Economic update ltm (june 2012)

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  • Currently, deal flow remains significantly below the 2007 peak, but sizable transactions have been reported recently, and there has been a year-over-year improvement in transaction volume. In 2010, commercial real estate deal volume rose 124.3 percent year-over-year, to $122.7 billion, compared to $54.7 billion in 2009. Gains were higher for high-quality core assets, especially in the office segment, where sales volume rose 156.6 percent YoY to $41.1 billion in 2010, from $16.0 billion in 2009. The growth has continued so far in 2011, with CRE deal volume rising 69.5 percent YoY in 1Q11 to $30.5 billion. While this improvement is a positive development, it has yet to be sustained for a long enough to confirm 2009 as the bottom for transactions in this cycle. Transaction levels remain below peak, but private investors continue to account for the largest share of the total. The recent increase, however, has been driven by public investors (including REITs) and foreign investors, with both categories surpassing 2009 totals in 2010.

Transcript

  • 1. Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Leadership Team Meeting Chicago, IL. June 28, 2012
  • 2. Annual Existing Home Sales: A Tough, Flat 4 years8 In million units7 7.086 6.525 5.024 4.12 4.34 4.18 4.263210 2005 2006 2007 2008 2009 2010 2011
  • 3. 59 60 61 62 64 65 66 67 69 70 63 68 %1965 - Q11967 - Q11969 - Q11971 - Q11973 - Q11975 - Q11977 - Q11979 - Q11981 - Q11983 - Q11985 - Q11987 - Q11989 - Q11991 - Q1 (Lowest in 15 years)1993 - Q11995 - Q11997 - Q11999 - Q12001 - Q12003 - Q12005 - Q1 Homeownership Rate at 65.4%2007 - Q12009 - Q12011 - Q1
  • 4. Owner-Occupancy Sales Falling(All-Cash deals hiding the current dysfunctional mortgage market) In thousands 6000 5000 4000 3000 2000 1000 0 2005 2006 2007 2008 2009 2010 2011QRM rulesRaising g-fees to fund non-housing issuesBanks hoarding cash! … from regulatory uncertainties and lawsuits?
  • 5. Despite Second Home Sales Recovery In thousands 4000 3500 3000 2500 2000 Investment 1500 1000 Vacation 500 0 2005 2006 2007 2008 2009 2010 2011Buy a condo for your college student53% of REALTOR® members own a residential investment property29% own a commercial property19% own a vacation home
  • 6. 2012 First Quarter Sales: Strongest in 5 years6,000,0005,000,0004,000,000 2008 20093,000,000 20102,000,000 2011 20121,000,000 0 Q1 Q2 Q3 Q4
  • 7. Monthly Pending Home Sales Index Point to Strongest Second Quarter in 5 years115110105 Homebuyer Tax Credit100959085807570 2007 - 2007 - 2008 - 2008 - 2009 - 2009 - 2010 - 2010 - 2011 - 2011 - 2012 - Jan Jul Jan Jul Jan Jul Jan Jul Jan July Jan Source: NAR
  • 8. 10 15 20 25-30-25-20-15-10 -5 0 52010 - May 2010 - Jun 2010 - Jul2010 - Aug 2010 - Sep 2010 - Oct2010 - Nov2010 - Dec 2011 - Jan 2011 - Feb2011 - Mar 2011 - Apr2011 - May 2011 - Jun 2011 - Jul2011 - Aug 2011 - Sep % change from one year ago 2011 - Oct Up for 12 straight months2011 - Nov2011 - Dec 2012 - Jan 2012 - Feb2012 - Mar2012 - Mar Year-over-Year Change in Pending Contracts: 2012 - Apr
  • 9. Improving Factors for Higher Sales in 2012:1. High Affordability2. Growing Economy and Job Creation3. Solid stock market recovery from 20084. Rising rents and a larger pool of qualified renters5. Pent-up release of Household Formation • Rising demand for ownership and rentals as young-adults move out of parent’s basement6. Smart money chasing real estate (i.e., investors)7. Consumer confidence in buying an appreciating asset
  • 10. 50 70 90 110 130 150 170 190 21019701972197419761978198019821984198619881990199219941996199820002002 Best Affordability Conditions20042006200820102012
  • 11. 10-10 -4 -2 0 2 4 6 8 -8 -6 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 GDP growth for 11 straight quarters 2010 - Q1 2010 - Q3 2011 - Q1 Economy out of Recession and Growing 2011 - Q3 2012 - Q1
  • 12. -500 500 1000 1500 2000 2500 02000 - Q1 $ billion2000 - Q32001 - Q12001 - Q32002 - Q12002 - Q32003 - Q12003 - Q32004 - Q12004 - Q32005 - Q12005 - Q32006 - Q12006 - Q32007 - Q12007 - Q32008 - Q12008 - Q32009 - Q12009 - Q32010 - Q1 Corporate Profits … Sky High2010 - Q32011 - Q12011 - Q32012 - Q1
