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Transcript of Real Estate Update: Have we reached bottom? Midwest Relocation Conference Chicago, Illinois April 4,...
Real Estate Update:Have we reached bottom?
Midwest Relocation ConferenceChicago, Illinois
April 4, 2011
Moderator:
Carol Mescal, CRP | VP Client Relations, TheMIGroup
Speakers:
Jed Smith, Ph.D | Director, Quantitative Research, National Association of Realtors
Deborah Benavides, CRP | Director, Relocation and Corporate Services, Shorewest Realtors
Barbara Springer, CRP,GMS, CMS | Executive Vice President, Relocations and Referral Services @Properties
Tim Rohlman, CRP | President, Relocation Real Estate Services, Inc.
National Association of Realtors
Jed Smith Director, Quantitative Research, National Association of Realtors
The Economy – How We Got Here!Excessive Spending & Leverage, Speculation, Job & Credit Problems,
Weak Balance Sheets & Income, Consumer Confidence Problems
May2008
Jun 2008
July 2008
Sep 2008
2009Aug 2008
Current State of the EconomyGDP and Jobs – Slow Recovery
All Employees: Total NonfarmSA, Thous
Gross Domestic ProductSAAR, Bil.$
100500959085Sources: BLS, BEA 03/11/11
140000
130000
120000
110000
100000
90000
80000
15000
12500
10000
7500
5000
2500
Current State of the Economy – Consumer ConfidenceToo Much Gossip Around the Cyber Cracker Barrel
Conference Board: Consumer Confidence
SA, 1985=100
10050095908580Source: The Conference Board 03/10/11
150
125
100
75
50
25
150
125
100
75
50
25
Current State of the EconomyUnemployment Rate
Civilian Unemployment Rate: 16 yr +
SA, %
100500959085807570656055Source: Bureau of Labor Statistics 03/10/11
12
10
8
6
4
2
12
10
8
6
4
2
Current State of the Housing MarketLonger Unemployment: Slow to Find a Job
Civilians Unemployed for 27 Weeks and Over
SA, Thous.
100500959085807570656055Source: Bureau of Labor Statistics 03/10/11
8000
6000
4000
2000
0
8000
6000
4000
2000
0
Current State of the Economy – More Jobs Needed!Projected Time for Recovery: Four Years?
125000
135000
145000
Source: BLS
Forecasting the Outlook: Black SwansUnknown Unknowns / Unanticipated Risks
Uncertainties and UnknownsImpact on the Economy
• Federal and State Government Budgets
• Oil: Prices and Availability
• European Credit Markets
• GSE and Financial Reform
• Credit Availability/Inflation/Uncertainties
• Consumer Confidence
• Structural Changes?
• Federal Policies—Key Impacts
• GDP into Jobs—When Will it Happen?
The Economy – Economic OutlookGovernment Actions / Policies – Can Impact Outcome
2007 2008 2009 2010 2011 2012
Annual Growth Rate
Real GDP 2.0 0.4 -2.6 2.9 2.7 3.0
Non-farm Payroll Employment
1.1 -0.4 -4.4 -0.7 1.4 2.2
Consumer Prices 2.9 3.8 -0.3 1.6 2.4 3.3
Real Disposable Income
2.8 0.5 0.6 1.4 1.4 2.0
Consumer Confidence 103 58 45 54 65 70
Unemployment Pct. 4.6 5.8 9.3 9.6 9.2 8.4
Housing Indicators—000
Existing Home Sales* 5,652 4,913 5,156 4,907 5,305 5,579
New Single-Family Sales
776 485 376 317 334 520
Housing Starts 1,355 904 554 586 628 948
Existing Home Prices $--000
219.0 198.1 172.5 172.9 172.2 177.7
New Home Prices 247.9 232.1 216.7 221.9 226.0 233.8
Current State of the Housing MarketWhat Buyers and Sellers Face
• Price—Major Declines
• Volume—Has Declined, relatively flat for 3 years
• Homeowners With Mortgages—25 percent negative equity, 25 percent minimal equity
• Credit Markets—Good interest rates, but higher standards for qualification
• Consumer Confidence—Substantially less
• Mortgage Delinquencies
