Winding Down to anExpansionWinding Down to anExpansion
David Lereah
Ph.D., Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
David Lereah
Ph.D., Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Painting the BoomPainting the Boom
• Record Home Sales
• Second Homebuying Frenzy
• Stretching Credit
• Media Frenzy
• Doom/Gloom Predictions
• Record Home Sales
• Second Homebuying Frenzy
• Stretching Credit
• Media Frenzy
• Doom/Gloom Predictions
Hot Markets in the Past 3 Years(2005 Q2 vs 2002 Q2)
Hot Markets in the Past 3 Years(2005 Q2 vs 2002 Q2)
0%
20%
40%
60%
80%
100%
120%
Price Appreciation
0%
20%
40%
60%
80%
100%
120%
Price Appreciation
Source: NAR
Signs of TiringSigns of Tiring
• Stretching credit
• Rising mortgage rates
• Affordability dropping
• Rising inventories
• Lengthening days on market
• More speculation
• Rolling activity
• Stretching credit
• Rising mortgage rates
• Affordability dropping
• Rising inventories
• Lengthening days on market
• More speculation
• Rolling activity
But Real Estate Expansion IntactBut Real Estate Expansion Intact
• Economic growth sufficient
• 4 million new jobs in the past 2 years
• Unsteady stock market
• Mortgage rates will remain under 7%
• Katrina (and Wilma) ’06 bounce back effect
• Near-term demographic trends favorable
– Boomers, Immigrants, Boomer Children
• Supply/Demand better balanced
• Economic growth sufficient
• 4 million new jobs in the past 2 years
• Unsteady stock market
• Mortgage rates will remain under 7%
• Katrina (and Wilma) ’06 bounce back effect
• Near-term demographic trends favorable
– Boomers, Immigrants, Boomer Children
• Supply/Demand better balanced
Favorable Near-Term Demographic Trends Favorable Near-Term Demographic Trends
0
10
20
30
40
50
60
70
80
90
Retired Baby Boomers Bust EarlyImmigrants
Echo RecentImmigrants
0
10
20
30
40
50
60
70
80
90
Retired Baby Boomers Bust EarlyImmigrants
Echo RecentImmigrants
Million Looking for Second HomesLooking for Second Homes
Trade Up BuyersTrade Up Buyers
First-time BuyersFirst-time Buyers
Large Wealth Transfer To Younger Ones
Large Wealth Transfer To Younger Ones
Most Metros are Healthy, Few Fragile
Most Metros are Healthy, Few Fragile
• Fundamentals
• Market Analysis
• Influencing Factors
• Stress Test
• Fundamentals
• Market Analysis
• Influencing Factors
• Stress Test
Risks on the HorizonRisks on the Horizon
• Economic Risks– Rising Oil Prices
– Inflationary Pressures
– Potential Job Losses
– Swelling Federal Budget Deficit
• Political Risks– Tax Reform
– Fannie Mae/Freddie Mac Regulatory Reform
• Economic Risks– Rising Oil Prices
– Inflationary Pressures
– Potential Job Losses
– Swelling Federal Budget Deficit
• Political Risks– Tax Reform
– Fannie Mae/Freddie Mac Regulatory Reform
Winding Down to anExpansionWinding Down to anExpansion
David Lereah
Ph.D., Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
David Lereah
Ph.D., Chief Economist
NATIONAL ASSOCIATION OF REALTORS®