Economic Outlook in Uncertain Times


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Lawrence Yun, Ph.D.
Chief Economist

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Economic Outlook in Uncertain Times

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