Transcript Slide 1

Housing Market
Trends
& Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION
OF REALTORS®
Presentation at NAR Residential Forum
Washington, D.C.
May 14, 2009
Existing Home Sales
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
1981
1986
1991
1996
2001
2006
Pending Home Sales Index
Taking a bit longer to close
In recent months
National Existing Home Price
(of transacted homes and not listed homes)
First-time buyers attracted to deeply discounted distressed sale properties.
250000
200000
150000
100000
50000
0
1970
1975
1980
1985
1990
1995
2000
2005
Months Supply of Single-Family Homes
First-time buyers attracted to deeply discounted distressed sale properties.
14
12
10
8
6
4
2
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Dayton vs. Orange County
Home Price
$ thousand
800
700
600
500
400
300
200
100
0
Source: Census
Washington D.C. Metro
Home Price Change
$ thousand
Prices based on Transaction Only
• About half of all recent transactions have
been distressed sales
– 15% to 20% short sales
– 30% to 35% foreclosures
• Market price is based on transaction
• What about non-transacted homes that is not
on market?
• Can we extrapolate market price to other
non-listed homes?
• Estimates of 20% or 25% of all homeowners
are UNDERWATER … True?
Housing Affordability Index
(Higher numbers mean more people can afford to buy a home)
ALL-TIME HIGH … on conforming loans …if people need to stay within budget
180
160
140
120
100
80
60
40
20
0
1970
1975
1980
1985
1990
1995
2000
2005
I
n
t
e
r
e
s
t
R
a
t
e
2000 - Jan
2000 - Jun
2000 - Nov
2001 - Apr
2001 - Sep
2002 - Feb
2002 - Jul
2002 - Dec
2003 - May
2003 - Oct
2004 - Mar
2004 - Aug
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
Lowest Rate since President Eisenhower
Days, but not on Jumbo Mortgages
Interest Rates: Treasuries, 30-Year, Jumbo
9
8
7
6
5
4
3
2
1
0
30 Yr Non Jumbo
10 Year Treasury
Jumbo
High-end Existing Home Sales
(Homes priced above $750,000)
4.4%
3.7%
Source: NAR
2009 figures are annualized from January and February sales.
2.3%
Months Supply of Inventory
(All Homes and Homes priced above $750,000)
Source: NAR
2009 figures are annualized from January and February data
Months Supply of All Existing Homes
Source: NAR
2009 figures are annualized from January and February data
High-Income Families contribute heavily in
taxes, yet getting punished on mortgage rates
Taxes paid by percentile
Total income tax share (percentage)
39
Top 1 percent
Total income tax
(millions of dollars)
$394,066
60
Top 5 percent
$597,863
Source: IRS
Tax Cut (or no increase) for 95% of
Families
• What about the 5%?
• Mortgage Interest Deduction tweaks for 5%,
but will impact nearly all homeowners in
terms of housing equity destruction
• Will 5% become acutely cognizant of state
income taxes paid?
• Will people migrate to FL, NV, AK, SD, WA,
WY, TX?
California Existing Home Sales –
Tipping Point
In thousand units
Source: CAR
Home Price Bid Up in West
$ thousand
• February price from January according FHFA Home Price
Index
• Measure price change only of those homes with FannieFreddie mortgage using repeat transaction methodology
Economy Falls but Recovers from
Stimulus Package
9.0
GDP annualized growth rate
Latest Data
6.0
3.0
Forecast
-6.0
Source: BEA
2009 Q4
2009 Q3
2009 Q1
2008 Q3
2008 Q1
2007 Q3
2007 Q1
2006 Q3
2006 Q1
2005 Q3
-3.0
2005 Q1
0.0
Job Changes in U.S.
