Each depositor insured to at least $250,000 per insured bank

• The national composite index, summarizing responses to the FDIC's Survey of Real Estate Trends, edged up to 68 in July. The uptick from April's reading is the second consecutive increase since the recent low of 60 in January. Reports of gains were up notably in the Northeast and the West.
• Readings of local residential markets continued to be favorable in July. The proportion of survey participants citing gains held firm at 45 percent while those observing worsening conditions fell to eight percent.
• In July, 38 percent of the respondents reported positive news about their local commercial real estate markets, up from 35 percent in April; only one percent of the respondents noted deterioration.
• Evaluations of commercial property transactions were the most positive in the five years the survey has been taken. Nationally, 21 percent of the respondents observed above-average volume of commercial sales, and 39 percent reported rising sale prices.

The FDIC's Survey of Real Estate Trends detected continued improvements in both commercial and residential real estate markets during the prior three months. In fact, the latest results were the most upbeat in over a year. The survey reflected positive trends in market activity in many areas of the nation, with reports of gains up notably in the Northeast and the West. However, the proportion of respondents seeing better market conditions in the South and the Midwest remained the same or declined following reports in April of significant increases, especially in the residential sector. The quarterly survey, conducted in late July, asks field personnel from all federal bank and thrift regulatory agencies about developments during the prior three months in their local real estate markets.

Overview: Summary Indices
The national composite index, summarizing assessments of real estate markets, edged up to 68 in July from 67 in April.

Real estate market changes over the three months ending in July 1996

Survey respondents in July continued to be confident about residential markets. Forty-five percent observed better conditions in their local housing markets, the same proportion reported previously; however, those noting worsening conditions in July fell to 8 percent. The national summary index for residential markets inched up to 69 from 68 in April. The July results received a substantial boost from gains in the West where 66 percent reported better housing markets -- up from 54 percent in April.

Changing assessment of real estate conditions

The composite index and other indices 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.

Percent of respondents reporting commercial real estate markets were...

When asked about existing home sales, respondents were quite positive. The highest proportion in more than two years reported that the volume of existing home sales was "above-average" (42 percent) and noted that resale prices had increased during the prior three months (51 percent). Below-average sales volumes were cited by fewer respondents (12 percent) than at any time since the survey began; a year ago, one-quarter of the respondents saw weak resales.

Percent of respondents in July reporting existing home sales were...

Percent of respondents reporting increasing residential real estate prices

Only 24 percent of respondents in July noted excess supply in their local housing markets -- a new survey low. For the first time, a majority of respondents in the Northeast characterized supply in their local housing market as "in balance." Consistent with the paring down of excess supply, the survey results also indicate improvement in residential construction activity. The proportion reporting new home construction at average or above-average levels rose to 85 percent. Reports of new home construction increasing at above-average levels were more frequent in July than in April in every region, with the biggest gains reported in the Northeast and the South.

Percent of respondents reporting excess supply in real estate markets

Assessments of commercial property transactions continued to be increasingly positive. Nationally, 83 percent of the observers cited commercial sales activity at average or above-average levels, up from 73 percent in April. Furthermore, fewer respondents (16 percent) rated commercial sales as sub-par than in any previous survey. Although weak sales continued to be cited most frequently on both coasts, above-average commercial sales were much higher than a year ago in the Northeast (16 percent from four percent) and the West (20 percent from 12 percent).

Percent of respondents reporting average or above-average sales of commercial properties

Percent of respondents reporting increasing commercial real estate prices

Regional Trends
In general, July assessments of trends in real estate markets were most positive in the West. Paced by more widespread reports of gains in housing markets, the composite index for the region rose to 78, the highest reading yet. A year ago, the index registered 53. In part, the region's strong July reading reflects a rebound in key markets in California from recent problems.

Evaluations of real estate market trends in both the Midwest and the South remained positive. Although observers in both regions reported some weakening in residential markets, the regional composite indices remained at high levels in July (Midwest, 65, and South, 70). Overall gains in residential markets were particularly prevalent in the "East South Central" states (Kentucky, Tennessee, Alabama and Mississippi) and in the Pacific coast states.

Percent of respondents reporting improved residential real estate market conditions

Changing assessments of real estate conditions in the northeast

Residential markets in the Northeast also rebounded during the May-July period from a relatively sluggish late 1995 and early 1996. The highest proportion of respondents to date, 28 percent, reported above-average home sales. Furthermore, 36 percent observed increasing sale prices, up from 25 percent three months ago. In addition, stronger assessments of both new home and apartment construction were recorded in the Northeast region.

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 316 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 the fact that the survey included a large number of asset managers at the RTC, which sunset at year-end 1995.

The survey was designed and analyzed by the Economic Analysis Section, 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.