Home > About FDIC > Publications & Documents > Discontinued Publications




Survey of Real Estate Trends

July 1996



Highlights
  • The national composite index, summarizing responses to the FDIC's Survey of Real Estate Trends, edged up to 68 in July. The uptick from April's reading is the second consecutive increase since the recent low of 60 in January. Reports of gains were up notably in the Northeast and the West.
  • Readings of local residential markets continued to be favorable in July. The proportion of survey participants citing gains held firm at 45 percent while those observing worsening conditions fell to eight percent.
  • In July, 38 percent of the respondents reported positive news about their local commercial real estate markets, up from 35 percent in April; only one percent of the respondents noted deterioration.
  • Evaluations of commercial property transactions were the most positive in the five years the survey has been taken. Nationally, 21 percent of the respondents observed above-average volume of commercial sales, and 39 percent reported rising sale prices.


Introduction

The FDIC's Survey of Real Estate Trends detected continued improvements in both commercial and residential real estate markets during the prior three months. In fact, the latest results were the most upbeat in over a year. The survey reflected positive trends in market activity in many areas of the nation, with reports of gains up notably in the Northeast and the West. However, the proportion of respondents seeing better market conditions in the South and the Midwest remained the same or declined following reports in April of significant increases, especially in the residential sector. The quarterly survey, conducted in late July, asks field personnel from all federal bank and thrift regulatory agencies about developments during the prior three months in their local real estate markets.

Overview: Summary Indices
The national composite index, summarizing assessments of real estate markets, edged up to 68 in July from 67 in April.

Real estate market changes over the three months ending in July 1996

The July uptick represents the second consecutive increase in the summary index from its recent low of 60 in January. Although the improvement in the index was not as strong as in the previous survey, the July composite index is the highest reading in two years.

Survey respondents in July continued to be confident about residential markets. Forty-five percent observed better conditions in their local housing markets, the same proportion reported previously; however, those noting worsening conditions in July fell to 8 percent. The national summary index for residential markets inched up to 69 from 68 in April. The July results received a substantial boost from gains in the West where 66 percent reported better housing markets -- up from 54 percent in April.

Changing assessment of real estate conditions

Likewise, overall assessments of commercial real estate trends continued to be positive. An increasing proportion of survey participants observed improving conditions (38 percent) while reports of worsening conditions were very few (one percent). As a result, the composite index for commercial markets rose to 68 in July from 66 in April.

The composite index and other indices reported below summarize responses to the question of whether real estate markets have improved, deteriorated, or remained the same during the prior three months. Values above 50 indicate that more examiners and asset managers at federal bank and thrift regulatory agencies thought conditions were improving rather than declining. Values below 50 indicate the opposite. A value of 50 indicates either a balance between those reporting improving versus worsening conditions or agreement that conditions were unchanged.

Percent of respondents reporting commercial real estate markets were...

Observers See Continued Improvements in Housing Markets
In January, the relatively weak readings at the time were thought to "signal a stalling of the recovery in housing markets." Subsequent gains reported in the April and July surveys indicate that overall conditions in housing markets have indeed turned around. Moreover, answers to follow-up questions on housing conditions reinforce the conclusion that this sector is once again picking up.

When asked about existing home sales, respondents were quite positive. The highest proportion in more than two years reported that the volume of existing home sales was "above-average" (42 percent) and noted that resale prices had increased during the prior three months (51 percent). Below-average sales volumes were cited by fewer respondents (12 percent) than at any time since the survey began; a year ago, one-quarter of the respondents saw weak resales.

Percent of respondents in July reporting existing home sales were...

Percent of respondents reporting increasing residential real estate prices

Furthermore, reports of increasing home resale prices outnumbered reports of price declines by almost a nine-to-one margin. In fact, the proportion of respondents noting decreasing prices was the lowest of any survey to date (six percent). The incidence of rising home resale prices was particularly evident in the West, where 53 percent of respondents noted increases, up 20 percentage points from April. Price appreciation was reported most frequently in Colorado, Utah, and Oregon.

