REALTORS CONFIDENCE INDEX

Report and Market Outlook December 2012 Edition

Based on Data Collected December 27, 2012 through January 4, 2013

NATIONAL ASSOCIATION OF REALTORS

Research Department Lawrence Yun, Senior Vice President and Chief Economist

Table of Contents
SUMMARY .................................................................................................................................................. 3 Executive Summary--Current Conditions: Major Indicators ................................................................... 3 Market Outlook ......................................................................................................................................... 6 I. Market Conditions .................................................................................................................................... 8 REALTORS Confidence Index Is Up in December .............................................................................. 8 Seventy nine Percent of REALTORS Reported Constant or Higher Prices on Recent Transactions Compared to a Year Ago .......................................................................................................................... 9 Eighty-seven Percent of REALTORS Expect Constant or Higher Residential Prices ........................ 10 Twelve percent of REALTORS Reported Selling at a Premium Over the List Price ......................... 10 Thirty-One Percent of Houses Sold in One Month ................................................................................. 12 Median Days on Market at 73 Days........................................................................................................ 12 Distressed Sales: 24 Percent of Sales ...................................................................................................... 13 II. Buyer and Seller Characteristics ............................................................................................................ 15 Cash Sales: 29 Percent of Residential Sales .......................................................................................... 15 Residential Sales to Investors: 21 Percent of Residential Market .......................................................... 16 Second Home Purchases: 12 Percent of Residential Market .................................................................. 17 Buyers Due to Relocation/Job Changes: 13 Percent of Residential Market ........................................... 18 International Transactions: Two Percent of Residential Market ............................................................. 18 Thirty-six Percent of Sales with Mortgages Had Down Payments of 20 Percent or More .................... 19 Fifty-two Percent of Responding REALTORS Report Rising Rents for Residential Properties ........ 19 III. Current Issues........................................................................................................................................ 20 Tight Credit Conditions and Slow Lending Process ............................................................................... 20 AppraisalsA Continuing Problem ....................................................................................................... 21 IV. Comments: Straight from the REALTORS ....................................................................................... 22 V. NAR Recent Articles ............................................................................................................................. 25 Employment by Lawrence Yun .............................................................................................................. 25 Housing Starts by Ken Fears27

Appendix. RCI Historical Data..28

2

SUMMARY
Jed Smith and Gay Cororaton The REALTORS Confidence Index (RCI) Report provides monthly information pertaining to expectations about overall market conditions, buyer/seller traffic, price, buyer profiles, and issues affecting real estate. Collection of this data began in January 2008 to supplement information on existing home sales trends and provide timely feedback from REALTORS on the real estate market (see the Data Appendix of this Report for the historical series). The December edition is based on responses of 2,760 REALTORS to a survey conducted during December 27, 2012 through January 4, 2013.1 All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. Executive Summary--Current Conditions: Major Indicators The year 2012 ended on a high note with the Current Conditions Confidence Index increasing for all property types. The index for single family homes rose to 56 from 32 a year ago, indicating a shift in expectations from below moderate to above moderate. An index of 50 delineates moderate conditions or expectations. The index for townhouses ended at 39 compared to 19 last year, while the index for condominiums was at 31 compared to 14 last year.

The REALTORS Confidence Index on Current Conditions increased across all property types. The index for single family homes ended at 56 in December, up from last years 32. The indexes for townhouses and condominiums remain below 50 but are up from last year.

REALTORS generally reported brisker sales, rising home prices, and shorter days on the market. However, the market recovery continued to be held back by low inventory and a tight and drawn out underwriting process, especially for shortsales. Appraisal issues, the modest pace of economic recovery and job growth, and the potential adverse impact of fiscal cliff measures and regulations on mortgage lending (e.g, Qualified Mortgage rules) were major concerns. REALTORS also reported reduced activity in the areas affected by Hurricane Sandy and concerns over the potential dampening effect of higher flood insurance rates (see REALTORS comments in Section IV of this Report).

The survey is sent to approximately 50,000 REALTORS. 3

REALTORS Confidence Index--Dec 2012 Current Conditions

70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

SF: 56 TH: 39 Condo 31

201110

200801

200804

200807

200810

200901

200904

200907

200910

201001

201004

201007

201010

201101

201104

201107

201201

201204 201204

201207

SF

TH

Condo

Demand continued to expand faster than supply. The Buyer Traffic Index rose to 56 from 36 in the same period last year, while the Seller Traffic Index barely moved, ending at 38 from 37 last year. REALTORS reported numerous cases of multibidding resulting in properties selling above the list/asking price or distressed sales selling close to market price. The market has steadily moved towards a sellers market with buyers more willing to bear closing costs, in some cases paying for half or more of the closing cost.

Demand outstrips supply: the Buyer Traffic Index is at 56 while the Seller Traffic Index is at 39. An index of 50 indicates moderate conditions .

Indexes of Buyer and Seller Traffic -- Dec 2012

60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0

Buyer: 56 Seller : 38

200801

201104

200804

200807

200810

200901

200904

200907

200910

201001

201004

201007

201010

201101

201107

201110

201201

201207

Buyer Traffic Index

Seller Traffic Index

201210

201210

Tight inventory conditions have boosted prices. About 79 percent of REALTORS reported constant or increasing prices compared to their average home transaction a year ago.