• Distressed Sales—Major part of Market
• Substantial Difference between Buyer and Seller Expectations
Current State of the Housing MarketDistressed Property: Will Probably Continue for Several Years
Current State of the Housing MarketDistressed Property Sells at a Discount to Market
Current State of the Housing Market HousingMonths Supply – Existing Home Sales
NAR Months' Supply of Total Existing Homes, United States
Months
100908070605040302010099Source: National Association of Realtors 03/10/11
12.5
10.0
7.5
5.0
2.5
12.5
10.0
7.5
5.0
2.5
Current State of the Housing Market HousingDemand for New Space Above Supply
Approximations: Second Home—100K; Replacements—400K; New HH—1000KDemand: 1 to 1.5 million New Units Per Year
Supply: Currently Less than 900K Per Year
Current State of the Housing MarketPrices Relative to Median Income Have Declined Significantly
Current State of the Housing MarketSignificant Loss of Wealth During Great Recession
Households & Nonprofit Organizations: Net Worth
NSA, Bil.$
100908070605040302010099Source: Federal Reserve Board 03/10/11
67500
60000
52500
45000
37500
30000
67500
60000
52500
45000
37500
30000
Current State of the Housing MarketHousehold Debt Still Relatively High
Current State of the Housing MarketDistressed Property -- Issues
• Shadow Inventory
– Delinquencies—Toxic Loans, Job Losses, Upside Down Mortgages
• HAMP—Qualification, Recidivism
• Regional Concentrations
• March 2010 Estimate: 2.5 million homes in Shadow Inventory
• Past Due—8.22% of mortgages
• In Foreclosure—4.63% of mortgages
• Bifurcated Market
Where are we now?Recent Real Estate Market Experience
• Financial System: Cleaning Up From The Tsunami
– Weakened Balance Sheets, Increased Risk Aversion
– Financial Institutions: Credit less available
• Impacting Housing Markets: Debris from Tsunami
– Major Loss of Wealth, Low Consumer Confidence, Lost Jobs
– Distressed Property: Foreclosures and Short Sales
– Negative Equity
• Current Housing Markets: Concern Over Outlook
– Residential Sales: Recovering, Price, Foreclosures, Supply Consumer Mood/Debt/Wealth are Issues
– The Numbers Don’t Indicate A Price or Sales Surge: Slow Recovery
– KEY ISSUE: Jobs
Current State of the Housing MarketInterest Rates: Near Historic Lows
3.0
3.54.0
4.55.0
5.5
6.06.5
7.0
2007
- Ja
n
2007
- Apr
2007
- Ju
l
2007
- O
ct
2008
- Ja
n
2008
-Apr
2008
-July
2008
-Oct
2009
-Jan
2009
-Apr
2009
-July
2009
-Oct
2010
-Jan
2010
-Apr
2010
-July
2010
--Oct
2011
-Jan
1 Yr. Arm 30 Yr Fixed
3.0
3.54.0
4.55.0
5.5
6.06.5
7.0
2007
- Ja
n
2007
- Apr
2007
- Ju
l
2007
- O
ct
2008
- Ja
n
2008
-Apr
2008
-July
2008
-Oct
2009
-Jan
2009
-Apr
2009
-July
2009
-Oct
2010
-Jan
2010
-Apr
2010
-July
2010
--Oct
2011
-Jan
1 Yr. Arm 30 Yr Fixed
Source: Freddie Mac
Current State of the Housing Market Housing
Affordability: Median Mortgage Payment (Principle & Interest) as Percent of Income
10
15
20
25
30
1990
- Ja
n
1991
- Ja
n
1992
- Ja
n
1993
- Ja
n
1994
- Ja
n
1995
- Ja
n
1996
- Ja
n
1997
- Ja
n
1998
- Ja
n
1999
- Ja
n
2000
- Ja
n
2001
- Ja
n
2002
- Ja
n
2003
- Ja
n
2004
- Ja
n
2005
- Ja
n
2006
- Ja
n
2007
- Ja
n
2008
-Jan
2009
-Jan
2010
-Jan
2011
-Jan
Current Average
Source: NCR
Current State of the Housing Market HomePrice Trends – Leveling Out
Radar Logic 28-Day House Price, 25 MSA Composite ($/Sqft)S&P/Case-Shiller Home Price Index: Composite 20 (SA, Jan-00=100)
FHFA House Price Index: Purchase Only, United States (SA, Q1-91=100)Freddie Mac House Price Index, United States (Dec 2000=100)
