Housing Market Outlook
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Housing Market Outlook

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Housing Market Outlook Housing Market Outlook Presentation Transcript

  • Housing Market Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Midyear Legislative Meetings Washington, D.C. May 12, 2011
  • U.S. Annual Existing Home Sales… Ready to Breakout?
  • Monthly Existing Home Sales Tax Credit Impact
  • Improving Factors for Higher Home Sales
    • First quarter at 5.1 million annualized pace … if sales can hold at current levels then 4% annual increase in 2011 … without homebuyer tax credit stimulus
    • The remainder of the year looks to be better
      • Job Creation
      • Robust stock market recovery
      • Real estate net worth stabilizing … dissipating fears of more notable price declines
      • Rising rents and larger pool of qualified renters
      • Buyers want distressed properties … at deep discounts
      • International buyers cashing in on the weakened dollar
      • Smart money chasing real estate
      • Potential Huge Positive … Lending opens up
      • Potential Huge Negative … Washington policy change
  • Total U.S. Payroll Jobs (1.3 million in the past 12 months) 6.5 million below prior peak In thousands
  • Alaska Payroll Jobs – Booming
  • North Dakota Jobs – Outperforms Alaska
  • Texas Payroll Jobs – Fully Recovered
  • Kansas Payroll Jobs – No Recovery
  • Missouri Payroll Jobs – Barely Registering
  • Most States follow U.S. Payroll Pattern (Modest Job Recovery) In thousands
  • Weekly Fresh Unemployment Claims… Not Going under 400,000 In thousands
  • Financial Asset at $50 trillion… Full Recovery Source: Federal Reserve
  • Residential Real Estate Net Worth… Long way to recover, but not falling Source: Federal Reserve
  • New Home Price vs. Existing Home Price 30% premium rather than 10-15% normal premium 12 month moving average Existing Home Price New Home Price
  • CPI Apartment Rent
  • Home Price vs Rent (index = 100 in 1980)
  • Qualified Renters who can buy a Median Priced Home 2005 2010 Median Price $219,000 Median Price $173,100 Mortgage Rate 6% Mortgage Rate 5% Down payment 10% Down payment 10% Monthly Payment $1,180 Monthly Payment $840 Qualifying Income $56,600 Qualifying Income $40,300 How many renters have at least this income? 7,700,000 (21% of renters) How many renters have at least this income? 15,000,000 (39% of renters)
  • Renter Households In million
  • Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years
  • # of Serious Delinquent Mortgages… Mostly Borrowers prior to 2009 (90+ days late or in foreclosure process) In 2010, there were 1.5 million distressed sales… need to wait 2.7 years
  • One U.S. Dollar gets…
  • U.S. Home Price after Currency Conversion
  • Smart Money Buying?
    • All-cash record high at 35% of all sales
      • Investors want quick deals
      • Investors cannot get mortgage
      • Some do not want to bother with appraisals
      • Financial asset recovery helping with cash
      • Hedge against future inflation
      • Hedge against future housing shortage?
      • Empty nesters downsizing and using leftover cash for kids’ home?
    • Upper-end market beginning to move
  • REALTORS ® ’ Home Value Expectation: Survey of REALTORS ® regarding prices in 12 months Increase or Stable Decrease
  • Real Estate as Inflation Hedge? (single-family home price in blue vs CPI in red) Good inflation hedge in the past before the housing bubble/bust
  • U.S. Housing Starts Housing Starts in thousands Long-Term Average
  • Upside Potential Surprise
  • Average Credit Score for Loan Origination 15% to 20% Higher Sales Normal 2009 2010 If Fannie 720 761 762 720 Freddie 720 757 758 720 FHA 650 682 698 660
  • QE2… to keep rates low… are inconsequential if too strict underwriting standards Fannie and Freddie Backed Mortgage Loan Performance Source: Federal Housing Finance Agency Fannie Mae Vintage Cumulative Default Rate after 18 months 2002 3.1% 2003 2.5% 2004 4.6% 2005 4.8% 2006 11.6% 2007 28.7% 2008 12.6% 2009 1.2% Freddie Mac Vintage Cumulative Default Rate after 18 months 2002 2.7% 2003 1.2% 2004 2.0% 2005 1.8% 2006 6.0% 2007 22.3% 2008 13.7% 2009 1.1%
  • Downside Potential Surprise
  • Washington Policy Change?
    • Going after the Middle-Class by Republicans
      • Raise down payment to 20% ???
      • Despite no taxpayer bailout for FHA and VA program
    • Going after the Rich by Democrats
      • Limit mortgage interest deduction for high income and second homes ???
      • Crush the working class in resort areas (Yacht Tax Impact)
    • Going after the Rich by Republicans
      • Lower conforming loan limit ???
      • Income redistribution from consumers to banks
    • Going after the Small Business “Tax Cheats” by Democrats
      • Force massive 1099 paperwork to run a business and hire IRS agents
      • REPEALED !!! Thank goodness
  • Current Savings Rate = 6% Takes 9 years to save $20,000 based on average $2,200 per year
  • Economic Hurdles
    • Inflation hitting pocketbooks
      • Gas and Oil … daily reminder
      • Food and grocery … daily reminder
    • Huge pool of underemployed … everything is unaffordable even if no inflation
    • Budget Deficit … no impact now but when?
    • Consumer confidence … another losing election for incumbents
  • CPI Inflation and PPI Inflation (% change from one year ago) Prices falling on consumer electronic products : Smartphone1 = $200 to Smartphone2 = $200 is computed as falling prices; even though your wallet did not get any relief
  • # Unemployed (looking but cannot find job)
  • Adults in the Labor Force (Rest are not looking for job and officially not included in unemployment rate)
  • Government Spending and Tax Receipts $ billion
  • Government Default?
  • U.S. 10-year Treasury Rate
  • Consumer Confidence Index (Under 100; incumbents in trouble)
  • Housing Baseline Outlook
    • Moderate GDP Expansion 2.5% to 3% in the next 2 years
    • 1.5 to 2 million annual job additions yearly in the next 2 years
    • Mortgage Rates rising to 5.5% by year-end 2011 and 6% in 2012
    • Home values – no meaningful change in the national price in the next 2 years
    • Home sales rise by 7% to 10% in 2011
  • Presidential Quotes
      • “ A nation of homeowners is unconquerable.”
    Franklin Delano Roosevelt
      • “ We will preserve the part of the American dream which the mortgage-interest deduction symbolizes.”
    Ronald Reagan