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Recovery to Normalcy

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2010 NAR Annual Convention & Expo …

2010 NAR Annual Convention & Expo
Economic Issues & Residential Real Estate Business Trends Forum

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  • This graph shows the number of distressed loans by category. The bottom category is the foreclosure inventory, which as you can has been steadily rising but the increase over the last 2 quarters of 2009 tempered off some. The green group are foreclosures started which have also decreased in the last quarter of 2009. this is, as I will talk about it more later on, due to pressure on mortgage companies to modify distressed loans and minimize the numbers going into foreclosure. Many states have also put moratorium on foreclosures towards the end of the year. The pink group are mortgages 90+ days past due which have also leveled out at the end of 2009. finally is the orange group, which are newly delinquent loans and that is the most positive news, showing that loans entering delinquent status are decreasing and possibly indicating that the foreclosure crisis in 2010 might not be as bad as was in 2009.


  • 1. Recovery to Normalcy
    Lawrence Yun, Ph.D.
    Chief Economist
    Presentation at NAR Annual Meetings
    New Orleans, LA
    November 5, 2010
  • 2. Consumer Confidence on Present Conditions: Awful
  • 3. Consumer Confidence on Future Conditions: Not Good but Not as Bad
    9.6% unemployment rate,
    but different confidence level
  • 4. Business Spending Shows Weak Confidence in Relation to Profits
    $ billion
  • 5. REALTORS’ Home Value Expectation:over the next 12 months
    Increase or Stable
  • 6. REALTOR Expectation vs Reality
  • 7. Government Spending (Confidence)
    $ billion
  • 8. GDP Growing, but Without Vigor
    annualized % growth rate
  • 9. U.S. Private Sector Job Gains(863,000 from Jan. to Sep. 2010)
    Month-to-month job gains in thousands
  • 10. Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)
  • 11. How Many Years to Get Job Market Back to Normal?
  • 12. Total Payroll Jobs in Michigan
    In thousands
    Source: BLS
  • 13. Total Payroll Jobs in Washington D.C. Metro
    In thousands
    Source: BLS)
  • 14. Weekly 1st time Unemployment Claims: Need to Fall Further
    In thousands
  • 15. Existing Home Sales (Closings)
    Tax Credit Impact
  • 16. New Home Sales (Contracts)
    Where is the
    tax credit impact?
  • 17. High Existing Home Inventory
    Months Supply
    Total homes on the market
    (in millions)
  • 18. Distressed Loans and Shadow Inventory
    Bad loans are nearly always made in good times. But recently originated loans are performing very well.
  • 19. Newly Built Home Inventory and Its Shadow Inventory
  • 20. Depressed Housing Starts
    In thousands
  • 21. Return to Normalcy
    Unprecedented Boom and Bust: 2000 to 2010
    Sales Boomed and Retreated
    Prices Overshot and Corrected
    Fundamentals Back to Justifiable Levels
    Long-standing Housing Policy still in place
    Credit Market Bubble … out the window
  • 22. Existing-Home Sales
    In million units
  • 23. Home Sale to Jobs
  • 24. National Median Home Price
    Source: NAR
  • 25. Metro Median Home Price
    $ thousand
    Las Vegas
    Source: NAR
  • 26. National Median Home Price Stabilizing(Combination of price change and type of homes that are selling)
  • 27. Other Home Price Measurements also Showing Price Stabilization
  • 28. Home Price-to-Income Ratio (No Bubble)
    Source: NAR
  • 29. Home Price and Construction Cost(No Bubble)
  • 30. Long Standing Housing Policy
    Mortgage Interest Deduction
    If eliminated, there will be about a 15% hit to home values
    Massive wealth destruction for property owners who have saved and saved (in many cases to pass it on to the next generation)
    Self-financing without ever needing taxpayer funds (as of yet)
    Fannie and Freddie
    Made mistakes and need to be restructured
  • 31. Credit Bubble DeadSubprime, Alt-A, Home Equity Mortgage Origination
    $ billion
    Source: NAR estimate based on Inside Mortgage Finance data
  • 32. Long-Term Path to Self Reliance May be Helped from Long-Term Housing Wealth Gains
    Median Family Net Worth
    Source: Federal Reserve, NAR estimate for 2010
  • 33. Compelling AffordabilityMonthly Mortgage to buy a Median Priced Home
  • 34. Economists Expect Price Increases in Upcoming Years
    • Macromarkets, a firm associated with Professor Robert Shiller, surveys about 100 economists about home price outlook.
    • 35. The consensus forecast as of August 2010 (which can be found from Macromarkets or from news media stories such as Wall Street Journal) are for
    • 36. 0.78% price increase in 2011
    • 37. 2.43% price increase in 2012
    • 38. 3.20% price increase in 2013
    • 39. 3.69% price increase in 2014
    • 40. No forecast for 2015 and beyond
  • 10-Year Treasury impacted by Inflationary Expectations
  • 41. Inflationary Pressure ?
  • 42. CPI-Housing Rent Inflation(Home price is not part of CPI because of asset/investment aspect)
  • 43. Baseline Outlook
    • Moderate GDP Expansion 2 to 2.5% in the next 2 years (historical average is 3%)
    • 44. 1.5 million annual job additions in the next 2 years
    • 45. Unemployment rate of 8% in 2012 … and normal 6% in 2015
  • Baseline Outlook Cont’d
    • Mortgage Rates rising to 5.0% in 2011 and 5.9% in 2012
    • 46. People fussing about home values could miss out on low rates
    • 47. Home values – no meaningful change in the national price in the next 2 years
    • 48. Home sales to be choppy, but overall improving, in line with job growth … 5.2 million in 2011 (up from 4.8 m in 2010, but same as in 2000)
    • 49. Affordability conditions are too compelling
    • 50. There may be some pent-up demand. 30 million additional people compared to 2000, but same number of home sales as in 2000.
  • Alternative Possibility
    • High inflation: people desire tangible investment like real estate, but interest rate will be higher
    • 51. Deflation: people hold back for better price, which holds back economy
    • 52. Budget deficit tipping point: higher interest rate and sharp cut backs in standards of living
    • 53. 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
  • Virtuous or Vicious Cycle?
    Home values stabilizing scenario
    Foreclosures steadily fall
    Strategic default lessens and underwater homeowners become hopeful
    FHA and Fannie/Freddie finances improve (will need less taxpayer funds)
    Consumer spending opens up
    Home value stabilize further or even begin to rise …
    Self-sustaining normal growth rates in sales and prices
    Home values fall meaningfully … ugly scenario