REALTORS CONFIDENCE INDEX

Report and Market Outlook June 2013 Edition

Based on Data Collected June 24 through July 3, 2013

NATIONAL ASSOCIATION OF REALTORS Research Department Lawrence Yun, Senior Vice President and Chief Economist

Table of Contents
SUMMARY ..................................................................................................................................................... 3 REALTOR Confidence in Current Market Conditions Held Steady ......................................................... 3 Demand Moderated While Supply Conditions Slightly Improved ............................................................ 4 Prices Continued to Pick Up and Dayon Market Drops Further ................................................................... 4 REALTOR Confidence in the Market Outlook in Next 6 Months Kept in Check ..................................... 5 I. Market Conditions..................................................................................................................................... 7 Confidence Remained Strong but Moderated in June............................................................................. 7 Prices Expected to Increase ...................................................................................................................... 9 Shorter Days on the Market: 37 Days .................................................................................................... 10 Distressed Sales Continue to Fall: 15 Percent of Sales ........................................................................... 12 II. Buyer and Seller Characteristics ............................................................................................................. 14 Cash Sales: 31 Percent of Residential Sales ........................................................................................... 14 First Time Buyers: 29 Percent of Residential Buyers ............................................................................. 14 Residential Sales to Investors: 17 Percent of Residential Market ......................................................... 15 Second Home Buyers : 10 Percent of Residential Market ...................................................................... 16 Relocation Buyers : 14 Percent of Residential Market ........................................................................... 16 International Transactions: About 2.3 Percent of Residential Market ................................................... 17 Mortgages With Down Payment of 20 Percent or More : 37 Percent of Mortgages ............................. 17 Rising Rents for Residential Properties ................................................................................................... 18 REALTORS Also Reported Commercial Rentals .................................................................................... 19 III. Current Issues ........................................................................................................................................ 19 Tight Credit Conditions and Slow Lending Process ................................................................................. 19 IV. Articles and Comments .......................................................................................................................... 20 Latest Mortgage Applications Data......................................................................................................... 20 Basel III Down: The Specter of Regulation Eases .................................................................................... 21 International Sales at $68.2 Billion in 12 Months Ending March 2013................................................... 23 Comments From REALTORS .................................................................................................................. 23

SUMMARY
Jed Smith and Gay Cororaton The REALTORS Confidence Index (RCI) Report provides monthly information about market conditions and expectations, buyer/seller traffic, price trends, buyer profiles, and issues affecting real estate. The current report is based on the responses of 3,447 REALTORS to a survey conducted during June 24 through July 3, 20131. All real estate is local: conditions in specific markets may vary from the overall national trends presented in this report. In June , REALTORS reported that buyer demand remained broadly robust. The recent increase in interest rates was reported as deterring some potential buyers from purchases, but also inducing other potential buyers to move forward quickly in anticipation of possible additional interest rates increases. Tight underwriting standards coupled with protracted bank approval processes continued to frustrate homebuying activity, especially for first-time homebuyers . Inventory was reported to be low compared to demand although there has been some easing in recent months. REALTORS also raised concerns about the dampening effect of new regulations such as the increase in mortgage insurance premiums and lifetime payment under certain conditions. REALTOR Confidence in Current Market Conditions Held Steady REALTORS generally continued to view current conditions in the single family homes market as strong , with the Index-Current Conditions2 at 71. The Index for townhouses was unchanged at 51. The Index for condominiums has been approaching the 50 level. REALTORS ascribed the low volume of condominium sales to problems in FHA financing. REALTORS Confidence Index - Current Conditions June 2013
80 70 60 50 40 30 20 10 0

SF: 71 TH: 51 Condo: 46

1
2

The survey was sent to a random sample of about 50,000 REALTORS. The Index is calculated as a weighted average of the responses, evaluated at 0-Weak, 50-Moderate, and 100-Strong.

