May 2012 RCI Report

7/31/2019 May 2012 RCI Report

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Realtors Confidence Index

Report and Market OutlookMay 2012 EditionBased on Data Collected May 29 - June 8, 2012

National Association of RealtorsResearch Department

Lawrence Yun, Senior Vice President and Chief Economist


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Table of Contents

SummaryConfidence Continues Upward.... ..... .3

Section 1: Market Conditions

Realtor Confidence ..6

Single Family Properties: Confidence is Rising.....7

Townhouse Properties: Confidence Improving..7

Condos: Confidence Still Relatively Low...8

Sixty-two Percent of Realtors Report Constant or Higher Prices on Recent Transactions

Compared to a Year Ago ...8

Eighty-three Percent of Responding Realtors Expect Constant or Higher Residential Prices

in the Next Year9

Buyer Traffic is Rising. Seller Traffic is Flat.9

Time On the Market is Falling...10

Distressed Sales Decline to 25 Percent of Market .11

Distressed Real EstateBelow Market Prices...11

Property Condition Also Affects Selling Price of Distressed Properties ...12

Section 2: Buyer and Seller Characteristics

Cash Sales: 28 Percent of Residential Sales......13

First Time Buyers: 34 Percent of Residential Buyers ......14

Buyer RelocationJob Changes....14

Residential Sales to Investors: 17 Percent of Residential Market. 15

Second Home PurchasesAt 11 Percent of Residential Marketl......15

Mortgage Down Payments..16

Realtors Continue to Report Rising Rents for Residential Properties .....16

International Transactions Three Percent of Residential Market....17

Section 3: Current Issues

AppraisalsA Continuing Problem17

Tight Credit: Conditions.....18

Section 4: Recent NAR Articles

Low Inventory Helps Push PricesLawrence Yun...19

Housing Foot Traffic, A Moderating PatternKen Fears..22

Commercial Real Estate Rebound ContinuesFinancial IssuesGeorge Ratiu ....23
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SUMMARY

Confidence Continues UpwardsGay Cororaton and Jed Smith

TheRealtors Confidence Index (RCI) Report provides monthly indicators on current

conditions and the outlook for the residential real estate markets. The Report summarizesinformation pertaining to buyer/seller traffic, price trends, buyer profile, and issues affecting

residential real estate based on responses of Realtors to a survey conducted for the period May

29 -June 8, 2012.1

This report summarizes conditions residential real estate conditionsthroughout the country and is drawn from the input of over 3,000 Realtors. Given that all real

estate is local, conditions in specific markets may vary from overall national trends.

The respondents comments generally indicate that the real estate markets around the country

are continuing their recoveries in terms of sales and price2.

Realtor confidence about current market conditions is rising for all types of residentialproperty. The RCI-SF current index is at 57.5. The level of confidence in the markets fortownhouses and condominiums is weak but trending up (an index of 50 reflects a moderatelevel of confidence while an index of 100 reflects strong confidence).

Prices are also reported to be on the uptrend with 62 percent of Realtors reporting constantor increasing prices compared to the same time a year ago.

Buyer demand is reported to be growing faster than supply, and many respondents arereporting multiple offers. The buyer traffic index is at 60.56, with the seller traffic index at

41.22. Many Realtors noted cases of multiple offers.

25% of Realtors reported making distressed sales (foreclosed and short sales), compared toapproximately a third a year ago

1There were 3,436 Realtor respondents to this survey with a sample size of about 50,000 Realtors.

2All real estate is local, so comments were varied, diverse, and in some cases contradictory depending on the

respondents location.

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May 2012 Realtors Confidence IndexCurrent Conditions

SF TH Condo

SF: 57.5 TH: 36.0 Condo 29.4


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Respondents continued to note problems associated with real estate transactions:

There is a reported lack of inventory in many cases. REO listings are in some cases reportedto be thin and the listings are not in good condition.