About 79% of responding REALTORS reported constant or increasing prices compared to similar transactions a year ago.

Percentage of Respondents Reporting Constant or Higher Prices Today Compared to a Year Ago
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 69% 71% 73% 73% 79%

54%

58%

62%

64%

64%

The median days on the market increased to 73 days in December (70 in November ) but was well below last years 99 days. The increase in median days is on account of longer days on the market for short sales to 117 days (90 days in November).

Median Days on the Market for All Sales

120 100 80 60 40 20 0 96 97 98 92 101 96 98 99 99 97 91 83 72 70 69 70 70 71 70 73

201110

201105

201106

201107

201108

201109

201111

201112

201201

201202

201203

201204

201205

201206

201207

201208

201209

201210

201211

Source: NAR, RCI Survey

201212

Market Outlook Confidence about the outlook for the next 6 months rose in December for all property types. The Six-Month Outlook Confidence Index for single family sales ended at 62, up from 40 a year ago. An index of 50 indicates moderate expectations.The SixMonth Outlook Confidence Index for townhouses and condos also improved although expectations remain below moderate. The REALTORS Confidence Index Six Month Outlook for single family homes rose to an all-time high of 62 in December from 40 a year ago, indicating a shift in expectations from below moderate to above moderate.

REALTORS Confidence Index--Dec 2012 Six-Month Outlook

70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

SF: 62 TH: 44 Condo 37

201110

200801

200804

200807

200810

200901

200904

200907

200910

201001

201004

201007

201010

201101

201104

201107

201201

201204

201207

SF

TH

Condo

REALTORS responding to the survey generally expect to see improving prices for the next 12 months. The median expected price change for the next 12 months is 3.2 percent .

in %
3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00

REALTORS' Median Expected Price Change for Next 12 Months (in %)

Dec '12: 3.2%

Source: NAR, RCI Survey

201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212

201210

NARs latest economic projection is for continued increases in residential home sales along with continued price improvement (although sales and price trends will vary from market to market). Existing home sales were at 4.65 million in 2012 ( and are projected at 5.08 million in 2013). The median price for existing home sales was $176,600 in 2012 (projected at $185,800 in 2013). Decreases in months of inventory of homes for sale and a decline in percentages of existing home sales that are distressed are projected to lead to continued market improvement. In fact, the lack of available inventory is becoming a problem in some parts of the country. NARs forecasts are based on an economy expected to grow at 2.3 percent in 2013 and with 30-year mortgage rates at 3.3 percent in 2013.

Existing Home Sales: Actual and Forecast Outlook Projects Continued Recovery
8000000 7000000 6000000 5000000 4000000 3000000 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11 Apr/12 Nov/12 Jun/13
Twelve Month Roll Forecast

2013 Forecast: 5.08 Mil

Median Prices by Month, Not Statistically Adjusted Outlook Projects Improvement

250000 200000 150000 100000 50000 0 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11 Apr/12 Dec/12 Jul/13
EHS-Median Price Forecast

2013 Forecast: $185,800

What Does This Mean For REALTORS? The real estate markets continue to recover both in terms of sales and price. Continued restrictive mortgage availability with tight underwriting standards is a problem, but REALTORS report that loans are frequently available at smaller banks and credit unions. Making sure that appraisers are qualified and that appropriate comps are used are important. Tight inventories of homes for sale are making markets increasingly competitive.

I. Market Conditions
REALTORS Confidence Index Is Up in December The Current Conditions Confidence Index and the Six-Month Outlook Confidence Index for single-family homes ended at peak levels in December 2012 (56 for current conditions and 62 for 6-month outlook). Expectations notched up from below moderate in 2011 to above moderate in 2012 (an index of 50 indicates moderate expectations). The indexes for townhouses and condominiums remain below 50 but are on an upward trajectory indicating an improving outlook. The FHA certification process and regulations on condo occupancy requirements for securing private mortage insurance were reported to be major factors holding back the recovery of the condominium market .

REALTORS Confidence Index--Dec 2012 Current and Six Month Outlook: Single Family Properties
70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 200801 200804 200807 200810 200901 200904 200907

Current: 56 Outlook: 62

200910

201001

201004

201007

201010

201101

201104

201107

201110

201201

201204

201207

Current Conditions

6-Month Outlook

201210

REALTORS Confidence Index--Dec 2012 Current and Six Month Outlook: Townhouse Properties
50.0 40.0 30.0 20.0 10.0 0.0

Current: 39 Outlook: 44

200810

201201

200801

200804

200807

200901

200904

200907

200910

201001

201004

201007

201010

201101

201104

201107

201110

201204 201204

201207 201207

Current Conditions

6-Month Outlook

REALTORS Confidence Index--Dec 2012 Current and Six Month Outlook: Condo Properties
40.0 30.0 20.0 10.0 0.0

Current: 31 Outlook: 37

201010

201201

200801

200804

200807

200810

200901

200904

200907

200910

201001

201004

201007

201101

201104

201107

201110

Current Conditions

6-Month Outlook

Seventy nine Percent of REALTORS Reported Constant or Higher Prices on Recent Transactions Compared to a Year Ago Home prices continue to firm up as demand for existing home sales is reported to be increasing faster than the supply of available homes. About 36 percent of REALTORS reported constant home prices while 43 percent reported rising prices. As the graph below shows, there are increasingly more REALTORS reporting rising prices compared to year ago level since the March 2012 survey. Many REALTORS noted a significant increase in multibidding on properties, especially for lower priced and ready- to-move- in houses .