200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 SF Townhouse Condo

Demand Moderated While Supply Conditions Slightly Improved The Buyer Traffic Index dipped slightly to 69 (71 in May), possibly on account of the impact of rising prices and higher mortgage interest rates. Meanwhile, inventory/supply conditions were reported to be improving, as reflected in the increase in Seller Traffic Index to 46 (43 in May). Notwithstanding, REALTORS reported that not enough inventory was still coming on the market from both REOs and homeowner listings as current homeowners wait for prices to move up further. About 47 percent of REALTORS reported having potential sellers waiting for further price appreciation. Indexes of Buyer and Seller Traffic
80 70 60 50 40 30 20 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 Buyer Traffic Index

June 2013: Buyer: 69 Seller : 46

Prices Continued to Pick Up and Properties Sell Faster

Amid tight inventory conditions, most REALTOR respondents reported higher sales prices and shorter days on the market. About 88 percent of respondents reported constant or increasing prices, while median days on the market for residential sales dropped further to 37 days.

Percentage of Respondents Reporting Constant or Higher Prices Today Compared to a Year Ago
86% 86% 87% 88% 79% 83% 83%

62% 64% 64% 54% 58%

69% 71% 73% 73%

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Apr-13

May-13 62 46

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Median Days on Market

120 100 80 60 40 20 0 201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 201306 Source: NAR, RCI Survey 96 97 98 9210196 98 99 99 97 91 83

72 70 69 70 70 71 70 73 71 74

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Feb-13

Sep-12

REALTOR Confidence in the Market Outlook in Next 6 Months Kept in Check Confidence about the outlook for the next 6 months was strong although confidence declined slightly relative to May. REALTORS reported a confluence of factors that tempered their optimism: rising interest rates, low inventory, rising prices, and stringent credit conditions.

Jun-13 41 37

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REALTORS Confidence Index - Six Month Outlook June 2013

80 70 60 50 40 30 20 10 0

SF: 72 TH: 54 Condo: 49

Approximately 95 percent of REALTORS reported that they expect constant or higher prices in the next 12 months, the same percentage since April. REALTORS' Price Expectations for Next 12 Months
100% 80% 60% 40% 20% 0% June 2013: 95% expect constant/higher prices in next 12 months

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Constant/Rising Prices

Falling Prices

NAR forecasts continued sales and price increases as are indicated by REALTOR responses.

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Sales
8000000 7000000 6000000 5000000 4000000 3000000 2000000

Home Sales and Prices: Actual and Forecast

Prices
240000 220000 200000 180000 160000 140000 120000 100000

What Does This Mean For REALTORS? The real estate markets continues with upward momentum in terms of sales and price. Continued restrictive mortgage availability and tight underwriting standards are a problem, but REALTORS report that loans are frequently available at smaller banks and credit unions. Tight inventories are reported as making markets increasingly competitive.

Confidence Remained Strong but Tapered in June REALTORS view of current conditions in the single-family market remained strong (71, the same as in May) although confidence about the outlook in the next six months appeared to have moderated (72 in June compared to 75 in May). The effects of rising prices and interest rates, coupled with the continued tightness in inventory as well as stringent credit standards and the effect of new regulations such as higher FHA mortgage insurance premiums might account for the dampened expectations.

Jan/00 Jul/00 Jan/01 Jul/01 Jan/02 Jul/02 Jan/03 Jul/03 Jan/04 Jul/04 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10 Jan/11 Jul/11 Jan/12 Jul/12 Jan/13 Jul/13 Dec/14
EHS-Actual Median Prices-Actual EHS-Forecast Median Prices- Forecast

I. Market Conditions

REALTORS Confidence Index--June 2013 Current and Six Month Outlook: Single Family Properties
80 70 60 50 40 30 20 10 0

Current: 71 Outlook: 72

60 50 40 30 20 10 0

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REALTORS Confidence Index--June 2013 Current and Six Month Outlook: Townhouse Properties
Current: 51 Outlook: 54

Current Conditions

6-Month Outlook

REALTORS Confidence Index--June 2013 Current and Six Month Outlook: Condo Properties
60 50 40 30 20 10 0 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 201201 201204 201207 201210 201301 201304 Current Conditions 6-Month Outlook

Current: 46 Outlook: 49

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Prices Expected to Increase With strong buyer demand and tight inventory, 95 percent of respondents expected constant or rising prices in the next 12 months. Among all respondents, the median of the expected price change was about 5 percent.
REALTORS' Median Expected Price Change for Home Prices in the Next 12 Months (in %)
%

6.0 5.0 4.0 3.0 2.0 1.0 0.0

June 2013: 4.9%

Source: NAR RCI Surveys

The map below shows the median expected price change based on the reported price expectation of the respondents in the June RCI. The states are divided into the lower (white), middle (yellow), and upper (red) groups, with each group representing 33 percent of the data. REALTORS in the West, South, and some Midwest states have the highest expected price increases of about 5 8 percent. Price expectations appear to have improved in the Northeast states such as in New York and Massachussetts.

