Assessing the state of the U.S. real estate market is not an easy task. Each month brings a mountain of new data to be compiled, analyzed and interpreted. Often times, it is hard to distinguish between an emerging trend and a temporary anomaly. And then there is the matter of separating the wheat from the chaff, so to speak, when spinsters massage the data to support whatever conclusion they would like you to believe. As the saying goes, “consider the source.”
With this in mind, we turn to one of the more reliable sources in the real estate industry: the National Association of Realtors’ Research Department. Each month, the NAR publishes a special report, called the “Realtors Confidence Index” (RCI), which discusses the outlook for the residential real estate market based on certain leading indicators. The recently published June, 2012 edition offers a surprisingly positive outlook based on a survey of over 3,400 Realtors nationwide. According to the June report, the overall market is recovering based on improvements in sales and price.
Some Potential Positives
- After a rapid buildup earlier in the year, Realtor confidence continued in June, 2012. What’s more, 64 percent of Realtors nationwide reported continued increases in prices versus this same time last year. And an impressive 84 percent of respondents expected rising prices in the forthcoming year. This all translates into an RCI-SF (single family) index value of 57.9, which is somewhat above a medium level of confidence.
- There is strong interest among buyers but too few listings, which means demand is outgrowing supply. Many respondents have reported multiple offers.
- The percentage of Realtors reporting foreclosures and short sales remained at an even 25% versus approximately 33% this same time 1 year ago.
- Several areas around the country reported a lack of inventory, with average inventories based on closed sales calculated at 6.6 months versus an average of 10 months’ inventory in 2010.
- Homes continue to be quite affordable with both interest rates and inflation at historic lows.
- Rising rental rates may sway more consumers into becoming buyers than renters.
Some Potential Negatives
- Among the top complaints is a painfully slow mortgage underwriting process that is made worse by excessive loan documentation requirements.
- Appraisals, one of the lynchpins of the mortgage underwriting process, are reportedly coming in at unrealistically low levels that don’t take into account increasing prices.
- A slow economic recovery continues to impede job creation.
Indianapolis: A Microcosm of the U.S. Market
Take as an example the most recent market datafor the Midwestern city of Indianapolis. June’s total of 6,152 Indianapolis homes for sale represents an increase of 1.3 percent versus the previous month’s total of 6,076, compared to last June’s total of 7,256 listings this is actually a fairly significant decrease of 15.2 percent. Additionally, a total of 1,089 closings took place in June, or 1.4 percent more, versus the previous month’s total of 1,074. Compared to June of 2011, however, the most recent total represents a 7.7-percent increase in sales. And while there were 9.8 percent fewer pending transactions in the June pipeline relative to the previous month, versus June of 2012 pending sales in Indianapolis were up 2.2 percent. Finally, homes in Indy spent 7.4 percent less time on market versus this same time last year.
The NAR report suggests an improving U.S. real estate market, and increasingly positive expectations among the surveyed Realtors. As home prices continue to rise and homes spend less time on market there is reason to believe that a recovery is already underway. But one cannot forget that the markets are largely based on emotion. It would be fair to say that trying to predict the market is like trying to predict the weather—and that’s being generous!