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Survey of Real Estate Trends
Respondents in the FDIC's April Survey of Real Estate Trends reported solid improvements
in local real estate markets across the country. The overall results were the most positive received
since the October 1994 survey, with widespread gains reported for both residential and commercial
real estate. Of particular note was the increasing frequency of reports of improvements in California's
real estate markets. The proportion of participants reporting recovery there was at its highest level
of any survey to date.
Four times a year the FDIC asks senior examiners and asset managers from all federal bank and thrift
regulatory agencies about developments during the prior three months in their local real estate
markets. The April 1996 survey marks the fifth anniversary of the FDIC's poll.
National Overview: Summary Indices
The national composite index jumped sharply to 67 in April from 60 in January, indicating that the
scope of the real estate recovery broadened considerably in early 1996. The April gain was the first
sizable increase in more than two years.
The news was particularly positive regarding housing market trends. Forty-five percent of the
respondents reported improvements in residential real estate during the past three months -- up from
28 percent in the January survey. A relatively low 9 percent observed worsening conditions, and the
remainder reported "no change." As a result, the summary index for residential real estate rose more
than 10 points to 68. The average reading for the prior six survey periods was 60.
The proportion of survey participants reporting gains in their local commercial real estate market also
was higher in April than in recent reports. Nationwide, 35 percent said conditions had strengthened
during the February-April period, while the number citing weaker conditions fell to 3 percent. These
readings yielded a composite commercial index of 66, the highest in a year.
The composite indices 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.
Widespread Gains Reported in Housing Markets
The results of the April survey suggest considerable strengthening recently in housing markets.
Reports of improvement far outweighed weakening in all regions of the country; the highest
proportion of positive assessments (54 percent) came from respondents in the West. The marked
increase in reports of improving conditions during the three months ending in April follows several
periods of progressively less positive assessments about residential real estate.
The good news about housing markets also was reflected in the answers to more detailed questions.
The 27 percent of respondents in April noting an excess supply of residential real estate matched the
survey low previously set in July 1994. Moreover, only 13 percent said their local housing markets
were marked by tight supply. Consistent with this continuing improvement, almost 80 percent of
respondents reported homebuilding at average or above-average levels. The 20 percent citing
below-average activity was the lowest in two years. Respondents also were upbeat when asked about
apartment construction. The 66 percent noting average or above-average rental construction activity
was the highest level of any survey to date.
Home sales activity also fared well, according to survey participants. A third noted above-average
sales volume in local housing markets during the February-April period -- a sharp increase from the
19 percent cited a year ago. At the same time, the 15 percent observing below-average sales levels
matched the lowest proportion previously reported.
Nationally, reports of increasing home resale prices far outnumbered reports of price declines. Resale
prices were particularly strong in the Midwest, where 60 percent of respondents noted increases. In
addition, reports of increasing prices in both the South and the West were much more frequent in
April than in the previous survey. At the other end of the spectrum, 16 percent of respondents in the
Northeast observed decreasing resale prices -- up somewhat from the January survey. However,
reports of weakening prices in California were far fewer in April than three months earlier.
Improvements Continue in Commercial Markets
The survey has reported that commercial real estate markets across the country have been on the
upswing for four years. In April, overall assessments of commercial real estate market trends were
more positive than the past few reports, with the most marked improvement observed in the West.
Respondents across the nation observed continued progress in working down excess inventories of
commercial real estate across the country. The 35 percent citing excess supply of commercial real
estate was down from 53 percent a year ago. Of note was the jump to 13 percent of reports from the
West of "tight" supply in commercial markets. The majority of such reports came from market
observers in Utah and Washington.
In addition to seeing a growing number of markets reduce excess supply, April respondents were
encouraging in their evaluations of commercial property transactions. The proportion citing average
or above-average sales continued to increase, rising to nearly three-fourths. Furthermore, one-third
of survey participants reported that commercial real estate prices were on the rise, up from
one-quarter two years ago and from below 10 percent when the survey was initiated in April 1991.
The frequency of reports of increasing prices rose by a wide margin in the West outside of California.
In California, reports of declining commercial real estate prices still outnumbered gains by one-half.
The widespread gains reported in the April survey were encouraging. Reports were least positive in the Northeast with a regional index value of only 56. While the majority of respondents in the Northeast saw no change in real estate markets, almost 10 percent reported weakening trends in commercial real estate -- the highest proportion in over two years. Such reports were concentrated in Connecticut and New York.
As has been the case throughout the five-year history of the survey, respondents in the South were
the most positive (index value of 71). The big jump in April took place in the West, where
assessments were much improved from the prior survey. Improved readings of both residential and
commercial real estate markets pushed the regional composite index in the West to a near-high of 70.
Reports of residential markets were the most positive in two years, with 54 percent of the
respondents noting better housing markets. On the commercial side, 42 percent saw strengthening
while only 2 percent cited weaker conditions.
Of note in the results of the April survey was the turnaround in California. Following persistent
negative reports in previous surveys, most observers in California noted upswings in both residential
and commercial real estate markets during the February-April period. Of those respondents noting
change in housing conditions, almost one-half cited gains. The figure just three months earlier had
been only 24 percent. A key component in the gains cited was the 20 percentage point increase in
reports of above-average home sales. The rise in positive assessments of commercial markets was
not as dramatic; nonetheless, 37 percent of California real estate specialists noted gains in April, up
from 25 percent in the prior survey.
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 326 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 were included. 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 RTC asset
managers. That agency was terminated at year-end 1995.
