Residential Housing Market Outlook - NAR's Chief Economist Lawrence Yun
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Residential Housing Market Outlook - NAR's Chief Economist Lawrence Yun

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Housing Market Outlook...

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

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    Residential Housing Market Outlook - NAR's Chief Economist Lawrence Yun Residential Housing Market Outlook - NAR's Chief Economist Lawrence Yun 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