2010 Economic Forecast with Lawrence Yun
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2010 Economic Forecast with Lawrence Yun

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    2010 Economic Forecast with Lawrence Yun 2010 Economic Forecast with Lawrence Yun Presentation Transcript

    • Real Estate Market Trends & Outlook
      Lawrence Yun, Ph.D.
      Chief Economist
      NATIONAL ASSOCIATION OF REALTORS®
      Presentation at Vanderbilt University
      March 17, 2010
    • Housing Stimulus Impact
      Tax Credit and Higher Loan Limit
      2 million 1st-time buyers by end of November
      Additional 2.4 million buyers (1st time and many repeat buyers) by end of June 2010
      About 1 million induced-impact
      Existing Home Sales gets 15% boost
      Home Price gets 3% to 5% support
      Preservation of Middle-Class Wealth
    • Recent Pending Home Sales
      Recovery pre-dominantly in lower-end and taking longer to close in recent months
      Source: NAR
    • Bifurcated Recovery
      $ thousand
      % change from one year ago
      Homes priced under $100K
      Homes priced above $500K
      Source: NAR
    • Aggregate Months Supply
      In thousand units
      Source: NAR
    • National Existing Home Sales
      Pre-boom sales
      Source: NAR
    • Vacation Home Sales Nationwide
      Thousand units
      Source: NAR
    • First-Time Buyers Used Up or Pent-Up Demand ?
      In year 2000 (pre-boom)
      11 million renters with qualifying income to buy a median priced home
      In 2009
      16 million renters with qualifying income to buy a median priced home
      Most renters are not qualified and should not be homeowners
    • First-Time Buyers Used Up or Pent-Up Demand ?
    • Household Formation(2-year moving average)
    • Preservation of Middle Class Wealth
      • $8000 Price Drop or $8000 Tax Credit ?
      • No difference from buyer’s perspective
      • Major differences on market impact
      • $8,000 or 4% decline value means $730 billion in housing wealth destruction
      • Consumer wealth effects
      • Consumer’s rational postponement of purchase
    • Financial Wealth Rising
      $ billion
      Source: Federal Reserve, NAR estimate
      Source: Federal Reserve
    • Housing Wealth to Rise
      ($4 trillion wealth loss in housing from peak)
      If additional $8,000 price decline … $700 billion further loss
      $ billion
      Source: Federal Reserve, NAR estimate
      Source: Federal Reserve
    • Metro Median Home Price
      $ thousand
      Riverside
      Indianapolis
      Source: NAR
    • National Existing Home Price
    • Overcorrection Needs to be Halted(Home Price to Income Ratio)
      Stay within Budget and all will be OK !
      Source: NAR
    • Mortgage Payment to Income(by middle income person buying a median priced home)
      Stay within Budget and all will be OK !
      Source: NAR
    • Latest Home Price Trend
      % change from one year ago
      FHFA in Red
      NAR in blue
      Case-Shiller in Green
    • Housing Starts: Too Much to Too Little
      New Units Needed
      3 million more people each year … 1 to 1.4 million household formation
      … need to account for 300,000 demolitions …. need 1.3 to 1.7 new units
    • Serious Delinquency Rate(90+ days late or foreclosure)
      %
      Subprime
      FHA
      VA (purple)
      Prime (green)
      • FHA Reserve Fund depleting … Bailout ???
      • Fannie-Freddie … future reform without private profit and taxpayer loss
      • Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!
    • Economy Recovering
      GDP annualized growth rate
      Forecast
      Source: BEA
    • Total Payroll Jobs in U.S.
      Job Changes in U.S.
      (Monthly Payroll Job Change)
      In thousands
      Source: BLS
    • Total Payroll Jobs in U.S.
      Temp Hire Job Changes in U.S.
      (monthly payroll job change)
      In thousands
      Source: BLS
    • Total Payroll Jobs in Michigan
      In thousands
      Source: BLS
    • Total Payroll Jobs in Washington D.C. Metro
      In thousands
      Source: BLS; (12-month moving average)
    • Federal Budget Deficit
      Source: Congressional Budget Office Projections
      Source: CBO, NAR estimate
    • Federal Housing Policy
      Tax Favoritism
      Mortgage interest deduction
      Capital gains tax exclusion
      Property tax deduction
      But who pays taxes?
      Ownership and Positive Externalities
      Student test scores, teen pregnancy, juvenile delinquency
      What is the proper homeownership rate?
      Any Ownership vs Successful Ownership
    • Economic Outlook
      Unemployment Rate Peak at 10.5% in few months before going down consistently
    • Housing Outlook
    • Commercial and Residential Property Prices
      Index = 100 in 1990
      Case-Shiller Residential
      MIT Commercial
      2009 data is for Q2
    • Who Is Buying?
    • Credit Crisis 2008: Libor vs. Fed Funds Rate
      Lehman Brothers
      belly up
      Subprime acting up
      Bear Stearns
    • Credit Crunch Ending?
      Libor Rates improving
      Junk Bond yields becoming less wild
      Banks making profit … but are they getting too big again (75% of assets controlled by 10 banks)
      Federal Reserve lending at zero (though not to consumers)
      Not Yet … Need to see
      Lower rate on jumbo mortgages
      Lower rate on second home purchases
      Lower rate on condo purchases
      Lower rate on commercial real estate loans
    • Office Market Fundamentals
    • Office Rent Growth
    • Commercial Market Outlook
      2008 to 2009
      Net absorption turns negative
      Rising Vacancy Rates and Stagnant Rent
      Markedly Fewer Transactions
      Property Prices Falling
      Distress Rising
      2010
      Economic recovery
      Local market recovery
      Commercial recovery with lag time
      Modestly Positive net absorption
      Rent struggles to move positive