The REALTORS® Confidence Index: Measuring Expectations

By Meredith Dunn and Wannasiri Chompoopet
NAR Research

Current economic trends are certainly informing consumers' feelings about the nation's economic well-being, as well as their own. As measured by The Conference Board, consumer confidence has been on a continual downturn since November of 2008. In fact, from February of 2008 to February of 2009, the consumer confidence index is off more than 67 percent!

But REALTORS® confidence in and expectations for the housing market has improved recently. Expectations of real estate practitioners for residential properties for the next six months are more optimistic than they've been in a while. Below we summarize the latest figures from NAR's REALTORS® Confidence Index.

About the REALTORS® Confidence Index
The REALTORS® Confidence Index - RCI - is a key indicator of housing market strength based on a monthly survey of 3,500 real estate practitioners. Actually, the RCI comprises several indexes about different housing market conditions. Practitioners are asked about their expectations for home sales, prices and market conditions. More specifically, the RCI survey is a monthly fax survey that asks practitioners three basic questions pertaining to business in their region:
How would you describe the current housing market in your region?
What are your expectations for the housing market over the next six months in your region?

How do you rate the traffic in your region?
These three questions are asked for major segments of the housing sector including, single-family homes, townhomes/duplexes, and condominiums. These same questions are asked each month. Answers are then quantified and used to create the confidence index.

The RCI Indexes are calculated as follows: Respondents indicate whether conditions are, or are expected to be "strong" (100 points), "moderate" (50 points), and "weak" (0 points). The results are the average score for each question. A score of 50 is the threshold between a "strong" and a "weak" condition.

The RCI for January
The REALTORS® Confidence Index for single-family home sales rose for the first time in eight months from 18.8 in December of 2008 to 23.2 in January. The index for townhouses showed a similar trend, and rose to 13.1 from 11.4. The condo index also increased in January, from 9.6 in December to 11.2 in January. It should be noted, however, that the indexes for all three types of housing, are still well below last year's levels.

Confidence was highest in the Northeast and lowest in the Midwest. Existing Home Sales data for January show that prices fell the most in the Northeast, at 14.7 percent. Perhaps the rising confidencefactor in the Northeast is related to buyers beginning to take advantage of the lower prices.

Expectations of real estate practitioners for residential properties for the next six months are optimistic, and increased for all three types of housing. The single-family homes sales expectation index climbed to 34.0 from 28.3 in December. The townhouse and condo figures were 20.2 and 17.8, respectively.

The index measuring the prospective traffic of home buyers was at 31.7 in January - an improvement from December's reading of 25.1 and also an improvement over the reading of 30.7 in January of 2008. The seller's traffic index for January was 45.1 which is virtually flat compared to a month ago.

Other Survey Questions
In addition to the standard questions, each month the RCI survey features questions about a timely aspect of the housing market. In January, survey participants were asked about their most recent home buyer client experience. More than a third of survey respondents indicated that their most recent buyer client was a first-time purchaser. A third reported that their buyer purchased a foreclosed home, and just under a third of practitioners indicated that their most recent buyer client used an FHA loan for the home purchase.

Some concerns
While REALTORS® confidence is higher than last month and their expectations for their markets are in general more optimistic, they are not as confident about any upswing in home prices. The majority of survey participants - 61 percent - felt that home prices will fall over the next year. Only 39 percent thought that home prices would rise over the same period. Their view matches that of the NAR forecast which projects median prices for existing homes will decline in 2009.