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 201301 201302 201303 201304 201305 201306

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

Based on REALTORS Confidence Index Survey, June 2013

Shorter Days on the Market: 37 Days REALTORS continued to report properties selling briskly in June.The median days on market dropped to 37 days (41 in May). Short-sales had the longest days on market at 68 days (79 days in May) while foreclosed properties were on the market for 39 days (43 in May) . The median days on the market for non-distressed properties was 35 days (39 days in May ).

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Median Days on Market by Type of Sale

180 160 140 120 100 80 60 40 20 0

June 2013: Foreclosed: 39; Shortsale: 68 ; Not distressed: 35; All: 37

Foreclosed Source: NAR, RCI Survey

Approximately 47 percent of REALTORS reported that properties were on the market for less than a month when sold compared to 33 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 longer was down to 15 percent from 24 percent a year ago.

201105 201106 201107 201108 201109 201110 201111 201112 201201 201202 201203 201204 201205 201206 201207 201208 201209 201210 201211 201212 201301 201302 201303 201304 201305 201306 Short Sales Not distressed All

Distribution of Reported Sales by Time On Market

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 47%

14% 9% 7% 4% 4% 5% 4% 6%

<1 mo 1-2 mo 2-3 mo 3-4 mo 4-5 mo 5-6 mo 6-9 mo 9-12 mo >=12 mo 201206 201305 201306

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Distressed Sales Continue to Fall: 15 Percent of Sales With foreclosure rates easing, distressed sales are accounting for a smaller share of the market. Approximately 15 percent of respondents who reported a sale sold a distressed property, substantially down from levels a few years ago, and also lower than in May (18 percent). REALTORS continued to report strong demand for REOs from investors who reportedly win with significant frequency when bidding against first time homebuyers.
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 201301 201303 201305 Foreclosed As % of Sales Short Sale As % of Sales

June 2013: Foreclosed: 8 % Shortsale: 7 %

Foreclosed property sold at a 16 percent average discount to market , while short sales sold at a 13 percent average discount.3 Data from July 2012 thru June 2013 shows that below average foreclosed homes were discounted by20 percent, with below average short sales discounted by 16 percent.

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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%
30 25 20 15 10 5

Mean Percentage Price Discount of Reported Distressed Sales (in %)

June 2013: Foreclosed: 16%; Shortsale: 13%

%
35 30 25 20 15 10 5 0

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Foreclosed Shortsale

Percent Price Discount by Property Condition (%) of Reported Distressed Sales Unweighted Average for July 2012 to June 2013
27 20 13 12 15 16 12 22 15 30

Above average

Average

Below average

Well below average

Bottom 1%

Foreclosed

Shortsale

Mean Percent Below Market Value of Reported Distressed Sales, June 2013 RCI Survey House Condition Above average Average Below average Well below average Foreclosed 11 11 15 34 Short Sale 10 10 13 28

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II. Buyer and Seller Characteristics

Cash Sales: 31 Percent of Residential Sales Approximately 31 percent of REALTORS who made a sale reported a cash sale (33 percent in May ). International homebuyers and investors typically paid cash. Cash Sales as Percent of Market
40% 35% 30% 25% 20% 15% 10% 5% 0%

June 2013: 31%

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First Time Buyers: 29 Percent of Residential Buyers Approximately 29 percent of respondents made a sale to a first time home buyer (28 percent in May). Normally, first time buyers are in the neighborhood of 40 percent.4 Of those reporting a sale to a first time home buyer, approximately 12 percent reported a cash sale.

