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2012 MID-YEAR MEETING Austin, Texas April 13, 2012. Economic and Real Estate Outlook. Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University. Bentley's First Law of Economics: “The only thing more dangerous than an economist is an amateur economist!” . - PowerPoint PPT Presentation
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Economic and Real Estate Outlook
Dr. James P. GainesResearch Economist
Real Estate Center at Texas A&M University
2012 MID-YEAR MEETINGAustin, TexasApril 13, 2012
2
Bentley's First Law of Economics: “The only thing more dangerous than an economist is
an amateur economist!”
Bentley's Second Law of Economics : "The only thing more dangerous than an amateur
economist is a professional economist."
Remember:Amateurs built the Ark
Professionals built the Titanic
US Economy in 1996
US Economy in 2008
US Economy in 2012
Economy is Trying to Recover, but Slow Going
• Employment • Retail Sales and Consumption• GDP• Unsustainable Government deficits• Corporate Earnings• Housing
Projections for the next couple of years indicate substantive growth doesn’t occur until 2013-14
6
Percent Growth in Real GDP
1Q20
002Q
2000
3Q20
004Q
2000
1Q20
012Q
2001
3Q20
014Q
2001
1Q20
022Q
2002
3Q20
024Q
2002
1Q20
032Q
2003
3Q20
034Q
2003
1Q20
042Q
2004
3Q20
044Q
2004
1Q20
052Q
2005
3Q20
054Q
2005
1Q20
062Q
2006
3Q20
064Q
2006
1Q20
072Q
2007
3Q20
074Q
2007
1Q20
082Q
2008
3Q20
084Q
2008
1Q20
092Q
2009
3Q20
094Q
2009
1Q20
102Q
2010
3Q20
104Q
2010
1Q20
112Q
2011
3Q20
114Q
2011
1Q20
12
-10.0-9.0-8.0-7.0-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.08.09.0
1.1
8.0
0.3
2.4
-1.3
2.7
-1.1
1.4
3.5
2.1 2.0
0.1
1.7
3.4
6.7
3.7
2.7 2.63.0 3.3
4.2
1.8
3.2
2.1
5.1
1.6
0.1
2.7
0.5
3.63.0
1.7
-1.8
1.3
-3.7
-8.9
-6.7
-0.7
1.7
3.8 3.9 3.8
2.5 2.3
0.4
1.31.8
3.0
7Source: Bureau of Economic Analysis
The average rate of growth is 3.3% per quarter since 1947
Debt Driven Recession
8
Total National Debt Since 1929
Amount and Percent of GDP
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
$0
$2,000,000,000,000
$4,000,000,000,000
$6,000,000,000,000
$8,000,000,000,000
$10,000,000,000,000
$12,000,000,000,000
$14,000,000,000,000
$16,000,000,000,000
0%
20%
40%
60%
80%
100%
120%
140%
160%
9
National Debt as a Percentage of Annual GDP (right scale)
Total National Debt (left scale)
Ended WWII $270BHit $1T in 1981 @ 32% GDPBeginning FY2012 $14.8T @ 97% GDP and 55 times 1946 debt
Source: U.S. Treasury
Household Debt
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000Total HH Debt Home Mortgage Consumer Credit
Bill
ions
$
10Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University
Households Continue Way Over-Levered
Total HH Debt as Percentage of GDP
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
194513.7%
2007; 98.2%
3Q201187.0%
11
Average 1945-2010 = 52.5%
Average 1945-1984 = 39%
Average 1985-1999 = 63%
Average 2000-2010 = 88%
Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University
“Until we see a sustained period of
stronger job creation, we cannot consider the recovery to be truly
established.”
