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Real Estate Market Trends & OutlookLawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION OF REALTORS®
Presentation at Vanderbilt University
March 17, 2010
Housing Stimulus Impact
• Tax Credit and Higher Loan Limit
• 2 million 1st-time buyers by end of November• Additional 2.4 million buyers (1st time and
many repeat buyers) by end of June 2010
• About 1 million induced-impact– Existing Home Sales gets 15% boost– Home Price gets 3% to 5% support
• Preservation of Middle-Class Wealth
Recent Pending Home Sales
60
70
80
90
100
110
120
Recovery pre-dominantly in lower-end and taking longer to close in recent months
Source: NAR
Bifurcated Recovery
$ thousand
Homes priced under $100K
Homes priced above $500K
% change from one year ago
Source: NAR
Aggregate Months Supply
0
2
4
6
8
10
12
Source: NAR
In thousand units
National Existing Home Sales
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Pre-boom sales
Source: NAR
Vacation Home Sales Nationwide
0
200
400
600
800
1000
1200
2003 2004 2005 2006 2007 2008 2009 est.
Thousand units
Source: NAR
First-Time Buyers Used Up or Pent-Up Demand ?
• In year 2000 (pre-boom)– 11 million renters with qualifying income to
buy a median priced home
• In 2009 – 16 million renters with qualifying income
to buy a median priced home
• Most renters are not qualified and should not be homeowners
First-Time Buyers Used Up or Pent-Up Demand ?
2000(pre-boom)
2009(3 months prior to tax credit)
2009(recent 3 months with tax credit)
Existing Home Sales 5.2 m 4.6 m 5.3 m
New Home Sales 880 K 364 K 418 K
Payroll Jobs 131.8 m 135.0 m 131.4 m
Household Jobs 136.9 m 143.2 m 140.0 m
Median Home Price $143,600 $173,600 $177,900
Mortgage Rates 8.1% 5.5% 5.2%
Underwriting Standard + FHA % Normal (not loose)FHA about 10%
About NormalFHA 24%
About NormalFHA 15% to 20% with higher credit score
Household Income $41,990 $50,303 $50,303
# renters that could buy a median priced home (assume no tax credit)
11.5 million 16.2 million 16.1 million
Change in Pool of Potential 1st Time Buyers (without tax credit)
N/A 4.7 million 4.6 million
Change in Pool of Potential 1st Time Buyers (with tax credit)
N/A/ 4.7 million 5.4 million
Fear Factor Impact (Waiting to buy later at a lower price)
N/A Hard to Measure Hard to Measure
Household Formation(2-year moving average)
Preservation of Middle Class Wealth
• $8000 Price Drop or $8000 Tax Credit ?• No difference from buyer’s perspective
• Major differences on market impact• $8,000 or 4% decline value means $730 billion in
housing wealth destruction
• Consumer wealth effects
• Consumer’s rational postponement of purchase
Financial Wealth Rising
$ billion
Source: Federal ReserveSource: Federal Reserve, NAR estimate
Housing Wealth to Rise($4 trillion wealth loss in housing from peak)
If additional $8,000 price decline … $700 billion further loss
$ billion
Source: Federal ReserveSource: Federal Reserve, NAR estimate
Metro Median Home Price
$ thousand
Riverside
Source: NAR
Indianapolis
National Existing Home Price
0
50000
100000
150000
200000
250000
1970 1975 1980 1985 1990 1995 2000 2005
Overcorrection Needs to be Halted(Home Price to Income Ratio)
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
Stay within Budget and all will be OK !
Source: NAR
Mortgage Payment to Income(by middle income person buying a median priced home)
2.0
7.0
12.0
17.0
22.0
27.0
32.0
37.0
42.0
Stay within Budget and all will be OK !
Source: NAR
Latest Home Price Trend
% change from one year ago
NAR in blueFHFA in Red
Case-Shiller in Green
Housing Starts: Too Much to Too Little
0
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
New Units Needed
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
Serious Delinquency Rate(90+ days late or foreclosure)
0.0
5.0
10.0
15.0
20.0
25.0
30.0%
Subprime
• FHA Reserve Fund depleting … Bailout ???• Fannie-Freddie … future reform without private profit and taxpayer loss
• Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!
