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Real Estate and Economic Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at St....
Existing Home Sales
20% cumulative increase over 2 years
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000

3,000,000
2,00...
Median Home Price
(Near 20% gain in 2 years)
$240,000

$220,000
$200,000

$180,000
$160,000
$140,000
$120,000
$100,000
200...
St. Louis Housing Statistics
• Closed Sales in 2013
Up +10% from 1 year ago
Up +27% from 2 years ago

• Average Price
Up +...
St. Charles Housing Statistics
• Closed Sales in 2013
Up +18% from 1 year ago
Up +43% from 2 years ago

• Median Prices
Up...
Monthly Pending Sales Index
(Seasonally Adjusted)
115.0
110.0
105.0
100.0
95.0
90.0
85.0
80.0
75.0
70.0

Source: NAR
2008 - Jan
2008 - Apr
2008 - Jul
2008 - Oct
2009 - Jan
2009 - Apr
2009 - Jul
2009 - Oct
2010 - Jan
2010 - Apr
2010 - Jul
2...
Mismatch Growth
Home Price
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

Household Income

19%

4%

2-year Growth
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2...
2013 - Jan

2011 - Jan

2009 - Jan

2007 - Jan

2005 - Jan

2003 - Jan

2001 - Jan

1999 - Jan

1997 - Jan

1995 - Jan

19...
2013 - Jul

2013 - Apr

5%

2013 - Jan

10%

2012 - Oct

2012 - Jul

2012 - Apr

2012 - Jan

2011 - Oct

2011 - Jul

2011 ...
Jan 14 2000
Jul 14 2000
Jan 12 2001
Jul 13 2001
Jan 11 2002
Jul 12 2002
Jan 10 2003
Jul 11 2003
Jan 9 2004
Jul 9 2004
Jan ...
500

-100

-200
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 -...
Jan 7 2000
Jul 7 2000
Jan 5 2001
Jul 6 2001
Jan 4 2002
Jul 5 2002
Jan 3 2003
Jul 4 2003
Jan 2 2004
Jul 2 2004
Dec 31 2004
...
Market Incentive to Lend More
• Huge Cash Reserve
• Refi going away … purchase should be the only
game
• Loans performing ...
But Will Washington Allow It?
• Washington Policies so far … Too Restrictive
– Rising g-fees and FHA insurance premiums?
–...
What is PATH? … Hensarling’s Ideology
(Protecting American Taxpayers and Homeowners?)
• For-profit Fannie and Freddie were...
Latest Market Trends
1964 - Jan
1966 - Jan
1968 - Jan
1970 - Jan
1972 - Jan
1974 - Jan
1976 - Jan
1978 - Jan
1980 - Jan
1982 - Jan
1984 - Jan
1...
Existing Home Inventory
(near 13-year low)

4,500,000
4,000,000
3,500,000
3,000,000

2,500,000
2,000,000
1,500,000
1,000,0...
2013 - Q3

10

2012 - Q4

4

2012 - Q1

2011 - Q2

2010 - Q3

2009 - Q4

2009 - Q1

2008 - Q2

2007 - Q3

2006 - Q4

2006 ...
Housing Starts … Need to Reach 1.5 million
soon or persistent housing shortage
multifamily

single-family

2500
Thousand u...
St. Louis Area Housing Permits
(year-to-date)
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2000 - 2001 - 2002 - 200...
330

1995 - Q1
1995 - Q4
1996 - Q3
1997 - Q2
1998 - Q1
1998 - Q4
1999 - Q3
2000 - Q2
2001 - Q1
2001 - Q4
2002 - Q3
2003 - ...
GDP … No Fresh Recession in Sight
% growth from one year ago
4
3
2
1
0
-1
-2
-3
-4
-5
-2

-4
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 ...
2012 - Q4

2012 - Q1

2011 - Q2

2010 - Q3

2009 - Q4

2009 - Q1

2008 - Q2

2007 - Q3

2006 - Q4

2006 - Q1

2005 - Q2

2...
-5

-10

-15

-20
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995...
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
19...
140000

