The REALTORS® Confidence Index - Overview

by Jed Smith, Managing Director, Quantitative Research

NAR Research issues the REALTORS® Confidence Index (RCI) on a monthly basis, presenting information on the characteristics and strength of the current housing market and expectations about the future. The Index is based on information received from a random survey of REALTORS® on market conditions. The Index provides a snap shot for REALTORS® of the performance, sentiments and expectations of their counterparts.

The Index Report - What's In It?

The report presents the REALTORS® Confidence Index* as well as the views of REALTORS® on price trends, information on foreclosures, and measures of first time homebuyer and investor activity. Information on the overall measure of REALTOR® confidence about market trends presented in the graph below shows that REALTOR® confidence in the single family housing market at the national level has recovered from the very gloomy days of early 2009, and that confidence is increasing. Given that a reading of 50 or better is required for an "up" market, it appears we are still in a recovery phase, but significantly better off than a year ago for single- family homes. The improvement in confidence levels for townhouses and condos is, however, less. REALTOR® confidence in all three markets was higher in December than was the case in late 2008.

REALTORS® also provide their professional judgments concerning home price expectations. The December survey shows continued expectations of improvement in price expectations for the next 12 months. In January of 2009 71 percent of REALTORS® expected falling prices for the forthcoming year, in contrast to the 70 percent of REALTORS® who now see the price outlook for the next 12 months as stable or rising.

The media has provided a significant level of colorful commentary on foreclosures in recent months. Foreclosures and mortgage delinquencies are measured at various stages of the property resolution
process. For the RCI, we obtain data from REALTORS® on foreclosures measured at the level where a transaction actually occurs.

The Current RCI

The current survey reports that total distressed property sales (foreclosures plus short sales) declined from 49 percent of total sales in March 2009 to 32 percent of sales in December 2009. REALTORS® reported that both foreclosures and short sales were selling at prices significantly below the market price for comparable, non-distressed property. As of the fourth quarter of 2009, foreclosed property was reported as sold at a discount of 15 percent below market compared to non-foreclosed properties; short sales properties were reported at a 12 percent discount.

The level of discount for a property relative to the market for non-distressed properties appears to fluctuate from state to state based on market conditions and property status. Responses from REALTORS® indicate that delays by lenders in accepting short sale offers tend to lower the ultimate sales price. The physical condition of the property also has a major impact on the price discount relative to market.

In responding to the monthly Confidence Index Survey, REALTORS® frequently provide written comments on their understanding of the state of the housing market in addition to answering
specific questions. This information is generally of a qualitative nature. For the current survey, we received over 1,000 comments, which are summarized below along with a sample of the specific comments received:

• Short Sales are a matter of extreme frustration to the respondents: the sales appear to involve inordinate delays, and sales frequently fail to close-with the property subsequently going to foreclosure and selling for less than the short sale offer.
• The foreclosure market is active, frequently with multiple bids although at significantly lower prices than bids for comparable non-distressed properties.
• Credit, condos, and appraisals continue to have a number of issues, and there is increasing concern over FHA tightening of lending policies in the condo market.

In Conclusion

The RCI provides a monthly overview on significant real estate market conditions, based on actual market data and observations received from REALTORS®. The value of the report is its relevance in providing information from the people who are actually in the market on a daily basis-REALTORS®. Actual data on how REALTORS® view the state of the market, price trends, and the foreclosure/short sales situation can provide a contrast to some of the more speculative and sensational stories in the media associated with housing trends.

* Each month participants respond to questions regarding the current and expected demand for homes, price trends, and economic conditions. The answers are then quantified and used to create the confidence index. Responses are assigned weights of 0, 50 or 100. A response of "strong" gets 100 points, while "moderate" is given 50 points, and "weak" is assigned 0 points. The index represents the average score for each question. The sample size for the monthly reports varies depending upon the number of responses, typically well in excess of 1,500, with the December report having 3,303 REALTOR® responses.

**For more detailed information about the REALTORS® Confidence Index, visit www.realtor.org/research.