Obtaining a mortgage continues to be difficult for individuals with lower credit scores orindividuals with non-standard credit characteristics, e.g., self-employed.

Thirty-three percent of Realtors reported appraisal issues. Realtors report having seen awide range of appraisal values for the same property and that appraisals are not reflecting the

pickup in prices.

The short sale process continues to be slow and frustrating.A growing number of respondents indicated cases of multiple offers, fewer seller

concessions, and low inventories. Many respondents noted that correctly priced properties sell

quickly. TheRCIsurvey results are consistent with trends shown in the NAR data on Existing

Home Sales (http://www.realtor.org/topics/existing-home-sales/data) and the NAR economic

outlook (http://www.realtor.org/sites/default/files/reports/2012/economic-forecast-2012-05-30.pdf), which outlines an economy expected to grow at 2.3 percent in 2012 (3.1 percent in

2013), creating 2.1 million jobs in 2012 (2.6 million jobs in 2013).

The graph for Total Home Sales on a twelve-month roll (i.e., total sales for the current

and previous 11 months reported monthly) shows a market with projections of existing home

sales growth and modest improvement in prices based on continued economic expansion.

The media has discussed home prices in detail for the last four years. Most analysts and

price metrics indicate that house prices are rising (see article Low Inventory Helps Push

Prices by Dr. Lawrence Yun). The graph Prices By Month indicates that home prices havebeen headed towards stability.
http://www.realtor.org/topics/existing-home-sales/datahttp://www.realtor.org/sites/default/files/reports/2012/economic-forecast-2012-05-30.pdfhttp://www.realtor.org/sites/default/files/reports/2012/economic-forecast-2012-05-30.pdfhttp://www.realtor.org/sites/default/files/reports/2012/economic-forecast-2012-05-30.pdfhttp://economistsoutlook.blogs.realtor.org/2012/06/07/low-inventory-helps-push-prices/http://economistsoutlook.blogs.realtor.org/2012/06/07/low-inventory-helps-push-prices/http://economistsoutlook.blogs.realtor.org/2012/06/07/low-inventory-helps-push-prices/http://economistsoutlook.blogs.realtor.org/2012/06/07/low-inventory-helps-push-prices/http://www.realtor.org/sites/default/files/reports/2012/economic-forecast-2012-05-30.pdfhttp://www.realtor.org/sites/default/files/reports/2012/economic-forecast-2012-05-30.pdfhttp://www.realtor.org/topics/existing-home-sales/data


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Overall Market Outlook

Realtors confidence about the outlook for the next 6 months is rising in all residential

areas. The RCI sixmonth expectations indexes for all types of residential housing are also

higher than the RCI-current conditions index.

Continued increases in residential sales are projected along with continued price

improvement, although both sales and prices will vary from market to market. There continue,

however, to be risks to the market outlook:

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May 2012 Realtors Confidence Index

Six-Month Outlook

SF TH Condo

SF: 62.2 TH: 40.6 Condo 33.7


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Potentially Positive News

Falling Inventories of homes for sale: Months supply is at 6.6 months compared toapproximately 10 months in 2010.

Lower Level of Distressed Sales if the current trend continues.

Home Affordability: Continued low interest and inflation rates. Demographics: The U.S. population has expanded substantially in the past 10 years, but

sales are at a level of approximately 10 years ago.

Potentially Negative News

The economic recovery continues to proceed at a slow pace: job creation is positive butdisappointing.

Concerns about the Euro and domestic fiscal policies and their potential impact are an issue. Credit standards imposed by financial institutions in mortgage lending continue to be

excessively stringent.

What Does This Mean For Realtors?

This monthsRCIshows residential markets that continue to recover. Realtor

confidence and price expectations are higher than was the case a few months ago. Rising rentalrates have favorable implications for home sales. Time on market continues to decrease. Prices

and interest rates continue to be lower than has been the case in the past. These are the reasons

that we continue to view the outlook as favorable for home sales.