100908070605040302010099Sources: RL, S&P, FHFA, FHLMC 03/10/11
280
240
200
160
120
225
200
175
150
125
100
75
Forecast: Changing Home SalesPercent Change - Actual and Projected
-14
-11
-8
-5
-2
1
4
7
10
13
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Source: NCR
Forecast: Changes in Median Home PricesActual and Projected
-14
-11
-8
-5
-2
1
4
7
10
13
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Source: NCR
Concluding CommentsIn a Recovery Mode
• Issues and Good News– Probably Near the Bottom—Some Markets Doing Well
– Major Issues: Uncertainties, Black Swans, Distressed property
– Fannie Mae Survey: 75%--increasing prices
– Gen Y—Larger than Boomers—Live in Apartments—Want Houses
– Jobs the major market influence
• Increased Understanding of Home Ownership Dream– A HOME is for your family—for living
– Long term lifestyle decision
– Investment aspects secondary
• Good time to buy a house IF:– Financially Qualified and Prudent
– Understand Market Trends, The News, Uncertainties
Headlines Sell PapersMuch Less Drama Than Suggested by the News
• Back to Normal
– Home—A Major Decision
– Avoiding Flipping, Speculation, Excesses Home Ownership Dream
• Working Out of the Mess
– Continuing Impacts on Buyer Psychology/Moods
– Changed Markets
– New Requirements/Ways of Doing Business
• Implications for Mobility
– Transfers in Today’s Economy and Housing Markets
– Possible Changing Buyer Demands
– Implications for Services Expected
Southeastern Wisconsin
Real Estate Market
Deborah Benavides, CRP Director, Relocation and Corporate Services, Shorewest Realtors
Wisconsin Regional Reports
Source: WRA
Region Median Price % Change Sales % Change 2010 2009 2010 2009
Southeast 156,500 157,000 -0.3% 17,682 19,871 -11%
South Central 162,500 164,900 -1.5% 10,236 11,257 -9.1%
West 133,500 131,000 +1.9% 5,793 6,205 -6.6%
Northeast 125,000 122,000 +2.5% 8,914 9,550 -6.7%
Central 110,000 114,900 -4.3% 3,355 3,445 -2.6%
North 120,000 115,500 +3.9% 4,888 4,675 +4.6%
STATEWIDE 141,000 142,500 -1.1% 50,945 55,089 -7.5%
Source: GMAR
Southeastern (4 County) Wisconsin - Solds
Source: GMAR
Southeastern Wisconsin - Listings
Source: GMAR
Annual Ratio (Listings: Sales)
Source: GMAR
Southeastern WisconsinMonths of Inventory
Wisconsin’s Guidelines
2004 – 3-5% down on conventional loans
2010 – 15-20% down
Source: WSJ 02/16/2011 Pg. A2
. . . median existing home ownership costs are now below median new apartment rental rates . . .
Sources: U.S. Census and Marquette University. Existing home housing payment assumes a 90% loan-to-value, prevailing 30-year mortgage interest rates, and a 1.2% real estate tax rate.
Source: MMAC
Employment Outlook
Source: MMAC
Unemployment vs Home Values vs Absorption
2008 6% -5% 9 month
2009 8% -9% 11 month
2010 8% -12% 12 month
Currently 7.4% ?? 13 month
Condo Conditions – SE WI
• Depressed, oversupply; lagging behind in sales
• Issues: condo associations have little or no reserve => banks unwilling to make loans unless 20% down (no PMI coverage)
• Converted from condos to apartment
• 3-5 year recovery – longer to reach 2005 peak
Unique Challenges in Region
• State Budget - moved focus away from jobs to• Income / benefits
• Creating a lot of unknowns and uncertainty• Paralyzing people => decrease in sales
Positive News
• Increase in web traffic• Median house prices ’09-10 remain stable• Sales expected to pick up 2nd half 2011
Have We Reached Bottom?
1. Pent-up potential from new household formation
Have We Reached Bottom?