Ben BernankeJune 7, 2011, International Monetary Conference, Atlanta,
Georgia
12
Recovery May Take a While
13
US Unemployment Rates
Jan-95
Jul-9
5
Jan-96
Jul-9
6
Jan-97
Jul-9
7
Jan-98
Jul-9
8
Jan-99
Jul-9
9
Jan-00
Jul-0
0
Jan-01
Jul-0
1
Jan-02
Jul-0
2
Jan-03
Jul-0
3
Jan-04
Jul-0
4
Jan-05
Jul-0
5
Jan-06
Jul-0
6
Jan-07
Jul-0
7
Jan-08
Jul-0
8
Jan-09
Jul-0
9
Jan-10
Jul-1
0
Jan-11
Jul-1
1
Jan-12
3.04.05.06.07.08.09.0
10.011.012.013.014.015.016.017.018.0
US US U-6
14Source: BLS, Texas Workforce Commission; Real Estate Center at Texas A&M
2012+ Economic OutlookMost indicators positive – not robustMajor business, investment and political
decisions postponed Sluggish growth into the first quarter of 2013Interest rates stay low through 2014Housing cannot be counted on to help in 2012Over-leverage & credit dependency remainLimited government resources and spending International economy highly uncertainGeneral UNCERTAINTY & Lack of CONFIDENCE
Source: The Conference Board (1985=100)
Consumer Confidence Index
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
102030405060708090
100110120130
Jul-07; 111.9
Feb-09; 25.3
Expansion
Recession
7 cycles since 1967:Avg. during recession = 72Avg. during an expansion = 102
U.S. Household Formation
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,0001,883
637
1,391
1,510
1,346
831
1,244 1,249
669
1,367
1,725
1,082
455
286
522582
Thou
sand
s
Source: Current Population Survey, Census Bureau, Department of Commerce (The source of annual data is the Current Population Survey March Supplement. The quarterly data source is the monthly Current Population Survey/Housing Vacancy Survey.)
U.S. Population Groups 2011
1909-1945 1946-1964 1965-1976 1977-1995 1996-20110
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
38,350,373.0
76,138,435.0
49,725,811.0
81,937,610.0
67,079,815.0
Mill
ions
Source: U.S. Census Bureau; 2009 National Population Projections (Supplemental)
Sile
nt/G
reat
est
Bab
y B
oom
Bab
y B
ust (
Gen
X)
Ech
o B
oom
(Gen
Y)
millions
Mill
enni
als (
Gen
I)
66+ 47-65 35-46 0-1516-34Age
24.3%
12.2%
15.9%
26.1%
21.4%
Boomers Own - Gen Y Rents
9%27%
51%
12%
Gen Y
Own Outright
Mortgage
Rent
Other
19
9%
64%
26%
2%
Gen X
Own OutrightMortgageRentOther
28%
51%
18%
3%
Boomers
Own OutrightMortgageRentOther
63%
22%
14%
1%
Silent/Greatest
Own Outright
Mortgage
Rent
Other
Source: FNMA National Housing Survey, 4Q2010
At Last, a Cell Phone for Seniors!
Changing Face of Housing:Future Homebuyers and Sellers
21
2025
Racial and Ethnic Composition of Texas 2010 and 2030
During the next two decades, minorities will account for approximately two-thirds of household growth … and half of all first-time homebuyers
Source: Social Science Data Analysis Network; NAR Forecast
Hispanic 50.9%
Anglo 30.9%
Black
10.5%Asian7.7%
Anglo 45.1%
Hispanic 38.8%
Asian4.6%Black
11.5%
The Housing Market Needs to Mend to
Help a General Economic Recovery
How Bad Has the Housing Collapse Been?