201210

201210

Prices on Recent Transactions Relative to a Year Ago

40% 30% 20% 10% 0% 5% 8% 7% 36% 26% 12% 5%

Mar-12 Aug-12

Apr-12 Sep-12

May-12 Oct-12

Jun-12 Nov-12

Jul-12 Dec-12

Twelve percent of REALTORS Reported Selling at a Premium Over the List Price In the face of tight inventory and multibidding on most properties, some properties are selling at above the asking price2. About 12 percent of respondent REALTORS who completed a sale reported a net premium. About 16 percent were sold at the asking price, while about 72 percent continued to be sold at a discount. The average (median) selling price compared to the asking price was a discount in the range of 4-7 percent .

Percent of REALTORS Reporting Net discount or Net Premium Of the Asking Price- Dec 2012

net premium of 12% or more net premium 8-11% net premium of 4-7% net premium of greater than 0 to 3% 0% net discount or net premium net discount of greater than 0 to 3 % net discount of 4-7% net discount of 8-11% net discount of 12-15% net discount of greater than 16-19% net discount of 20-23% net discount of greater than 23% 0.0%

0.5% 2.1% 3.6% 6.1% 16.0% 17.3% 21.3% 13.3% 7.5% 3.5% 4.0% 4.8% 5.0% 10.0% 15.0% 20.0% 25.0%

The December 2012 Survey included a new question comparing the actual price with the asking price. 10

Eighty-seven Percent of REALTORS Expect Constant or Higher Residential Prices Tight inventory has bolstered prices. Eighty-seven percent of respondents expected constant or higher prices in the next 12 months. Price expectations are most upbeat in the West, including the states of California and Arizona, which saw steep falls in property values. Texas and Florida are also in the top group of states where price expectations are the most upbeat. However, the price outlook of REALTORS in New York, North Carolina, and Illinois remains subdued . New York prices continue to be weighed down by its longer foreclosure process. The median expected price increase is 3. 2 percent nationally. REALTORS Price Expectations for Next 12 Months Dec 2012 RCI Survey
100% 80% 60% 40% 20% 0% 87% expect constant/higher prices in next 12 months

Constant/Rising Prices

Falling Prices

State Median Price Expectation for Next 12 Months (in%) REALTORS Confidence Index Survey, December 2012

11

Thirty-One Percent of Houses Sold in One Month Multiple offers have led to shorter time on the market for a property to sell. About 31 percent of REALTORS noted that recently sold properties were on the market for less than a month when sold compared to only 22 percent in the same month last year. The percentage of REALTORS reporting that the house sold had been on the market for 6 months or more is down to 22 percent from 29 percent a year ago.

Time On Market When Sold

40% 30% 20% 10% 0% <1 mo 1-2 mo 2-3 mo 3-4 mo 4-5 mo 5-6 mo 6-9 mo 9-12 mo 201204 201209 201205 201210 201206 201211 201207 201212 >=12 mo 14% 13% 9% 9% 31%

6%

6%

8%

5%

201208

Data shown are for Dec 2012.

Median Days on Market at 73 Days Despite the protracted loan approval process, properties were on the market for fewer days in 2012 than in 2011 as a result of tight supply and multibidding. The median days on market in December was 73 days (99 days last year). Short sales had the longest days on market with a median of 117 days (160 days last year). Foreclosures were on the market for 45 days (60 days last year), while the median days on the market for non-distressed properties was 74 days (106 days last year).

Median Days on Market

200 150 100 50 0 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 Short Sales Foreclosed Not distressed All

Dec'12: Shortsale: 117; Foreclosed: 45; Not distressed: 74

12

Distressed Sales: 24 Percent of Sales About 24 percent of respondents reported selling distressed property, down from the levels seen a year or two ago. The lower share of distressed sales, along with tight supply has bolstered prices. REALTORS reported strong demand for REOs from investors, who typically pay cash and who are willing to renovate the properties and turn them into rentals. Cash sales accounted for roughly 43 percent of distressed sales (46 percent in November 2012).

Percent of Respondents Reporting Distressed Sales

50% 40% 30% 20% 10% 0% 200905 200907 200909 200911 201001 201003 201005 201007 201009 201011 201101 201103 201105 201107 201109 201111 201201 201203 201205 201207 201209 201211 Foreclosed As % of Sales Short Sale As % of Sales

Dec'12: Foreclosed: 12% Shortsale: 12%

Distressed Real EstateBelow Market Prices Distressed properties typically sell below the market price of similar property in nondistressed condition. The level of discount fluctuates depending on sales location, type of property, and property condition. Foreclosed property sold on the average at a 17 percent discount, while shortsale properties sold at a 16 percent average discount.