Based on data from NARs Profile of Homebuyers and Sellers. 14

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First Time Buyers as Percent of Market

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

June 2013: 29%

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Residential Sales to Investors: 17 Percent of Residential Market Approximately 17 percent of respondents reported making a sale to investors who were active in buying distressed properties and paying cash. Of respondents reporting a sale to an investor, 68 percent reported a cash sale. Sales to Investors as Percent of Market
30% 25% 20% 15% 10% 5% 0%

June 2013: 17%

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Second Home Buyers : 10 Percent of Residential Market

Second-Home Buyers as Percent of Market

16% 14% 12% 10% 8% 6% 4% 2% 0% 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 201301 201302 201303 201304 201305 201306

June 2013: 10%

Relocation Buyers : 14 Percent of Residential Market

Relocation Buyers as Percent of Market

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

June 2013: 14%

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International Transactions: About 2.3 Percent of Residential Market Approximately 2.3 percent of respondent who had a sale reported it to be a U.S. residential real estate to foreigners not residing in the U.S. Of those reporting an international sale, 90 percent reported a cash sale.

Sales to International Clients as Percent of Market

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 201301 201302 201303 201304 201305 201306

June 2013: 2.3%

Mortgages With Down Payment of 20 Percent or More: 37 Percent of Mortgages Approximately 37 percent of respondents whose clients obtained a mortgage during the sale reported a down payment of 20 percent or more.

38% 36% 34% 32% 30% 28%

Percent of Mortgage Sales With Downpayment of At Least 20 Percent

June 2013: 37%

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Rising Rents for Residential Properties Demand for rental units appears to remain strong based on rental price trends. Approximately 53 percent of REALTORS reported higher residential rents compared to 12 months ago. About 24 percent of REALTORS reported conducting an apartment rental.

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

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

June 2013: Rising rent: 53%

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Percent of Respondents Conducting An Apartment Rental

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

June 2013: 23%

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REALTORS Also Reported Commercial Rentals Percent of Respondents Conducting A Commercial Rental
4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 4% 3% 4% 3% 4% 4% 3% 4% 4% 3% 3% 3%

III. Current Issues

Tight Credit Conditions and Slow Lending Process REALTORS continued to express concern over unreasonably tight credit conditions. Mortgage lenders appear to continue to display an unnecessarily high level of risk aversion. In the 2001-04 time frame approximately 40 percent of residential loans went to applicants with credit scores above 740. Currently the percentage is in the 50 percent range. 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.

FICO Scores: Recent Scores vs. 2005

80% 70% 60% 50% 40% 30% 20% 10% 0%

June 2013: 57% of reported credit scores are 740+

lt 620

740+

Fannie/Freddie 740+

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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. Home Sellers Wwaiting For Further Price Appreciation Although house prices have been rising, it appears that potential sellers continue to wait for further price increases before selling. In this months survey, 47 percent of REALTOR respondents reported that they had potential sellers waiting for prices to pick up further.

Previously Underwater Homeowners About 16 percent of REALTORS reported working with a previously underwater homeowner who is now selling their home. Among REALTORS who reported working with an underwater homeowner seeking to sell a home, about 53 percent reported that the homeowner was also seeking to buy a home, about 22 percent reported that the homeowner was going to rent, and another 25 percent reported dont know.

IV. Articles and Comments

Latest Mortgage Applications Data
Lawrence Yun, Chief Economist

No surprise. Mortgage applications for refinances are collapsing with a rise in mortgage rates. They fell 16 percent in one week and are down 43 percent from this time last year. Mortgage applications to buy a home, however, are holding their ground despite the higher interest rates. Though down slightly from the prior week, they are up 11 percent from one year ago. The increased consumer confidence about home buying is simply too strong at the moment to be neutered by higher rates. Expect further steep declines in refinance activity. If mortgage rates rise by another 50 basis points from current 4.5% to 5.0% then expect a slide in home buying in coastal regions of the country where home prices are very high. In the vast middle of the country and in the South, the rise in mortgage payments will be slight and will therefore not be a big hindrance to home buying. One positive of falling refinance activity is that mortgage brokers and banks will now increase staffing resources to process home purchase applications. Last year when mortgage rates were at unimaginable lows, significant resources had to be dedicated to refis. Now those resources can be redeployed to process home purchase applications. Your home buyer should get quicker responses now. Moreover, commercial loans may also receive their due diligence, rather than being ignored, even though regulatory compliance remains quite burdensome for these type of construction and commercial real estate investment loans.
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Basel III Down: The Specter of Regulation Eases