Home prices down ~33% since 2006 peak Around $7 trillion, >50% lost equity in housing ~20% households, 12 million, upside-down on
mortgage – some states >50% Defaults, delinquencies and foreclosures at historic
levels 2011 new home starts lowest in the past 60 years New household formations about 25% of historical
rate Federal government programs have done little to help
overall housing
24
2Q19
712Q
1972
2Q19
732Q
1974
2Q19
752Q
1976
2Q19
772Q
1978
2Q19
792Q
1980
2Q19
812Q
1982
2Q19
832Q
1984
2Q19
852Q
1986
2Q19
872Q
1988
2Q19
892Q
1990
2Q19
912Q
1992
2Q19
932Q
1994
2Q19
952Q
1996
2Q19
972Q
1998
2Q19
992Q
2000
2Q20
012Q
2002
2Q20
032Q
2004
2Q20
052Q
2006
2Q20
072Q
2008
2Q20
092Q
2010
2Q20
112Q
2012
62.0
63.0
64.0
65.0
66.0
67.0
68.0
69.0
70.0
US Homeownership Rate
Source: U.S. Census Bureau
1970sBaby Boomers enter market;
homeownership grows
1995-2005Low interest rates and new mortgage
products; Homeownership explodes from
64.1% to 69.1%
(Percent)
Current rate is same as 3Q1998
Lost Wealth: Households’ Equity in Real Estate
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000 $13,174
$6,123
Billi
ons $
Source: Federal Reserve, Flow of Funds, B-100
$7 trillion or 53% in lost real estate equity
Long-Term Real Home Price Index: 1890-201018
9018
9318
9618
9919
0219
0519
0819
1119
1419
1719
2019
2319
2619
2919
3219
3519
3819
4119
4419
4719
5019
5319
5619
5919
6219
6519
6819
7119
7419
7719
8019
8319
8619
8919
9219
9519
9820
0120
0420
0720
10
5060708090
100110120130140150160170180190200210220
Source: Robert J. Shiller, Irrational Exuberance, 2nd. Edition, Princeton University Press,2005, 2009, Broadway Books 2006, also Subprime Solution, 2008, as updated by author: http://www.econ.yale.edu/~shiller/data.htm
WWI GreatDepression WWII
70’sBoom
80’sBoom
2000’s Boom
1890 to 1914 averaged 100.16
1915 to 1945 averaged 75.74
1946 to 1999 averaged 111.25
2000 to 2010 averaged 156.01
Monthly Foreclosure Filings
Jun-
05A
ug-0
5O
ct-0
5D
ec-0
5Fe
b-06
Apr
-06
Jun-
06A
ug-0
6O
ct-0
6D
ec-0
6Fe
b-07
Apr
-07
Jun-
07A
ug-0
7O
ct-0
7D
ec-0
7Fe
b-08
Apr
-08
Jun-
08A
ug-0
8O
ct-0
8D
ec-0
8Fe
b-09
Apr
-09
Jun-
09A
ug-0
9O
ct-0
9D
ec-0
9Fe
b-10
Apr
-10
Jun-
10A
ug-1
0O
ct-1
0D
ec-1
0Fe
b-11
Apr
-11
Jun-
11A
ug-1
1O
ct-1
1D
ec-1
1Fe
b-12
010,00020,00030,00040,00050,00060,00070,00080,00090,000
100,000110,000120,000130,000140,000150,000160,000170,000
US
Texas
Source: RealtyTrac, Inc. Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
27
Percent of Distressed Home SalesO
ct-0
8N
ov-0
8D
ec-0
8Ja
n-09
Feb-
09M
ar-0
9A
pr-0
9M
ay-0
9Ju
n-09
Jul-0
9A
ug-0
9Se
p-09
Oct
-09
Nov
-09
Dec
-09
Jan-
10Fe
b-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep-
10O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb-
11M
ar-1
1A
pr-1
1M
ay-1
1Ju
n-11
Jul-1
1A
ug-1
1Se
p-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12Fe
b-12