Given that the typical homeowner will occupy a house for approximately 8 years afterpurchase and that home ownership is basically a lifestyle decision in addition to a financial

commitment, one can make a very good case that this is a good time to buy a house,

remembering that staying within a reasonable budget and acceptable mortgage is important.

Section 1: Market Conditions

Realtor Confidence

TheREALTORS Confidence Index is an indicator of housing market strength based on a

monthly survey sent to over 50,000 real estate practitioners. Respondents indicate whether

conditions are, or are expected to be "strong" (100 points), "moderate" (50 points), and "weak" (0

points). The results are the average score for each question. A score of 50 is the thresholdbetween a "strong" and a "weak" condition. Realtor confidence in the market outlook is

presented in terms of the current market and the market outlook for the next six months for

single family, townhouse, and condo markets.


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Single Family Properties: Confidence is RisingWell Above Moderate in May.

Townhouse Properties: Confidence Improving--Approaching Moderate in May.

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May 2012 Realtor Confidence

Current and Six Month Outlook: Single Family Properties

Current Confidence Confidence in Outlook

Current: 57.5 Outlook: 62.2

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Current and Six Month Outlook: Townhouse Properties


Current: 36 Outlook: 40.6


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Condominiums: Confidence Still Relatively Low, But Improving Substantially as of May.

Sixty-two Percent of Realtors Reported Constant or Higher Prices on Recent

Transactions Compared to a Year Ago as of May.

As reported in Lawrence Yuns article, many price indexes are reflecting an uptick in

housing prices. This month 62 percent of respondents to theRCIreported constant price (30percent of respondents) or rising prices (32 percent of respondents) compared to a year ago on a

recent transaction.

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Current and Six Month Outlook: Condo Properties


Current: 29.4 Outlook: 33.7

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Prices on Recent Transactions Relative to a Year Ago

2012 Mar 2012-Apr 2012 May


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Eighty-three Percent of Responding Realtors Expect Constant or Higher Residential

Prices in the Next Year as of May.

Realtors are reporting higher prices in many cases, with a majority of 83 percent

expecting constant or higher prices in the next year.

Buyer Traffic is Rising. Seller Traffic is Flat as of May.

Buyer traffic is rising significantly, with the May index at 60.56, well above the moderate

levelanother sign of market recovery. However, the seller traffic is flat, with the index at

41.22. This disparity could have an upward push to housing prices in the coming months if

demand outstrips supply.

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REALTOR Price Expectations--Next 12 Months

Constant/Rising Prices Falling Prices

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Indexes of Buyer and Seller Traffic

Buyer Traffic Seller Traffic

Buyer: 60.56 Seller: 41.22


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Time on Market is Falling as of May.

More homes are being sold in less than a month. Approximately a third of properties

were on the market for less than a month when sold, and 57 percent were sold within 3 months.

Twenty three percent of homes were on the market 6 months or more when sold, down

from 27 percent last month and 31 percent a year ago.

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Time On Market When Sold

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26%28% 29% 28% 29% 28%

26%28% 27%

23%

On Market 6 Months or More


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Distressed Sales Decline to 25 Percent of Market in May.

Distressed declined to 25 percent of total sales. About 44 percent of distressed sales were for

cash over the past year.

Distressed sales go through several stagesthe initial overdue status for mortgage payments,the actual foreclosure by the financial institution unless sold in a short sale, and the final sale of

the property, frequently by Realtors through the MLS. Currently Realtors in a number of

markets are reporting shortages of inventories of distressed real estate: the markets are clearing

distressed properties from the market at a rapid rate.

The Existing Home Sales market is bifurcated, with distressed properties frequently being

sold at significant discounts to market, frequently in subpar condition when going to market, andreported to be popular with investors seeking bargain prices. Investors pay cash in 69 percent of

their overall purchases of properties (both distressed and non-distressed), in comparison to first-time buyers who overall pay cash in 11 percent of their purchases. In the case of distressed

properties with a seller who would like to close a transaction without waiting for the buyer to

obtain a mortgage, an investor may be a preferable buyer. We have received many reports of

investors obtaining a property even when a first-time prospective buyer has offered a higher

price.