Ken Fears, Manager, Regional Economics Yesterday marked an important turning point for housing finance. The Federal Reserve voted on a final Basel III rule that is significantly friendlier to residential housing finance than the earlier proposal. While the FDIC and OCC must still vote on it, the finalization of this rule is important as it opens the door for completion of the qualified residential mortgage rule. The completion of this set of rules will in turn provide clarity to the banking and capital markets, allowing them to pursue expanded mortgage lending as interest rates and profitability rise with the improving economy. The initial proposal for Basel III would have created a new structure of risk weights on residential mortgages, creating variation in how much capital, a cushion against losses, banks must hold against mortgages based on the size of downpayments. Mortgage insurance could not be used as a compensating factor for low downpayment loans. Thus, banks would have to hold additional capital against loans with downpayments less than 20% as compared to earlier standards. This extra regulatory capital creates a cost for banks as the return is less than would be achieved if it were invested. Banks would pass this cost onto the consumers in the form of higher mortgage rates. One estimate put the cost at an additional 80 to 85 basis points on top of the retail rate for a prime mortgage with 5% downpayment (e.g. if todays rate on a 30-year FRM with 5% down is 4.5%, then the rate under Basel III would be 5.3%). An increase of that size would have a significant impact on affordability; an impact that would increase over the decade as we move into an environment of higher mortgage rates. Under the finalized rule, there is no change to the capital requirements for mortgages; an important change for the housing industry! Another important change from the proposed rule is how Basel III will impact smaller banks and community lenders. These entities will be largely exempt from the more onerous regulations imposed on larger and systemically important banks. However, there remain issues that might affect residential mortgages. Banks will be limited in the amount of mortgage servicing rights that they can hold, reducing its value to banks. Servicing mortgages, collecting payments and passing them onto investors, can be a lucrative business for banks. This change will likely shift much of the servicing to non-bank financial companies and
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to smaller banks, thus reducing the high concentration of mortgage servicing among the largest banks and enhancing competition and thereby lowering the price of servicing which should result in lower mortgage rates. However, this change could raise the cost in the short term if the nonbank sector cannot expand to match the supply during the transition. The Fed extended the phase-in period for smaller banks, which should help to ameliorate this impact. In addition, the largest banks which are deemed systemically important financial institutions (SIFI) will still be subject to enhanced accounting and capital requirements. Thus, this change may cause them to shy away from holding assets such as higher LTV mortgages. This could reduce demand for these assets in the near term putting upward pressure on mortgage rates, but shift them to smaller banks in the long term. This change could raise the cost marginally as smaller banks will need to improve oversight to monitor these loans in accordance with Basel III and many have a higher cost of capital than the large banks. However, it might also sync well with efforts to improve and expand the number of securitizers. One academic study found that mortgages which were originated and securitized by the same institutions had lower delinquency rates during the subprime crisis. The authors of the study suggested that the closeness in the production chain allowed for soft information about the borrower or the loan to be passed onto the securitizer, which enabled more accurate pricing and a better ability to manage default risks. Thus, expanding the number of small banks that originate and securitize loans following the FHA-Ginnie Mae model could improve the performance of securitized mortgages without the need for risk retention as suggested in the QRM rule. This model would dovetail with some suggestions for reform of the GSEs. Finally, the regulators indicated that one reason for not adopting the new risk weighting scheme is the other forthcoming regulations that will impact the housing finance industry. This reference is to the qualified mortgage (QM), which is largely complete, and the qualified residential mortgage (QRM) rules which define the underwriting and origination of loans and the securitization of mortgages, respectively. The QM rule significantly improves underwriting of mortgages and bars several risky product features such as interest only, negative amortization loans, and amortizations longer than 30 years. However, the yet to be decided QRM rule would require a 20% downpament requirement for mortgages that are securitized, which would have a large impact on the home purchase market as 85% of first time buyers who finance their purchase put down less than 20% for downpayment. A Basel III rule with risk weights would effectively have the same impact on low downpayment loans, forcing the QRM rule to do the same or create distortions in the market. Since the Federal Reserve is one of the regulators involved in deciding the QRM regulation, this change to Basel III suggests that regulators may be coming around to recognition of the dangers of a system that requires high downpayments in lieu of stronger underwriting and product controls. Comments by Fed staff suggested that they are leaving this open until after the QM and QRM are decided. Yesterdays vote on a final Basel III rule by the Federal Reserve is a second important step in conjunction with the QM rule to bringing clarity to housing finance. The final Basel III rule as voted on by the Fed avoids raising the cost of low downpayment mortgage, though it could modestly raise some rates. Still the change is a boost to the housing industry and bodes well for the final major regulatory hurdle, the QRM rule.