2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005...
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2...
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2...
St. Louis Area Total Jobs
1370
In thousands
1350

1330
1310
1290
1270

1250
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006...
Forecast
Forecast #1:
Inflation will be Notably Higher by 2015
• No Threatening Inflation Signs for 2014
• But Inflation rises to 3...
-1
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - No...
Forecast #2
(Rising Mortgage Rates to 5.3% by end of 2014)
2014
forecast
0%

2015
forecast
4%

Median Price

5%

4%

Dolla...
Forecast #3: More Unequal Wealth
Distribution
• Renters do not accumulate wealth
• Renter population rising
• Homeowners b...
41,000

39,000

1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 -...
80,000

1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991...
Wealth Distribution
(Federal Reserve data on median net worth)
$300,000

Bubble Crash

$250,000
$200,000

1998
2001

$150,...
What Homebuyers Want?
Slightly More Preference For Condo or
Apartment Living Than In 2011
Housing Type Preference (2013):

Housing Type Preferen...
Walkability and Age-Diversity
Gaining in Importance
Changes in Important Factors in Deciding Where to Live
50%
40%

+1

+1...
What Buyers Want Most From Their Agent
Determine Help with
paperwork, 7
what
%
comparable
homes were
selling
for, 8%
Help ...
REALTOR® Median Gross Income
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
1995 1998 2000 2002 2004 2006 2007 2008 20...
Annual Membership
(at year-end)
1,500,000
1,400,000
1,300,000
1,200,000
1,100,000
1,000,000
900,000
800,000
700,000
600,00...
Commercial Market Activity
Commercial Real Estate
Sales Volume Recovering
Prices Up
Source: Moody's/REAL National - All Property Type Aggregate Index (CPPI)
Rents Increasing
St. Louis Commercial Statistics
• Office Vacancy 18% … no rent increase
• Apartment Vacancy 5% … 2% rent increase
• Retail...
REALTOR® Markets & Deal Size
2013 CRE Lending Survey: Value of most recent sales transaction

> $10,000,000
$5,000,000 - $...
REALTOR® CRE Markets Rebound
Sales Volume (YoY % Chg)
Major CRE Markets

Realtor CRE Markets

200%
150%
Deals > $2.5M
100%...
Small Banks Important to REALTORS®
Current sources of financing for commercial deals
National banks (“Big four”)

3%
1%

8...
NAR REALTORS® Commercial Activity Survey
As of Third Quarter 2013

• Sales Volume Compared with Previous Year: Up 11%.
• S...
Cap Rates and Treasuries: Large Gap
10yr UST*

Cap Rate

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
'01

'02

'03

'04

'05

'06

'...
Commercial Forecast
Forecast over the next 2 years
• GDP Growth near 3%
• Net New Jobs about 2 million a year
• Rising interest rates …
– 10-y...
Washington Policy Watch on
Commercial Real Estate
• Facilitate Covered Bonds to help credit flow
• Raise cap on holding of...
For Daily Update and Analysis

• Twitter
@NAR_Research
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Economic Update with Dr. Lawrende Yun

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Transcript of "Economic Update with Dr. Lawrende Yun"

