Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

32
Housing and Economic Outlook Midyear Meeting Marriot Wardman Park May 17, 2012 By Lawrence Yun

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Housing and Economic OutlookNAR Midyear MeetingMay 17, 2012NAR Chief Economist Lawrence Yun

Transcript of Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

Page 1: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

Housing and Economic Outlook

Midyear MeetingMarriot Wardman Park

May 17, 2012

By Lawrence Yun

Page 2: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 3: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 4: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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?

Page 5: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 6: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 7: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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%

Page 8: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 9: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 10: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 11: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 12: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

Best Affordability Conditions

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20102012

50

70

90

110

130

150

170

190

210

Page 13: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 14: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 15: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 16: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 17: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 18: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 19: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 20: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 21: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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.

Page 22: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 23: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 24: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 25: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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.

Page 26: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 27: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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.

Page 28: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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%

Page 29: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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)

Page 30: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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%

Page 31: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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

Page 32: Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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