Distressed Real EstateBelow Market Prices

Price discounts for distressed properties declined in the current period, perhaps reflectingthe gap between demand and supply. Distressed properties typically sell below the market price

of comparable, non-distressed properties; the discount level fluctuates depending on sales

location and types of properties.

Foreclosures have been selling at approximately 20 percent below market: 18.5 percentas of May 2012.


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Short Sales have been selling at approximately 15 percent below market: 14 percent asof May 2012.

Property Condition Also Affects Selling Price of Distressed Properties

The discount to market experienced by distressed property is affected by the propertysphysical condition. Well maintained properties tend to sell at a lower discount than is the case

for properties in poor condition. The un-weighted average price discounts to market are

presented for the time periods May 2011 through May 2012. Prices for distressed houses with

above average condition are discounted at about 15 percent, with the discount increasingsignificantly depending on property deterioration.

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Distressed Real Estate

Mean Percentage Discounts

Foreclosed Short Sale


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Property Discounts as a Function of ConditionMonth of May

Section 2: Buyer and Seller Characteristics

Cash Sales: 28 Percent of Residential Sales

The percentage of cash sales declined to 28 percent in May, from 29 percent in April.

The proportion of cash sales is double the rate prior to the downturn of the housing market in

2008. The high preponderance of all-cash sales appears to be due to a number of factors:unrealistically high loan underwriting standards, a significant level of investor participation in

the market, and sales of properties as second homes.

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Cash Sales as Percent of Market


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First Time Buyers: 34 Percent of Residential Buyers

First time home buyers accounted for 34 percent of total buyers. Normally first time

buyers are in the neighborhood of 40 percent of total residential sales, according to NARs

Profile of Home Buyers and Sellers3. The proportion of first-time homebuyers hit a peak of about

50 percent in 2009. Realtors have reported that investors offering all cash-sales to sellers have

crowded out first-time buyers in some cases, particularly in the case of distressed properties.Unsuccessful first-time buyers typically continue their property search, sometimes making a

number of bids before securing a property.

Buyers for Relocation/Job Changes: 15 Percent of Residential Market

Realtors report that 15 percent of residential sales were to buyers for relocation

purposesi.e., a job move, retirement, etc. Approximately 18 percent of relocation buyers pay

cash.

3In the 2011 survey, first-time homebuyers accounted for 37 percent of all buyers.

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First Tme Buyers as Percent of Total Buyers

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Relocation Buyers as Percent of Market


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Residential Sales to Investors: 17 Percent of Residential Market

Investors accounted for 17 percent of total residential sales in May, down from about 20

percent in April and March. Investors have reported that in many cases they can obtain a positive

cash flow converting properties to rental units. Realtors have been reporting that the market isable to absorb the large number of distressed properties coming onto the market, with sales to

investors or first time buyers. In some regions Realtors report that the market would clear

additional properties if available. Approximately 69 percent of investors pay cash.

Second Home Purchases: 11 Percent of Residential Market

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Sales to Investors as Percent of Total Sales

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Second Home Buyers as Percent of Market


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Second home purchases accounted for 11 percent of residential sales. Approximately 56 percent

of second home buyers paid in cash.

Mortgage Down Payments of at Least 20% Increase

Mortgages with down payments greater than or equal to 20 percent rose to 37 percent of

all residential transactions in May, up from 33 percent in April. Down payments of 11-19

percent have remained at 5 percent of transactions.

Realtors Continue to Report Rising Rents for Residential Properties

Higher residential rents compared to a y ear ago were reported by 54 percent of

Realtors. Lower rents were reported by 11 percent of Realtors. Constant rents were reportedby 16 percent of Realtors. The continued trend of rising rents increases the value of

homeownership.

