Postwar America: The Return to “Normalcy” Politics and the Rise of Suburbia.
Real Estate Market - Return to Normalcy
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Transcript of Real Estate Market - Return to Normalcy
Return to Normalcy
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at Macroeconomic Advisers Meeting Washington, D.C.
December 8, 2010
Existing Home Sales (Closings)
2000 - Feb 2001 - Sep 2003 - Apr 2004 - Nov 2006 - Jun 2008 - Jan 2009 - Aug3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000
7,000,000
7,500,000Tax Credit Impact
Pending Home Sales Index
2001 - Jan2002 - Apr 2003 - Jul 2004 - Oct2006 - Jan2007 - Apr 2008 - Jul 2009 - Oct60
70
80
90
100
110
120
130
140
Pre-Boom vs. Post-Boom2000
(pre-boom)2010
(post-boom)
Existing Home Sales 5.2 m 4.8 m
New Home Sales 880 K 380 K
Payroll Jobs 131.8 m 130.5 m
Household Jobs 136.9 m 139.3 m
Median Home Price $143,600 $172,500
Household Income $41,990 $49,800
Mortgage Rates 8.1% 5.1%
Affordability Index 122 173
Underwriting Standards Normal Too Tight?
Underwater Impact None 5% to 7% lower sales
Housing Affordability Index(assumes constant underwriting standards)
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
201060
80
100
120
140
160
180
Compelling AffordabilityMonthly Mortgage to buy a Median Priced Home
2005 Q2 2010 Q2
San Diego $ 2,833 $ 1,564
Miami $ 1,726 $ 853
Milwaukee $ 1,014 $ 797
Kansas City $ 735 $ 600
QE2 Inconsequential if Too Strict Underwriting Standards?
Fannie 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
Distressed Loans and Shadow Inventory
0
1,000
2,000
3,000
4,000
5,000
6,000
7,00020
06/Q
1
2006
/Q2
2006
/Q3
2006
/Q4
2007
/Q1
2007
/Q2
2007
/Q3
2007
/Q4
2008
/Q1
2008
/Q2
2008
/Q3
2008
/Q4
2009
/Q1
2009
/Q2
2009
/Q3
2009
/Q4
Thou
sand
s
Mortgage Payments Past Due 30-59 Days
Mortgage Payments Past Due 90+ Days
Mortgage Foreclosures Started
Mortgage Foreclosure Inventory
Bad loans are nearly always made in good times. But recently originated loans are performing very well.
Underwater Homeowners and Short-Sales
• 11 million underwater homeowners – Overestimate by CoreLogic?– 75 million total homeowners
• Short-sales and Foreclosures: about 1/3 of existing home sales …1.5 million per year• Assume ½ underwater homeowners stay put by choice (and not go through
distressed sale)– 5.5 million out of pocket (CoreLogic data) … 7% lower sales– 4 million out of pocket (NAR estimate based on Fed data) … 5% lower sales
• 2010 Existing + New Home Sales are … 21% lower sales versus 2000
CoreLogic Federal Reserve
Housing Value $13 trillion $17 trillion
Mortgage Outstanding $9 trillion $10 trillion
Housing Net Worth $4 trillion $7 trillion
Homeowner Vacancy Rate(0.8% point above normal = 600,000 above normal)
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Newly Built Home Inventory
2000 - Feb 2001 - Aug 2003 - Feb 2004 - Aug 2006 - Feb 2007 - Aug 2009 - Feb0
100
200
300
400
500
600
700
In thousands
Months Supply of Inventory and Real Price Growth
(Historic Avg. = 7.3 months and 0.5% real price anualized growth)
1982 - Jun1986 - Feb1989 - Oct1993 - Jun1997 - Feb2000 - Oct2004 - Jun2008 - Feb
-20
-15
-10
-5
0
5
10
15
20
13
Home Sale to Payroll Jobs
1980
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
f0%
1%
2%
3%
4%
5%
6%
Home Price-to-Income Ratio
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
Source: NAR
Home Price and Construction Cost
2000 - Feb 2001 - Mar 2002 - Apr 2003 - May 2004 - Jun 2005 - Jul 2006 - Aug 2007 - Sep 2008 - Oct80
90
100
110
120
130
140
150
160
170
NAR Price Index
PPI Residential Construction Cost Index
CPI Housing Rent Inflation
2000 - Jan 2001 - Jun2002 - Nov2004 - Apr2005 - Sep2007 - Feb 2008 - Jul 2009 - Dec
-1
0
1
2
3
4
5
Rental Owner-Equivalence
REALTORS’ Home Value Expectation:Survey of Realtors regarding prices in 12 months
2008 - Oct
2008 - Dec
2009 - Feb
2009 - Apr
2009 - Jun
2009 - Aug
2009 - Oct
2009 - Dec
2010 - Feb
2010 - Apr
2010 - Jun
2010 - Aug
2010- Oct
0%
10%
20%
30%
40%
50%
60%
70%
80% Increase or Stable
Decrease
Baseline Outlook Cont.• Mortgage Rates rising to 5.0% in 2011 and 5.9% in 2012
• Home values – no meaningful change in the national price in the next 2 years
• Home sales to be choppy but overall improving in line with job growth … 5.2 million in 2011 (up from 4.8 m in 2010, but same as in 2000)• Affordability conditions are too compelling
• There maybe a pent-up demand. 30 million additional people from 2000 but same home sales as in 2000.
Commercial Real Estate
Real Estate Price
2001 - Jan 2002 - Apr 2003 - Jul 2004 - Oct 2006 - Jan 2007 - Apr 2008 - Jul 2009 - Oct1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0Residential: Case-Shiller
Commercial: MIT
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Commercial Mortgage Backed Security IssuanceMonthly CMBS Issuance ($ Mil)
Source: Commercial Mortgage Alert
$0
$20,000,000,000
$40,000,000,000
$60,000,000,000
$80,000,000,000
$100,000,000,000
$120,000,000,000
$140,000,000,000
U.S. Sales Volume: Properties valued over $2.5 million
Apartment Industrial Office Retail
Source: Real Capital Analytics