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Survey of Real Estate Trends
The overall reading of real estate market conditions in the FDIC's January Survey of Real Estate
Trends was the least positive assessment since late 1992. The latest results primarily reflected
weaker evaluations of residential markets. Readings of the performance of commercial markets
remained relatively strong. The quarterly survey, conducted in late January, polls field personnel from
all federal bank and thrift regulatory agencies about developments during the prior three months in
their local real estate markets.
National Overview: Summary Indices
The national composite index of survey results slipped to 60 in January down from 64 recorded
during the previous two surveys. The January results were still a favorable reading, indicating that
more respondents reported gains than declines in their local markets. However, the summary figure
was the lowest in more than three years.
The January decline was attributable primarily to weaker assessments of housing market
conditions; the composite index for that sector dropped to 57 from 63 in October. In contrast,
assessments of commercial real estate conditions changed only slightly since the previous survey, with
the composite index for that sector at 63 in January as opposed to 65 in October.
These composite indices and those 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.
Housing Markets Are Less Robust
Assessments of overall trends in residential real estate were decidedly less upbeat in the January
survey. The proportion of respondents saying housing markets were on the upswing during recent
months slipped to 28 percent in January from 37 percent in October. This was the lowest proportion
to report improvements in their local housing markets since the inception of the survey in April 1991.
The weaker readings seem to signal a stalling of the recovery in housing markets rather than a downturn.
With only 15 percent saying conditions were weaker during the past three months, positive
assessments still outweigh negative ones by a margin of almost 2-to-1. Consistent with this
assessment was the fact that excess supply in local housing markets reportedly remained in a
much-improved range the 30 percent who noted oversupply was much lower than the 65 percent
reading of four years ago.
Assessments of home sales and existing home prices were lackluster, suggesting the recent declines
in mortgage costs have not yet had a beneficial effect on housing activity --- or the effect has been
delayed. Only 20 percent of the respondents cited improving home sales; in the October survey this
proportion was 30 percent. Likewise, fewer respondents in January (36 percent) noted that existing
home prices increased in their local markets. The exception was a significant increase in reports of
price gains in the West.
Conversely, new construction activity reportedly remained strong late last year and early in 1996.
Almost 80 percent of the respondents viewed homebuilding as at average or above-average levels
during the past three months. Assessments of rental apartment construction remained in a
much-improved range, with almost 60 percent of the respondents again observing average or
above-average construction levels.
Positive Reports on Commercial
Survey respondents continued to report a fairly widespread recovery in commercial real estate. As
in October, most respondents (63 percent) believed that commercial markets were essentially
unchanged. However, one-third reported gains. Evaluations of deteriorating conditions were still
infrequent, rising from 2 percent in the October survey to 5 percent in January.
Examiners and asset managers continued to report improvements in many aspects of commercial
markets in January. Reports of increasing demand for office space (24 percent) outweighed reports
of declining demand (9 percent). Furthermore, the recovery in commercial real estate sales reportedly
is still strengthening. The proportion of respondents reporting average or above-average sales of
commercial real estate edged up to 70 percent from 69 percent three months ago. Reports of
improving sales were most pronounced in the West.
The ongoing recovery in commercial real estate markets has made serious inroads in reducing
overhangs of floorspace left over from previous building booms. Reports of excess supply have been
decreasing steadily for three years, but reductions have been particularly sharp during the past year.
The 38 percent figure in January was down from 41 percent in October and from 52 percent a year
earlier. Also noteworthy was the increasing frequency of reports characterizing local markets as "in
balance." A record number of market observers in the Northeast and the South stated this view.
Examiners and asset managers were less positive about recent developments in all regions in January.
However, respondents in the Northeast and the West were the least likely to have noted gains in their
local real estate markets, as indicated by their respective regional composite index of 54 and 55. The
relatively low readings were attributed to weaker assessments of residential markets in both regions.
In the West, reports of better conditions in commercial real estate markets increased sharply in
January. That gain reflected the increasing characterization of markets as in balance (up to 35 percent
from 30 percent a year earlier), as well as reports of above-average commercial sales and
below-average vacancy rates.
Reports of improving real estate markets during the October-January period were again most
prevalent in the South, with a regional index of 63. In fact, reports from the South have consistently
been the most positive of any region since the survey began. In part, the reported gains reflect the
serious problems some key markets in the South experienced during the past decade. For instance,
major declines in office vacancy rates of five percentage points or more were experienced in major
Texas markets during the past five years. Yet, vacancy rates in markets such as Dallas and Houston
still far exceed the national average. Likewise, the composite gain in residential construction in most
states in the South has exceeded the national average since 1991, after falling more sharply than in
other regions in the 1980s.
In January, the South led all regions in the highest proportion of respondents observing improved
commercial and residential real estate market conditions 38 percent and 33 percent, respectively.
Most of the reports citing improvements in local commercial real estate markets came from
respondents in Alabama, Kentucky and Mississippi (in East South Central) and in Oklahoma and
Texas (in West South Central), while reports of residential market gains were quite frequent in
Florida and Texas.
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 333 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.
The survey was designed and analyzed by the Division of Research and Statistics at the FDIC.
Questions may by 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
"What would you say is the general direction of the residential market now compared with three months ago?"
**CURRENT REAL ESTATE CONDITIONS**
"In general, how would you characterize the commercial real estate market?"
"In general, how would you characterize the residential real estate market?"
**KEY MARKET INDICATORS**
"How would you characterize the current volume of home sales?"
"How would you characterize sales prices of existing homes?"
"How would you characterize the current volume of new home construction?"
"How would you characterize the current volume of rental apartment construction?"
**KEY MARKET INDICATORS**
"How would you characterize vacancy rates in commercial real estate?"
"How would you characterize the volume of sales of commercial real estate properties?"
"How would you characterize commercial real estate sales prices?"
"How common are rent concessions now compared with three months ago?"
"How would you characterize the demand for new office space in your area now compared with three months ago?"
* 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.