Economic and Housing Market Trends and Outlook

Economic and Housing Market

Trends and Outlook

Jed SmithManaging Director, Quantitative Research

NATIONAL ASSOCIATION OF REALTORS®

North Carolina Real Estate Summit

Embassy Suites, Cary, North Carolina

July 16, 2013

The Outlook: ForecastSlow Economic Expansion

2011 2012 2013Forecast

2014Forecast

GDP Growth +1.8% +2.1% +1.8% 2.7%

Existing Home Sales

4.3 million 4.7 million 5.0 million 5.2 million

Housing Starts 610 K 780 K 1.0 million 1.25 million

Existing Home Price Growth

- 4% + 6% + 8% + 5%

30-yr MortgageRate

4.7% 3.7% 4.0% 4.7%

“It Was the Best Of Times, and the Worst of Times”Index Continues Below 100: Expansion Slow, Weaker than Normal

Conference Board: Consumer ConfidenceSA, 1985=100

100500959085Source: The Conference Board 07/02/13

150

125

100

75

50

25

150

125

100

75

50

25

“It Was the Best Of Times, and the Worst of Times”Levels of Uncertainty Higher than Normal

Economy: Slower/Weaker Expansion

Economic Policy Uncertainty Index1985-09=100

100500959085Source: PolicyUncertainty.com 07/02/13

250

200

150

100

50

250

200

150

100

50

U.S. Total Payroll JobsLabor Force Participation Rate Down 3 Percent

11.8 Million Unemployed

2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan124000

126000

128000

130000

132000

134000

136000

138000

140000 In thousands

Employment: The Major Issues

Unemployed, 16 Years & Over: 16 yr +SA, Thous

100500959085Source: Bureau of Labor Statistics 07/02/13

16000

14000

12000

10000

8000

6000

4000

16000

14000

12000

10000

8000

6000

4000

• Employment Lower than Normal.

• Unemployment Duration: Higher than Normal.

• Job Creation is Lagging.• It’s Hard to Find a Job!• Housing Market Expanding,

But Could do Better.• Good News—But Still

Underperforming.

Housing Outlook: Annual Existing Home SalesGood News: Impending Multiyear Growth

2005

2006

2007

2008

2009

2010

2011

2012

2013

f

2014

f

2015

f012345678

7.086.52

5.02

4.12 4.34 4.18 4.264.66

5 5.225.7

In million units

Housing Outlook: Home Prices Still ReasonableMarket is Recovering—A Function of Jobs.

Affordability Good, but Credit Availability Needs to Ease.

2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0

50000

100000

150000

200000

250000

Existing Home PricesActual and Forecast

Home Prices, Monthly Forecast, Annual

Housing Outlook: Affordability

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0

50

100

150

200

250

Affordability

Housing Outlook: Pending Home SalesSeasonally Adjusted 2001 = 100; Tax Credit Blips in 2010


20

40

60

80

100

120

140

Housing Outlook Days on Market--Down Very Significantly

201105

201106

201107

201108

201109

201110

201111

201112

201201

201202

201203

201204

201205

201206

201207

201208

201209

201210

201211

201212

201301

201302

201303

201304

2013050

20

40

60

80

100

120

96 97 9892

10196 98 99 99 97

9183

72 70 69 70 70 71 70 73 71 74

62

4641

Median Days on Market

Source: NAR, RCI Survey

Housing OutlookDistressed Sales Down

200905

200907

200909

200911

201001

201003

201005

201007

201009

201011

201101

201103

201105

201107

201109

201111

201201

201203

201205

201207

201209

201211

201301

201303

2013050%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Percent of Respondents ReportingDistressed Sales

Foreclosed As % of Sales Short Sale As % of Sales

Housing OutlookLow Inventories


2

4

6

8

10

12

14

Months Supply of Housing

EHS Months Supply New SF Homes

Housing Recovery—Why Sustainable?Housing Starts Requirement

• 1.1 million household formation.• 0.3 million demolition and uninhabitable.

(Implicitly assumes depreciation rate of more than 200 years)

• 0.2 million net new vacation home demand. • Total New Housing Need = 1.6 million each

year.

