Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting
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Transcript of Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting
Housing and Economic Outlook
Midyear MeetingMarriot Wardman Park
May 17, 2012
By Lawrence Yun
Annual Existing Home Sales:A Tough, Flat 4 years
2005 2006 2007 2008 2009 2010 20110
1
2
3
4
5
6
7
8
7.086.52
5.02
4.12 4.34 4.18 4.26
In million units
Despite Second Home Sales Recovery
2005 2006 2007 2008 2009 2010 20110
5001000150020002500300035004000
InvestmentVacation
In thousands
Buy a condo for your college student
53% of REALTOR® members own a residential investment property29% own a commercial property19% own a vacation home
Owner-Occupancy Sales Falling(All-Cash deals hiding the current dysfunctional mortgage market)
2005 2006 2007 2008 2009 2010 20110
1000
2000
3000
4000
5000
6000 In thousands
QRM rulesRaising g-fees to fund non-housing issuesBanks hoarding cash! … from regulatory uncertainties and lawsuits?
Owner Occupied Housing Units
1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q450,000
55,000
60,000
65,000
70,000
75,000
80,000
Homeowners
Rental Occupied Housing Units
1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q425,000
27,000
29,000
31,000
33,000
35,000
37,000
39,000
41,000
Rental Households
Homeownership Rate at 65.4%(Lowest in 15 years)
1965 - Q1 1971 - Q1 1977 - Q1 1983 - Q1 1989 - Q1 1995 - Q1 2001 - Q1 2007 - Q158
60
62
64
66
68
70%
2012 First Quarter Sales: Strongest in 5 years
Q1 Q2 Q3 Q40
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
20082009201020112012
Pending Contracts Point to Strongest Second Quarter in 5 years
2007 - Jan
2007 - Apr
2007 - Jul
2007 - Oct
2008 - Jan
2008 - Apr
2008 - Jul
2008 - Oct
2009 - Jan
2009 - Apr
2009 - Jul
2009 - Oct
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan
2011 - Apr
2011 - July
2011 - Oct
2012 - Jan
70
75
80
85
90
95
100
105
110
115
Source: NAR
Homebuyer Tax Credit
Pending and Closings of Existing Homes(Year-over-Year % changes)
2002 - Jan 2003 - Oct 2005 - Jul 2007 - Apr 2009 - Jan 2010 - Oct
-40
-30
-20
-10
0
10
20
30
40
50
PendingClosing
Improving Factors for Higher Sales in 2012:
1. High Affordability and Job Creation 2. Solid stock market recovery from 20083. Rising rents and a larger pool of qualified renters4. Pent-up release of Household Formation
• Rising demand for ownership and rentals as young-adults move out of parent’s basement
5. Smart money chasing real estate (i.e., investors)6. Consumer confidence in buying an appreciating
asset
Best Affordability Conditions
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
20102012
50
70
90
110
130
150
170
190
210
S&P 500 (Almost 100% from low point)
NASDAQ (More than 100% increase from low point)
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
2011 - Sep
2012 - Feb
0
500
1,000
1,500
2,000
2,500
3,000
3,500
S&P 500NASDAQ
Total Payroll Jobs(Recovered half of jobs lost a few years ago, but still down by 10 million compared to
long-term projections)
1970 - Jan1971 - M
ar1972 - M
ay1973 - Jul1974 - Sep1975 - N
ov1977 - Jan1978 - M
ar1979 - M
ay1980 - Jul1981 - Sep1982 - N
ov1984 - Jan1985 - M
ar1986 - M
ay1987 - Jul1988 - Sep1989 - N
ov1991 - Jan1992 - M
ar1993 - M
ay1994 - Jul1995 - Sep1996 - N
ov1998 - Jan1999 - M
ar2000 - M
ay2001 - Jul2002 - Sep2003 - N
ov2005 - Jan2006 - M
ar2007 - M
ay2008 - Jul2009 - Sep2010 - N
ov2012 - Jan
50
60
70
80
90
100
110
120
130
140
150In millions Mind
theGAP
Employment-to-Population Ratio:Reverting Back to Old Days?
1948 - Jan 1956 - Jul 1965 - Jan 1973 - Jul 1982 - Jan 1990 - Jul 1999 - Jan 2007 - Jul50
52
54
56
58
60
62
64
66%
Source: BLS, among those 16 years old and older
Father-Knows-Best Years
Jobs: Manufacturing and Construction vs.
