Housing Market and Economic Outlook: July 2011
-
Upload
realtors -
Category
Real Estate
-
view
1.593 -
download
5
description
Transcript of Housing Market and Economic Outlook: July 2011
![Page 1: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/1.jpg)
Housing Market and Housing Market and Economic OutlookEconomic Outlook
Lawrence Yun, Ph.D.Lawrence Yun, Ph.D.Chief EconomistChief Economist
NATIONAL ASSOCIATION OF REALTORS®NATIONAL ASSOCIATION OF REALTORS®
Presentation at JP Morgan Chase Event & Chicago Association of REALTORS ®Presentation at JP Morgan Chase Event & Chicago Association of REALTORS ®Chicago, ILChicago, IL
July 21, 2011July 21, 2011
![Page 2: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/2.jpg)
U.S. Annual Existing Home Sales …Ready to Breakout?
![Page 3: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/3.jpg)
Monthly Existing Home SalesMonthly Existing Home Sales
Tax Credit ImpactTax Credit Impact
![Page 4: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/4.jpg)
Pending Existing Home Sales Index2010 to 2011
Tax Credit ImpactTax Credit Impact
![Page 5: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/5.jpg)
Activity in Chicagoland• First Quarter Sales (no tax credit in 2011 vs. tax credit in 2010)
– Cook County down 12% from 2010 Q1– DuPage County down 1%– Kane County down 2%– Lake County down 7%– McHenry County down 16%
• First Quarter Prices– Chicagoland MLS data down 7.3% from 2010 Q1– Federal Housing Finance down 5.0%– Case-Shiller down 7.5%
• Source: IAR and Case-Shiller, FHFA
![Page 6: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/6.jpg)
Midwest Weather Impact
![Page 7: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/7.jpg)
Solid Gains of 30% or more (from one year ago among major markets)
» Austin» Baltimore» Chicago» Hartford» Houston» Indianapolis» Kansas City» Portland, OR» San Antonio» Seattle
![Page 8: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/8.jpg)
New Home Sales (Pending contracts, not Closings)
In thousands
![Page 9: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/9.jpg)
U.S. Housing Starts
Housing Starts in thousands
![Page 10: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/10.jpg)
Chicago MSA Housing Permits
![Page 11: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/11.jpg)
Newly Built Home InventoryNewly Built Home Inventory
In thousands
![Page 12: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/12.jpg)
New Home Price vs. Existing Home Price 30% premium rather than 10-15% normal premium
12 month moving average
Existing Home Price
New Home Price
![Page 13: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/13.jpg)
Improving Factors for Higher Home Sales
• First quarter at 5.1 million annualized pace … if sales can hold at current levels then 4% annual increase in 2011 … without homebuyer tax credit stimulus
• The remainder of the year looks to be better– Job Creation– Robust stock market recovery from 2008– Rising rents and larger pool of qualified renters– Buyers want distressed properties … at deep discounts– International buyers cashing in on the weakened dollar– Smart money chasing real estate– Potential Huge Positive … Lending opens up– Potential Huge Negative … Washington policy change
![Page 14: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/14.jpg)
Total U.S. Payroll Jobs – Modest RecoveryIn thousands 7 million
below prior peakIn thousands
![Page 15: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/15.jpg)
North Dakota Jobs
In thousands
![Page 16: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/16.jpg)
Texas Payroll Jobs – Fully RecoveredIn thousands
![Page 17: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/17.jpg)
Chicagoland Payroll Jobs – Recovery?In thousands
![Page 18: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/18.jpg)
Weekly Fresh Unemployment Claims …Not Going under 400,000
In thousandsIn thousands
![Page 19: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/19.jpg)
Financial Asset at $50 trillion … Full Recovery
Source: Federal Reserve
![Page 20: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/20.jpg)
Realtors Reporting Rising Apartment Rents
![Page 21: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/21.jpg)
CPI Apartment Rent
![Page 22: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/22.jpg)
Home Price vs Rent(index = 100 in 1980)
![Page 23: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/23.jpg)
# of Serious Delinquent Mortgages … Mostly Borrowers prior to 2009
(90+ days late or in foreclosure process)
In 2010, there were 1.5 million distressed sales … need to wait 2.7 years
![Page 24: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/24.jpg)
Distress Sales: 30% to 40% of Transactions
Will Remain Significant for Next 2 years
![Page 25: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/25.jpg)
One U.S. Dollar gets …
![Page 26: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/26.jpg)
U.S. Home Price after Currency Conversion
![Page 27: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/27.jpg)
Smart Money Buying?