Only 24 percent of respondents in July noted excess supply in their local housing markets -- a new survey low. For the first time, a majority of respondents in the Northeast characterized supply in their local housing market as "in balance." Consistent with the paring down of excess supply, the survey results also indicate improvement in residential construction activity. The proportion reporting new home construction at average or above-average levels rose to 85 percent. Reports of new home construction increasing at above-average levels were more frequent in July than in April in every region, with the biggest gains reported in the Northeast and the South.

Percent of respondents reporting excess supply in real estate markets

Further Strengthening Reported in Commercial Markets
Survey participants in July noted considerable improvement in many aspects of commercial activity. In addition to seeing a steady decline in excess supply of commercial real estate in a growing number of markets, increasing demand for office space was noted by 28 percent of the respondents, the highest percentage to date.

Assessments of commercial property transactions continued to be increasingly positive. Nationally, 83 percent of the observers cited commercial sales activity at average or above-average levels, up from 73 percent in April. Furthermore, fewer respondents (16 percent) rated commercial sales as sub-par than in any previous survey. Although weak sales continued to be cited most frequently on both coasts, above-average commercial sales were much higher than a year ago in the Northeast (16 percent from four percent) and the West (20 percent from 12 percent).

Percent of respondents reporting average or above-average sales of commercial properties

July's report of rising commercial property prices reflects the improved sales pace and general tightening of commercial markets nationally. The almost 40 percent observing increasing sales prices was the most favorable assessment since the survey began. The proportion of respondents citing increasing prices was up sharply in July in all regions except the Midwest. It should be noted, however, that most respondents across the nation still report stable prices in commercial property prices in their local markets.

Percent of respondents reporting increasing commercial real estate prices

Regional Trends
In general, July assessments of trends in real estate markets were most positive in the West. Paced by more widespread reports of gains in housing markets, the composite index for the region rose to 78, the highest reading yet. A year ago, the index registered 53. In part, the region's strong July reading reflects a rebound in key markets in California from recent problems.

Evaluations of real estate market trends in both the Midwest and the South remained positive. Although observers in both regions reported some weakening in residential markets, the regional composite indices remained at high levels in July (Midwest, 65, and South, 70). Overall gains in residential markets were particularly prevalent in the "East South Central" states (Kentucky, Tennessee, Alabama and Mississippi) and in the Pacific coast states.

Percent of respondents reporting improved residential real estate market conditions

The recovery in the Northeast's commercial and residential real estate markets strengthened somewhat in July after market readings backtracked in early 1996. While reports of better market trends and conditions are still not as frequent as two years ago, recent improvements have been noted in many facets of the region's real estate markets.

Changing assessments of real estate conditions in the northeast

For instance, 28 percent of those surveyed in the Northeast reported improving commercial markets during the previous three months, in contrast to the same response from only 11 percent a year earlier. This improvement was attributed to rising commercial sale prices and property sales as well as increased demand for office space.

Residential markets in the Northeast also rebounded during the May-July period from a relatively sluggish late 1995 and early 1996. The highest proportion of respondents to date, 28 percent, reported above-average home sales. Furthermore, 36 percent observed increasing sale prices, up from 25 percent three months ago. In addition, stronger assessments of both new home and apartment construction were recorded in the Northeast region.

Data and Method of Presentation
The survey results presented at the end of this report are summarized in indices calculated by Census regions for both residential and commercial real estate markets. The national indices are an aggregation of the regional results.

The survey consisted of 316 interviews of examiners and asset managers experienced in evaluating real estate loan portfolios or marketing real estate assets. The respondents at the FDIC represent the most senior experts from the Division of Supervision and from the Division of Depositor and Asset Services. Senior real estate examiners from the Office of the Comptroller of the Currency, the Federal Reserve System, and the Office of Thrift Supervision also participated. It should be noted that the number of respondents in the survey is down considerably from the 500-plus when the survey was initiated in 1991. This decline reflects the fact that the survey included a large number of asset managers at the RTC, which sunset at year-end 1995.

The survey was designed and analyzed by the Economic Analysis Section, Division of Research and Statistics at the FDIC. Questions may be directed to James L. Freund (202-898-3960), Cynthia Angell (202-898-8548), or Daniel Bean (202-898-3931). Geri Bonebrake and Donna Schull provided production support. Market Facts, Inc. conducted the survey under the management of Kent R. Kroeger.


