in %)

Foreclosed Shortsale

Nov 2013: Foreclosed: 17%; Shortsale: 13%

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Mean Percent Price Discount by Property Condition

of Reported Distressed Sales (in percent)

Unweighted Average for Dec 2012 to Nov 2013

Foreclosed Short sale


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First Time Buyers: 28 Percent of Residential Buyers

Approximately 28 percent of REALTOR respondents reported a sale to a first timehome buyer7(same as in October). REALTORS continue to report that first time buyers whogenerally use mortgage financing are finding it hard to compete against investors who typically

pay cash.

Investors, Second-home Buyers, and Relocation Buyers

About 19 percent of REALTOR respondents reported a sale to an investor, 10 percentreported a sale to a second-home buyer, and 12 percent reported a sale to a relocation buyer.There has been a feedback from REALTORS that many baby boomers would like todownsize, but there are not enough buyers for larger homes.

7 First time buyers account for about 40 percent of all homebuyers based on data from NARs Profile of

Home Buyers and Sellers.

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First Time Buyers as Percent of Market

Nov 2013: 28%


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Sales to Investors as Percent of Market

Nov 2013: 19%

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Second-Home Buyers as Percent of Market

Nov 2013: 10%

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Relocation Buyers as Percent of Market

Nov 2013: 12%


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International Transactions: About 1.8 Percent of Residential Market

Approximately 1.8 percent of REALTOR respondents had a sale to foreigners notresiding in the U.S. International buyers typically pay cash . InNARs 2013 Profile ofInternational Homebuying Activity, the major buyers were reported as being from Canada,

China, Mexico, India, and the United Kingdom.

Rising Rents for Residential Properties

Among those REALTORS involved in a rental, close to half reported higher residentialrents compared to 12 months ago. About 20 percent of REALTORS reported conducting an

apartment rental and about 4 percent reported a commercial rental transaction.

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Sales to International Clients as Percent of Market

Nov 2013: 1.8%

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Percent of Respondents Reporting Rising Rent Levels as

Compared to 12 Months Ago

Nov 2013: 49%


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Percent of Respondents Conducting

An Apartment Rental

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Percent of Respondents Conducting

A Commercial Rental


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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 were reported as continuing to display an unnecessarily high level of riskaversion. In the 2001-04 time frame approximately, only 40 percent of residential loansacquired by the Government Enterprises (Fannie Mae and Freddie Mac) went to applicants withcredit scores above 740. In the FHFA 2013 Second Quarter report, Fannie Maes average FICOscore fore new business was 756 and Freddie Mac was 751

8.

Approximately slightly more than half of NARs RCI survey respondents who providedcredit score information reported FICO credit scores of 740 and above. Estimates by NAReconomists have indicated that a significant number of additional salespossibly as high as500,000--could be made if credit conditions returned to normal.

Reason For Not Closing A Sale

Access to credit is often cited as a deterrent to home buying. Based on data from theNovember survey, about 9 percent of REALTORS who did not close a sale in November and

who had transactions in that month reported having buyers who could not obtain financing.About 6 percent reported that the buyer gave up while 3 percent reported that the buyercontinued to seek new/other financing. Lack of agreement on price accounted for 9 percent.Meanwhile, appraisal issues accounted for only 3 percent of failure to close a sale.

8FHFA Quarterly Performance Report of the Housing GSEs, Second Quarter 2013.

http://www.fhfa.gov/webfiles/25515/2Q2013QuarterlyPerformanceReport091913.pdf

2%

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lt 620 620 - 659 660-699 700-739 740+

Distribution of Reported FICO Scores-- RCI Surveys

RCI-Nov'12 RCI_Oct'13 RCI_Nov'13
http://www.fhfa.gov/webfiles/25515/2Q2013QuarterlyPerformanceReport091913.pdfhttp://www.fhfa.gov/webfiles/25515/2Q2013QuarterlyPerformanceReport091913.pdfhttp://www.fhfa.gov/webfiles/25515/2Q2013QuarterlyPerformanceReport091913.pdf


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Millenials Account for About 1 in 4 of Reported Sales

Percent Distribution of Reported Sales of REALTORS

July 2013 RCI Survey Sept 2013 RCI Survey

Nov 2013 RCI

Survey

Age 34 and under 25.5% 24.7% 23.9%

Age 35 to 55 52.4% 49.4% 52.7%

Age 56+ 22.1% 25.9% 23.4%

49%

6%

3%

3%

9%

2%

3%

24%

Still working to close a sale.

Buyer could not obtain financing and gave up

Buyer could not obtain financing, but is still trying

Appraisal issues/problems.

Buyer/seller could not agree on price.

House did not pass inspection.

Not applicable- I am not an agent/broker.

Other (please specify)

Reasons Identified by REALTORS

For Not Closing A Sale in November 2013

Age 34 andunder

24%

Age 35 to 55

53%

Age 56+

23%

Distribution of Age of Buyer Based on Reported Sales of

REALTORS in November 2013 RCI Survey


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IV. Commentaries by NAR Research

Latest Loan Mortgage ApplicationsLawrence Yun, Chief Economist

Mortgage applications for both home purchase and refinances rose slightly in the past week.From one year ago, applications for home purchase are down by 10 percent while

applications for refinances are lower by a whopping 68 percent. Refinance activity is already

touching a decade low and is likely to fall even further next year as mortgage rates increase.