  1. 1. Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at St. Charles County Association of REALTORS® St. Charles, MO February 20, 2014
  2. 2. Existing Home Sales 20% cumulative increase over 2 years 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  3. 3. Median Home Price (Near 20% gain in 2 years) $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  4. 4. St. Louis Housing Statistics • Closed Sales in 2013 Up +10% from 1 year ago Up +27% from 2 years ago • Average Price Up +9% from 1 year ago Up +10% from 2 years ago • Dollar Volume Up +19% from a year ago Up +37% from 2 years ago • Active Listings … shrinking for 4th straight year
  5. 5. St. Charles Housing Statistics • Closed Sales in 2013 Up +18% from 1 year ago Up +43% from 2 years ago • Median Prices Up +8% from 1 year ago Up +11% from 2 years ago • Dollar Volume Up +26% from a year ago Up +54% from 2 years ago • Days on Market … shrinking for 2nd straight year, typically sold in 53 days
  6. 6. Monthly Pending Sales Index (Seasonally Adjusted) 115.0 110.0 105.0 100.0 95.0 90.0 85.0 80.0 75.0 70.0 Source: NAR
  7. 7. 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan 2009 - Apr 2009 - Jul 2009 - Oct 2010 - Jan 2010 - Apr 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct 2012 - Jan 2012 - Apr 2012 - Jul 2012 - Oct 2013 - Jan 2013 - Apr 2013 - Jul Buyer and Seller Traffic How Much from Gov’t Shutdown and Dysfunction? Buyer Seller 80 70 60 50 40 30 20 10 0
  8. 8. Mismatch Growth Home Price 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Household Income 19% 4% 2-year Growth
  9. 9. 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan 2012 - Jul 2013 - Jan 2013 - Jul 2014 - Jan Inevitable Rise in Mortgage Rates will further hurt Affordability (30-yr rate have been below 6% for 5 years) 9% 8 7 6 5 4 3
  10. 10. 2013 - Jan 2011 - Jan 2009 - Jan 2007 - Jan 2005 - Jan 2003 - Jan 2001 - Jan 1999 - Jan 1997 - Jan 1995 - Jan 1993 - Jan 1991 - Jan 1989 - Jan 1987 - Jan 1985 - Jan 1983 - Jan 1981 - Jan 1979 - Jan 1977 - Jan 1975 - Jan 1973 - Jan 1971 - Jan Falling Affordability to 5-year Low But still 5th best in 40 years 250 200 150 100 50 0
  11. 11. 2013 - Jul 2013 - Apr 5% 2013 - Jan 10% 2012 - Oct 2012 - Jul 2012 - Apr 2012 - Jan 2011 - Oct 2011 - Jul 2011 - Apr 2011 - Jan 2010 - Oct 2010 - Jul 2010 - Apr 2010 - Jan 2009 - Oct 2009 - Jul 2009 - Apr 40% 2009 - Jan 2008 - Oct All-Cash Buyers Stayed High … even when mortgages were cheap (Cash share as % of total home sales) 35% 30% 25% 20% 15% Normal Range 0%
  12. 12. Jan 14 2000 Jul 14 2000 Jan 12 2001 Jul 13 2001 Jan 11 2002 Jul 12 2002 Jan 10 2003 Jul 11 2003 Jan 9 2004 Jul 9 2004 Jan 7 2005 Jul 8 2005 Jan 6 2006 Jul 7 2006 Jan 5 2007 Jul 6 2007 Jan 4 2008 Jul 4 2008 Jan 2 2009 Jul 3 2009 Jan 1 2010 Jul 2 2010 Dec 31 2010 Jul 1 2011 Dec 30 2011 Jun 29 2012 Dec 28 2012 Jun 28 2013 Refinances will Collapse in 2014 (to at least 15-year low) 12000 10000 8000 6000 4000 2000 0
  13. 13. 500 -100 -200 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 2011 - Q3 2012 - Q1 2012 - Q3 2013 - Q1 2013 - Q3 Financial Industry Profits from Low Rates and Refis Now What … Boost Purchase Apps? $ billion 400 300 200 100 0
  14. 14. Jan 7 2000 Jul 7 2000 Jan 5 2001 Jul 6 2001 Jan 4 2002 Jul 5 2002 Jan 3 2003 Jul 4 2003 Jan 2 2004 Jul 2 2004 Dec 31 2004 Jul 1 2005 Dec 30 2005 Jun 30 2006 Dec 29 2006 Jun 29 2007 Dec 28 2007 Jun 27 2008 Dec 26 2008 Jun 26 2009 Dec 25 2009 Jun 25 2010 Dec 24 2010 Jun 24 2011 Dec 23 2011 Jun 22 2012 Dec 21 2012 Jun 21 2013 No Increase in Mortgages for Home Purchases during 2-year Recovery; Will Rise in 2014? 600 500 400 300 200 100 0