Mean Percentage Price Discount of Distressed Sales (in %)

25 20 15 10 5 0 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210 201212 Foreclosed Shortsale

Dec'12: Foreclosed: 17%; Shortsale: 16%

13

Property Condition Affects the Selling Price of Distressed Properties The discount to market experienced by distressed property is affected by the propertys physical 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 current survey month as well as the 12 month period from January through December 2012. REALTOR respondents reported price discounts for distressed houses with above average condition at about 13 15 percent, and price discounts of 18-32 percent for properties in the poorest condition. Percent Price Discount by Property Condition (%) Unweighted Average for Jan 2012 to Dec 2012
40.0 31.9 14.7 21.7 16.6 36.8 35.7 28.7 22.4

20.0

13.6

13.4

0.0 1-Above average 2-Average 3-Below average 4-Well below 5-Bottom 1% ave

Foreclosed

Shortsale

Mean Percent Below Market Value Dec 2012 RCI Survey House Condition 1-Above average 2-Average 3-Below average 4-Well below ave 5-Bottom 1% Foreclosure 15.0 15.4 22.3 25.0 31.6 Short Sale 13.5 14.5 16.5 20.0 17.8

14

II. Buyer and Seller Characteristics

Cash Sales: 29 Percent of Residential Sales Approximately 29 percent of REALTORS who made a sale reported a cash sale in December (30 percent in November ). By type of borrower, international homebuyers and investors had the highest share of cash sales, followed by second home buyers. About 8 percent of first-time homebuyers paid cash. REALTORS have reported that investors who are seeking REOs and distressed properties typically win against first time home buyers who need to secure a mortgage in a tight and stringent credit market. About 43 percent of distressed sales are cash sales.

Cash Sales as Percent of Market

40% 35% 30% 25% 20% 15% 10% 5% 0%

Dec '12: 29%

Percent of Cash Sales by Type of Buyer- Dec 2012

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 81% 66% 49% 43% 18% 8%

15

First Time Buyers: 30 Percent of Residential Buyers Approximately 30 percent of responding REALTORS reported making a sale to first time home buyers (also 30 percent in November ). Normally, first time buyers are in the neighborhood of 40 percent.3 The decrease in participation of first time buyers from the market reflects to some extent the difficulty of securing mortgage financing, delays with distressed sales, and purchases of lower priced properties by investors. REALTORS have noted that investors offering all-cash sales to sellers have crowded out first-time buyers in some cases, particularly in the case of distressed properties. Most first time buyers obtain a mortgage: about 8 percent of REALTORS who made a first time home buyer sale reported cash sales (9 percent in November ).

First Time Buyers as Percent of Market

60% 50% 40% 30% 20% 10% 0%

Dec '12: 30%

Residential Sales to Investors: 21 Percent of Residential Market Investors accounted for 21 percent of total residential sales in December (19 percent in November). Approximately 66 percent of respondents who reported a sale to an investor reported a cash sale (70 percent in November ). REALTORS reported that these cash investors generally win against first time homebuyers who need to secure a loan.

Based on data from the Profile of Homebuyers and Sellers which surveys homebuyers and homesellers, first-time buyers typically account for about 40 percent of all homebuyers. In the 2012 Survey, homebuyers accounted for 39 percent of buyers. 16

Sales to Investors as Percent of Market

30%

Dec '12: 21%

25% 20% 15% 10% 5% 0% 200810 200812 200902 200904 200906 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 201210 201212

Second Home Purchases: 12 Percent of Residential Market Second home sales accounted for 12 percent of responses (relatively unchanged since August). Approximately 49 percent of second home sales were for cash (52 percent in November ). Respondents noted an active market for luxury homes.

Second Home Buyers as Percent of Market

16% 14% 12% 10% 8% 6% 4% 2% 0%

Dec '12: 12%

201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212

17

Buyers Due to Relocation/Job Changes: 13 Percent of Residential Market About 13 percent of residential sales were to buyers for relocation purposes, i.e., a job move, retirement, etc. (15 percent in November). About 18 percent of sales were cash (22 percent in November).

Relocation Buyers as Percent of Market

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203

Dec '12: 13%

International Transactions: Two Percent of Residential Market Approximately 2.1 percent of REALTORS reported sales of U.S. residential real estate to foreigners not residing in the U.S (1.6 percent in November ). Approximately 81 percent of respondents who reported transactions with international clients reported cash sales (70 percent in November). REALTORS noted that qualified first time buyers are finding it hard to compete with international investors paying cash. Most of the international buyers are reportedly coming from Canada and China.

Percent of Sales to International Clients

4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212

Dec '12: 2.1%

18

201206 201207 201208 201209 201210 201211 201212

201204

201205

Thirty-six Percent of Sales with Mortgages Had Down Payments of 20 Percent or More Approximately 36 percent of mortage sales involved a down payment of 20 percent or more (compared to 37 percent in November ). Down payments of 11-19 percent were at less than 5 percent.

Percent of Sales by Downpayment Levels

40% 35% 30% 25% 20% 15% 10% 5% 0% 201104 201105 201106 201107 201108 201109 201110 201111

Dec '12: At least 20% D/P: 36%

201207

201112

201201

201202

201203

201204

201205

201206

201208

201209

201210

201211

11-19%

>=20%

Fifty-two Percent of Responding REALTORS Report Rising Rents for Residential Properties About 52 percent of responding REALTORS reported higher residential rents (54 percent in November) . Rising rental costs make homeownership more attractive especially at a time when mortages are low and owning a home is very affordable.

