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Economic Outlook in Uncertain Times

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Lawrence Yun, Ph.D. …

Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®


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  • 1. Economic Outlook in Uncertain Times
    Lawrence Yun, Ph.D.
    Chief Economist
    NATIONAL ASSOCIATION OF REALTORS®
    Presentation at NAR Leadership Summit
    Chicago, IL
    August 6, 2010
  • 2. Federal Reserve FOMC
    Ben Bernanke (Chairman):
    “Outlook remains unusually uncertain”
    Alan Greenspan (former Chairman):
    “If home prices start falling again, we could be facing a double-dip recession”
    James Bullard (St. Louis Fed):
    “The U.S. is closer to a Japanese-style deflationary outcome”
    Thomas Hoenig(Kansas City Fed):
    “Too rapid money creation results in eventual high inflation”
    To speak at NAR conference in New Orleans
  • 3. GDP Growing, but Decelerating
    annualized % growth rate
  • 4. Sources of Economic Growth
    Consumers … more cautious
    Historically 4% growth (above inflation), but expect 2% growth in upcoming years
    Federal Government … stimulus spending
    Historically 1% growth (above inflation), now strong 6%-7% growth in the past 2 years
    State/Local Government … cut back
    Historically 2% growth (above inflation), now cutting by 1%-2% in the past 2 years
  • 5. Sources of Economic Growth Cont.
    Net Exports … some improvement
    Oil price and oil import could hold back net export gains
    Real Estate
    Residential: Recovery in existing home sales but very low new home construction
    Commercial: Very low new construction
    Businesses … huge profits but not wanting to invest
    Why are businesses holding on to cash ???
  • 6. Construction Spending
    $ billion
  • 7. Pending Contracts on Existing Homes
    Tax Credit Impact
  • 8. Pending Contracts on New Homes
    Where is the
    tax credit impact?
  • 9. Corporate Profits and Business Spending
    $ billion
  • 10. Private Sector Job Gains(593,000 in 1st half of 2010)
    % change from one year ago
  • 11. Local Job Markets
    Dallas-Ft. Worth +27,000 in 12 months
    Washington D.C. +15,000
    Austin +10,000
    Boston +9,000
    New Hampshire +1.5% in 12 months
    Kentucky +1.3%
    Alaska +1.2%
    Indiana +1.1%
    Utah +1.0%
    North Dakota 3.6% unemployment rate
    South Dakota 4.5%
    Nebraska 4.8%
  • 12. Weekly 1st time Unemployment Claims: Need to Fall Further
    In thousands
  • 13. National Median Home Price Stabilizing(combination of price change and type of homes that are selling)
  • 14. Other Home Price Measurements
  • 15. Metro Median Home Price
    $ thousand
    Las Vegas
    St. Louis
    Source: NAR
  • 16. Sample Markets with Price Increases
    % change from one year ago
    Source: NAR
  • 17. Still High Months Supply of Existing Home Inventory
    Pent-up Supply
    and Demand
  • 18. Newly Built Homes on the Market
  • 19. Average 30-year Mortgage Rate(lowest since ?)
  • 20. 10-Year Treasury impacted by Inflationary Expectations
  • 21. U.S. Budget Deficit
    Source: CBO, NAR estimate
  • 22. Existing Home Sales over the Long Term(single-family sales without condos)
    1982: 18% Mortgage Rate, 40 million fewer workers
    Source: NAR
  • 23. People Mobility(How many move each year?)
    %
    260 million stay put
    25 million move within same county
    6 million move to another county in same state
    5 million move to another state (very low)
    1 million move abroad
  • 24. Investment-Rental Home Sales
    Thousand units
    Source: NAR
  • 25. 13 Regional Vice President Reports
    RVP Region 4: “stable at best … downward spiral at worst”
    RVP Region 7: “more expensive homes selling … but the underwriting process is difficult”
    REALTOR® member comments
    “more active in selling vacant lots this year”
    “phone hardly rings”
    “buyers pay too much for appraisals”
    “commercial lending needs to loosen up”
    “ a lot of people looking at second homes, but won’t get off the fence”
    “our rental market is going strong”
  • 26. Commercial Real Estate Transactions(of those above $5 million properties)
  • 27. NAR Commercial Market Survey
    NAR Survey … members were engaged in average transaction value of $1.2 million
    NAR Survey shows sales down 6%
    NAR Survey shows average price down 16%
    NAR Survey shows leasing up 3%
    NAR Survey shows rental rate down 10%
  • 28. Baseline Outlook
    Moderate GDP Expansion 2.5% in the next 2 years (historical average is 3%)
    1.5 million annual job additions in the next 2 years
    Unemployment rate of 8% in 2012 … and normal 6% in 2015
  • 29. Baseline Outlook Cont.
    Mortgage Rates rising to 5.7% in 2011 and 6.2% in 2012 and higher in later years
    Home values – no meaningful change in the national price in the next 2 years
    Housing Starts to rise 40% to 50% in 2011 to about 900,000 … from exceptionally low levels of the past two years (historical normal is 1.5 million)
    Home sales will struggle in the near term (after tax credit hangover) and then rise in line with job growth
    Commercial real estate coming off depressed levels but no improvements in vacancy until 2011 and in rent growth until 2012
  • 30. Alternative Outlooks
    High inflation … people desire tangible investment like real estate, but interest rate will be higher
    Deflation … people hold back for better price … holds back economy
    Budget deficit tipping point … higher interest rate and sharp cut back in standard of living
    Sharp 4% to 5% GDP growth … release of pent-up housing demand (30 million more people today versus 2000 when home sales were similar) … surprisingly higher home sales and home prices