  15. 15. Market Incentive to Lend More • Huge Cash Reserve • Refi going away … purchase should be the only game • Loans performing outstandingly • Far fewer seriously delinquent mortgages • Home price increases lower defaults
  16. 16. But Will Washington Allow It? • Washington Policies so far … Too Restrictive – Rising g-fees and FHA insurance premiums? – Uncertainty about QRM down payment requirement? … Dodd-Frank? – Too many Lawsuits? … Runaway DOJ? • Mortgages Have Performed Outstandingly – Not because of Washington policies – But because of home price increases • New Restriction with PATH?
  17. 17. What is PATH? … Hensarling’s Ideology (Protecting American Taxpayers and Homeowners?) • For-profit Fannie and Freddie were Arrogant • Today’s Fannie and Freddie have had reforms under government control • Remove Government Guarantee on Mortgages • 30-yr Fixed Rate Mortgages … Hard to get and higher rates • Large Banks will do Securitization … Small Banks at Risk • Market becomes excessively pro-cyclical • Large Banks have FDIC … taxpayer risk … vulnerable to nationalization and, if so, government credit allocation • Global capital could decide to go elsewhere rather than the U.S. …. Other countries grow faster than the U.S.
  18. 18. Latest Market Trends
  19. 19. 1964 - Jan 1966 - Jan 1968 - Jan 1970 - Jan 1972 - Jan 1974 - Jan 1976 - Jan 1978 - Jan 1980 - Jan 1982 - Jan 1984 - Jan 1986 - Jan 1988 - Jan 1990 - Jan 1992 - Jan 1994 - Jan 1996 - Jan 1998 - Jan 2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan New Home Inventory (Newly Constructed Homes Inventory at near 50-year low) 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
  20. 20. Existing Home Inventory (near 13-year low) 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
  21. 21. 2013 - Q3 10 2012 - Q4 4 2012 - Q1 2011 - Q2 2010 - Q3 2009 - Q4 2009 - Q1 2008 - Q2 2007 - Q3 2006 - Q4 2006 - Q1 2005 - Q2 2004 - Q3 2003 - Q4 2003 - Q1 2002 - Q2 2001 - Q3 2000 - Q4 2000 - Q1 Shadow Inventory in NY and MO (Mortgages Late 90+ day or in foreclosure process) 12 NY 8 6 MO 2 0
  22. 22. Housing Starts … Need to Reach 1.5 million soon or persistent housing shortage multifamily single-family 2500 Thousand units (annualized) 2000 Long-term Average 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
  23. 23. St. Louis Area Housing Permits (year-to-date) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
  24. 24. 330 1995 - Q1 1995 - Q4 1996 - Q3 1997 - Q2 1998 - Q1 1998 - Q4 1999 - Q3 2000 - Q2 2001 - Q1 2001 - Q4 2002 - Q3 2003 - Q2 2004 - Q1 2004 - Q4 2005 - Q3 2006 - Q2 2007 - Q1 2007 - Q4 2008 - Q3 2009 - Q2 2010 - Q1 2010 - Q4 2011 - Q3 2012 - Q2 2013 - Q1 Phoenix and St. Louis Repeat-Transaction Home Price Index 280 230 180 130 80
  25. 25. GDP … No Fresh Recession in Sight % growth from one year ago 4 3 2 1 0 -1 -2 -3 -4 -5
  26. 26. -2 -4 1980 - Q1 1981 - Q3 1983 - Q1 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1993 - Q3 1995 - Q1 1996 - Q3 1998 - Q1 1999 - Q3 2001 - Q1 2002 - Q3 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 2010 - Q1 2011 - Q3 2013 - Q1 Consumer Spending Growth (2% growth; not 3% or 4%) 8 6 4 2 0
  27. 27. 2012 - Q4 2012 - Q1 2011 - Q2 2010 - Q3 2009 - Q4 2009 - Q1 2008 - Q2 2007 - Q3 2006 - Q4 2006 - Q1 2005 - Q2 2004 - Q3 2003 - Q4 2003 - Q1 2002 - Q2 2001 - Q3 75000 2000 - Q4 2000 - Q1 Household Net Worth $ billion 70000 65000 60000 55000 50000 45000 40000
  28. 28. -5 -10 -15 -20 1980 - Q1 1981 - Q3 1983 - Q1 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1993 - Q3 1995 - Q1 1996 - Q3 1998 - Q1 1999 - Q3 2001 - Q1 2002 - Q3 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 2010 - Q1 2011 - Q3 2013 - Q1 Business Spending Growth (2% growth; not sustained 5% to 10%) 25 20 15 10 5 0