5% 4% 4% 5% 4% 5% 5% 4% 5% 4% 4% 5% 5% 5%

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Percent of Transactions by Downpayment Levels

11-19% >=20%

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Percent of Realtors Reporting Changing Rents

Compared to 12 Months Ago

Higher Rents Lower Rents Constant rents


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International Transactions: Three Percent of Residential Market

Sales of U.S. residential real estate to foreigners not residing in the U.S. increased to 3

percent. Other NAR surveys have indicated that an additional 2 to 3 percent of residential sales

are made to international customers residing in the U.S. Additional information on internationalactivities is available at http://www.realtor.org/research/research/reportsintl. Approximately 71

percent of international clients pay cash.

Section 3: Current Issues

AppraisalsA Continuing Problem

Appraisals continue to be a problem. The use of inexperienced/out-of-town appraisers

and the use of distressed properties as comps in the case of non-distressed sales are cited as

problems. Thirty three percent of Realtors reported having had a problem with an appraisal in

the past 3 months. Approximately 10 percent of the respondents reported contract cancellation, 9

percent reported a delay, and 13 percent reported that the appraisal problems led to lower prices.

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International Sales as Percent of Market
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Tight Credit Conditions

A number of respondents indicated that credit conditions continue to be too tight.Clearly interest rates are low, but the availability of mortgages appears to be significantly less

than one would expect. We have received reports that financial institutions are interested inmaking loans only to those individuals with the highest level of credit scores. Allegedly this

reluctance to lend is a result of excessively loose standards previously, which have left a number

of major institutions with weak loan portfolios, which have encouraged regulators to scrutinizelending standards (thereby possibly providing an incentive for excessively high lending

standards on the part of lenders), and which have resulted in a number of institutions

significantly decreasing their overall lending efforts. Respondents noted that regional and

community banks as well as credit unions were potential alternative sources of mortgages.

A comparison of FICO scores for loan transactions as reported by Realtors respondingto the RCIover the February/March/April time span compared with FICO scores reported by

Fannie Maes Acquisition Profile by Key Product Featuresshowing lending conditions in the

pre-boom normal housing markets of a few years ago-- shows that credit availability to lowerscoring applicants appears to have declined. Realtors provided FICO information based on

their understanding of the buyers credit situations; in many cases the information was estimated.Overall the data seem to substantiate relatively tight credit conditions.

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Realtors Reporting Appraisal Problems

With A Contract in Past 3 Months

Contract Cancelled Contract Delayed Negotiated to Lower Price


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Section 4: Recent NAR Articles

Low Inventory Helps Push Prices--Lawrence Yun, Chief Economist

Already home prices are turning up. Though many economists have been calling for no price

gains or only very minimal gains over the next several years, a surprise upside looks to bequickly developing.

First, lets review the data.NARs median price of all homes transacted in April showed a

monthly gain of 7.6 percent. However, the median price is not a good reflection of genuine priceappreciation of a persons home because it is influenced by which types of homes are gettingsold during that period. If only the upper-end is moving, then the median price will be high. If

only the lower-end, then the median price will be low. Also, April is the time when families

with children start to buy and they typically purchase a larger-sized home that tends toward thehigher price points. The median price, though it may not genuinely reflect an appreciation of a

persons home, is nonetheless vital information for computing GDP contribution from home

sales.

There are many price indices that try to measure the price appreciation of a typical persons

home. All have slightly different computation methods. But all are beginning to say the same

story: that the worst is over and the prices are stabilizing or rising. The following table showshome price changes in the latest available month and what it would be if the monthly gains can

be sustained over the next 12 months.
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REALTORs well understand that all real estate is local. Unlike commodities that can be easily

shipped to any place, one cannot simply lift a home in Detroit and fly it over to San Francisco toexploit a price arbitrage. Local market variations therefore clearly exist, which REALTORS

need to explain to their clients.