APPENDIX

SUMMARY INDICES OF REAL ESTATE TRENDS

  Composite Commercial Residential
U.S. 68 68 69
Northeast 63 63 64
South 70 70 69
Midwest 65 67 62
West 78 72 81
Improving market: Index Value > 50
Declining market: Index Value > 50

Notes to Users: The indices presented above were compiled for both residential and commercial real estate markets for the four major U.S. Census Bureau regions. Each regional index is a summary measure of the respondents' opinions about changes in market conditions in the past three months. The number of respondents by region was: Northeast (60), South (106), Midwest (90) and West (60). The national totals include a small number of responses that could not be classified by region.

In constructing the index, a value of 100 was assigned to responses indicating the conditions were "better," and a value of 0 was given to responses saying conditions were "worse." A "no change" answer was assigned a value of 50. Commercial and residential indices at the regional level are the sum of these values divided by the number of respondents in that region for that type of property.

Composite indices at the regional level are the weighted average of the residential and commercial indices for each region. The weights for each region are calculated using the value of construction permits for residential and commercial markets from 1982-1991. National indices are weighted averages of the comparable market measure of each region. The data for both the residential and commercial market weights are from the U.S. Bureau of the Census.

An index value of 50 indicates that the examiners and liquidators responding to the survey believe there has been no change in trends over the last three months. In this case, the opinion of respondents is either unanimous that there has been no change or is, on average, evenly distributed between those who believe the market has improved and those who believe the market has declined. An index above 50 generally indicates that, in the opinion of most respondents, the market has improved over the last three months, while an index below 50 indicates a belief that market conditions have declined over the period. The further the index is from 50 -- either higher or lower -- the more there is agreement among the respondents about recent market trends.

Census Regions:

Northeast - Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont

South - Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia

Midwest - Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin
West - Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming

OVERVIEW

**REAL ESTATE TRENDS**

COMMERCIAL MARKETS

"What would you say is the general direction of the commercial market now compared with three months ago?"
A Lot Better
A Little Better
Same
A Little Worse
A Lot Worse
Not
Sure
Index*
All 3% 35% 61% 1% 0% 0% 68
Northeast 0% 28% 70% 2% 0% 0% 63
South 3% 39% 56% 2% 0% 0% 70
Midwest 3% 32% 63% 1% 0% 0% 67
West 5% 39% 55% 0% 0% 0% 72

RESIDENTIAL MARKETS

"What would you say is the general direction of the residential market now compared with three months ago?"

A Lot Better
A Little Better
Same
A Little Worse
A Lot Worse
Not
Sure
Index*
All 5% 40% 47% 8% 0% 0% 69
Northeast 2% 31% 62% 5% 0% 0% 64
South 6% 37% 53% 4% 0% 0% 69
Midwest 3% 38% 42% 17% 0% 0% 62
West 7% 59% 31% 3% 0% 0% 81

**CURRENT REAL ESTATE CONDITIONS**

COMMERCIAL MARKETS

"In general, how would you characterize the commercial real estate market?"

Tight Supply
Supply and Demand
Roughly in Balance
Excess Supply
Not Sure
All 6% 64% 30% 0%
Northeast 4% 39% 57% 0%
South 6% 71% 23% 0%
Midwest 3% 80% 17% 0%
West 7% 52% 36% 0%
RESIDENTIAL MARKETS

"In general, how would you characterize the residential real estate market?"

