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Housing Market Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION  OF REALTORS® Presentation at NAR Midyear ...
U.S. Annual Existing Home Sales… Ready to Breakout?
Monthly Existing Home Sales Tax Credit Impact
Improving Factors for Higher  Home Sales <ul><li>First quarter at  5.1 million  annualized pace … if sales can hold at cur...
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 Hom...
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%...
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...
One U.S. Dollar gets…
U.S. Home Price after  Currency Conversion
Smart Money Buying? <ul><li>All-cash record high at 35% of all sales </li></ul><ul><ul><li>Investors want quick deals </li...
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 t...
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...
QE2… to keep rates low…  are inconsequential if too strict  underwriting standards Fannie and Freddie Backed Mortgage Loan...
Downside Potential Surprise
Washington Policy Change? <ul><li>Going after the Middle-Class by Republicans </li></ul><ul><ul><li>Raise down payment to ...
Current Savings Rate = 6%  Takes 9 years to save $20,000  based on average $2,200 per year
Economic Hurdles <ul><li>Inflation hitting pocketbooks </li></ul><ul><ul><li>Gas and Oil … daily reminder  </li></ul></ul>...
CPI Inflation and PPI Inflation (% change from one year ago) Prices falling on consumer electronic products :  Smartphone1...
# 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 <ul><li>Moderate GDP Expansion 2.5% to 3% in the next 2 years  </li></ul><ul><li>1.5 to 2 million...
Presidential Quotes <ul><ul><li>“ A nation of homeowners is unconquerable.” </li></ul></ul>Franklin Delano Roosevelt <ul><...
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Residential Housing Market Outlook - NAR's Chief Economist Lawrence Yun

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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

Published in: Economy & Finance, Business
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Transcript of "Residential Housing Market Outlook - NAR's Chief Economist Lawrence Yun"