20
24
28
32
36
40
44
48
52
Perc
ent o
f Tot
al S
ales
Source: NAR
Percent of Loans in Foreclosure
End of 4Q 2011Fl
orid
a
Illin
ois
Mai
ne
Con
nect
icut
Ohi
o
Sout
h C
arol
ina
Del
awar
e
Mar
ylan
d
Verm
ont
Ore
gon
Loui
sian
a
Wis
cons
in
Penn
sylv
ania
Mic
higa
n
Nor
th C
arol
ina
Mas
sach
uset
ts
Iow
a
Tenn
esse
e
Uta
h
Was
hing
ton
Mis
sour
i
Ark
ansa
s
Virg
inia
Mon
tana
Neb
rask
a
Nor
th D
akot
a0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
4.38
29Source: Mortgage Bankers Association, National Delinquency Survey
Judicial Foreclosure StatesNon-Judicial Foreclosure States
US
6 states > 30%13 states > 20%21 states > 15%
14 states < 10%
Source: CoreLogic® , Negative Equity Report, 3Q2011
High Negative Equity Concentrated in a Small Number of States
Seriously Delinquent Mortgages by Origination
Year
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q20110.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Prior to 2005 2005-2007 2008-2009 2010 or Later31Source: Mortgage Bankers Association, 4Q2011 National Delinquency Survey
9.5% 9.1% 8.7% 8.6% 8.1% 7.9% 7.9% 7.7%
19%
72%
9%0%
0%0% 0%
0%2%1%1%
14%14%12%12%11%11%
11%
65%65%68%
69%70%71%71%
19%20%19%19%19%19%18%
32
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
200
400
600
800
1,000
1,200
1,400
1,600
Sources: US Census Bureau , NAR, SAAR
New SF sales are down 78% from 2005 peak
New and Existing SF Home Sales U.S.
Annual Average Total Sales1980-1989 3.55 million1990-1999 4.7 million2000-2007 7.1 million2008-2010 5.5 million
Existing Sales(left axis)
New Sales(right axis)
(New000s)
(Existing000s)
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
123,000
126,000
129,000
132,000
135,000
138,000
141,000
144,000
147,000
150,000
Sources: BLS. US Census Bureau , NAR, SAAR
(Home Sales000s)
Rise in Employment Beginning to Show in Sales Volume
Total Existing Home Sales(left axis)
(Employed000s)
Employment(right axis)
People Who Plan to Buy a Home
in the Next Six MonthsJu
n-19
77Fe
b-19
78O
ct-1
978
Jun-
1979
Feb-
1980
Oct
-198
0Ju
n-19
81Fe
b-19
82O
ct-1
982
Jun-
1983
Feb-
1984
Oct
-198
4Ju
n-19
85Fe
b-19
86O
ct-1
986
Jun-
1987
Feb-
1988
Oct
-198
8Ju
n-19
89Fe
b-19
90O
ct-1
990
Jun-
1991
Feb-
1992
Oct
-199
2Ju
n-19
93Fe
b-19
94O
ct-1
994
Jun-
1995
Feb-
1996
Oct
-199
6Ju
n-19
97Fe
b-19
98O
ct-1
998
Jun-
1999
Feb-
2000
Oct
-200
0Ju
n-20
01Fe
b-20
02O
ct-2
002
Jun-
2003
Feb-
2004
Oct
-200
4Ju
n-20
05Fe
b-20
06O
ct-2
006
Jun-
2007
Feb-
2008
Oct
-200
8Ju
n-20
09Fe
b-20
10O
ct-2
010
Jul-2
0110.0
1.0
2.0
3.0
4.0
5.0
6.0
% o
r Res
pond
ents
Source: The Conference Board, Original Data
Average value 1977-2011 = 3.3%
US pop 2010 = 309 million; at average, 10.2 million people or 4.2 million households plan to buy a house in the next 6 months. At current rate, 5.7 million people or 2.3 million households plan to buy a house in the next 6 months.