Tight Supply
Supply and Demand
Roughly in Balance
Excess Supply
Not Sure
All 12% 64% 24% 0%
Northeast 9% 50% 41% 0%
South 9% 73% 19% 0%
Midwest 17% 70% 13% 0%
West 15% 34% 31% 0%
**KEY MARKET INDICATORS**

RESIDENTIAL

"How would you characterize the current volume of home sales?"
Much Higher than Average
Somewhat Above Average
About Average
Somewhat Below Average
Much Below Average
Not
Sure
All 4% 38% 46% 12% 0% 0%
Northeast 2% 26% 53% 19% 0% 0%
South 5% 41% 46% 9% 0% 0%
Midwest 5% 43% 42% 10% 0% 0%
West 2% 36% 48% 15% 0% 0%

"How would you characterize sales prices of existing homes?"
Increasing Rapidly
Increasing Moderately
Holding Steady
Decreasing Moderately
Decreasing Rapidly
Not
Sure
All 2% 49% 43% 6% 0% 0%
Northeast 0% 36% 53% 10% 0% 0%
South 0% 50% 48% 3% 0% 0%
Midwest 1% 61% 34% 3% 0% 0%
West 9% 44% 39% 9% 0% 0%

"How would you characterize the current volume of new home construction?"
Much Higher than Average
Somewhat Above Average
About Average
Somewhat Below Average
Much Below Average
Not
Sure
All 8% 36% 41% 14% 1% 0%
Northeast 4% 21% 40% 30% 5% 0%
South 10% 45% 41% 5% 0% 0%
Midwest 8% 44% 39% 9% 0% 0%
West 9% 24% 42% 24% 2% 0%

"How would you characterize the current volume of rental apartment construction?"
Much Higher than Average
Somewhat Above Average
About Average
Somewhat Below Average
Much Below Average
Not
Sure
All 7% 24% 38% 23% 8% 0%
Northeast 2% 4% 25% 46% 23% 0%
South 12% 38% 37% 10% 2% 0%
Midwest 7% 23% 49% 17% 14% 0%
West 5% 21% 36% 28% 10% 0%

**KEY MARKET INDICATORS**

COMMERCIAL

"How would you characterize vacancy rates in commercial real estate?"
Much Higher than Average
Somewhat Above Average
About Average
Somewhat Below Average
Much Below Average
Not
Sure
All 1% 24% 47% 25% 2% 0%
Northeast 5% 42% 35% 18% 0% 0%
South 1% 15% 54% 29% 2% 0%
Midwest 0% 16% 56% 26% 2% 0%
West 0% 34% 36% 25% 5% 0%

"How would you characterize the volume of sales of commercial real estate properties?"
Much Higher than Average
Somewhat Above Average
About Average
Somewhat Below Average
Much Below Average
Not
Sure
All 0% 21% 62% 16% 0% 0%
Northeast 0% 16% 54% 29% 2% 0%
South 0% 24% 69% 7% 0% 0%
Midwest 0% 23% 63% 13% 0% 0%
West 2% 18% 56% 24% 0% 0%

"How would you characterize commercial real estate sales prices?"
Increasing Rapidly
Increasing Moderately
Holding Steady
Decreasing Moderately
Decreasing Rapidly
Not
Sure
All 0% 39% 57% 3% 0% 0%
Northeast 0% 28% 63% 7% 2% 0%
South 1% 38% 60% 1% 0% 0%
Midwest 0% 45% 54% 1% 0% 0%
West 0% 43% 52% 5% 0% 0%

"How common are rent concessions now compared with three months ago?"
Much More Frequently
Somewhat More Frequently
About the Same
Somewhat Less Frequently
Much Less Frequently
Not
Sure
All 0% 2% 69% 27% 2% 0%
Northeast 0% 2% 70% 29% 0% 0%
South 1% 3% 68% 25% 3% 0%
Midwest 0% 1% 65% 32% 1% 0%
West 0% 0% 75% 21% 4% 0%

"How would you characterize the demand for new office space in your area now compared with three months ago?"
Much Higher
Somewhat Higher
About the Same
Somewhat Lower
Much Lower
Not
Sure
All 1% 27% 67% 5% 0% 0%
Northeast 0% 21% 70% 9% 0% 0%
South 1% 31% 63% 4% 1% 0%
Midwest 1% 25% 71% 3% 0% 0%
West 0% 29% 64% 7% 0% 0%

* See above "Summary Indices of Real Estate Trends" for an explanation of the Index.

NOTE: Percentages are calculated by dividing the number of responses in each category within each region by that region's total number of respondents. Numbers may not sum to 100 due to rounding error.

Last Updated 8/12/1999 insurance-research@fdic.gov