  • 13. 10 20 30-40 -30 -20 -10 0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 Home Buyer Tax Credit Residential Investment Spending Growth 2011 - Q3 2012 - Q1
  • 14. 124000 126000 128000 130000 132000 134000 136000 138000 1400002000 - Jan2000 - Jul2001 - Jan In thousands2001 - Jul In thousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan2009 - Jul 8 million job losses2010 - Jan2010 - Jul2011 - Jan Total U.S. Payroll Jobs Increasing2011 - Jul 4 million job gains2012 - Jan
  • 15. Mind GAP the 2012 - Jan (Recovered half of jobs lost a few years ago, but still down by 10 million 2010 - Jan 2008 - Jan 2006 - Jan 2004 - Jan 2002 - Jan compared to long-term projections)Total Payroll Jobs 2000 - Jan 1998 - Jan 1996 - Jan 1994 - Jan 1992 - Jan 1990 - Jan 1988 - Jan 1986 - Jan 1984 - Jan 1982 - Jan 1980 - Jan 1978 - Jan 1976 - Jan In millions 1974 - Jan 1972 - Jan 1970 - Jan 150 140 130 120 110 100 90 80 70 60 50
  • 16. 0 1 2 3 4 5 -12000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul Rent Growth2008 - Jan % change from one year ago2008 - Jul2009 - Jan2009 - Jul2010 - Jan2010 - Jul (Component from Consumer Price Index)2011 - Jan2011 - Jul2012 - Jan
  • 17. Visible Inventory of Homes (6-year low for Existing Homes and 50-year low for New Homes)4,500,0004,000,0003,500,0003,000,0002,500,0002,000,0001,500,0001,000,000 500,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan Existing New Source: NAR, Census
  • 18. 8.0 0.0 4.0 6.0 10.0 2.0 12.02000 - Q12000 - Q32001 - Q1 In millions2001 - Q32002 - Q12002 - Q32003 - Q12003 - Q32004 - Q12004 - Q32005 - Q12005 - Q3 U.S.2006 - Q12006 - Q32007 - Q12007 - Q32008 - Q12008 - Q3 Shadow Inventory2009 - Q12009 - Q32010 - Q12010 - Q32011 - Q1 (Seriously Delinquent: 90+ days late or in foreclosure process)2011 - Q32012 - Q1
  • 19. 500 1000 1500 2000 2500 0 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - JanSource: Census, HUD 2002 - Jul 2003 - Jan 2003 - Jul Thousand units (annualized) 2004 - Jan 2004 - Jul 2005 - Jan multifamily 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul single-family Housing Starts 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan (Well Below 50-year average of 1.5 million each year) 2011 - Jul 2012 - Jan Long-term Average
  • 20. Latest Home Price Trend in early 2012 (Lagging Indicator … reflects price negotiations from late 2011)• NAR: Up in more than half of local markets• FHFA: Up in deep-middle America, New England, South Atlantic, Mountain states• Case-Shiller: Up in Charlotte, Dallas, Las Vegas, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Tampa, Washington D.C.• LPS and Core Logic: many markets with price gains
  • 21. Equity and Underwater Homeowners Positive Equity Negative Equity Homeowners HomeownersEarly 2012 About 65 million 11 to 12 million Of which 25 million have no mortgagesAfter 5% price 67 million 9 millionappreciationAfter 10% price 69 million 7 millionappreciation Source: Census, Federal Reserve, CoreLogic, NAR estimates
  • 22. Wealth Distribution (Federal Reserve data on median net worth, with 2011 NAR estimate) $250,000 $200,000 1998 $150,000 2001 2004 $100,000 2007 2011 estimate $50,000 $0 Renter OwnerData Source for Median Net Worth: Federal Reserve, NAR estimate for 2011
  • 23. 10 15 20-20 -15 -10 -5 0 5 % 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul Finished 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan Diminishing 2007 - Jul Intermediate 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul Producer Price Inflationary Pressure … 2012 - Jan
  • 24. Consumer Price Inflation (Above Fed’s preferred 2% core inflation rate) Rent All Items Core %543210 2005 2006 2007 2008 2009 2010 2011 2012 2013-1 forecast forecast
  • 25. Prepare for Early Move (2014) by Federal Reserve Fed Funds 30-year Mortgage %76543210 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 forecast forecast forecast Modestly higher rates could help home sales as banks re-staff mortgage work for home purchase applications and less refinance applications.
