Economic and Housing Market

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation at 2012 Resort and Second-Home SymposiumKiawah Island, SC

March 19, 2012

OUTLOOK

Monthly Existing Home Sales … Recovering

Tax Credit Impact

Old Data

New Data

Annual U.S. Existing Home Sales … Flat Line for 4 tough years

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,000

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Second Home Sales

In thousands

Case-Shiller Price Index…Stability from 2009

Median Price of Transacted Homes: Vacation Home Suffered More

Primary (Blue) vs Vacation (Red)

Source: NAR

Columbia and Myrtle Beach(Home Price Index: 1995 = 100)

Source: Federal Housing Finance Agency

Bend and Portland, Oregon(Home Price Index: 1995 = 100)

Source: Federal Housing Finance Agency

Santa Fe and Albuquerque(Home Price Index: 1995 = 100)

Source: Federal Housing Finance Agency

Las Vegas and Miami vs Kansas City and Milwaukee

(Home Price Index: 1995 = 100)

Source: Federal Housing Finance Agency

U.S. Housing Starts Lowest since the Second World War… in the past three years

Housing Starts in thousands

New Home Inventory – 50 year low

Visible Existing Home Inventory(6-year lows)

Serious Delinquent Mortgages … Mostly those who took out loans in bubble years

(90+ days late or in foreclosure process)

Fannie and Freddie PerformanceMortgage Default after 18 months

Fannie MaeVintage

Cumulative Default Rate after 18 months

2002 3.1%

2003 2.5%

2004 4.6%

2005 4.8%

2006 11.6%

2007 28.7%

2008 12.6%

2009 1.2%

Freddie MacVintage

Cumulative Default Rate after 18 months

2002 2.7%

2003 1.2%

2004 2.0%

2005 1.8%

2006 6.0%

2007 22.3%

2008 13.7%

2009 1.1%

Source: Federal Housing Finance Agency

Foreclosure Starts(% of all mortgage outstanding; about 1/3 of homes are free and

clear)

Foreclosure Inventory(% of all mortgage outstanding; about 1/3 of homes are free and

clear)

Economic Expansion(GDP growth after recession should be

sustained 4% to 5% … not 1.7% as occurred in 2011)

-10

-8

-6

-4

-2

0

2

4

6

8

10

2000

- Q

120

00 -

Q3

2001

- Q

120

01 -

Q3

2002

- Q

120

02 -

Q3

2003

- Q

120

03 -

Q3

2004

- Q

120

04 -

Q3

2005

- Q

120

05 -

Q3

2006

- Q

120

06 -

Q3

2007

- Q

120

07 -

Q3

2008

- Q

120

08 -

Q3

2009

- Q

120

09 -

Q3

2010

- Q

120

10 -

Q3

2011

- Q

120

11 -

Q3

Desired Pace

Total U.S. Payroll Jobs … Recovering(3.4 million job creation from low point in 2010)

In thousands

Labor Force Participation Rate%

Financial Industry Corporate Profits

Federal Reserve Loose Monetary Policy

Banks/Regulators Restricting Credit

(Average Credit Scores of Approved Loans)

Normal 2009 2010 If Normal

Fannie 720 761 762 720

Freddie 720 757 758 720

FHA 650 682 698 660

15% to 20% Higher Sales

CPI Rent is Rising…Biggest Weight to CPI(% change from 12 month ago)

Home Value Undervaluation(Recent analysis by The Economist magazine)

Metric Magnitude of Over or Undervaluation

U.S. Home Prices Home Price vs. Rent 8% undervaluation

U.S. Home Prices Home Price vs. Income 22% undervaluation

U.K. Home Prices Home Price vs. Rent 28% overvaluation

U.K. Home Prices Home Price vs. Income 20% overvaluation

Ireland Home Prices Home Price vs. Rent 10% overvaluation

Ireland Home Prices Home Price vs. Income Proper valuation(neither over nor under)

Improving Factors for Higher Home Sales

• Improving Factors– Job Creation – Solid stock market recovery from 2008– Rising rents and larger pool of qualified renters– Pent-up Release of Household Formation– Smart money chasing real estate (instead of gold?)– Consumer confidence OK (no longer dire)– Great affordability conditions– Favorable demographics for second home buyers

• Potential Huge Positive … Lending opens up• Potential Huge Negative … Washington policy

Annual Household Formation… Future Rent Pressure?(3 separate Census data)

In millions

Household Formation leads to increase ownership and renters; Could begin to return to normal of at least 1 million from 2012.

Expensive Gold Price(Hedge against Inflation?)

Will Investors shift money to alternative inflation hedge instrument … to real estate?

Consumer Confidence

Best Affordability Conditions

Monthly Pending Home Sales Index(Seasonally Adjusted)

Homebuyer Tax Credit

Median Age and Income of Homebuyers

• Primary 37 years old with $69,600

• Investment 45 years old with $87,600

• Vacation 49 years old with $99,500

U.S. Population Aged 55-to-64

Forecast Population Aged 55-to-64

Rising World Population

Washington Policy Obstacles

– QRM 20% downpayment rules– Mortgage Interest Deduction Limitation on

second homes– Capital gains tax increase– Lower loan limit for conforming mortgages

• More consumers face jumbo mortgages

– Rising mortgages rates (market forces of higher inflation and high budget deficit)

Forecast

2011 2012 2013

Existing Home Sales 4.26 million 4.55 million 4.70 million

New Home Sales 305,000 370,000 510,000

Housing Starts 599,000 710,000 980,000

Existing Home Price $166,100 $168,000 $172,000

GDP Growth +1.8% +2.3% +3.1%

Payroll Job Gains +1.7 million +2.3 million +2.6 million

30-yr Mortgage 4.7% 4.4% 5.4%

Second Home and Resort Markets suffered more … Therefore,Ripe for a stronger recovery for both sales and prices

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