The composite index, summarizing responses to the FDIC's Survey of
Real Estate Trends, edged down just barely to 67 in October, as
more frequent reports of improving commercial market conditions
were offset by slightly less positive assessments of housing market
Readings of conditions in commercial real estate were decidedly
more upbeat in October. Almost half (46 percent) of the
participating examiners and asset managers queried noted
improvements in their local markets -- the highest proportion in
over two years.
Solid gains were observed in commercial markets in the West, where
68 percent reported better conditions, the highest reading yet.
The region's gains were paced by the significant improvements noted
in California's commercial markets.
The recovery in housing markets appears to be slowing somewhat
following gains reported earlier in the year. Nonetheless, in
October, 35 percent of the respondents cited improvements versus
nine percent who indicated markets were weakening.
Respondents to the FDIC's Survey of Real Estate Trends in October
continued to be positive about trends in their local real estate
markets. The proportion of those surveyed who reported improving
conditions in commercial markets was the highest in over two years,
representing one of the most favorable assessments in the 5 1/2 years
that the survey has been conducted. However, the October results
indicated that housing markets, while still quite strong, did not
gain as much as observed earlier in the year. The quarterly
survey, conducted in late October, polls federal bank and thrift
regulatory experts about developments during the prior three months
in their local real estate markets.
National Summary: Composite Indices
The national composite index of survey results stood at 67 in
October virtually unchanged from the past two readings. The
recent readings, however, represent an improvement over last year.
In October 1995, the composite figure was 64.
REAL ESTATE MARKET CHANGES
OVER THE THREE MONTHS ENDING
IN OCTOBER '96
Summary Indices of Opinions of
Senior Examiners and Asset Managers
The slight downturn in October's index was attributable primarily
to less favorable changes in housing market conditions. The
national residential index slipped to 63 from 69 in July. In
contrast, survey respondents in October were the most positive in
over two years about commercial real estate markets. The summary
index for commercial markets rose to 72, buoyed by the particularly
strong index figure in the West, which rose more than ten points.
CHANGING ASSESMENTS OF REAL ESTATE CONDITIONS
Summary Indicies of Opinions of Senior Examiners and Asset Managers
The composite index and other reported 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.
Respondents Continue to See Solid Gains in Commercial Real Estate
The marked increase in positive assessments of commercial market
conditions in October suggests that the recovery in this sector is
spreading to new markets. Almost half (46 percent) of the
respondents in October reported improving conditions, up from 38
percent in the July survey. Only two percent noted a weakening of
activity; when the survey began in April 1991, 28 percent reported
worsening commercial conditions.
Assessments of both the sale prices and volume of sales of
commercial properties remained very positive in October. Average
or above-average sales of commercial properties were reported in 84
percent of the markets, and increasing sales prices were reported
in almost 40 percent. In some parts of the country, conditions are
even hotter, with average or above-average commercial property
transactions noted by just over 90 percent of respondents in the
South and 100 percent of those in the West outside of California.
The key office building sector continues to show signs of
improvement. For example, assessments of demand for office space
in local markets has been increasing steadily, with 31 percent of
the respondents observing a pick-up in demand in October. When
this question was first asked in May 1992, only ten percent
responded affirmatively. In addition, as has been the case for the
past several surveys, 29 percent of the respondents observed rent
concessions less frequently. In May 1992, the comparable figure
was 13 percent.
PERCENT OF RESPONDENTS REPORTING
INCREASES IN DEMAND FOR OFFICE SPACE
Survey participants continued to witness steady progress in
reducing the oversupply of commercial floorspace. The 29 percent
who still reported excess supply in their local markets was the
lowest figure since the survey began, representing a decline of 12
percentage points from a year earlier. Although a relatively high
52 percent of the respondents in the Northeast continued to note
excess supply in their local markets, the figure reflects a
significant improvement from the 91 percent figure reported just
three years ago. Some markets are heating up, so much so that
growth in demand may outstrip growth in supply. A tight market was
noted in 35 percent of the markets in the West outside of
California, compared to the national average of six percent.
Residential Real Estate Improvements Reported to Slow Somewhat
Respondents were somewhat less positive in October about the
strength of the housing recovery than earlier in the year. Fewer
of those queried in October observed general market improvements.
In fact, the 35 percent who reported gains in their local housing
markets during the past three months was ten percentage points
lower than the proportion citing improvements in the two previous
surveys. Nonetheless, reports of improvements outweighed those of
decline by a three-to-one margin.
Furthermore, slightly more reported deterioration in supply
conditions, with 25 percent indicating that their local housing
markets were characterized by excess supply in October. Although
this figure is near the survey-low seen in July, it represents an
initial, albeit slight, retreat from recent gains in housing market
Responses to more-detailed questions also pointed to some slight
moderation in the generally very strong picture of the residential
market. Forty-nine percent of respondents in October observed
increasing prices in their local markets, down somewhat from 51
percent in July. The 37 percent reporting improving home sales
remained near high levels, but slightly below the July reading.
In contrast, reports regarding the residential construction sector
continued to be increasingly positive. The proportion of
respondents noting above-average or average construction rose to
survey-highs of 88 percent for new homes and 72 percent for rental
apartments. Apartment construction reportedly was robust in the
South and the Midwest but continued to be lackluster in the
Northeast, where 66 percent of those surveyed observed
below-average apartment activity.
Assessments of real estate market conditions were positive in all
regions in October, with the Northeast reporting the most sizable
rate of change from July's results. Its regional composite index
of 66 was the highest reading in two years, boosted by reports of
gains in both commercial and residential markets. Results were
also quite positive in the South (69) and Midwest (59). However,
in terms of improvements, the West had the highest reading, as
indicated on the map on the next page.
Reports of gains in real estate markets in the West where
respondents have seen steady progress during the past year
continued in October. Assessments of commercial markets were
overwhelmingly positive, with a record commercial index of 83.
Sixty-eight percent of the respondents reported improved commercial
markets; only two percent noted declines. On the residential side,
55 percent of the examiners and asset managers witnessed
strengthening in the West, down from 66 percent in July.
Nonetheless, this proportion represented a vast improvement over
the year-earlier figure of 25 percent.
The favorable assessments from the West reflect the increasingly
positive responses from observers in California. In little over a
year, observations of improving market conditions have increased
dramatically. Almost two-thirds (64 percent) of the respondents
witnessed improving conditions in commercial markets, up from 39
percent in July. Seventy percent of the October respondents
reported strengthening housing markets. Responses to more detailed
questions indicate that the reported recovery in California's
commercial and residential markets is reinforced by increasing home
sales and residential construction, as well as rising commercial
property sales and an uptick in demand for office space.
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 310 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 both
the fact that the survey included a large number of asset managers
from the RTC, which sunset at year-end 1995, and recent agency
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, Donna Schull and Lisa
Peterson provided production support. Market Facts, Inc. conducted
the survey under the management of Kent R. Kroeger.
SUMMARY INDICES OF REAL ESTATE TRENDS
market: Index Value > 50
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 (61), South (103), Midwest (90)
and West (56). The national totals include a small number of responses that
could not be classified by region.
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 residen tial indices at the regional level are the sum of these
values divided by the number of respondents in that region for that type of
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 198 2-1991. 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 o r 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 th ree 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