  • 26. -1600000 -1400000 -1200000 -1000000 -800000 -600000 -400000 400000 -200000 200000 0 2000 - Jan 2000 - Aug 2001 - Mar 2001 - Oct 2002 - May 2002 - Dec 2003 - Jul 2004 - Feb $ million; 12-month Total 2004 - Sep 2005 - Apr 2005 - Nov 2006 - Jun 2007 - Jan 2007 - Aug 2008 - Mar 2008 - Oct 2009 - May 2009 - Dec U.S. Federal Budget Deficit 2010 - Jul 2011 - Feb 2011 - Sep 2012 - Apr
  • 27. Housing Forecast 2011 2012 2013 History Forecast ForecastExisting Home Sales 4.26 million 4.6 to 4.7 million 4.8 to 5.0 millionNew Home Sales 304,000 400,000 500,000 to 600,000Housing Starts 610,000 770,000 1 millionExisting Home Price $166,100 $170,100 $177,300(Growth) (-3.9%) (+2.4%) (+4.2%)GDP Growth +1.8% +2.3% +3.1%Payroll Job Gains +1.7 million +1.8 million +2.5 millionFed Funds Rate 0.1% 0.1% 0.1%30-yr Mortgage 4.7% 4.0% 4.5%
  • 28. Risks to Forecast• Washington Policy – QRM 20% down payment requirement? – Other Dodd-Frank rules? Help or Hurt? – Trim mortgage interest deduction? – Capital gains tax on home sale? – Fiscal Cliff on January 1, 2013 … if no new compromised budget, then: • Automatic deep cuts to military and domestic spending • Automatic higher taxes • 3% shaved off GDP
  • 29. Commercial Real Estate
  • 30. Big Transactions Coming Back $2.5 million property and above Source: Real Capital Analytics, 4Q 2011.13
  • 31. REALTOR® Business Deals (Majority are less than $1 million)
  • 32. Method of Finance
  • 33. Underwriting Standards?
  • 34. Multifamily Fundamentals Completions Net Absorption Vacancy250,000 9.0 8.0200,000 7.0150,000 6.0 5.0100,000 4.0 50,000 3.0 2.0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.0-50,000 Source: NAR/REIS 0.0
  • 35. Office Fundamentals Completions Net Absorption Vacancy 150 20.0Millions 18.0 100 16.0 14.0 50 12.0 0 10.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 8.0 -50 6.0 4.0 -100 2.0 -150 Source: NAR/REIS 0.0
  • 36. Commercial Market ForecastOFFICE 2011 2012 2013 Vacancy Rate 16.6% 16.3% 15.9% Net Absorption (000 sq. ft.) 20,178 31,700 53,000 Completions (000 sq. ft.) 11,659 25,474 37,847 Rent Growth 1.4% 1.7% 2.4%INDUSTRIAL 2011 2012 2013 Vacancy Rate 12.4% 11.9% 11.1% Net Absorption (000 sq. ft.) 61,957 41,249 59,855 Completions (000 sq. ft.) 20,462 26,947 54,881 Rent Growth -0.5% 1.8% 2.3%RETAIL 2011 2012 2013 Vacancy Rate 12.9% 12.2% 11.0% Net Absorption (000 sq. ft.) 1,238 13,547 23,330 Completions (000 sq. ft.) 4,207 12,677 19,878 Rent Growth -0.2% 0.7% 1.4%MULTI-FAMILY 2011 2012 2013 Vacancy Rate 5.4% 4.6% 4.5% Net Absorption (Units) 238,398 126,621 102,687 Completions (Units) 38,014 88,839 93,706 Rent Growth
  • 37. International Home Buyers
  • 38. Sales to International Buyers Up By 24 Percent on Yearly Basis
  • 39. Twenty Seven Percent of Realtors® Reported Working with an International Client Twelve Months Ending March 2012 Realtors® with International Clients Percentage of Respondents 40% 38% 36% 34% 32% 32% 30% 28% 28% 27% 28% 26% 26% 23% 24% 22% 20% 2007 2008 2009 2010 2011 2012
  • 40. Residents from Most Countries Have Some Participation in U.S. Residential Market Major Purchasers Listed Below
  • 41. International Buyers Are Throughout the U.S. But Concentrated in a Few States Percent of International Sales by State 35% 30% 25% 20% 15% 10% 5% 0% Arizona California Florida Georgia Nevada New York Texas 2007 5% 16% 10% 2% 2% 4% 8% 2008 5% 11% 9% 3% 2% 4% 7% 2009 7% 13% 23% 1% 1% 2% 11% 2010 11% 12% 22% 5% 3% 4% 8% 2011 6% 12% 31% 2% 2% 3% 9% 2012 7% 11% 26% 4% 2% 4% 7%
  • 42. International Purchasers Cash for Majority of Purchases Type of Financing80% 69%70% 62% 62% 55%60% 54% 52%50% 46% 43% 44%40% 36% 37% 28%30%20%10%0% 2007 2008 2009 2010 2011 2012 All cash With mortgage financing