Housing Recovery—Why Sustainable?Household Formation Accelerating After Great Recession

(in millions)

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20120.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Housing Recovery—Why Sustainable?Quantifying Housing Shortage

(2001 to 2012)

Household Formation

Demolition New Vacation Home

Housing Starts

11.0 million 3.6 million 2.0 million 15.7 million

16.6 million 15.7 million

This housing shortage imbalance could grow because (1) Household Formation will exceed 1 million in 2013 and beyond(2) Housing Starts need to be 1.5 million per year … Not there in 2013

Housing Recovery—Why Sustainable?Housing Starts: Long Term Demand Greater than Supply


500

1000

1500

2000

2500

multifamily single-familyThousand units (annualized)

Long-term Average

Housing Recovery—Why Sustainable?Existing vs. New Home Prices … Big Gap

(single-family homes)

2000 - Jan 2002 - Apr 2004 - Jul 2006 - Oct 2009 - Jan 2011 - Apr0

50000

100000

150000

200000

250000

300000

NewExisting

Number of “Qualified” Renters(credit scores unknown and not factored)

Year Income Needed to Buy a Median Priced Home

Number of Renters with necessary income

Share of Renters Qualified

2000 $40,300 11.8 million 33%

2005 $50,400 9.0 million 24%

2012 $31,700 20.1 million 51%

If the year 2000 is considered as normal, then 11.8 million renters had the income to buy a median priced home but chose not to.

In 2012 there are about 8 million more renters with the necessary income but choosing not to be or are unable to be a homeowner.

Housing Recovery—Why Sustainable?Buyer Traffic Greater than Seller Availability--REALTOR® Survey

2008

0120

0803

2008

0520

0807

2008

0920

0811

2009

0120

0903

2009

0520

0907

2009

0920

0911

2010

0120

1003

2010

0520

1007

2010

0920

1011

2011

0120

1103

2011

0520

1107

2011

0920

1111

2012

0120

1203

2012

0520

1207

2012

0920

1211

2013

0120

1303

2013

05

20

30

40

50

60

70

80

Indexes of Buyer and Seller Traffic

Buyer Traffic Index Seller Traffic Index

May 2013: Buyer: 71 Seller : 43

Price Expectations--Next 12 MonthsSource: REALTOR® Survey

200810

200901

200904

200907

200910

201001

201004

201007

201010

201101

201104

201107

201110

201201

201204

201207

201210

2013010%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Constant/Rising PricesFalling Prices

Price Expectations for Next 12 MonthsAs Reported by REALTORS®

Summary of Outlook: Where Are We Headed?

• Likely Multiyear Housing Recovery.– No Recession but Slow Economy.– Continued Job Growth and Household Formation. – Lagging Housing Starts and Continuing Housing

Shortage.• Home prices are primed to rise further, by 13%

cumulatively in 2013 and 2014.• Smooth Sailing Right Now—But Would be Better

with Increased Credit Availability and Job Creation.• But There are Major Risks.

Risks to Forecast—Housing Related

• Upside Uncertainties … Credit Availability– Housing recovery so far even with tight credit– What happens if mortgage accessibility opens up?

• Downside … Washington Housing Policies– Rising g-fees and FHA insurance premiums– QRM 20% down payment requirement?– Basel 3 … capital rule that punishes private mortgage

with low down payment and commercial loans– Trim mortgage interest deduction?– Capital gains tax on home sale?

Credit Risks--Ready to Open Credit?(Average Credit Scores of Approved Loans)

Normal 2009 to 2012 If Normal

Fannie 720 760 to 770 720

Freddie 720 760 to 770 720

FHA 650 680 to 700 660

15% to 20% Higher Sales Possible if Normal Conditions

FICO Scores: Unreasonably HighCredit Availability: Negative Impact on Potential Homeowners

RCI-Feb'12

RCI-Mar'12

RCI-Apr'12

RCI-May'12

RCI-Jun'12

RCI-Jul'12

RCI-Aug'12

RCI-Sep'12

RCI-0ct'12

RCI-Nov'12

RCI-Dec'12

RCI-Jan '13

RCI-Feb '13

RCI-Mar '1

3

RCI-Apr '13

RCI-May '13

Fannie-2011

Freddie-2011

Fannie-2005

Freddie -20050%

10%

20%

30%

40%

50%

60%

70%

80%

FICO Scores: Recent Scores vs. 2005

lt 620 740+ Fannie/Freddie 740+

May 2013: 57% of reported credit scores are 740+

Downside Risk: Mortgage Investor Rights

–Court system clogging the foreclosure process

– Eminent Domain to take mortgages out of investors’ hands? (In order to restructure mortgages)

Downside Risk: Aging Baby Boomers (Live Births per 1000 population in U.S.)