Education and Healthcare Services
1948 - Jan 1956 - Jul 1965 - Jan 1973 - Jul 1982 - Jan 1990 - Jul 1999 - Jan 2007 - Jul0
5
10
15
20
25
30million
Source: BLS
Manufacturing and Construction
Education and Healthcare
Labor Force Participation Rate
1948 - Jan 1956 - Jul 1965 - Jan 1973 - Jul 1982 - Jan 1990 - Jul 1999 - Jan 2007 - Jul0
102030405060708090
100%
Source: BLS
Men
Women
Monthly Payroll Job Gains … paving the way for higher home sales
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
2011 - Sep
2012 - Feb
-1000
-800
-600
-400
-200
0
200
400
600In thousands
Rent Growth (Component from Consumer Price Index)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul
-1
0
1
2
3
4
5
% change from one year ago
Visible Inventory of Homes(6-year low for Existing Homes and 50-year low for New Homes)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Existing NewSource: NAR, Census
Shadow Inventory(Seriously Delinquent: 90+ days late or in foreclosure process)
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
U.S.
U.S.
Housing Starts(Well Below 50-year average of 1.5 million each year)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul0
500
1000
1500
2000
2500
multifamily single-familyThousand units (annualized)
Long-term Average
Source: Census, HUD
Home Price: Big Declines from 2006 to 2008
Small Declines from 2009 to 2011(index set at 100 from 2000)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul100
120
140
160
180
200
220
Case-Shiller FHFA
Latest Home Price Trend in early 2012(Lagging Indicator … reflects price negotiations from late 2011)
• NAR: Up in more than half of local markets
• FHFA: Up in deep-middle America, New England, South Atlantic, Mountain states
• Case-Shiller: Up in Charlotte, Dallas, Las Vegas, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Tampa, Washington D.C.
• Core Logic and LPS: many markets with price gains
Listing Price ChangesMarket % Change from
March 2011 to March 2012
Miami Double-digit gains
Phoenix Double-digit gains
San Antonio Double-digit gains
Washington D.C. Double-digit gains
Source: Realtor.com
Please note that a part of the price change may reflect more upper-end homes being listed and fewer lower-end homes . Therefore, not all of the price change is due to price appreciation of a particular property.
REALTOR® Confidence Index Showing Signs of Recovery:
5 year-high
Jan08Apr08
Jul08Oct0
8Jan09
Apr09Jul09
Oct09Jan10
Apr10Jul10
Oct10Jan11
Apr11Jul11
Oct11Jan12
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Single Family Townhouses Condos
Prepare for Early Move (2014) by Federal Reserve
20052006
20072008
20092010
2011
2012 foreca
st
2013 foreca
st
2014 foreca
st01234567
Fed Funds 30-year Mortgage%
Modestly higher rates could help home sales as banks re-staff mortgage work for home purchase applications and less refinance applications.
Consumer Price Inflation(Above Fed’s preferred 2% core inflation rate)
2005 2006 2007 2008 2009 2010 2011 2012 forecast
2013 forecast
-1
0
1
2
3
4
5
Rent All Items Core%
29
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0100,000200,000300,000400,000500,000600,000700,000800,000900,000
1,000,0001,100,0001,200,0001,300,0001,400,0001,500,000
Annual Membership(NRDS count at year-end)
Annual Forecast2011History
2012Forecast
2013Forecast
Existing Home Sales 4.26 million 4.6 to 4.7 million 4.7 to 4.8 million
New Home Sales 304,000 400,000 530,000
Housing Starts 610,000 770,000 970,000
Existing Home Price(Growth)
$166,100(-3.9%)
$168,100(+1.2%)
$173,100(+3.1%)
GDP Growth +1.8% +2.4% +3.1%
Payroll Job Gains +1.7 million +2.2 million +2.5 million
Fed Funds Rate 0.1% 0.1% 0.1%
30-yr Mortgage 4.7% 4.2% 4.9%
Risks to Forecast
• Washington Policy– QRM 20% down payment requirement?– Other Dodd-Frank rules? Help or Hurt?– Trim mortgage interest deduction?– Capital gains tax on home sale?
– Fiscal Cliff on January 1, 2013 … if no new compromised budget, then:
• Automatic deep cuts to military and domestic spending• Automatic higher taxes• 3% shaved off GDP
Wealth Distribution(Federal Reserve data on median net worth, with 2011 NAR estimate)
Renter Owner$0
$50,000
$100,000
$150,000
$200,000
$250,000
19982001200420072011 estimate
Data Source for Median Net Worth: Federal Reserve, NAR estimate for 2011
Big Drivers of Future Income and Wealth will be:• Tax and Spend policy• Graduate from high school• Ability to buy a home
• Voting• Stay in school• Buy a home within means