Escrow Institute of California 1/12/12
38
It’s The Economy, Stupid January 12, 2012 With your host… Gene Wunderlich STILL
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Slides from Gene Wunderlich's talk with the Escrow Association of California
Transcript of Escrow Institute of California 1/12/12
It’s The Economy,Stupid
January 12, 2012
With your host…
Gene Wunderlich
STILL
Japanese
Earthquak
e
&
Tsunam
i
Sovereign Debt
Crisis in EuroZone
Oil Price Spikes
2011: A Year of Economic Wild Cards
Arab Spring
Political
Change on
Capitol Hill
Debt Limit Ceiling & Downgrad
e of US Debt
Stock Market
Volatility
Too many
&
• Federal Economic Policy• Regulations• Unemployment• Foreclosures• Mortgage Interest Deduction• Strategic Foreclosures
• Lenders• Short Sales• Interest Rates• Inflation• Shadow Inventory• Global Economy
Economy Housing
PoliticsFraud
Economy
Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
Ronald ReaganAmerican President
Consumer Confidence?Highest Since April
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November 2011: 64.5
INDEX, 100=1985
Overall, 62 percent of those surveyed say they’re optimistic about what 2012 will bring for the country, according to the Associated Press-GfK survey. And for themselves and their families, Americans are even more positive, with 78 percent telling pollsters they are personally hopeful about the year ahead.
-8%-7%-6%
-5%-4%-3%
-2%-1%
0%1%2%
3%4%
5%6%7%
8%1
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Q3
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2010: 2.8%; 2011 Q1: 0.4% Q2: 1.0% 2011 Q3: 2.5%
ANNUAL QTRLY
2009 Largest Annual Drop since 1938 (-3.4%)
Gross Domestic Product: Stall Speed
SOURCE: CA Employment Development Division 36
52
63
67
08
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07
25
0%
2%
4%
6%
8%
10%
12%
14%CA US
Unemployment Stubbornly High November 2011
California (11.3%) vs. United States (8.6%)
Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)
How Many Years to Get Job Market Back to Normal?
Jobs added per month Assumed new jobs needed for growing population per month
How many years?
100,000 100,000 Treading water and never back to normal
200,000 100,000 6.3 years
300,000 100,000 3.2 years
400,000 100,000 2.1 years
Housing
The housing market will get worse before it gets better.
James Wilson American Politician
(1742 – 1798)
Wall Street Journal
“Home Forecast Calls For PAIN.”
Prices to stumble through 2015
Market at a Glance
Sales of Existing Detached Homes: California October 2011 Sales: 493,240 Units, Up 1.1% YTD, Up 8.5% YTY
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Sales Consumer Confidence INDEXUNITS
SOURCE: The Conference Board
*Sales are seasonally adjusted and annualized
P: May-07$594,530
T: Feb-09$245,230
-59% frompeak
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000J
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Median Price of Existing Detached HomesCalifornia, October 2011: $278,060, Down 8.9% YTY
SOURCE: California Association of REALTORS®
California Sales of Existing Homes and Median Price
Housing Cycle Comparisons 1970- 2011
UNITS/MEDIAN PRICE $
California Association of REALTORS®
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
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Sales of Existing Detached Homes Median Price
-61% -25%
-44%
California Association of REALTORS®
California vs. U.S. Median Price
19701973
19771980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
2010$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
US Median Price CA Median Price
Median Price & Affordability Index
Housing Affordability: Records Highs
0%
10%
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50%
60%
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80%
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100%
Q1
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Q3
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Q1
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CA US
% OF HOUSEHOLDS THAT CAN BUY
California Association of REALTORS®
California Vs. U.S.
2009
.01
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.03
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.05
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.07
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.09
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.11
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.03
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.07
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.09
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.11
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.01
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.03
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.05
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.07
7.28
.11
8.11
.11
8.25
.11
9.8.