2. Minorities will play an increasing role in all housing markets;
3. Multifamily demand will bounce back with increased occupancy rates and solid rent growth;
4. Single-family will continue to struggle with the large shadow housing market;
5. Delinquency, default, and foreclosure rates will make nice improvements throughout the year; Interest rates will remain well-behaved around current rates; and
6. Housing is the most affordable as it has been in half a century.
The Chicagoland Real Estate Market
Barbara Springer, CRP, GMS Executive Vice President, @Properties
Headlines in Illinois today
• Homeownership hits new 8-year low as residents seek refuge in Renting
• Local Illinois home prices post 13th quarterly fall
• Suburban apartment rents up 7.4% in fourth quarter
• Condo deals die in shadows of financially distressed buildings
• Developer turning former nursing home into rentals
• Jimmy Johns Checks out Florida to Flee Illinois Tax
• Caterpillar tells Governor Quinn tax hike could drive it from Illinois
Chicagoland Real Estate Market Significant Influences
• Illinois income tax increase to help address billions of dollars in state budget shortfalls. The corporate income tax rate increased from 4.8 to 7 percent and individual income tax from 3 percent to 5 percent.
• U.S. decline on a weak job market and a bloated supply of unsold homes, including properties in foreclosure or those facing a short sale, which typically are priced less than normal properties.
• a shrinking population may also explain why soft demand is pushing Chicago's prices lower. Chicago's population decreased nearly 7% to 2.7 million in 2010, compared to 2.9 million in 2000, while Cook County's population fell roughly 3.4% to 5.2 million in the same period, according to the U.S. Census.
• It could take us take a lot longer to see the gains we've seen in other markets.
Source: Realty Trac
Foreclosure Activity by Month
6 Month Trend Falling
Foreclosure Status Distribution and Estimated Market Value throughout Illinois
Source: Realty Trac
Highest Availability100-200K
Foreclosure Actions
Source: Realty Trac
In Illinois 1 in every 552 housing units received a foreclosure filing in February 2011
Geographical Comparison - Chicago, IL
Geographical ComparisonIs your area’s foreclosure rate as high as state and national averages?
Foreclosure filings in the six-county Chicago region climbed 14.1% to 79,986 last year, compared with 70,122 in 2009.
Home Loans will be harder to get
We went from the WILD lending days to almost a lock down and have suffocated the market.
Mortgage Jail
The situation is slowing any recovery of the condo market, often the housing of choice for first-time buyers. Owners in troubled buildings aren't able to refinance, and sellers who want or need to sell find thin ranks of buyers. Last year, 42.5 percent of all initial foreclosure filings in the six-county Chicago area were against condos.
Chicagoland Condo Market
The fourth quarter for the city of Chicago shows true signs of stabilization and health returning to the marketplace, and performing without the temporary Federal Homebuyer Tax Credit, which expired in April 2010.
The Chicago condo market during this period showed an increase in the average price of 4.7 percent, to $331,131, up from $316,163 during the same time in 2009.
Apartments
Apartment landlords are capturing a bigger slice of the housing pie these days as more people favor renting over buying, whether they can't qualify for a mortgage or are scared that local home prices have further to fall.
But the most important driver of apartment demand — the job market — remains stuck in low gear, meaning landlords, while thriving now, could see more gains when hiring picks up.
Housing Price ForecastsIllinois Metropolitan Statistical Areas
Source: Illinois Association of Realtors
Have we hit bottom?
In St. Louis, the Real Estate Sky Is Falling In St. Louis, the Real Estate Sky Is Falling
…. or is it?…. or is it?
Tim RohlmanPresident, Relocation Real Estate Services, Inc.
Don’t Let the Media Mislead You
Bad News Sells……
The Real Truth is in the Details
But you have to work to find it.
Zip Codes
Tell Different Stories
Location, Location, Location
Location, Location, Location
St. Charles Area
West CountyMidtown
St. Louis West County
St. Louis West County
63005 63017 63011
Ho
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Sa
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So
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s o
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ark
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Chesterfield Chesterfield Ballwin
St. Louis Midtown
St. Louis Midtown
63105 63108 63110
Ho
me
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Sa
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So
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be
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Clayton Central West End St. Louis City
St. Charles Area
St. Charles Area
63385 63366 63301
Ho
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So
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Wentzville O’Fallon St. Charles
ConclusionConclusionIn St. Louis, the Real Estate Sky Is NOT Falling In St. Louis, the Real Estate Sky Is NOT Falling
Go with the FACTS, Go with the FACTS, Not the HEADLINESNot the HEADLINES
“Depending upon your outlook, and if you do your homework,
today’s real estate market is very, very promising .”