VA (purple)
FHA
Prime (green)
-6.0
-3.0
0.0
3.0
6.0
9.0
20
05
-Q
1
20
05
-Q
3
20
06
-Q
1
20
06
-Q
3
20
07
-Q
1
20
07
-Q
3
20
08
-Q
1
20
08
-Q
3
20
09
-Q
1
20
09
-Q
3
20
09
Q4
20
10
-Q
2
20
10
-Q
4
Economy Recovering
GDP annualized growth rate
Source: BEA
Forecast
Total Payroll Jobs in U.S.
-1000
-800
-600
-400
-200
0
200
400
600
Source: BLS
In thousands
Job Changes in U.S.(Monthly Payroll Job Change)
Total Payroll Jobs in U.S.
-150
-100
-50
0
50
100
150
Source: BLS
In thousands
Temp Hire Job Changes in U.S.(monthly payroll job change)
3500
4000
4500
5000
Source: BLS
In thousands
Total Payroll Jobs in Michigan
2000
2200
2400
2600
Source: BLS; (12-month moving average)
In thousands
Total Payroll Jobs in Washington D.C. Metro
Federal Budget Deficit
-2,000,000
-1,500,000
-1,000,000
-500,000
0
500,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate
Federal Housing Policy
• Tax Favoritism– Mortgage interest deduction – Capital gains tax exclusion– Property tax deduction– But who pays taxes?
• Ownership and Positive Externalities– Student test scores, teen pregnancy, juvenile
delinquency
• What is the proper homeownership rate?• Any Ownership vs Successful Ownership
Economic Outlook
2008 20092010
forecast
GDP 0.4% -2.5% 2.8%
CPI Inflation 3.8% -0.2% 1.8%
Unemployment Rate 5.8% 9.3% 10.0%
10-year Treasury 3.7% 3.3% 3.8%
Unemployment Rate Peak at 10.5% in few months before going down consistently
Housing Outlook
2008 20092010
forecast
Existing Home Sales 4.9 m 5.2 m 5.7 m
New Home Sales 485 k 375 k 446 k
Home Price Growth -10% -13% 2% to 4%
Mortgage Rate 6.1% 5.1% 5.5%
Price Fear Factor ? ? None
0
50
100
150
200
250
300
Index = 100 in 1990
Case-Shiller Residential
MIT Commercial
2009 data is for Q2
Commercial and Residential Property Prices
Who Is Buying?
06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 $-
$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
Crossborder Equity Fund Inst'l Private Public User/other Unknown
Source: Real Capital Analytics
Credit Crisis 2008: Libor vs. Fed Funds Rate
Jan 1 2007 May 3 2007 Sep 4 2007 Jan 4 2008 May 7 2008 Sep 8 2008 Jan 8 20090
1
2
3
4
5
6
7
8
Libor Fed Funds
Percentage
Subprime acting up
Bear Stearns
Lehman Brothers belly up
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)• Not Yet … Need to see
– Lower rate on jumbo mortgages– Lower rate on second home purchases – Lower rate on condo purchases– Lower rate on commercial real estate loans
Office Market Fundamentals
2009.1 2009.2 2009.3 2009.4 2010.1 2010.2
-25000
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Completions Absorption Vacancy
Squa
re F
eet (
'000
s)
Perc
ent (
%)
Source: NAR/CBRE-EA
Office Rent Growth
2004 2005 2006 2007 2008 2009 2010
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
National Rent Growth
Source: NAR/CBRE-EA
Commercial Market Outlook• 2008 to 2009
– Net absorption turns negative– Rising Vacancy Rates and Stagnant Rent– Markedly Fewer Transactions– Property Prices Falling– Distress Rising
• 2010– Economic recovery
• Local market recovery
– Commercial recovery with lag time– Modestly Positive net absorption– Rent struggles to move positive