Economic Outlookand

International Markets

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation at Miami International Real Estate Congress

Miami, FloridaNovember 6, 2012

Existing Home Sales Recovery:Best in 5 years

2005 2006 2007 2008 2009 2010 2011 2012 est.

0

1

2

3

4

5

6

7

8

7.086.52

5.02

4.12 4.34 4.18 4.264.62

In million units

Investors in the Market; and Homeowner buyers Neutral

2005 2006 2007 2008 2009 2010 2011 2012 est.

0

500

1000

1500

2000

2500Investor Sales In thousands

2005 2006 2007 2008 2009 2010 2011 2012 est0

100020003000400050006000 Owner-occupant Sales In thousands

Investors also seeing rising # of renters

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

Investors seeing Rising Rent

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

-1

0

1

2

3

4

5

% change from one year ago

Visible Housing Inventory(Existing inv. At 8-year low; New inv. at 50-year low)

2000 - Jan 2001 - Dec 2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - 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 New

Miami Housing Demand

Miami Housing Demand• 2011 Record High Home Sales • 2012 slight decline (down 3%)

Lower Transactions because of Fewer Inventory• 24% fewer homes on the market for sale

Shorter Days on Market• median days on market is only 43 days

Source: MAR

Home Prices RisingMiami up 7% from one year ago

Phoenix up 19% from one year ago

1989 - Jan 1991 - Jul 1994 - Jan 1996 - Jul 1999 - Jan 2001 - Jul 2004 - Jan 2006 - Jul 2009 - Jan 2011 - Jul0

50

100

150

200

250

300

Phoenix

Miami

Source: Case-Shiller

Shadow Inventory … Falling(Seriously delinquent mortgage + homes in foreclosure process)

million units

2000 - Q1

2001 - Q1

2002 - Q1

2003 - Q1

2004 - Q1

2005 - Q1

2006 - Q1

2007 - Q1

2008 - Q1

2009 - Q1

2010 - Q1

2011 - Q1

2012 - Q1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0Distressed Sales Market Share

2010 … 33%

2011 … 33%

2012 … 25%

2013 … 15%

2014 … 8%

Foreclosures Rapidly Falling in Non-Judicial States

Example: Seriously Delinquent Mortgages in AZ, CA , MI

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

0

2

4

6

8

10

12

14

AZ MI CA

%

Foreclosures Clogged in Judicial States Example Seriously Delinquent Mortgages in CT and IL

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

02468

1012

CT IL

%

Should a trigger be set up to foreclose without a court approval? • Vacant property• Missed Mortgages for 6 months or longer

Shadow in FloridaSeriously Delinquent Mortgages

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

0

5

10

15

20

25%

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 - Jul 2012 - Apr0

500

1000

1500

2000

2500

multifamily single-familyThousand units (annualized)

Long-term Average

Source: Census, HUD

Miami - Ft. Lauderdale MetroHousing Permits

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20120

5000100001500020000250003000035000400004500050000

Most Miami REALTORS® Have Worked with an International Client in the Past 12 Months

2012 International Survey

32%

26%

23%

28% 28% 27%

20%22%24%26%28%30%32%34%36%38%40%

2007 2008 2009 2010 2011 2012

Perc

enta

ge o

f Res

pond

ents

Realtors® with International Clients

Global Buyers buying Where?

Arizona California Florida Georgia Nevada New York Texas

2007 5% 16% 10% 2% 2% 4% 8%

2008 5% 11% 9% 3% 2% 4% 7%

2009 7% 13% 23% 1% 1% 2% 11%

2010 11% 12% 22% 5% 3% 4% 8%

2011 6% 12% 31% 2% 2% 3% 9%

2012 7% 11% 26% 4% 2% 4% 7%

0%

5%

10%

15%

20%

25%

30%

35%

Percent of International Sales by State

Global Buyers from Where?

Brazil Canada China France Germany India Japan Mexico Russia U.K.2007 2% 11% 5% 3% 3% 6% 1% 13% 1% 12%

2008 2% 24% 8% 3% 4% 6% 1% 9% 2% 12%

2009 1% 18% 5% 2% 4% 9% 1% 10% 1% 11%

2010 1% 23% 8% 3% 4% 5% 1% 10% 3% 9%

2011 3% 23% 9% 3% 4% 7% 1% 7% 1% 6%

2012 3% 24% 11% 3% 3% 6% 1% 8% 2% 6%

0%

5%

10%

15%

20%

25%

30%

Percent of International Sales by Country

Responses to How Do You Get Most of Your Clients?Personal Contacts, Previous Clients, Online Marketing

Important in Obtaining Clients

Economy Growing, though Slowly(No Fresh Recession because of Housing Recovery)

Real GDP Growth Rate

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-4

-3

-2

-1

0

1

2

3

4%

Payroll Jobs Changes(December to December)

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-6

-5

-4

-3

-2

-1

0

1

2

3

In millions

22

Unemployed and Underemployed … 6 to 7 million more than normal

Source: BLS

In thousands

Florida JobsSlowly Coming Around

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr62006400660068007000720074007600780080008200 In thousands

Florida Jobs from 1940(When will the state run out of land?)

