Economic and Housing Market
Trends and Outlook
Jed SmithManaging Director, Quantitative Research
NATIONAL ASSOCIATION OF REALTORS®
North Carolina Real Estate Summit
Embassy Suites, Cary, North Carolina
July 16, 2013
The Outlook: ForecastSlow Economic Expansion
2011 2012 2013Forecast
2014Forecast
GDP Growth +1.8% +2.1% +1.8% 2.7%
Existing Home Sales
4.3 million 4.7 million 5.0 million 5.2 million
Housing Starts 610 K 780 K 1.0 million 1.25 million
Existing Home Price Growth
- 4% + 6% + 8% + 5%
30-yr MortgageRate
4.7% 3.7% 4.0% 4.7%
“It Was the Best Of Times, and the Worst of Times”Index Continues Below 100: Expansion Slow, Weaker than Normal
Conference Board: Consumer ConfidenceSA, 1985=100
100500959085Source: The Conference Board 07/02/13
150
125
100
75
50
25
150
125
100
75
50
25
“It Was the Best Of Times, and the Worst of Times”Levels of Uncertainty Higher than Normal
Economy: Slower/Weaker Expansion
Economic Policy Uncertainty Index1985-09=100
100500959085Source: PolicyUncertainty.com 07/02/13
250
200
150
100
50
250
200
150
100
50
U.S. Total Payroll JobsLabor Force Participation Rate Down 3 Percent
11.8 Million Unemployed
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan124000
126000
128000
130000
132000
134000
136000
138000
140000 In thousands
Employment: The Major Issues
Unemployed, 16 Years & Over: 16 yr +SA, Thous
100500959085Source: Bureau of Labor Statistics 07/02/13
16000
14000
12000
10000
8000
6000
4000
16000
14000
12000
10000
8000
6000
4000
• Employment Lower than Normal.
• Unemployment Duration: Higher than Normal.
• Job Creation is Lagging.• It’s Hard to Find a Job!• Housing Market Expanding,
But Could do Better.• Good News—But Still
Underperforming.
Housing Outlook: Annual Existing Home SalesGood News: Impending Multiyear Growth
2005
2006
2007
2008
2009
2010
2011
2012
2013
f
2014
f
2015
f012345678
7.086.52
5.02
4.12 4.34 4.18 4.264.66
5 5.225.7
In million units
Housing Outlook: Home Prices Still ReasonableMarket is Recovering—A Function of Jobs.
Affordability Good, but Credit Availability Needs to Ease.
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0
50000
100000
150000
200000
250000
Existing Home PricesActual and Forecast
Home Prices, Monthly Forecast, Annual
Housing Outlook: Affordability
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0
50
100
150
200
250
Affordability
Housing Outlook: Pending Home SalesSeasonally Adjusted 2001 = 100; Tax Credit Blips in 2010
2001 - Jan 2002 - Oct 2004 - Jul 2006 - Apr 2008 - Jan 2009 - Oct 2011 - Jul 2013 - Apr0
20
40
60
80
100
120
140
Housing Outlook Days on Market--Down Very Significantly
201105
201106
201107
201108
201109
201110
201111
201112
201201
201202
201203
201204
201205
201206
201207
201208
201209
201210
201211
201212
201301
201302
201303
201304
2013050
20
40
60
80
100
120
96 97 9892
10196 98 99 99 97
9183
72 70 69 70 70 71 70 73 71 74
62
4641
Median Days on Market
Source: NAR, RCI Survey
Housing OutlookDistressed Sales Down
200905
200907
200909
200911
201001
201003
201005
201007
201009
201011
201101
201103
201105
201107
201109
201111
201201
201203
201205
201207
201209
201211
201301
201303
2013050%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Percent of Respondents ReportingDistressed Sales
Foreclosed As % of Sales Short Sale As % of Sales
Housing OutlookLow Inventories
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0
2
4
6
8
10
12
14
Months Supply of Housing
EHS Months Supply New SF Homes
Housing Recovery—Why Sustainable?Housing Starts Requirement
• 1.1 million household formation.• 0.3 million demolition and uninhabitable.
