Transcript Document

Housing Market Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Midyear Legislative Meetings
Washington, D.C.
May 12, 2011
U.S. Annual Existing Home Sales…
Ready to Breakout?
Monthly Existing Home Sales
Tax Credit Impact
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
– Real estate net worth stabilizing … dissipating fears of more notable price declines
– 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
140000
138000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
Total U.S. Payroll Jobs
(1.3 million in the past 12 months)
In thousands
6.5 million
below prior peak
136000
134000
132000
130000
128000
126000
124000
Alaska Payroll Jobs –
Booming
North Dakota Jobs –
Outperforms Alaska
Texas Payroll Jobs –
Fully Recovered
Kansas Payroll Jobs –
No Recovery
Missouri Payroll Jobs –
Barely Registering
Most States follow U.S. Payroll Pattern
(Modest Job Recovery)
In thousands
Weekly Fresh Unemployment Claims…
Not Going under 400,000
In thousands
Financial Asset at $50 trillion…
Full Recovery
Source: Federal Reserve
Residential Real Estate Net Worth…
Long way to recover, but not falling
Source: Federal Reserve
New Home Price vs. Existing Home Price
30% premium rather than 10-15% normal premium
12 month moving average
New Home Price
Existing Home Price
CPI Apartment Rent
Home Price vs Rent
(index = 100 in 1980)
Qualified Renters who can buy a
Median Priced Home
2005
2010
Median Price
$219,000
Median Price
$173,100
Mortgage Rate
6%
Mortgage Rate
5%
Down payment
10%
Down payment
10%
Monthly Payment
$1,180
Monthly Payment
$840
Qualifying Income
$56,600
Qualifying Income
$40,300
How many renters
have at least this
income?
7,700,000
(21% of renters)
How many renters
have at least this
income?
15,000,000
(39% of renters)
Renter Households
In million
Distress Sales:
30% to 40% of Transactions
Will Remain Significant for Next 2 years
# 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
One U.S. Dollar gets…
U.S. Home Price after
Currency Conversion
200
Index set at 100 in Year 2000
175
150
US
Canada
125
Euro
Yen
100
100
75
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
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
REALTORS®’ Home Value Expectation:
Survey of REALTORS® regarding prices in 12 months
Increase or Stable
Decrease
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
U.S. Housing Starts
Housing Starts in thousands
Long-Term Average
Upside Potential Surprise
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
QE2… to keep rates low…
are inconsequential if too strict
underwriting standards
Fannie and Freddie Backed Mortgage Loan Performance
Fannie Mae
Vintage
Cumulative
Default Rate
after 18 months
Freddie Mac
Vintage
Cumulative
Default Rate
after 18 months
2002
3.1%
2002
2.7%
2003
2.5%
2003
1.2%
2004
4.6%
2004
2.0%
2005
4.8%
2005
1.8%
2006
11.6%
2006
6.0%
2007
28.7%
2007
22.3%
2008
12.6%
2008
13.7%
2009
1.2%
2009
1.1%
Source: Federal Housing Finance Agency
Downside Potential Surprise
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 !!! Thank goodness
Current Savings Rate = 6%
Takes 9 years to save $20,000
based on average $2,200 per year
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
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
# Unemployed
(looking but cannot find job)
Adults in the Labor Force
(Rest are not looking for job and officially not included in
unemployment rate)
Government Spending and
Tax Receipts
$ billion
Government Default?
U.S. 10-year Treasury Rate
Consumer Confidence Index
(Under 100; incumbents in trouble)
Housing Baseline Outlook
• Moderate GDP Expansion 2.5% to 3% in the next 2 years
• 1.5 to 2 million annual job additions yearly in the next 2
years
• 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 next 2 years
• Home sales rise by 7% to 10% in 2011
Presidential Quotes
“A nation of homeowners is
unconquerable.”
Franklin Delano Roosevelt
“We will preserve the part of the
American dream which the mortgageinterest deduction symbolizes.”
Ronald Reagan