600
One-month payroll job changes in thousands
400
200
0
-200
-400
-600
-800
-1000
Source: BLS
Homebuilders Down and Out
In thousand units
2,000
1,500
1,000
500
Source: Census
an
09
20
08
20
-J
-J
ul
an
08
20
07
20
-J
-J
ul
an
07
20
06
20
-J
-J
ul
an
-J
06
20
05
20
20
05
-J
-J
ul
an
0
Source: Census
09
20
08
20
08
20
07
20
07
20
06
20
06
20
05
20
05
20
04
20
04
20
03
20
03
20
02
20
02
20
01
20
01
ul
ul
ul
ul
ul
ul
ul
ul
ul
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
-J
an
-J
600
20
00
20
00
20
New Home Inventory for Sale
In thousand units
In thousands
500
400
300
200
Housing Starts: Too Much to Too Little
2,500
New Units Needed
2,000
1,500
1,000
500
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
3 million more people each year … 1 to 1.4 million household formation
… need to account for 300,000 demolitions …. need 1.3 to 1.7 new units
2010
Foreclosure Inventory will Rise
but will they get cleared off quickly
In thousand units
16.0
14.0
12.0
Subprime
10.0
8.0
6.0
4.0
All Mortgages
2.0
0.0
•FHA Reserve Fund depleting … may need funds to implement a countercyclical policy
•Fannie-Freddie will need funds … future reform of the secondary mortgage market
•What is going on in Denmark ?
Federal Budget Deficit
$ million
Bailouts and Too Big to Fail
• AIG, Bear Sterns, Lehman Brothers, TARP, and
Fannie/Freddie
– inter-linkages and systemic risks
– Chrysler
• Make it small and let it fail
• Managerial Hubris … Want to run big companies
– Acquiring companies lose stock value
– Acquired companies get immediate stock boost
(windfall gain)
• Too big to manage and diseconomies of scale
• Is the Government becoming too big to manage?
It cannot fail … and difficult to fire federal employees
Credit Crunch Ending?
• Libor Rates improving
• Junk Bond yields becoming less wild
• Banks making profit … but are they getting too big
again (75% of assets controlled by 10 banks)
• Federal Reserve lending at zero (though not to
consumers)
• True Test of credit easing
– Lower rate on jumbo mortgages
– Lower rate on second home purchases
– Lower rate on condo purchases
– Lower rate on commercial real estate loans
Economic Outlook
2008
2009
2010
50 year
average
GDP
1.1%
-2.9%
1.4%
3.3%
CPI Inflation
3.8%
-0.8%
1.7%
4.1%
Unemployment
Rate
5.8%
9.5%
10.2%
5.9%
Strength of GDP recovery dependent on home price growth
- Consumer spending improves from housing wealth effect
- Bank balance sheet improves … eases credit crunch
- Foreclosure pressure lessens
Housing Forecast
• Stimulus and falling inventory will help stabilize
prices
• Nationwide Existing Home Sales bump of 10% to 20%
in the second half of 2009 vs. second half of 2008
• CA now seeing 100% jump in home sales from trough
… Is CA setting trends for others?
• Builders may not see a recovery till 2010
• Local Price Forecasts … all over the map
– Sharp downward overshooting is susceptible to
sharper price rebound
Inflation or Deflation in 2011 ?
• Inflation: Print money and there goes the inflation
• Deflation: Excess capacity and high unemployment
rate keeps prices in check.
• Fed’s exit strategy to reclaim printed money
• Which one is more dangerous?
• Which one will occur? … Watch the energy price as
the catalyst for both scenarios
• If Inflation … winners will be property owners who
locked-in low rate
• If deflation … losers will be responsible homeowners
with mortgages
The Next Baby Boomers
(Recent Births matching the post-War Baby Boomer numbers)
Number of Live Birth Each Year
Baby Bust Impact Ending ?
5,000,000
4,500,000
Boomers
Next Boomers
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
1950
1955
1960
1965
1970
1975
1980
1986
1991
1996 2001
2006
The Next Middle Class
• Global Economy is here to stay
• U.S. population: 300 million
• BRIC countries … nearly 10 times the U.S. population
– Brazil: 190 million
– Russia: 140 million
– India: 1.1 billion
– China: 1.3 billion
• Potentially 30 million new middle class each year
from just 1% upward shift
• How many will want a property in the U.S.?
Right Tools Right Now
• Many Free Products
– Relocation Reports
– REALTOR® Member Profile
– Home Buyer and Home Seller Survey
– Daily Forecast Update
• www.realtors.org
– click “Right Tools Right Now”
– click Research