1909 1916 1923 1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 20070

5

10

15

20

25

30

35

Baby Boomers … now aged 49 to 68 … Mix, Preferences, Millennial Buying Power

Downside Risk: Student College DebtImportant Issues: Are Colleges Effective, Are Expectations Realistic?

($ trillion)

2003 - Q1

2003 - Q3

2004 - Q1

2004 - Q3

2005 - Q1

2005 - Q3

2006 - Q1

2006 - Q3

2007 - Q1

2007 - Q3

2008 - Q1

2008 - Q3

2009 - Q1

2009 - Q3

2010 - Q1

2010 - Q3

2011 - Q1

2011 - Q3

2012 - Q1

2012 - Q3

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Downside Risk: GDP Growth … UnimpressiveHow Fragile is the Recovery?

Housing, Quantitative Easing, Other

1960 - Q1 1966 - Q4 1973 - Q3 1980 - Q2 1987 - Q1 1993 - Q4 2000 - Q3 2007 - Q2

-6

-4

-2

0

2

4

6

8

10

GDP GrowthPercent Change, Year to Year, Constant Dollars

North Carolina OutlookEmployment Tracks National Trends


126000

128000

130000

132000

134000

136000

138000

140000

3500

3600

3700

3800

3900

4000

4100

4200

4300

Employment, Establishment Data

U.S. North Carolina

North Carolina OutlookBuilding Permits: Recovering


50000

100000

150000

200000

250000

0

2000

4000

6000

8000

10000

12000

Authorized Building Permits

U.S. North Carolina

North Carolina OutlookPercent of Mortgages Past Due

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

2012 - Q1

2012 - Q4

0

2

4

6

8

10

12

Past Due Mortgages

U.S. North Carolina

North Carolina OutlookIndexes of Coincident Indicators


20406080

100120140160180

Index of Coincident Economic Indicators

North Carolina US

North Carolina OutlookNorth Carolina Unemployment Rate Slightly Higher than Nation as a Whole


2

4

6

8

10

12

Unemployment Rates

U.S. North Carolina

North Carolina Outlook Home Prices Have Stabilized

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

2012 - Q1

2012 - Q4

050

100150200250300350400

FHFA Home Price Index

U.S. North Carolina

Community Leaders—Thought Leadership

• Thought Leadership: People Look to Leaders for Ideas on Important Topics.

• Short Term—Recovery is Proceeding Nicely.• Longer Term—There are Major Problems.• The “Longer Term” Could be a Year or Two.– Problems are not Certainties.– But Problems Need to be Addressed.– And Can Show Up as a Surprise.

Major Economic Risks: Problems Not to be Ignored. For Now—Smooth Sailing. Longer Run—Avoid Surprises.

Problems: just ignored.• Budget Deficit.• Quantitative Easing.• Home Ownership Levels.• Entitlements: Social Security, Medical

Care, Disability, Social Welfare Programs.

• State/Local Government Finances.• Labor Force Issues.• Student Loans.• Generational Split.• Income Distribution.• Lack of Growth.• Regulation.• Divisive Rancor.

The iceberg: just ignored. • Photographed morning April 15, 1912…smear of red

paint along the base of the berg, indication that it had collided with a ship sometime in the previous twelve hours.

NAR Research—On Line

• Twitter: https://twitter.com/NAR_Research

• Blog: http://economistsoutlook.blogs.realtor.org/

• NAR Research Page http://www.realtor.org/research-and-statistics

• NAR Housing Statistics – http://www.realtor.org/research-and-statistics/housing-statistics

• Research Reports – http://www.realtor.org/research-and-statistics/housing-statistics

• NAR Commercial Reports – http://

www.realtor.org/research-and-statistics/research-reports/commercial-real-estate

https://twitter.com/NAR_Research

https://twitter.com/NAR_Research

http://economistsoutlook.blogs.realtor.org/



http://www.realtor.org/research-and-statistics



http://www.realtor.org/research-and-statistics/housing-statistics






http://www.realtor.org/research-and-statistics/research-reports/commercial-real-estate



Economic and Housing Market Trends and Outlook

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