Note that the latest available data is not June, the current month, because of the lag time in data

collection process. It is worth noting that home price has an additional special lag that arises

from the nature of the home buying process. The March data, for example, was the price

negotiated and agreed to in November or December, if not earlier. So the most current house

price information that is being flashed across newspapers and TV screens actually reflects whathappened six or more months ago, when inventory conditions could have been measurably

different than conditions now.

What is occurring now is that inventory shortages are developing in increasingly more

markets. The total number of homes with a for sale sign in April was 2.54 million. This figure

is the lowest April tally since 2005. Recall that the housing market was booming and bubblingin 2005. We are not in a boom because one important difference between now and then is that

housing demand is about one-third lower. Nonetheless, the current supply and demand dynamics

is such that we are essentially back to normal. Historically 6-months supply of inventory is thenorm and that is what we have been consistently experiencing for several months. Because the

total inventory count do not measurably rise from April levels as we proceed through the rest ofthe year, the 6-months supply will stick and a 5-months supply is not out of the question. Such

conditions imply home prices will be rising 3 to 5 percent annually.
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In addition to the falling inventory of existing homes, there is a dearth of newly constructedhome inventory. The latest is only at 146,000 new homes for sale, it is at the lowest since the

data was collected 50 years ago. The difficulties in obtaining construction loans by small-sized

homebuilders are restraining growth in the industry despite the falling inventory conditions. Thebig builders like Lennar and Toll Brothers can issue bonds and tap Wall Street capital, but not

the small homebuilders. The current rate of housing starts is less than half of historical annual

average, and this low construction activity has been persistent from late 2008. Therefore, the

pipeline of new home inventory is already very thin and is not filling in any notable way. Thislack of new home construction will also play a bigger role in lifting home prices faster for at

least the next 2 years than most analysts expect.

Finally, what about the shadow inventorythose homes not yet on the market but that will

surely land there given the large number of delinquent mortgages. There is clearly a shadow, butthe current number of seriously delinquent mortgages (at least 3 months late or in foreclosure

process) is smaller than what it was one year ago. One year ago, the shadow was smaller thantwo years ago. In other words, even the shadows are no longer a threat to home price

growth. Based on steadily thinning out delinquent mortgages, the number of distressed property

sales will fall to about one-quarter of all transactions by the year end from the current one-third. This time next year, distressed sales could comprise maybe only 15 percent. Therefore,

the falling share of distressed sales over time will be another factor that lifts home prices. There
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is no reason to shop for a shadow inventory costume for next Halloween because it is no longer

scary.

In my view, the absolute low point in home prices has already passed in many markets. Home

price measurements, due to lag time, will confirm that in the upcoming months. But given the

rock bottom low mortgage rates and continuing low home prices, it is still a dandy time to be ahomebuyer.

Housing Foot Traffic, A Moderating PatternKen Fears, Manager, Regional Economics and

Housing Finance Policy

A majority of the 145 markets monitored by NAR Research experienced slower foot

traffic in May of this year relative to the same time in 2011. The data, provided by SentriLock,

LLC., is based on the total number of REALTOR visits to properties as recorded on electroniclock boxes.

Foot traffic was lower over the 12 months ending in May in 60% of the markets, while35% expanded and 5% were unchanged. This moderating pattern, depicted in the diffusion

index graphed below, suggests a broad based decline in the late spring following an equally

broad based expansion in the last spring/summer of 2011 and early spring of this year.

While changes in foot traffic are closely related with the pending home sales index which

is typically released a month later, movements in the diffusion index for foot traffic do not

necessarily portend a shift in pending home sales or the magnitude of a change. Rather, thediffusion index just signals whether the decline or gain in traffic is felt by many or a few

markets. In this case, there was a broad based surge of foot traffic in May of 2011 compared to


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2010, so what materialized last month in the diffusion index was a trend where many markets

experienced a decline, possibly modest or large in magnitude, from last springs high levels.