  29. 29. 1980 - Q1 1981 - Q3 1983 - Q1 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1993 - Q3 1995 - Q1 1996 - Q3 1998 - Q1 1999 - Q3 2001 - Q1 2002 - Q3 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 2010 - Q1 2011 - Q3 2013 - Q1 Business Spending in relation to Corporate Profits Profits Business Spending 2500 2000 1500 1000 500 0
  30. 30. 140000 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan 2012 - Jul 2013 - Jan 2013 - May 2013 - Nov U.S. Total Payroll Jobs (8 million lost … Almost 8 million gained) In thousands 138000 136000 134000 132000 130000 128000 126000 124000
  31. 31. 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan 2012 - Jul 2013 - Jan 2013 - Jul Improvement in Unemployment Rate 12 10 8 6 4 2 0
  32. 32. 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan 2012 - Jul 2013 - Jan 2013 - Jul No Improvement in Employment Rate 66 64 62 60 58 56 54
  33. 33. St. Louis Area Total Jobs 1370 In thousands 1350 1330 1310 1290 1270 1250 2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
  34. 34. Forecast
  35. 35. Forecast #1: Inflation will be Notably Higher by 2015 • No Threatening Inflation Signs for 2014 • But Inflation rises to 3% to 6% in 2015 • Well above Fed’s preferred rate of 2% • But not in double-digits as in 1970s
  36. 36. -1 2000 - Jan 2000 - Aug 2001 - Mar 2001 - Oct 2002 - May 2002 - Dec 2003 - Jul 2004 - Feb 2004 - Sep 2005 - Apr 2005 - Nov 2006 - Jun 2007 - Jan 2007 - Aug 2008 - Mar 2008 - Oct 2009 - May 2009 - Dec 2010 - Jul 2011 - Feb 2011 - Sep 2012 - Apr 2012 - Nov 2013 - Jun Rising Renters’ and Homeowners’ Rent Growth (the biggest weight to Consumer Price Index) Owners' Equivalent Rent Renters' Rent 5 4 3 2 1 0
  37. 37. Forecast #2 (Rising Mortgage Rates to 5.3% by end of 2014) 2014 forecast 0% 2015 forecast 4% Median Price 5% 4% Dollar Volume Estimate +5% +8% Existing Home Sales
  38. 38. Forecast #3: More Unequal Wealth Distribution • Renters do not accumulate wealth • Renter population rising • Homeowners build wealth after buying at low prices • Stagnant homeowner population • Tight Credit hinders ‘good’ renters from becoming homeowners • Investors becoming increasing share of property owners
  39. 39. 41,000 39,000 1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1 Renter Households In thousands 37,000 35,000 33,000 31,000 29,000 27,000 25,000
  40. 40. 80,000 1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1 Homeowner Households has not Grown since 2006 … but Primed to Grow In thousands 75,000 70,000 65,000 60,000 55,000 50,000
  41. 41. Wealth Distribution (Federal Reserve data on median net worth) $300,000 Bubble Crash $250,000 $200,000 1998 2001 $150,000 2004 $100,000 2007 2010 $50,000 2014 $0 Renter 2014 Forecast by NAR Owner • • • • Dodd-Frank? PATH? Lawsuits? Legacy?
  42. 42. What Homebuyers Want?
  43. 43. Slightly More Preference For Condo or Apartment Living Than In 2011 Housing Type Preference (2013): Housing Type Preference (2011): Condo or Apt. 8% 14% Condo or Apt. 5% Single Family Attached 7% 4% 6% Single Family Attached 76% Single Family Detached House 80% Single Family Detached House Right now, if you could choose, which of the following would you prefer to live in: Slide 43