Mortgage rates will go from a 4 percent average in 2013 to about a 5 percent average in2014, based on NAR projections.

Home buying has been completed not only using mortgages but also via all-cash. The cashtransactions fortunately have been about one-third of the market in the current environment

of extra underwriting stringency.

Going into 2014, lenders will lend more focus to home purchase applications since refibusiness will undoubtedly collapse. Banks have huge cash reserves. Mortgage default rates

among recent home buyers of the past 3 years have been at historic lows. Market incentives

are clearly there for more lending for home purchases.

The one big unknown, however, is coming from Washington in terms of new mortgageregulations and of the increased lawsuit risks from any small deviation from government

directives. A right balance should be pursued to assure consumer protection and rein in the

excesses of private sector risk taking. However, too much regulation and too many lawsuits

also carry the risk of lessening lending.

It is worth noting that lenders are not the bad guys. They are channeling peoples savingsinto other peoples borrowing. A historical lesson is also worth remembering. To gainpopular support and to show his distaste for lenders, the Roman Emperor Hadrian held a

public bonfire. It was going to be the burning of all the loan documents. As a result all

debtors were quickly relieved of their obligations. This action, however, marked the

beginning of the end of the Roman Empire. No one in their right mind would further lend

afterwards. Without lending, there is no innovation. The Dark Middle Ages, where life was

short, brutish, and nasty, descended in Europe and was to last for about thousand years.


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Latest Housing Affordability Data

Danielle Hale, Director, Housing Statistics

The seasonal slowdown in home prices has combined with roughly steady mortgage rates and

rising income to give a slight boost to affordability, but the trend from a year ago remains

down. What is affordability like in your market?

Housing affordability is up for the month of September in the US and 3 of 4 regions as priceseased seasonally from August. The median single-family home price is down roughly 5

percent from last month even as August marks tenth consecutive month of double-digit year-over-year price gains for single-family homes.

This easing of prices helped boost the affordability index 6 points from a month agonationally and boosted the index by 8 points from what it might have been if the price level

in August were combined with Septembers mortgage rates and income.

Because home prices remained roughly steady in the West, it was the only region not to see aboost in affordability from August to September.

Mortgage rates, while still climbing, slowed from the nearly half and quarter point jumpsseen in July and August. Mortgage rates were up 12 basis points from August and 85 basis

points from September a year ago. At current prices and with a 20 percent down payment,

the rise in rates means roughly $12 extra in a monthly mortgage payment from a month ago

and roughly $79 more than a year ago.

While incomes continue to rise, they are not keeping pace with home price gains andmortgage rate increases from a year ago. Nationally, affordability is down from 198.4 in

September 2012 to 164.3 in September 2013. Affordability is also down from a year ago in

all 4 regions, and coincides with rising prices. The biggest drop in affordability has been in

the West followed by the South, Midwest, and Northeast. September prices were up 16
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percent in the West from a year ago while they show a gain of only 1 percent in the

Northeast from September 2012.

This slight easing of affordability is welcome for potential buyers, but uncertaintyremains. While rates have eased slightly in response to confirmation hearings for Janet

Yellen, the current nominee for Chairwoman of the Federal Reserve, the Federal Reserve has

committed to pushing rates higher as needed to stanch inflation as the economy

improves. The Fed has a tricky balancing act ahead, and assuming the forecast economic

improvement finally materializes the trajectory for rates in the future is higher. If prices hold

steady, the long run trend for housing affordability will be lower. For a look at how the

housing market might respond to higher rates, I recommend thisStress Test by Chief

Economist Lawrence Yun.

What does housing affordability look like in your market? View 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

themethodology and assumptions behind the calculation here.
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Comments on SentriLock Data on Properties Shown by REALTORS

Ken Fears, Director, Regional Economics and Housing Finance

For the third consecutive month, the diffusion index for foot traffic held roughly steady. This

plateau follows a sharp mid-summer decline in the wake of a 1% increase in mortgage rates.

Rates eased in October, but crept upward in late November, which could weigh on future trends.

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 November, the diffusion index for foot traffic eased 2.5 points to 48.1.

Mortgage rates started the month low, but ticked upward in the later part of November on

positive economic news and anticipation of a potential taper of asset purchases by the Federal

Reserve. However, foot traffic held relatively steady for the 3rd consecutive month. Inventories

remain tight in some markets like San Diego, which would constrain an increase in local foot

traffic. But several markets across the Midwest have slowed relative to last year. Markets that

continue to expand are doing so modestly.The index eased just under the 50 mark in

November which indicates that more than half of the markets in this panel had stronger foot

traffic in November of 2013 than the same month a year earlier. This reading does not suggest

how much of a decrease in traffic there was, just that the majority of markets experienced less

foot traffic in November of 2013 compared to a year earlier.

The post-rate-spike recovery appears to have taken root. However, rates did ease in October and

early November. Still, traffic remained strong despite the disruption of the government

shutdown. Rates have since increased closer to 4.5% which could weigh on traffic in the coming

months if the increases continue.
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November 2013 Realtors' Confidence Index

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