Percent of REALTORS Reporting Changing Rent Levels as Compared to 12 Months Ago

60% 50% 40% 30% 20% 10% 0% 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 Higher Rents Lower Rents Constant rents

Dec '12: Rising rent: 52%

19

201212

III. Current Issues

Tight Credit Conditions and Slow Lending Process One of the most frequent and continuing comments by REALTORS was a concern over unreasonably tight credit conditions. Respondents indicated that credit conditions continue to be extremely tight, that lenders are taking too long in approving an application, and that information and documentation requirements are excessive and not requested in a timely manner. Respondents expressed frustration that some financial institutions appear to lend only to individuals with the highest levels of credit scores. There appears to be an unnecessarily high level of risk aversion by mortgage lenders. In the 2001-04 time framea time of normal residential real estate markets before the Great Recession--approximately 40 percent of Fannie Maes and Freddie Macs loans went to applicants with credit scores above 740. In contrast, REALTORS responding to the RCI survey indicated that over 50 percent of loans went to borrowers with credit scores above 740, including Fannie, Freddie, and other lenders. In the case of Fannie and Freddiewhich are now a smaller part of the marketin 2011 approximately 75 percent of loans had credit scores of 740 and above. Estimates by NAR economists have indicated that an additional 500,000 to 700,000 additional sales could be made if credit conditions returned to normal. This increased level of sales activity could generate an additional 250-350 thousand additional jobs on an annual basis, because existing home sales generate jobs across a wide spectrum of the economyi.e., attorneys, painters, plumbers, landscapers, title companies, furniture manufacturers, etc. These are jobs that could be generated at no cost and almost immediately.

NAR-RCI Survey Credit Scores

70% 60% 50% 40% 30% 20% 10% 0% lt 620 620 - 659 RCI-Feb'12 RCI-Jun'12 RCI-0ct'12 660-699 RCI-Apr'12 RCI-Aug'12 RCI-Dec'12 700-739 RCI-May'12 RCI-Sep'12 740+ RCI-Mar'12 RCI-Jul'12 RCI-Nov'12

20

FICO Scores: Recent Scores in 2012 vs. 75% 74% Scores in 2005
60% 57% 49% 53% 58% 54% 53% 53% 57% 57% 57% 42% 44%

2% 2% 1% 1% 1% 1% 1% 3% 1%

2% 1%

0% 1%

5% 4%

lt620(RCI)

740+(RCI)

lt620(Fannie/Freddie)

740+(Fannie/Freddie)

The meaning for REALTORS is clear: In many cases lenders are not making loans to potential buyers with less than perfect credit scores but who are well qualified to buy a home. A potential home buyer who is rejected by one bank or financial institution should try, try, try again at a different financial institution. Rejection of a loan application may be more indicative of the financial state of the lending institution than of the applicants credit worthiness. There are a variety of potential lending sources in addition to large banks and mortgage brokers. For example, a number of REALTORS noted that regional and community banks and credit unions could be good potential alternative sources of mortgages. AppraisalsA Continuing Problem Appraisals continued to be a problem in moving transactions to closure. Many REALTORS continue to report that appraisal values are not keeping pace with the appreciation in market values. In some cases REALTORS reported that appraisers were using foreclosures as compswhich they clearly are not. REALTORS also reported encounters with out-of-town appraisers who have little knowledge of the neighborhood/local conditions or of using comps not reflective of the local market. REALTORS also expressed frustration at the slow turn around time from appraisers and appraisal requirements that are an uncessary expense on the buyer. About 33 three percent of REALTORS reported having had a problem with an appraisal in the past 3 months (same as in September). Approximately 10 percent of the respondents reported that appraisal problems led to contract cancellation; about 10 percent reported a delay as a result of an appraisal problem, and almost 13 percent reported that the appraisal problems led to lower prices.

21

Percent of REALTORS Reporting Appraisal Problems in Past 3 Months

50% 40% 30% 20% 10% 0% 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 Contract Cancelled Contract Delayed Negotiated to Lower Price

Dec '12: 33%

IV. Comments: Straight from the REALTORS

Jed Smith, Managing Director, Quantitative Research Low inventories of available homes for sale, tight financing conditions, appraisal issues, and uncertain economic conditions and policies were reported as impacting the housing markets. Some REALTORS comments that typify most of the views expressed are presented below. 1. Low Inventory/multiple bidding Inventory remains very tight, with increased multi-bidding, especially for well-priced homes. Investors, who typically pay cash, frequently win against first-time buyers. REOs do not appear to be coming aroud sufficiently to meet demand, while sellers are also waiting for prices to pick up further. There are reports of homes selling above asking prices. Here is what REALTORS are saying in the December 2012 survey:
Inventories are low. Ive seen multiple offers on a few properties and homes selling for close to asking price or over the asking price in a few cases. Homes are not staying on market for long, as we have seen in the last 5 years. Real estate has seen the worst, now we are expecting normal trend in the market for 2013. Inventory is very low, and the law of supply and demand has impacted prices to move upward. Most bank owned transactions are multiple offers, but we are also experiencing that in a well priced single family home. Buyers from out of area are paying cash. I am seeing a lot of 40-ish career professional couples from Canada buying multiple investment homes. Investor purchases and flips have skewed the marketplace. When they purchase properties at 40 cents on the dollar, their profit margin is huge giving a misleading assessment of the average buyer or investor. 22