What might be driving this decline in traffic? The broad based nature of this decline

suggests that it is something other than a counterbalance to seasonally strong sales in the springdue to good weather. The broad-based and precipitous decline in traffic since March is more

likely due to changes in financing like the increase in mortgage insurance premiums at the FHA

or dwindling inventories in local markets.

Commercial Real Estate Rebound ContinuesFinancial Issues

George Ratiu, Manager, Quantitative & Commercial Research

Introduction

Financial conditions, along with employment, are major drivers of the residential home

sales market, as reported in theRCIreport. Real estate credit continues to be tight, sometimesavailable on a limited basis even to residential buyers with strong credit scores. Similarly, credit

is a problem in the commercial real estate marketsand is even tighter. This article discusses

the Commercial Real Estate markets and credit issues. Market fundamentals are improving forcommercial real estate, but credit availability continues to be a major issue.

Commercial Real Estate

Amid a backdrop of moderate-but-positive economic growth, demand for commercial

space is rising and availability is declining across all property types. A main driver of the

rebound comes from low levels of new construction in recent years, which have prevented a run-

up in supply. The other drivers are rising employment in office-using industries, increasedinternational trade, and a housing market which has turned many owners into renters.

For office properties, net absorption is expected to total 24.7 million square feet this year,leading to a projected 16.2 percent vacancy rate for the year. The 40 basis point (bps) decline in

vacancy is likely to be accompanied by a 2.0 percent rise in rents. Absorption in the industrial

sector is expected to reach 44.1 million square feet this year, resulting in a 100 bps drop in thevacancy rate and a 1.6 percent rent rise. The retail sector is still working through the fallout from

the recession and the glut of inventory that was dumped on the market by bankrupt

conglomerates. Demand is likely to exceed 8.0 million square feet this year. Retail availabilitywill likely decline to 1.2 percent for the year (from 12.5% in 2011), and rent growth will get

close to 1.0 percent.

The apartment rental market is the clear standout in the commercial sector. With lowerhomeownership levels and a rising population, demand for apartments is growing. Net

absorption is expected to reach 215,871 units this year, driving the vacancy rate to 4.4 percent

(from 5.2% in 2011). Rent is projected to rise 4.0 percent this year and an additional 4.1 percent

in 2013, putting apartment properties on the must-have list for many investors.


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Credit Issues

Lending for commercial properties continues to remain tight in REALTOR markets.

This is especially pertinent for small businesses and investors looking for properties in secondary

and tertiary markets. In the wake of the post 2008-09 recession shakeout and new regulatory

environment, large banks have been reluctant to underwrite commercial real estate investments.In addition, smaller local and community banks, whose concentration of commercial properties

composed a large portion of their portfolios, have also taken steps to reduce their exposure.

According to the REALTORS 2012 Commercial Lending Survey, almost 70.0 percent

of commercial REALTORS reported having a deal fail due to financing issues, over the past 12

months. In addition, 75.0 percent of REALTORS mentioned that lending standards are astight, or more stringent than a year ago. Adding to tight underwriting, down-payment conditions

also require substantial commitment72.0 percent of closed sales required a down-payment

larger than 20% to secure financing, with 7.0 percent of loans requiring 50%-60% loan-to-value

ratios. Not surprisingly, cash transactions accounted for almost 30.0 percent of sales.

Outlook

The first quarter data provides welcome news for commercial real estate. However, it is obvious

that the road ahead reserves plenty of bumps. An easing of credit conditions would be very

beneficialboth to residential and to commercial markets.

For more information about commercial real estate research, visit

http://www.realtor.org/research-and-statistics/research-reports/commercial-real-estate .
http://www.realtor.org/research-and-statistics/research-reports/commercial-real-estatehttp://www.realtor.org/research-and-statistics/research-reports/commercial-real-estatehttp://www.realtor.org/research-and-statistics/research-reports/commercial-real-estate

Documents

May 2012 RCI Report