(Implicitly assumes depreciation rate of more than 200 years)
• 0.2 million net new vacation home demand. • Total New Housing Need = 1.6 million each
year.
Housing Recovery—Why Sustainable?Household Formation Accelerating After Great Recession
(in millions)
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
20120.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Housing Recovery—Why Sustainable?Quantifying Housing Shortage
(2001 to 2012)
Household Formation
Demolition New Vacation Home
Housing Starts
11.0 million 3.6 million 2.0 million 15.7 million
16.6 million 15.7 million
This housing shortage imbalance could grow because (1) Household Formation will exceed 1 million in 2013 and beyond(2) Housing Starts need to be 1.5 million per year … Not there in 2013
Housing Recovery—Why Sustainable?Housing Starts: Long Term Demand Greater than Supply
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
Housing Recovery—Why Sustainable?Existing vs. New Home Prices … Big Gap
(single-family homes)
2000 - Jan 2002 - Apr 2004 - Jul 2006 - Oct 2009 - Jan 2011 - Apr0
50000
100000
150000
200000
250000
300000
NewExisting
Number of “Qualified” Renters(credit scores unknown and not factored)
Year Income Needed to Buy a Median Priced Home
Number of Renters with necessary income
Share of Renters Qualified
2000 $40,300 11.8 million 33%
2005 $50,400 9.0 million 24%
2012 $31,700 20.1 million 51%
If the year 2000 is considered as normal, then 11.8 million renters had the income to buy a median priced home but chose not to.
In 2012 there are about 8 million more renters with the necessary income but choosing not to be or are unable to be a homeowner.
Housing Recovery—Why Sustainable?Buyer Traffic Greater than Seller Availability--REALTOR® Survey
2008
0120
0803
2008
0520
0807
2008
0920
0811
2009
0120
0903
2009
0520
0907
2009
0920
0911
2010
0120
1003
2010
0520
1007
2010
0920
1011
2011
0120
1103
2011
0520
1107
2011
0920
1111
2012
0120
1203
2012
0520
1207
2012
0920
1211
2013
0120
1303
2013
05
20
30
40
50
60
70
80
Indexes of Buyer and Seller Traffic
Buyer Traffic Index Seller Traffic Index
May 2013: Buyer: 71 Seller : 43
Price Expectations--Next 12 MonthsSource: REALTOR® Survey
200810
200901
200904
200907
200910
201001
201004
201007
201010
201101
201104
201107
201110
201201
201204
201207
201210
2013010%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Constant/Rising PricesFalling Prices
Price Expectations for Next 12 MonthsAs Reported by REALTORS®
Summary of Outlook: Where Are We Headed?
• Likely Multiyear Housing Recovery.– No Recession but Slow Economy.– Continued Job Growth and Household Formation. – Lagging Housing Starts and Continuing Housing
Shortage.• Home prices are primed to rise further, by 13%
cumulatively in 2013 and 2014.• Smooth Sailing Right Now—But Would be Better
with Increased Credit Availability and Job Creation.• But There are Major Risks.
Risks to Forecast—Housing Related
• Upside Uncertainties … Credit Availability– Housing recovery so far even with tight credit– What happens if mortgage accessibility opens up?
• Downside … Washington Housing Policies– Rising g-fees and FHA insurance premiums– 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?