 Investors seem to still be interested in the foreclosure "deals". The general public is interested in them, too, but not many can compete with the aggressive purchase-minded investors. Traditional sellers seem to be in a wait-and-see mode, unless they have good equity and need to sell--for job moves, health, etc. Little inventory is available. Good homes that are priced well receive multiple offers within the first 24 hours, with many selling over the list price. Many buyers-- but sellers reluctant to list. However, rising sale prices may persuade more to list now in Spring.

2. Tight Financing Credit Access to financing remains tight, benefting cash buyers. The process remains protracted, causing delayed closings and risking cancellations. There are reports that banks are disapproving loan applications of those with reasonably good credit scores and are requiring larger downpayments. Here is what REALTORS are saying in the December 2012 survey:
Tight lending restrictions are keeping a lot of buyers who are very qualified out of the housing market. The lending requirements need to be adjusted to make sense. Banks have to lighten up on credit scores. Credit is more difficult to obtain with low down payments. Banks are requiring more information and delaying closings for things I have not seen in 24 years of real estate business. Restrictions are getting tighter and information is getting slower. We are extending closings every week sometimes out 2 to 3 months from original contract close date. Get the lenders to improve their short sale approval systems. 4-6 months is TOO long for a cash buyer to wait! Bank/lenders short sale process should be standardized like the foreclosure process is! Too many variables between lenders. Lost a Short Sale to foreclosure during the process! Banks are reluctant to negotiate short sales because of MI guarantees and generally appraise above market in short sales and below market in purchases (loans). Banks will not expedite loans.

Lack of FHA approval and/or rentals by condo associations are killing that market. The value will continue to drop unless that situation somehow changes

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3. Appraisal issues The most common reports are about out-of- area appraisers who have poor knowledge of local conditions. Another issue is the demand for unusual repairs by some appraisers. Here is what REALTORS are saying in the December 2012 survey:
Appraisers need to consider the market conditions more, and lenders need to stay out of inspection issues. They keep changing their rules on a daily basis and put the transaction in jeopardy until the very end. Appraisers are taking 2-4 weeks after final acceptance of purchase agreement to complete the appraisals. This is delaying closings and on those where the appraisal comes in low, buyers are losing market time to look at other properties they may wish to purchase. Appraisers should not be given a copy of the purchase and sales agreement. They should have to do the appraisal based on the market data. Appraiser seems to be getting specific pressure from lenders to keep appraised values lower than what they should be.

4. Economic and policy uncertainty REALTORS expressed concern about the effects of fiscal and financial regulations on the market. The increase in flood insurance rates in the wake of Hurricane Sandy also appears to be affecting buyers. Here is what REALTORS are saying in the December 2012 survey:
I'm very concerned with the current economic climate. The national deficit as well as the annual deficit spending are going to catch up with us. These matters, along with tax hikes, are likely to push this country back into recession. I work in an area that SuperStorm Sandy has affected. We don't know the true cost yet. However, with the new flood insurances and requirements, the market could be in severe trouble. The 3% cap on points/fees from the QM will be devastating. 70% owner occupancy for any condo insurance is outrageous and is going to kill the condo market. Condos that have not been FHA Certified are causing slower sales and lower sale prices.

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V. NAR Recent Articles

Employment Lawrence Yun, SVP and Chief Economist

Job creation continued in December with 155,000 net new payroll jobs. From one year ago, 1.8 million new jobs have been added. From the cyclical low point nearly 3 years ago, there are now 4.8 million more jobs. The unemployment rate held steady at 7.8 percent. Still, we need to be mindful that 8 million jobs were cut during the Great Recession of few years ago, and hence we are still not out of the hole. It has not been a good time to be a recent college graduate saddled with a large student loan debt. Construction jobs are finally coming around with 30,000 additions in December. Jobs in this sector had not matched up with other trends of higher housing starts. So the lagging employment data is likely to show more construction job creations in the upcoming months. Jobs in the profession business service sector have reestablished its prior peak and continue to expand. That is very good news as demand will rise for commercial office spaces. Local governments continue to shed jobs in order to balance the budget. State government jobs are no longer bleeding as the rising sales tax revenues are beginning help. Federal government jobs are declining a bit, though the total number is substantially higher now versus several years ago. The average worker wage rose to $19.92 per hour and may be at the initial stage of acceleration. Up only 1.7 percent from one year ago, the latest monthly gain on an annualized pace was 3.7 percent. If wages do accelerate then overall consumer prices will get pushed up. In such a case, the Federal Reserve could be in a conundrum as to what to do. Keep interest rate low and continue Quantitative Easing (printing money) to help lower unemployment rate or begin to raise interest rates in order to cool off inflation. Irrespective of the Fed, the bond market will quickly factor in slightly higher inflation potential and charge modestly higher interest rates. The rock-bottom low mortgage rates may already be over. Though any rise will be not alarming, with the 30-year fixed rate mortgage rising to maybe 4.2 percent by the year-end from the current 3.5 percent rate. The labor force participation rate of those with job or seeking work continues to remain at very low levels. Many adults have dropped out of the labor force in recent years, either out of frustration in unable to find work, attending schools, took early retirement package or disturbingly to obtain disability benefits. Had the labor force not fallen, the current unemployment rate would be above 10 percent.