  44. 44. Walkability and Age-Diversity Gaining in Importance Changes in Important Factors in Deciding Where to Live 50% 40% +1 +1 46% 45% 45% 44% +6 37% 30% +4 28% 31% -8 36% 28% +2 23% 24% 20% +8 23% 21% 15% 10% 0% Privacy from neighbors High-quality public schools Sidewalks and places to take walks Being within an Being within a easy walk of short commute other places and to work things in the community Very Important - 2013 A community Easy access to the with people at highway all stages of life adults, families with children and older people Very Important - 2011 Q.47 In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important. Slide 44
  45. 45. What Buyers Want Most From Their Agent Determine Help with paperwork, 7 what % comparable homes were selling for, 8% Help with the price negotiations, 11% Help find and arrange financing, 3 % Help buyer negotiate the terms of sale, 12% Help find the right home to purchase, 53 %
  46. 46. REALTOR® Median Gross Income $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 1995 1998 2000 2002 2004 2006 2007 2008 2009 2010 2011 2012 How many with more than $100,000? … 200,000 How many with less than $10,000? … 360,000
  47. 47. Annual Membership (at year-end) 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 47
  48. 48. Commercial Market Activity
  49. 49. Commercial Real Estate Sales Volume Recovering
  50. 50. Prices Up Source: Moody's/REAL National - All Property Type Aggregate Index (CPPI)
  51. 51. Rents Increasing
  52. 52. St. Louis Commercial Statistics • Office Vacancy 18% … no rent increase • Apartment Vacancy 5% … 2% rent increase • Retail Vacancy 13% … 1% rent increase
  53. 53. REALTOR® Markets & Deal Size 2013 CRE Lending Survey: Value of most recent sales transaction > $10,000,000 $5,000,000 - $10,000,000 2% 1% $2,000,000 - $5,000,000 $1,000,000 - $2,000,000 12% 17% $500,000 - $1,000,000 $250,000 - $500,000 < $250,000 26% 22% 21% Source: NAR REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC
  54. 54. REALTOR® CRE Markets Rebound Sales Volume (YoY % Chg) Major CRE Markets Realtor CRE Markets 200% 150% Deals > $2.5M 100% 50% 0% -50% -100% Sources: NAR, Real Capital Analytics
  55. 55. Small Banks Important to REALTORS® Current sources of financing for commercial deals National banks (“Big four”) 3% 1% 8% Regional banks 11% Local banks 17% Credit unions Life insurance companies REITs 18% Private investors Public companies Small Business Administration 4% 25% 6% 7% Source: NAR Other, please specify
  56. 56. NAR REALTORS® Commercial Activity Survey As of Third Quarter 2013 • Sales Volume Compared with Previous Year: Up 11%. • Sales Prices Compared with Previous Year: Up 4%. • Rental Volume Compared with Previous Quarter: Up 2%. • Rental Rates Compared with Previous Quarter: Up 1%. • Direction of Business Opportunities Compared with Previous Quarter: Up 4%.
  57. 57. Cap Rates and Treasuries: Large Gap 10yr UST* Cap Rate 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Real '13 Capital Analytics
  58. 58. Commercial Forecast
  59. 59. Forecast over the next 2 years • GDP Growth near 3% • Net New Jobs about 2 million a year • Rising interest rates … – 10-year Treasury to reach 4% by late 2015 • Cap rates rise somewhat (narrow the gap first) • Increased occupancy and falling vacancy (new supply lacking) • Rising rents • Overall … improving business opportunities
  60. 60. Washington Policy Watch on Commercial Real Estate • Facilitate Covered Bonds to help credit flow • Raise cap on holding of commercial RE loans by credit unions • Preserve Like-Kind Exchanges • Preserve Terrorism Insurance • Preserve capital gains status on carried interest • Depreciation Rules should match economic life • Oppose lease-accounting changes
  61. 61. For Daily Update and Analysis • Twitter @NAR_Research
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