FHFA US Monthly Home Price Index
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
100
120
140
160
180
200
220
240 Apr-07226.41
Source: FHFA, SA
Currently equal to ~Feb 2004
Vacant Housing Units19
6519
6619
6719
6819
6919
7019
7119
7219
7319
7419
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
11
0
2,000
4,000
6,000
8,000
10,000
12,000
Vac-Off Mkt 'Other" For Sale For Rent
Source: US Census Bureau
Vacant For Sale
Vacant For Rent
Vacant & Off the Market: Other
U.S. Home Price Indexes(Y/Y Percent Change in Index)
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Sources: NAR, FHFA, S&P Case-Shiller, FHLMC
FHFA Repeat Sales Index
NAR Median Price
Case-Shiller Comp 20 SA
FHLMC HPI
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
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
2011
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
560565575
461488490
449486
657
718
633
519550
647
820 818
709
545
436413
622639688
748
672675650
535507
608
666670665
758805
885881877909
972
1,088
1,203
1,283
1,051
776
485
374
322302
Annual New Home Sales
Source: US Census Bureau, NAHB, Real Estate Center
(000, SAAR)
-50% 1977 Peak to Trough
-28% 1986 Peak to Trough
-77% 2005 Peak to Current
-28% 1972 Peak to Trough
2011 less than half of “normal” level needed
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
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
2011
2012
p
200300400500600700800900
1,0001,1001,2001,3001,4001,5001,6001,7001,800
1,012971964
779
844
899
811813
1,151
1,309
1,132
888892
1,162
1,4511,433
1,194
852
705663
1,0681,0841,072
1,1791,146
1,081
1,003
895840
1,030
1,126
1,198
1,076
1,1611,134
1,2711,302
1,2311,273
1,359
1,499
1,611
1,716
1,465
1,046
622
445471
429
500
New SF Home Starts
Source: US Census Bureau, Real Estate Center at Texas A&M University
(000s SAAR)
2011 down 75% from 2005 peak and 628,000 fewer units than 1960-2002 average per year (1.06 million)
Price Index of New Single-Family Houses Sold
Including Value of Lot[2005 = 100 Index based on kinds of houses sold in 2005]
1Q20
002Q
2000
3Q20
004Q
2000
1Q20
012Q
2001
3Q20
014Q
2001
1Q20
022Q
2002
3Q20
024Q
2002
1Q20
032Q
2003
3Q20
034Q
2003
1Q20
042Q
2004
3Q20
044Q
2004
1Q20
052Q
2005
3Q20
054Q
2005
1Q20
062Q
2006
3Q20
064Q
2006
1Q20
072Q
2007
3Q20
074Q
2007
1Q20
082Q
2008
3Q20
084Q
2008
1Q20
092Q
2009
3Q20
094Q
2009
1Q20
102Q
2010
3Q20
104Q
2010
1Q20
112Q
2011
3Q20
11
70
75
80
85
90
95
100
105
110
Source: US Census Bureau
Median Price of Existing SF Homes
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000$221,900
$166,200
Source: NAR
Major declines in 2008 & 2009
2011 median down 25% from 2006 peak
Median Existing SF Home Price
Jan-68
Jan-70
Jan-72
Jan-74
Jan-76
Jan-78
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
$10,000
$30,000
$50,000
$70,000
$90,000
$110,000
$130,000
$150,000
$170,000
$190,000
$210,000
$230,000
$250,000
$10,000
$30,000
$50,000
$70,000
$90,000
$110,000
$130,000
$150,000
$170,000
$190,000
$210,000
$230,000
$250,000
Source: NAR, Real Estate Center at Texas A&M University
1968-1999 Trend Line
National Housing Affordability Index
90100110120130140150160170180190200210220
Feb-99; 146.9
Jul-00; 122.8
Apr-03; 145.4
Jul-06; 99.6
Jan-12; 206.1
Source: NAR Composite Index
Average 1994-2003 = 132.4
Drop of 31.5% from April 2003 to July 2006
Increase of 107% from July 2006 to Oct. 2011
Median Home Prices as a Multiple of Median Household
