Economic Outlook in Uncertain Times Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation to IREM Chapter 77 In Reston, VA September 15, 2010 GDP Growing, but Decelerating annualized % growth rate Construction Spending $ billion Pending Contracts on Existing Homes Tax Credit Impact Share of First-Time Buyers Other Home Price Measurements Still High Months Supply of Existing Home Inventory Pent-up Supply and Demand Number of Distressed Loans Housing Starts In thousands Commercial Real Estate Transactions (of those above $5 million properties) Commercial Real Estate Market Activity Based on Survey of Realtors Commercial Markets Expected to Bottom Out by 2011 Sales Volume Compared with Previous Year: Down 6% Sales Prices Compared with Previous Year: Down 16% Expected Availability for the Next 12 Months: Up 12% Expected Cap Rate Movement for the Next 12 Months: Up 9 bps Rental Volume Compared with Previous Quarter: Up 3% Rental Rates Compared with Previous Quarter: Down 10% Level of Rent Concessions Compared with Previous Quarter: Up 9% Direction of Business Opportunities Compared with Previous Quarter: Down 1% 11 National Office Fundamentals 12 Washington DC Area vacancy rate at 13.3% and falling National Multifamily Fundamentals 13 Washington D.C. vacancy rate at 4.1% and falling Corporate Profits and Business Spending $ billion Private Sector Job Gains (763,000 in year-to-date in 2010) % change from one year ago Source: BLS In thousands Total Payroll Jobs in Michigan Source: BLS) In thousands Total Payroll Jobs in Washington D.C. Metro U.S. Budget Deficit Source: CBO, NAR estimate Household Formation Household Formation (2-year moving average) Baseline Outlook Moderate GDP Expansion 2.5% in the next 2 years (historical average is 3%) Moderate GDP Expansion 2.5% in the next 2 years (historical average is 3%) 1.0 to 1.5 million annual job additions in the next 2 years 1.0 to 1.5 million annual job additions in the next 2 years Rental Housing Demand steady to improving and first of commercial sectors to improve Rental Housing Demand steady to improving and first of commercial sectors to improve Local Apartment Rents 0% to 2% growth in 2011 Local Apartment Rents 0% to 2% growth in 2011 Local Apartment Rents 2% to 5% growth in 2012 Local Apartment Rents 2% to 5% growth in 2012 Alternative Outlooks High inflation people desire tangible investment like real estate, but interest rate will be higher High inflation people desire tangible investment like real estate, but interest rate will be higher Deflation people hold back for better home price holds back economy but rental demand holding on Deflation people hold back for better home price holds back economy but rental demand holding on Budget deficit tipping point higher interest rate and sharp cut back in standard of living Budget deficit tipping point higher interest rate and sharp cut back in standard of living