It’s no secret that this is a good time to buy, but more and more sellers are beginning to think that it’s also getting to be a good time to buy… at least better than it was six months ago.

The uptick in seller confidence recorded by two recent surveys comes as concern is growing that seller withdrawal from the market is creating record low inventories that are limiting buyer choice and curtailing sales in the middle of the spring buying season (see Buyers Walk the Walk.). Last week the National Association of Realtors reported total housing inventory at the end of March declined 1.3 percent to 2.37 million existing homes available for sale, which represents a 6.3-month supply at the current sales pace. Listed inventory is 21.8 percent below a year ago.

In Fannie Mae’s Monthly National Housing Survey released this morning the percentage of respondents who say it is a good time to sell increased from 10 percent for the fourth straight month to 15 percent; not exactly a band wagon but a trend in the right direction.

“This month’s survey shows a continued gradual improvement in consumer sentiment and outlook for home prices,” said Doug Duncan, vice president and chief economist of Fannie Mae. “After flatlining at depressed levels for over a year, a growing share of consumers indicate that it is a good time to sell, suggesting rising optimism for the housing market.”

A second report, conducted April 15-16 by Rasmussen Reports, found that nearly one-in-five (18 percent) of American adults say now is a good time for someone in their area to sell their house, up six points from a month ago. Some 63 percent disagreed.

Changing attitudes among sellers are clearly linked to price expectations. On average, Americans expect home prices to increase 1.3 percent over the next twelve months in the Fannie Mae survey (the highest value yet recorded). Thirty-two percent of respondents expect home prices to increase over the next 12 months, a slight decline from the sharp spike last month. In turn, confidence in the economy’s direction rose to a survey all-time high in April (hitting 37 percent, an increase of 2 percentage points from last month). In the Fannie Mae survey, the percentage of Americans who say it is a good time to buy decreased by 2 percentage points to 71 percent.

Although commercial real estate markets showed signs of recovery in 2011, commercial lending standards have tightened in the past year for small businesses and scuttled a major portion of contracted transactions for smaller properties, according to the National Association of Realtors® annual Commercial Real Estate 2012 Lending Survey.

Lawrence Yun, NAR chief economist, said there is a significant split in commercial lending depending on value. “This is very much a tale of two markets. There have been notable improvements in capital for large commercial transactions valued at $2.5 million or higher, but there remain significant challenges for small business,” he said.

“Our Realtor® members typically are involved in helping commercial clients with purchases under $2 million, where a lack of capital has caused two out of three respondents to report deals have fallen through. Given that most jobs are created through small business, the lack of capital is hurting small businesses and the overall economic recovery.”

According to Real Capital Analytics, more than 13,000 major properties valued at $2.5 million or higher traded hands in 2011. Sales volume increased 51 percent over 2010 to $205.8 billion, with the lion’s share of lending funds coming from big banks. Other funding sources include insurance companies and institutional investors.

By contrast, the NAR survey shows that small business transactions rely heavily on smaller regional and local banks, and small private investors, for lending capital.

Respondents indicate nearly 30 percent of smaller commercial properties are purchased with cash, reflecting the tight credit environment, and some are seller financed. “When credit is tight, cash is king,” Yun added.

The most common types of property transactions referenced in the survey were multifamily, land, warehouse, suburban office and retail strip centers. Other property types include industrial flex space, central business district office, freestanding retail, and restaurants.

Realtors® report the system is clogged with property that must be sold or refinanced, which is significantly impacting the recovery. Long-time investors who never had a problem getting a loan in the past are now being declined.

More than half of respondents say lending is just as stringent as a year ago, while 23 percent say it is more stringent; 20 percent say it is less stringent but not near historical averages. Members also complained about banks being over-regulated, and refinancing being denied due to stringent internal lender underwriting requirements or low appraisal valuations.

Thirty-six percent of Realtors® said clients used the Small Business Administration commercial refinance program, but of those who didn’t, 45 percent said it was due to burdensome application and reporting requirements.

The Commercial Real Estate 2012 Lending Survey is published by the NAR Research Division for the commercial community. In April 2012, a random sample of 32,459 Realtors® with an interest in commercial real estate was invited to complete an online survey. A total of 474 responses were received, for an overall response rate of 1.46 percent.

NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR. The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute,

Society of Industrial and Office Realtors®, and Counselors of Real Estate.

Approximately 78,000 NAR and institute affiliate members specialize in commercial brokerage and related services, and an additional 232,000 members offer commercial real estate services as a secondary business.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Jed Smith discussed the real estate outlook and associated economic risks at the Federal Home Loan Bank of Chicago’s meeting of the Mortgage Partnership Finance and Advisory Council on April 18 in Chicago. Smith indicted that the current economic expansion is expected to continue for the next several years, but the current expansion is the weakest since the Great Depression and is characterized by high unemployment and underemployment, limited job growth, difficult credit conditions, and continued concern over a variety of basically unpredictable economic factors such as oil prices, sovereign state credit issues, and government deficits.

The good news is that Existing Home Sales, reported by NAR on a monthly basis, appear to have stabilized and seem to be on the upswing. According to the Realtors® Confidence Index survey, Realtors® are increasingly optimistic about the residential sales outlook. In addition, residential home prices seem to be stabilizing as inventories of homes for sale decline.

The bad news tempering the economic outlook is the jobs situation and government deficit. Job creation continues at well under 200,000 a month, and continued government deficits are not sustainable. Smith noted that some major policy changes in terms of government spending, taxes, and incentives are likely in the future—and there is always a risk that changing economic policies could make the overall economy worse.

Noting President Eisenhower’s famous quote about wanting a one armed economist (avoiding “on the other hand”) Smith noted that on a short term basis we should expect to see continued improvement in the economy and the residential and commercial real estate markets. Smith noted that there seems to be some additional pent-up demand that could come onto the market in the foreseeable future and that consumer surveys indicate that owning a home continues to be a key part of the American dream.

The recovering housing market is showing some impact in the retail sector.  Furniture stores are reporting an 11 percent increase in sales recently from a low point two years ago.  A stronger 22 percent in gains are occurring at building supply and gardening stores.

In addition to the visible impact to retail sales in stores directly related to housing, there is always a further multiplier effect even in areas such as restaurant spending and electronics as people earn more income from improved home sales.

The housing component to the broader economy (GDP) in the past years has not been pretty.  The declines in new home construction and existing home sales cut into GDP.  From 2006 to 2009, GDP was cut by about 1 percentage point.  That is, had the housing market not suffered the downturn and had been simply neutral, GDP growth would have been a full one percentage point higher.  (There is a big difference between 3% GDP growth versus 4% GDP growth, for example.)

Percentage Point Impact to GDP from the Housing Sector

Now, with housing showing some recovery, though at a moderate pace, the contribution to the GDP will be positive both this year and next.  A housing market recovery will result of an approximate 0.7 percentage point growth in GDP.  That’s good news for people working in the industry, for retail shops, and for the broader economy.

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