11
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
FRM ARM
MONTHLY
WEEKLY
Mortgage Rates @ Historical Lows
Compelling AffordabilityMonthly Mortgage to buy a Median Priced Home
2005 Q2 2011 Q2
San Diego $ 2,833 $ 1,564
Miami $ 1,726 $ 853
Milwaukee $ 1,014 $ 797
Kansas City $ 735 $ 600
Inventory Level Says…Sellers Market.
SOURCE: California Association of REALTORS®
0
50,000
100,000
150,000
200,000
250,000
300,0001
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Single Family Multi-Family
2009: 36,200 2010: 39,000 2011: ??
Average 1988-09: 138,000
SOURCE: CBIA. Forecast: C.A. R.
CA New Housing Permits:Opportunity
CA Underwater Mortgages:
Reverse Wealth Effect
Q4-2009
Q1-2010
Q2-2010
Q3-2010
Q4-2010
Q1-2011
Q2-2011
0%
5%
10%
15%
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25%
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40%
30.2%
4.6%
Negative Equity Share in CA Near Negative Equity Share in CA
Proportion of Sellers Planning to Repurchase
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%
10%
20%
30%
40%
50%
60%
70%
80%
Q. Is the seller planning on purchasing another home?
California Association of REALTORS®
Sellers with a Net Cash Loss
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0%
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21.8%
What was the net cash gain or net loss to the seller as a result of this sale?
Long Run Average = 11.2%
California Association of REALTORS®
Net Cash to Sellers
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0
$50,000
$100,000
$150,000
$200,000
$250,000
$75,000
Median
Q. What was the net cash gain or net loss to the seller as a result of this sale?
California Association of REALTORS®
8 in 10 Americans (STILL) Agree: Buying a Home is the Best Investment One Can Make
SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”
8 in 10 Renters Would Like to Buy in the Future
“…renters are hardly immune to the allure of homeownership, even in the face of the five-year decline in prices. Asked if they rent out of choice or because they cannot afford to buy a home,
just 24% say they rent out of choice.”
SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”
Direction of Home Prices: Sellers Skeptical/Buyers Hopeful
Sellers Buyers0%
10%20%30%40%50%60%70%80%90%
100%
Down Flat Unsure Up
California Association of REALTORS®
California Housing Market Outlook
• 2005 2006 2007 2008 2009 2010 2011f 2012f
SFH Resales (000s)
625.0 477.5 346.9 441.8 546.9 491.5 491.1 496.2
% Change 0.03% -23.6% -27.3% 27.3% 23.8% -10.1% -0.1% 1.0%
Median Price ($000s)
$522.7 $556.4 $560.3 $348.5 $275.0 $303.1 $291.0 $296.0
% Change 16.0% 6.5% 0.7% -37.8% -21.1% 10.2% -4.0% 1.7%
30-Yr FRM 5.9% 6.4% 6.3% 6.0% 5.1% 4.7% 4.5% 4.7%
1-Yr ARM 4.5% 5.5% 5.6% 5.2% 4.7% 3.5% 3.0% 3.1%
Forecast Date: September 2011
California Association of REALTORS®
2012 Preview : State
Accelerated 3% withholding
4% flat tax – including services
Point of sale mandates
Mortgage interest deduction
40+ ballot propositions
Taxes, taxes, Texas
Federal Issues – Critical Concerns
• High-cost Loan Limits - expired 10/1/11 (except
FHA)
• Future of Fannie and Freddie? FHA?
• Tax Reform on the horizon
Mortgage Interest Deduction?
Capital Gains?
• QRM (Qualified Residential Mortgage) 20% Down
Is the future of the 30 year mortgage in doubt?
2012 – What’s Ahead• Stable to increasing home sales• Stable median price• Declining inventory of resale homes• Rising rents• Lack of new home inventory• Compelling affordability• Record low interest rates
Pent up demand
It’s Time To Buy Again
SOURCE: “Real estate: It’s time to buy again”Fortune Magazine’s 3/28/11 article written by Shawn Tully
“Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class
in America is housing.”