The survey was designed and analyzed by the 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.
SUMMARY INDICES OF REAL ESTATE TRENDS Composite Commercial Residential U.S. 67 66 68 Northeast 56 54 58 South 71 70 71 Midwest 68 67 68 West 70 70 71
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 (65), South (112), Midwest (87) and West (62). 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.
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
**REAL ESTATE TRENDS **
"What would you say is the general direction of the commercial market now compared with three months ago?"
A Lot A Little A Little A Lot Not Better Better Same Worse Worse Sure INDEX* All 3% 32% 62% 3% - 1% 66 Northeast - 17% 75% 9% - - 54 South 4% 39% 56% 2% - - 70 Midwest 2% 31% 64% - - 2% 67 West 7% 35% 57% 2% - - 70
"What would you say is the general direction of the residential market now compared with three months ago?"
A Lot A Little A Little A Lot Not Better Better Same Worse Worse Sure INDEX* All 3% 42% 46% 9% - 1% 68 Northeast 2% 28% 56% 14% - - 58 South 3% 46% 45% 6% - - 71 Midwest - 44% 46% 8% - 2% 68 West 7% 47% 35% 12% - - 71
**CURRENT REAL ESTATE CONDITIONS**
"In general, how would you characterize the commercial real estate market?"
Supply and Demand Tight Roughly in Excess Not Supply Balance Supply Sure All 8% 56% 35% - Northeast 3% 32% 64% - South 7% 68% 23% - Midwest 10% 69% 21% - West 13% 38% 45% -
"In general, how would you characterize the residential real estate market?"
Supply and Demand Tight Roughly in Excess Not Supply Balance Supply Sure All 13% 60% 27% - Northeast 8% 42% 50% - South 7% 74% 18% - Midwest 19% 68% 12% - West 18% 40% 40% -
**KEY MARKET INDICATORS**
"How would you characterize the current volume of home sales?"
Much Somewhat Somewhat Much Higher Above About Below Below Not Than Average Average Average Average Average Sure All 2% 31% 52% 14% 1% 1% Northeast - 8% 56% 33% 3% - South 3% 33% 58% 5% - 1% Midwest 2% 40% 52% 5% - 1% West 3% 38% 35% 23% - -
|"How would you characterize sales prices of existing homes?"|
Increasing Increasing Holding Decreasing Decreasing Not Rapidly Moderately Steady Moderately Rapidly Sure All 3% 40% 49% 8% - 1% Northeast - 25% 59% 16% - - South 2% 42% 50% 5% - 1% Midwest 2% 58% 37% 2% - 1% West 7% 27% 55% 12% - -
|"How would you characterize the current volume of new home construction?"|
Much Somewhat Somewhat Much Higher Above About Below Below Not Than Average Average Average Average Average Sure All 4% 34% 40% 17% 3% 1% Northeast 2% 16% 39% 36% 8% - South 7% 41% 41% 10% - 1% Midwest 4% 45% 39% 11% - 2% West 3% 27% 42% 20% 8% -
|"How would you characterize the current volume of rental apartment construction?"|
Much Somewhat Somewhat Much Higher Above About Below Below Not Than Average Average Average Average Average Sure All 6% 23% 37% 20% 8% 5% Northeast - - 25% 45% 23% 6% South 9% 41% 34% 10% 1% 5% Midwest 6% 25% 45% 13% 6% 6% West 7% 13% 45% 23% 8% 3%
**KEY MARKET INDICATORS**
"How would you characterize vacancy rates in commercial real estate?"
Much Somewhat Somewhat Much Higher Above About Below Below Not Than Average Average Average Average Average Sure All 2% 22% 51% 21% 2% 2% Northeast 7% 42% 37% 10% - 3% South 1% 18% 58% 19% 2% 3% Midwest - 5% 66% 24% 4% 1% West 2% 35% 32% 30% 2% -
|"How would you characterize the volume of sales of commercial real estate properties?"|
Much Somewhat Somewhat Much Higher Above About Below Below Not Than Average Average Average Average Average Sure All 1% 18% 54% 21% 2% 4% Northeast - 3% 63% 24% 9% 2% South 1% 23% 54% 19% - 4% Midwest 1% 19% 59% 12% - 8% West - 23% 40% 33% 2% 2%
|"How would you characterize commercial real estate sales prices?"|
Increasing Increasing Holding Decreasing Decreasing Not Rapidly Moderately Steady Moderately Rapidly Sure All 0% 33% 60% 5% 0% 2% Northeast - 19% 70% 10% 2% - South - 33% 62% 3% - 2% Midwest - 43% 53% - - 4% West 2% 33% 55% 10% - -
|"How common are rent concessions now compared with three months ago?"|
Much Somewhat About Somewhat Much More More The Less Less Not Frequently Frequently Same Frequently Frequently Sure All - 3% 64% 24% 4% 6% Northeast - 5% 78% 15% - 2% South - 3% 60% 28% 4% 6% Midwest - - 60% 25% 5% 10% West - 5% 60% 22% 7% 7%
|"How would you characterize the demand for new office space in your area now compared with three months ago?"|
Much Somewhat About Somewhat Much Not Higher Higher The Same Lower Lower Sure All 1% 24% 65% 7% 1% 2% Northeast - 12% 70% 15% 3% - South 1% 29% 66% 4% - 1% Midwest 1% 25% 64% 4% - 6% West 2% 27% 60% 10% - 2%
* See above "Summary Indices of Real Estate Trends" for an explanation of
Last Updated 8/12/1999