1939 - Jan1948 - Jul1958 - Jan1967 - Jul1977 - Jan1986 - Jul1996 - Jan2005 - Jul0

1000

2000

3000

4000

5000

6000

7000

8000

9000 In thousands

Nonfarm Payroll Jobs

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

Foot Traffic

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 - Jul

2011 - Oct

2012 - Jan

2012 - Apr

2012 - Jul

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Buyer Seller

Monthly Pending Home Sales Index(Seasonally Adjusted)

2007 - Jan

2007 - May

2007 - Sep

2008 - Jan

2008 - May

2008 - Sep

2009 - Jan

2009 - May

2009 - Sep

2010 - Jan

2010 - May

2010 - Sep

2011 - Jan

2011 - May

2011 - Sep

2012 - Jan

2012 - May

2012 - Sep

70

75

80

85

90

95

100

105

110

115

Homebuyer Tax Credit

Source: NAR

Housing Recovery Occurring

• Tight Access to Mortgage

• More All-Cash purchases

• What happens when Mortgage Accessibility Opens Up?

Financial Industry Profits(excluding Federal Reserve)

2001 - Q1

2001 - Q4

2002 - Q3

2003 - Q2

2004 - Q1

2004 - Q4

2005 - Q3

2006 - Q2

2007 - Q1

2007 - Q4

2008 - Q3

2009 - Q2

2010 - Q1

2010 - Q4

2011 - Q3

-200

-100

0

100

200

300

400

500$ billion

Monetary Policy by Federal Reserve (no change to 2014)

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.

Consumer Price Inflation(Slightly Above Fed’s preferred 2% core inflation rate)

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

All Items Core%

Risks to Forecast

• Washington Policy– 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?

– 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 … Fresh Economic Recession

Forecast Summary2011History

2012Forecast

2013Forecast

Existing Home Sales 4.26 million 4.64 million 5.05 million

New Home Sales 301,000 368,000 575,000

Housing Starts 612,000 776,000 1,128,000

Existing Home Price $166,100 $176,100 $185,200

GDP Growth +1.8% +2.1% +2.5%

Payroll Job Gains +1.7 million +1.7 million +2.2 million

Fed Funds Rate 0.1% 0.1% 0.1%

30-yr Mortgage 4.7% 3.7% 4.0%

Existing Home SalesIn million units

Median Home Price

Commercial Real Estate

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12'12'12'12'12'12'12'12$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

$80,000,000,000$ Volume

Source: Real Capital Analytics

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12'12'12'12'12'12'12'12-100%

-50%0%

50%100%150%200% Year-Over-Year % Change

Commercial InvestmentsSales Slow in 2012.Q3

Commercial InvestmentsCap Rates Continue Downward Trend

'01 '06 '11 '125.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Avg Cap Rates by Sector

Apartment

Industrial

Retail

CBD - Office

Sub - Office

Source: Real Capital Analytics

2000 December February April June August October 2007 December February April June90

110

130

150

170

190

210

Moody's/RCA CPPI - Composite Indices

Apartment Retail Industrial Office

Source: Real Capital Analytics

Commercial Investments—Apartment Prices Rise

Global Economy

U.S. International Trade(Doubles every 10 years)

1992 - Jan 1995 - Jul 1999 - Jan 2002 - Jul 2006 - Jan 2009 - Jul0

50000

100000

150000

200000

250000

ImportsExports

Economic GrowthCountry GDP Growth

2012 forecast

U.S. 2%Canada 2%Mexico 4%Brazil 1%U.K. 0%France 0%Germany 1%EU overall -1%Russia 4%India 6%China 8%Japan 2%

10-Year Government Borrowing RateCountry 10-Year Interest

RateInflation Rate

U.S. 1.7% 2.0%Canada 1.8% 1.2%Mexico 7.7% 4.1%Brazil 9.7% 5.3%U.K. 1.8% 2.2%France 2.2% 1.9%Germany 1.5% 2.0%EU overall n/a 2.5%Russia 7.7% 5.1%India 8.2% 9.7%China 3.2% 1.9%Japan 0.8% -0.3%

Rising World Population

1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 21000

1

2

3

4

5

6

7

8

9

10In billion

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