Credit Risks--Ready to Open Credit?(Average Credit Scores of Approved Loans)
Normal 2009 to 2012 If Normal
Fannie 720 760 to 770 720
Freddie 720 760 to 770 720
FHA 650 680 to 700 660
15% to 20% Higher Sales Possible if Normal Conditions
FICO Scores: Unreasonably HighCredit Availability: Negative Impact on Potential Homeowners
RCI-Feb'12
RCI-Mar'12
RCI-Apr'12
RCI-May'12
RCI-Jun'12
RCI-Jul'12
RCI-Aug'12
RCI-Sep'12
RCI-0ct'12
RCI-Nov'12
RCI-Dec'12
RCI-Jan '13
RCI-Feb '13
RCI-Mar '1
3
RCI-Apr '13
RCI-May '13
Fannie-2011
Freddie-2011
Fannie-2005
Freddie -20050%
10%
20%
30%
40%
50%
60%
70%
80%
FICO Scores: Recent Scores vs. 2005
lt 620 740+ Fannie/Freddie 740+
May 2013: 57% of reported credit scores are 740+
Downside Risk: Mortgage Investor Rights
–Court system clogging the foreclosure process
– Eminent Domain to take mortgages out of investors’ hands? (In order to restructure mortgages)
Downside Risk: Aging Baby Boomers (Live Births per 1000 population in U.S.)
1909 1916 1923 1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 20070
5
10
15
20
25
30
35
Baby Boomers … now aged 49 to 68 … Mix, Preferences, Millennial Buying Power
Downside Risk: Student College DebtImportant Issues: Are Colleges Effective, Are Expectations Realistic?
($ trillion)
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
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
2012 - Q3
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Downside Risk: GDP Growth … UnimpressiveHow Fragile is the Recovery?
Housing, Quantitative Easing, Other
1960 - Q1 1966 - Q4 1973 - Q3 1980 - Q2 1987 - Q1 1993 - Q4 2000 - Q3 2007 - Q2
-6
-4
-2
0
2
4
6
8
10
GDP GrowthPercent Change, Year to Year, Constant Dollars
North Carolina OutlookEmployment Tracks National Trends
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan124000
126000
128000
130000
132000
134000
136000
138000
140000
3500
3600
3700
3800
3900
4000
4100
4200
4300
Employment, Establishment Data
U.S. North Carolina
North Carolina OutlookBuilding Permits: Recovering
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan0
50000
100000
150000
200000
250000
0
2000
4000
6000
8000
10000
12000
Authorized Building Permits
U.S. North Carolina
North Carolina OutlookPercent of Mortgages Past Due
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
0
2
4
6
8
10
12
Past Due Mortgages
U.S. North Carolina
North Carolina OutlookIndexes of Coincident Indicators
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0
20406080
100120140160180
Index of Coincident Economic Indicators
North Carolina US
North Carolina OutlookNorth Carolina Unemployment Rate Slightly Higher than Nation as a Whole
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0
2
4
6
8
10
12
Unemployment Rates
U.S. North Carolina
North Carolina Outlook Home Prices Have Stabilized
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
050
100150200250300350400
FHFA Home Price Index
U.S. North Carolina
Community Leaders—Thought Leadership
• Thought Leadership: People Look to Leaders for Ideas on Important Topics.
• Short Term—Recovery is Proceeding Nicely.• Longer Term—There are Major Problems.• The “Longer Term” Could be a Year or Two.– Problems are not Certainties.– But Problems Need to be Addressed.– And Can Show Up as a Surprise.
Major Economic Risks: Problems Not to be Ignored. For Now—Smooth Sailing. Longer Run—Avoid Surprises.
Problems: just ignored.• Budget Deficit.• Quantitative Easing.• Home Ownership Levels.• Entitlements: Social Security, Medical
Care, Disability, Social Welfare Programs.
• State/Local Government Finances.• Labor Force Issues.• Student Loans.• Generational Split.• Income Distribution.• Lack of Growth.• Regulation.• Divisive Rancor.
The iceberg: just ignored. • Photographed morning April 15, 1912…smear of red
paint along the base of the berg, indication that it had collided with a ship sometime in the previous twelve hours.
NAR Research—On Line
• Twitter: https://twitter.com/NAR_Research
• Blog: http://economistsoutlook.blogs.realtor.org/
• NAR Research Page http://www.realtor.org/research-and-statistics
• NAR Housing Statistics – http://www.realtor.org/research-and-statistics/housing-statistics
• Research Reports – http://www.realtor.org/research-and-statistics/housing-statistics
• NAR Commercial Reports – http://
www.realtor.org/research-and-statistics/research-reports/commercial-real-estate
Top Related