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Housing Starts Ken Fears, Manager, Regional Economics

The Census bureau reported 954,000 starts in December, an increase of 12.1% from November which was revised modestly lower. Single family construction, which has lagged for several years in the wake of the subprime crisis and subsequent bloat in inventory, was up 18.5% over the 12-month period ending in December. Permits for construction of single family units were 27.3% higher over this period, suggesting confidence among builders for the future. Despite the strong figures, starts remain well below the historic average and should not pose a threat to inventories as much of the building is done in niche markets. Furthermore, financing for construction has been tight in recent years, so new projects are vetted closely by builders and lenders who search out good local information. Builder confidence in local conditions is a positive indicator for inventories, sales volumes, and price trends in these markets. New construction adds to GDP and employment growth.

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REALTORS Confidence Index Survey National Association of REALTORS

As of December 2012

REALTORS Confidence Index (RCI)

Traffic Index

Year/Month 200801 200802 200803 200804 200805 200806 200807 200808 200809 200810 200811 200812 200901 200902 200903 200904 200905 200906 200907 200908 200909 200910 200911 200912 201001 201002 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212

Single Family Townhouse Condominium Current 6-Month Current 6-Month Current 6-Month Conditions Outlook Conditions Outlook Conditions Outlook 27 38 16 23 14 19 27 38 17 24 15 21 29 39 19 25 15 21 28 37 19 25 16 22 31 38 21 26 17 23 29 37 20 23 18 21 29 33 20 22 17 19 26 33 18 22 15 20 25 28 16 19 14 16 22 29 14 19 12 17 21 31 13 20 12 17 19 28 11 17 10 14 23 34 13 20 11 18 25 35 14 22 12 18 28 40 15 23 12 19 33 45 18 27 14 22 34 44 20 27 16 23 35 43 18 24 14 19 34 40 18 22 14 18 38 42 21 24 16 20 35 41 19 22 15 19 34 39 17 22 13 17 35 41 19 23 15 18 33 42 15 23 13 19 36 43 18 24 14 18 35 43 18 23 14 19 36 42 18 22 14 18 35 38 19 22 14 17 36 40 19 22 17 19 27 29 14 14 11 12 24 27 11 13 10 11 23 26 12 13 10 11 21 25 12 15 9 11 23 26 9 13 8 11 23 28 11 15 10 13 25 32 13 18 10 15 27 37 13 19 10 15 30 37 14 19 12 17 32 39 17 22 14 18 32 39 16 20 14 17 33 38 18 22 15 18 31 34 16 19 14 16 31 33 17 19 14 17 31 32 17 18 14 15 29 30 17 18 14 15 30 32 18 20 14 16 30 36 19 22 15 18 32 40 19 24 14 19 37 46 23 29 18 23 43 52 26 32 21 27 49 57 30 36 25 31 50 55 31 36 25 30 57 62 36 41 29 34 58 61 38 42 31 36 54 56 35 38 29 32 54 56 35 38 30 34 53 56 36 39 29 33 53 58 36 41 31 36 53 59 36 41 31 36 56 62 39 44 31 37

Buyer Traffic

Seller Traffic

Price Expectation for Next 12 Months As % of REALTORS Who Expect Constant/Rising Prices

Rent Trends As % of REALTORS Who Expect Rising Rents

Median Days on the Market

31 31 35 30 34 31 31 33 28 27 26 25 32 36 39 44 44 43 41 45 41 39 38 37 41 41 42 41 37 27 26 24 23 23 25 27 30 33 37 37 37 33 34 32 30 33 33 36 44 51 55 55 55 54 54 55 53 54 53 56

58 57 56 56 55 57 54 52 48 46 42 46 45 46 48 48 48 46 47 47 47 44 43 43 44 46 47 44 43 42 40 40 41 38 37 36 37 41 41 42 42 41 40 38 36 36 35 37 39 40 41 41 41 40 40 40 38 37 37 38

48% 44% 40% 45% 46% 57% 65% 65% 64% 64% 72% 70% 69% 70% 67% 66% 65% 65% 68% 67% 58% 55% 53% 49% 50% 52% 59% 56% 60% 58% 59% 59% 54% 55% 54% 53% 58% 57% 62% 67% 73% 78% 81% 83% 86% 85% 87% 88% 87% 85% 87%

39% 42% 44% 46% 48% 55% 52% 49% 50% 47% 51% 47% 49% 47% 51% 53% 52% 54% 54% 57% 55% 57% 51% 54% 52%

96 97 98 92 101 96 98 99 99 97 91 83 72 70 69 70 70 71 70 73

/1 In the RCI Survey,a sale refers to the REALTOR's last closed or completed sale/transaction for the reference month. Prepared by the Research Division. For querries, please contact the Research Division c/o Dr. Jed Smith, Manager, Quantitative Research.