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International Sales at $68.2 Billion in 12 Months Ending March 2013

Jed Smith, Managing Director, Quantitative Research The recently released 2013 Profile of International Home Buying Activity reports that total residential sales dollar volume to international clients was at its second highest level in recent years for the 12 months ending March 2013. International clients are estimated to have purchased $68.2 billion of residential property in the U.S., approximately 6.3 percent of the total dollar value of the U.S. Existing Homes Sales (EHS) market of $ 1.08 trillion. The information covers property sold by REALTORS through the Multiple Listing Services and is based on responses by over 3,300 REALTORS. Although sales dropped from the previous level of $82.5 billion, the dip is believed to be due to transitory economic conditions. Slower growth in a number of major economies, rising U.S. prices for residential real estate, the strengthening of the dollar against other currencies resulting in higher effective prices for foreign buyers, a slow recovery of the U.S. economy, tight credit standards, and lower housing inventories are believed to have contributed to the decline. What Does This Mean to REALTORS? There is significant major foreign interest in U.S. properties. None of the conditions that slowed international transactions in 2012 appear to be permanent and should dissipate over time.

Comments From REALTORS

Jed Smith, Managing Director, Quantitative Research REALTORS continued to report that rising interest rates, lack of inventory, tight financing, regulatory/economic issues, and appraisal issues are constraining the current housing recovery.

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1. Low Inventory/multiple bidding Inventory generally remains tight, with increased multi-bidding. REOs do not appear to be coming to the market sufficiently to meet demand. Sellers are reported as waiting for prices to pick up further. There are reports of homes selling above asking prices. Investors who pay cash frequently win over first time home buyers.
A sudden increase in inventory from drasticallly reduced levels has moderated the "fever" somewhat and will continue to do so. Combined with a recent uptick of almost 5/8ths in interest rates, this will dampen demand as local employment and disposable income is still not rising significantly enough to offset these headwinds. Multiple offers on most new listings in my market area. Seems like a shortage of inventory but everything sells as fast as it comes on. Buyers are bidding well over asking. Rising interest rates are the main reason in my opinion. Home Owners are reluctant to list, awaiting the 2005 pricing levels to occur.

2. Tight Financing/Credit Access to financing continues to be reported as tight and overly stringent even for those with reasonably good credit scores. The process of obtaining a mortgage remains protracted, especially for short sales, causing delayed closings and risking cancellations.
We have seen an increase in buyers but also an increase in turn downs from banks. Banks and mortgage companies have gotten more difficult. Lenders are still difficult - and taking longer then wanted to get the job done but at least it is happening. The practice of collecting offers which seems to be encouraged by FNMA and many banks is off-putting to many buyers. Lending institutions have to loosen up about criteria to qualify for a mortgage. Credit scores to be greater than 700 score is tough for people in this market. Debt to equity values have to be eased. Loan Underwriting is taking longer than I've ever experienced

3. Regulatory and Economic Issues REALTORS expressed concern about the adverse effects of fiscal/financial regulation, the state of the economy.
Rates are increasing and buyers are moving faster to contract. Recent jump in interest rate got some off the fence. The recent rise in the interest rates has slowed the buying down tremendously. I feel this is temporary on the buyers end, but should cause more sellers to list their homes. The FHA changes are not promoting home ownership. We were hoping for more lenient guidelines, not higher fees.

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