Economic and Real Estate Market Update from National Association of REALTORS
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Transcript of Economic and Real Estate Market Update from National Association of REALTORS
Economic and Housing Market OutlookLawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR’s Midyear Economic Issues and Residential Forum Washington, D.C.
May 13, 2010
Recent Pending Home Sales
60708090
100110120
Source: NAR
Recent National Pending Home Sales(year-over-year % change)
-30
-20
-10
0
10
20
30
40
Source: NAR
Tax Credit Help to SalesDespite 3.7 million job losses
42%40% 40% 40%
36%39%
41%
47%
20%
25%
30%
35%
40%
45%
50%
2001 2003 2004 2005 2006 2007 2008 2009
Share of First-Time Buyers
Distressed Home Sales
05
101520253035
Source: NAR
Foreclosed
Short-Sale
Latest Home Price Trend - Stabilizing
-25
-20
-15
-10
-5
0
5% change from one year ago
Loan Performance in Yellow
FHFA in Red
Case-Shiller in Green
NAR in Blue
Pre-tax credit Tax credit
Sample Markets with Price Increases
0
2
4
6
8
10
12
14
16
San Diego Orange Cty Boston Houston Buffalo Washington Columbia
Source: NAR
% change from one year ago
Tax Credit was Not-Impactful
• 4.4 million homebuyers to get tax credit– 2/3 to 1st-time buyers– 1/3 to repeat buyers
• 1.0 million buyers would not have entered without tax credit (stimulative impact)
• 3.4 million getting bonus money
• $30 billion tax credit wasted on people who would have bought anyway
Tax Credit was Huge Success
• 1 million additional buyers• 1 million fewer inventory• Reduced months supply by 2 to 2.5 months• Correspond to price impact of 5% to 8% points
• Preserved Housing Wealth (mostly middle-class) by nearly $1 trillion
• Consumer spending impact• Banks’ capital pushed above ‘stress levels’• Builds home buying confidence … with no further big
price worries• Limit future foreclosures
After the Tax Credit• Need Job Creation
• Need Household Formation
• Need Mobility
• Improved Consumer Confidence
• Low Mortgage Rates
• Lending for Jumbo and Second Home Mortgages
-1000
-800
-600
-400
-200
0
200
400
600
Source: BLS
In thousands
NET Job Changes in U.S.(Monthly Payroll Job Change)
2 million job creation each year … will take 4 years to recover all the job losses …will take 6 years to fully absorb new workers and get back to 6% unemployment rate
3500
4000
4500
5000
5500
6000
Source: BLS
In thousands
Job Turnover in U.S.(Total job gains and total job losses)
Fewer firings but people seeking for unemployment insurance because of lack of hirings
0500
10001500200025003000350040004500
1980
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Weak Growth
Thousands
Household Formation(2-year moving average)
10121416182022
1980
1981
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est
.
S C
People Mobility(How many move each year?)
Intra-state mobility modestly down
Inter-state mobility significantly down
%
1030507090
110130
2000
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Consumer Confidence
Chart about future expectations according to Conference Board
But no true measure for home buying confidence
30-year Rate on Conforming and FHA
(Not Jumbo or 2nd Home)
4.04.55.05.56.06.57.0
Source: Freddie Mac
30yr Mortgage and 10yr Treasury Spread
0
0.5
1
1.5
2
2.5
3
3.5
2004
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Future mortgage rates driven by 10-year Treasury borrowing cost
% pointsFinancial Crisis
Swings in Primary and Second Home Sales
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2003 2004 2005 2006 2007 2008 2009
Index
Source: NAR
Primary Home Sales
2nd Home Sales
Non-Government Backed Mortgages
• Jumbo Mortgages• Second Home Mortgages• Commercial Real Estate Loans• Construction Loans• Many Small Business Loans
• Showing nascent recovery signs because banks are making profits and easily above ‘stress-test levels’
Risk to Recovery
• Future Housing Shortage– Too fast price growth means fewer buyers
qualifying for mortgages – Past lax lending should not and will not
return
• Lingering Past Lending Mistakes and Continuing High Foreclosures
• Greece
High Existing Home Inventory
0
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
5,000,000
In thousand units
High Homeowner Vacancy Rate
0.00.51.01.52.02.53.03.5
In thousand units%
About 700,000 extra vacant homes above normal
Depressed Housing Starts
0
500
1,000
1,500
2,000
2,500In thousand unitsIn thousands
Low New Home Inventory
200250300350400450500550600
In thousand unitsIn thousands
Future Housing Shortage?
Year Housing Starts Historical Normal Cumulative
Surplus/Deficit
2003 1.85 million 1.6 million + 0.25 million
2004 1.95 million 1.6 million + 0.60 million
2005 2.07 million 1.6 million + 1.07 million
2006 1.81 million 1.6 million + 1.28 million
2007 1.34 million 1.6 million +1.02 million
2008 0.90 million 1.6 million + 0.32 million
2009 0.55 million 1.6 million - 0.73 million
2010 forecast 0.68 million 1.6 million -1.65 million
2011 forecast 0.95 million 1.6 million - 2.30 million
Serious Delinquency Rate(90+ days late or foreclosure)
0.0
5.0
10.0
15.0
20.0
25.0
30.0%
Subprime
•FHA Reserve Fund depleting … Bailout ???•Fannie-Freddie … future reform without private profit and taxpayer loss
•Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!
VA (purple)
FHA
Prime (green)
Number of Distressed Loans
Greece
• One of the Highest Homeownership Rate with few mortgage defaults
– Bridal families often buy a home all-cash• But Greece Government potential default
– Too high deficit and too high debt– Default … European banks’ capital reserve take
hit … less lending to Portugal and Spain– Debt default contagion spreads– Less capital available for jumbo and 2nd homes
U.S. Budget Deficit
-2,000,000
-1,500,000
-1,000,000
-500,000
0
500,000
19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012
Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate
U.S. to be Greece in 25 years?
Economic Outlook
2008 20092010
forecast
GDP 0.4% -2.5% 3.1%
CPI Inflation 3.8% -0.2% 2.0%
Unemployment Rate 5.8% 9.3% 9.7%
10-year Treasury 3.7% 3.3% 3.9%
Housing Outlook
2008 20092010
forecast
Existing Home Sales 4.9 m 5.2 m 5.4 m
New Home Sales 485 k 375 k 400 k
Home Price Growth -10% -13% 2% to 3%
Mortgage Rate 6.1% 5.1% 5.3%
Consumer confidence about home buying Down Down Up
Right Tools Right Now
• Many Free Products– REALTOR Member Profile
•Difficult to make it in the first few years– Home Buyer and Home Seller Survey
•Referrals and Repeat Clients are Important
– Daily Forecast Update– Connect to Facebook
• www.realtors.org– Then click Research