• All-cash record high at 35% of all sales– Investors want quick deals– Investors cannot get mortgage– Some do not want to bother with appraisals – Financial asset recovery helping with cash– Hedge against future inflation– Hedge against future housing shortage?– Empty nesters downsizing and using leftover cash for
kids’ home?• Upper-end market beginning to move
![Page 28: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/28.jpg)
Real Estate as Inflation Hedge?(single-family home price in blue vs CPI in red)
Good inflation hedge in the past before the housing bubble/bust
![Page 29: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/29.jpg)
Upside Potential Surprise
![Page 30: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/30.jpg)
Average Credit Score for Loan Origination
Normal 2009 2010 If
Fannie 720 761 762 720
Freddie 720 757 758 720
FHA 650 682 698 660
15% to 20% Higher Sales
![Page 31: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/31.jpg)
QE2 … to keep rates low … are inconsequential if too strict
underwriting standardsFannie and Freddie Backed Mortgage Loan Performance
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
![Page 32: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/32.jpg)
Downside Potential Surprise
![Page 33: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/33.jpg)
Washington Policy Change?• Going after the Middle-Class by Republicans
– Raise down payment to 20% ???– Despite no taxpayer bailout for FHA and VA program
• Going after the Rich by Democrats– Limit mortgage interest deduction for high income and second
homes ???– Crush the working class in resort areas (Yacht Tax Impact)
• Going after the Rich by Republicans– Lower conforming loan limit ???– Income redistribution from consumers to banks
• Going after the Small Business “Tax Cheats” by Democrats– Force massive 1099 paperwork to run a business and hire IRS agents– REPEALED !!!
• Fannie and Freddie model was flawed (private profit/taxpayer loss) and need a fundamental restructuring
![Page 34: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/34.jpg)
Current Savings Rate = 6% Takes 9 years to save $20,000 based on average $2,200 per
yearTakes 14 years to save $32,000 (20% of today’s median price)
![Page 35: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/35.jpg)
Economic Hurdles
• Inflation hitting pocketbooks– Gas and Oil … daily reminder – Food and grocery … daily reminder
• Huge pool of underemployed … everything is unaffordable even if no inflation
• Budget Deficit … no impact now but when?• Consumer confidence … another losing
election for incumbents
![Page 36: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/36.jpg)
CPI Inflation and PPI Inflation(% change from one year ago)
Prices falling on consumer electronic products :
Smartphone1 = $200 to Smartphone2 = $200 is computed as falling prices; even though your wallet did not get any relief
![Page 37: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/37.jpg)
Broad Inflationary PressureIndicator % change from one year ago
Consumer Price Index 3.4%
Producer Price Index (Finished Product) 7.0%
Producer Price Index (Intermediate Product) 11.0%
Producer Price Index (Crude Product) 25.5%
Dow Jones Commodity Spot Price Index 38.1%
Gold Price Around Record High Price
![Page 38: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/38.jpg)
# Unemployed(looking but cannot find job)
![Page 39: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/39.jpg)
Adults in the Labor Force(Rest are not looking for job and officially not included in unemployment rate)
![Page 40: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/40.jpg)
Government Spending and Tax ReceiptsGovernment Spending and Tax Receipts$ billion$ billion
![Page 41: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/41.jpg)
Government Default?
![Page 42: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/42.jpg)
Consumer Confidence Index
![Page 43: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/43.jpg)
Housing Baseline OutlookHousing Baseline Outlook• Moderate GDP Expansion 1.5% to 2.5% in the next 2 years Moderate GDP Expansion 1.5% to 2.5% in the next 2 years
• 1.2 to 1.7 million annual job additions yearly in the next 2 years1.2 to 1.7 million annual job additions yearly in the next 2 years
• Mortgage Rates rising to 5.5% by year-end 2011 and 6% in 2012 Mortgage Rates rising to 5.5% by year-end 2011 and 6% in 2012
• Home values – no meaningful change in the national price in the Home values – no meaningful change in the national price in the next 2 yearsnext 2 years
• Chicago Market ??? Chicago Market ???
![Page 44: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/44.jpg)
Presidential Quotes
• Franklin Delano Roosevelt: “A nation of homeowners is unconquerable.”
• Ronald Reagan “We will preserve the part of the American dream
which the mortgage-interest deduction symbolizes."
![Page 45: Housing Market and Economic Outlook: July 2011](https://reader033.fdocuments.in/reader033/viewer/2022061223/54c25d594a795995398b459f/html5/thumbnails/45.jpg)
For More Information
• realtors.org/research– Research data and analysis– facebook, twitter for daily economic updates