  1. 1. 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
  2. 2. U.S. Annual Existing Home Sales… Ready to Breakout?
  3. 3. Monthly Existing Home Sales Tax Credit Impact
  4. 4. Improving Factors for Higher Home Sales <ul><li>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 </li></ul><ul><li>The remainder of the year looks to be better </li></ul><ul><ul><li>Job Creation </li></ul></ul><ul><ul><li>Robust stock market recovery </li></ul></ul><ul><ul><li>Real estate net worth stabilizing … dissipating fears of more notable price declines </li></ul></ul><ul><ul><li>Rising rents and larger pool of qualified renters </li></ul></ul><ul><ul><li>Buyers want distressed properties … at deep discounts </li></ul></ul><ul><ul><li>International buyers cashing in on the weakened dollar </li></ul></ul><ul><ul><li>Smart money chasing real estate </li></ul></ul><ul><ul><li>Potential Huge Positive … Lending opens up </li></ul></ul><ul><ul><li>Potential Huge Negative … Washington policy change </li></ul></ul>
  5. 5. Total U.S. Payroll Jobs (1.3 million in the past 12 months) 6.5 million below prior peak In thousands
  6. 6. Alaska Payroll Jobs – Booming
  7. 7. North Dakota Jobs – Outperforms Alaska
  8. 8. Texas Payroll Jobs – Fully Recovered
  9. 9. Kansas Payroll Jobs – No Recovery
  10. 10. Missouri Payroll Jobs – Barely Registering
  11. 11. Most States follow U.S. Payroll Pattern (Modest Job Recovery) In thousands
  12. 12. Weekly Fresh Unemployment Claims… Not Going under 400,000 In thousands
  13. 13. Financial Asset at $50 trillion… Full Recovery Source: Federal Reserve
  14. 14. Residential Real Estate Net Worth… Long way to recover, but not falling Source: Federal Reserve
  15. 15. 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
  16. 16. CPI Apartment Rent
  17. 17. Home Price vs Rent (index = 100 in 1980)
  18. 18. 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)
  19. 19. Renter Households In million
  20. 20. Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years
  21. 21. # 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
  22. 22. One U.S. Dollar gets…
  23. 23. U.S. Home Price after Currency Conversion
  24. 24. Smart Money Buying? <ul><li>All-cash record high at 35% of all sales </li></ul><ul><ul><li>Investors want quick deals </li></ul></ul><ul><ul><li>Investors cannot get mortgage </li></ul></ul><ul><ul><li>Some do not want to bother with appraisals </li></ul></ul><ul><ul><li>Financial asset recovery helping with cash </li></ul></ul><ul><ul><li>Hedge against future inflation </li></ul></ul><ul><ul><li>Hedge against future housing shortage? </li></ul></ul><ul><ul><li>Empty nesters downsizing and using leftover cash for kids’ home? </li></ul></ul><ul><li>Upper-end market beginning to move </li></ul>
  25. 25. REALTORS ® ’ Home Value Expectation: Survey of REALTORS ® regarding prices in 12 months Increase or Stable Decrease
  26. 26. 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
  27. 27. U.S. Housing Starts Housing Starts in thousands Long-Term Average
  28. 28. Upside Potential Surprise
  29. 29. 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
  30. 30. 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%
  31. 31. Downside Potential Surprise
  32. 32. Washington Policy Change? <ul><li>Going after the Middle-Class by Republicans </li></ul><ul><ul><li>Raise down payment to 20% ??? </li></ul></ul><ul><ul><li>Despite no taxpayer bailout for FHA and VA program </li></ul></ul><ul><li>Going after the Rich by Democrats </li></ul><ul><ul><li>Limit mortgage interest deduction for high income and second homes ??? </li></ul></ul><ul><ul><li>Crush the working class in resort areas (Yacht Tax Impact) </li></ul></ul><ul><li>Going after the Rich by Republicans </li></ul><ul><ul><li>Lower conforming loan limit ??? </li></ul></ul><ul><ul><li>Income redistribution from consumers to banks </li></ul></ul><ul><li>Going after the Small Business “Tax Cheats” by Democrats </li></ul><ul><ul><li>Force massive 1099 paperwork to run a business and hire IRS agents </li></ul></ul><ul><ul><li>REPEALED !!! Thank goodness </li></ul></ul>
  33. 33. Current Savings Rate = 6% Takes 9 years to save $20,000 based on average $2,200 per year
  34. 34. Economic Hurdles <ul><li>Inflation hitting pocketbooks </li></ul><ul><ul><li>Gas and Oil … daily reminder </li></ul></ul><ul><ul><li>Food and grocery … daily reminder </li></ul></ul><ul><li>Huge pool of underemployed … everything is unaffordable even if no inflation </li></ul><ul><li>Budget Deficit … no impact now but when? </li></ul><ul><li>Consumer confidence … another losing election for incumbents </li></ul>
  35. 35. 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
  36. 36. # Unemployed (looking but cannot find job)
  37. 37. Adults in the Labor Force (Rest are not looking for job and officially not included in unemployment rate)
  38. 38. Government Spending and Tax Receipts $ billion
  39. 39. Government Default?
  40. 40. U.S. 10-year Treasury Rate
  41. 41. Consumer Confidence Index (Under 100; incumbents in trouble)
  42. 42. Housing Baseline Outlook <ul><li>Moderate GDP Expansion 2.5% to 3% in the next 2 years </li></ul><ul><li>1.5 to 2 million annual job additions yearly in the next 2 years </li></ul><ul><li>Mortgage Rates rising to 5.5% by year-end 2011 and 6% in 2012 </li></ul><ul><li>Home values – no meaningful change in the national price in the next 2 years </li></ul><ul><li>Home sales rise by 7% to 10% in 2011 </li></ul>
  43. 43. Presidential Quotes <ul><ul><li>“ A nation of homeowners is unconquerable.” </li></ul></ul>Franklin Delano Roosevelt <ul><ul><li>“ We will preserve the part of the American dream which the mortgage-interest deduction symbolizes.” </li></ul></ul>Ronald Reagan
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