Income19
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
11
2.70
2.90
3.10
3.30
3.50
3.70
3.90
4.10
4.30
4.50
4.70
4.90
5.10
5.30
5.50
3.033.07
3.263.383.43
3.563.49
3.363.353.223.203.253.283.273.29
3.15
3.423.453.553.523.473.493.553.513.483.53
3.85
4.07
4.284.40
4.734.60
4.34
3.91
3.463.50
3.33
3.33
3.483.60
3.703.82
3.653.61
3.44
3.613.563.573.70
4.014.134.154.10
3.983.974.054.03
3.933.943.953.923.964.02
4.15
4.424.50
4.98
5.205.11
4.94
4.61
4.354.494.52
New Homes (‘75-’00 avg. = 3.82)
Existing Homes (‘75-’00 avg. = 3.36)
Source: US Census Bureau, NAR, Real Estate Center at Texas A&M University
Divergent US Median HH Income and Median Home
Prices19
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
75
100
125
150
175
200
225
250
Source: US Census Bureau, NAR
Median Home Price
Median HH Income
1990=100
2010 Median Price/Median Household Income
HawaiiDistrict of Columbia
CaliforniaMassachusetts
New YorkWashington
OregonRhode Island
MontanaNew JerseyConnecticut
VermontColoradoDelawareArkansas
New MexicoMaine
VirginiaAlaska
MarylandNew Hampshire
LouisianaNorth Carolina
UtahMississippi
WyomingSouth DakotaWest Virginia
FloridaKentucky
South CarolinaIdaho
AlabamaWisconsin
PennsylvaniaNevada
TennesseeMinnesota
IllinoisOklahoma
MissouriGeorgia
TexasNorth Dakota
ArizonaIndiana
OhioNebraska
IowaKansas
Michigan
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.07.93
6.645.72
4.944.54
4.474.45
4.414.184.184.17
4.134.03
3.883.853.833.82
3.783.743.72
3.613.593.573.55
3.433.423.403.39
3.253.253.233.23
3.193.143.11
3.012.982.96
2.882.822.792.792.772.74
2.582.542.52
2.492.462.46
2.12
Source: FHFA 2Q2010 Median Prices, 2010 American Community Survey, U.S. Census Bureau
Most Affordable States
Least Affordable States
3.0
4.0
Price-to-Rent Ratio Monthly FHFA P-O Index to BLS Owners’
Equivalent RentJanuary 1991 = 1.0
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.03
Source: FHFA, BLS
Equilibrium
Why Hasn’t the Housing Market
Recovered? Employment uncertainty Tight Mortgage Credit Price pressure from foreclosures, distressed
sales and “shadow inventory” Appraisals and the Home Valuation Code of
Conduct – questionable automated valuations
Confidence in the future
2012 Housing Outlook Distressed/Investor sales: ~1/3 U.S.
market, ~10%-20% in Texas Tight lending & low appraisals 33%
cancellation rate on new and existing contracts
Confidence Crisis No feeling of “well being” Lost wealth: real estate & other assets Flat income (declining real income) Uncertain future: jobs, home values
Inventory: new wave of foreclosures to hit market in 2012
Move-up & move-over buyers can’t sell current home
Move-out still renting can’t buy Political decisions, regulations and
policies unknown & problematic
Improvement in general economy Low interest rates but little impact Pent up demand by those who’ve
postponed housing or doubled-up Markets bottomed will show
statistical improvement Investors buoy sales but not prices Affordability: prices more in line
with income Rent-Own “gap” closing Incentives on new homes
substantial Population and household growth
strong in Texas
Reasons for OptimismMarket Headwinds
“If we knew what we were doing, it
wouldn't be called research, would it?”
Albert Einstein
Economic and Real Estate Outlook
Dr. James P. GainesResearch Economist
Real Estate Center at Texas A&M University
2012 MID-YEAR MEETINGAustin, TexasApril 13, 2012