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REALTORS Confidence Index Survey National Association of REALTORS *

As of December 2012

Distressed Sales /1 Total Short Sale Distressed As % of Sales As % Sales of All Sales Mean Price Discount of Foreclosed Property Sales Mean Price Discount of Shortsale Property Sales

Financing

Type of Buyer As % of All Buyers /1

Appraisal Issues

Foreclosed As % of Sales Year/Month 200801 200802 200803 200804 200805 200806 200807 200808 200809 200810 200811 200812 200901 200902 200903 200904 200905 200906 200907 200908 200909 200910 200911 200912 201001 201002 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 201103 201104 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212

All Cash % of Mortgage Sales Sales as % of with at least 20 % All Sales Downpayment

Firsttime Buyer

Investor

As % of Second International REALTORS Facing home Relocation Buyer Appraisal Issues

23% 25% 27% 28% 30% 31% 29% 21% 20% 20% 18% 19% 18% 21% 22% 24% 23% 24% 21% 19% 17% 22% 22% 23% 23% 22% 24% 24% 26% 27% 24% 20% 18% 17% 19% 18% 17% 19% 19% 22% 20% 18% 17% 15% 13% 12% 12% 13% 12% 12% 12%

11% 12% 13% 13% 18% 18% 17% 12% 11% 11% 12% 10% 12% 12% 10% 14% 12% 12% 12% 12% 15% 10% 12% 12% 11% 11% 12% 13% 13% 13% 13% 11% 12% 12% 12% 12% 11% 10% 13% 13% 14% 11% 11% 10% 12% 12% 10% 11% 12% 10% 12%

34% 37% 40% 41% 48% 49% 45% 33% 31% 31% 31% 29% 30% 33% 32% 38% 35% 35% 33% 31% 32% 32% 34% 35% 34% 33% 36% 37% 39% 40% 37% 31% 30% 29% 31% 30% 28% 29% 32% 35% 34% 29% 28% 25% 25% 24% 22% 24% 24% 22% 24%

19% 23% 14% 21% 21% 21% 21% 21% 19% 21% 18% 15% 22% 21% 21% 19% 19% 19% 19% 19% 22% 20% 20% 22% 22% 19% 20% 21% 20% 21% 20% 22% 20% 19% 22% 21% 22% 19% 21% 18% 18% 17% 19% 21% 20% 20% 17%

19% 21% 14% 17% 15% 17% 16% 17% 18% 16% 15% 17% 19% 19% 19% 14% 12% 12% 12% 15% 14% 17% 16% 15% 15% 11% 17% 17% 16% 15% 16% 15% 14% 14% 13% 19% 16% 16% 14% 14% 15% 15% 13% 13% 14% 16% 16%

15% 24% 16% 18% 30% 30% 20% 12% 13% 19% 20% 21% 20% 19% 22% 26% 27% 27% 26% 25% 24% 30% 28% 29% 29% 31% 29% 32% 33% 35% 31% 30% 29% 29% 29% 30% 29% 28% 31% 31% 33% 32% 29% 28% 29% 27% 27% 28% 29% 30% 29%

34% 32% 37% 36% 34% 35% 34% 34% 36% 35% 32% 34% 33% 37% 36% 34% 37% 35% 36% 37% 36%

32% 27% 30% 38% 51% 53% 40% 47% 45% 31% 46% 49% 50% 51% 43% 40% 42% 44% 49% 46% 43% 38% 31% 32% 32% 32% 33% 29% 34% 33% 36% 36% 31% 32% 32% 32% 34% 35% 31% 33% 32% 33% 35% 34% 32% 34% 31% 32% 31% 30% 30%

14% 20% 14% 14% 25% 24% 18% 14% 14% 9% 12% 13% 14% 12% 15% 17% 19% 19% 15% 14% 13% 19% 21% 18% 19% 19% 20% 23% 19% 22% 20% 19% 19% 18% 22% 19% 18% 19% 21% 23% 23% 21% 20% 17% 19% 16% 18% 18% 20% 19% 21%

11% 12% 10% 13% 10% 14% 13% 13% 13% 14% 13% 11% 12% 12% 10% 13% 13% 12% 11% 12% 11% 12% 11% 12% 12% 12% 12% 12%

13% 14% 14% 15% 15% 15% 15% 14% 14% 13% 11% 12% 13% 15% 15% 15% 16% 14% 13% 15% 13%

3% 2% 2% 1% 2% 2% 2% 2% 3% 3% 2% 3% 4% 3% 3% 3% 3% 2% 3% 2% 2% 2% 2% 2% 2% 2% 3% 2% 2% 2% 2% 2% 2% 2%

39% 39% 39% 42% 42% 39% 41% 40% 39% 35% 35% 33% 34% 35% 35% 32% 32% 33% 31% 35% 36% 34% 32% 30% 31% 32% 33% 35% 34% 36% 35% 34% 34% 33%

/1 In the RCI Survey,a sale refers to the REALTOR's last closed or completed sale/transaction for the reference month. Prepared by the Research Division. For querries, please contact the Research Division c/o Dr. Jed Smith, Manager, Quantitative Research.

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