Market Outlook with Lawrence Yun

Economic and Housing Market Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR’s Midyear Economic Issues and Residential Forum Washington, D.C. May 13, 2010

Recent Pending Home Sales 120 110 100 90 80 70 60 Source: NAR

Recent National Pending Home Sales (year-over-year % change) Tax Credit Help to Sales Despite 3.7 million job losses 40 30 20 10 0 -10 -20 -30 Source: NAR

Share of First-Time Buyers 50% 47% 45% 42% 40% 40% 40% 41% 40% 39% 36% 35% 30% 25% 20% 2001 2003 2004 2005 2006 2007 2008 2009

Distressed Home Sales Foreclosed 35 30 25 20 15 10 Short-Sale 5 0 Source: NAR

Latest Home Price Trend - Stabilizing % change from one year ago 5 Pre-tax credit Tax credit 0 -5 NAR in Blue -10 FHFA in Red -15 Case-Shiller in Green -20 Loan Performance in Yellow -25

Sample Markets with Price Increases % change from one year ago 16 14 12 10 8 6 4 2 0 San Diego Orange Cty Boston Houston Buffalo Washington Columbia Source: NAR

Tax Credit was Not-Impactful • 4.4 million homebuyers to get tax credit – 2/3 to 1st-time buyers – 1/3 to repeat buyers • 1.0 million buyers would not have entered without tax credit (stimulative impact) • 3.4 million getting bonus money • $30 billion tax credit wasted on people who would have bought anyway

Tax Credit was Huge Success • 1 million additional buyers • 1 million fewer inventory • Reduced months supply by 2 to 2.5 months • Correspond to price impact of 5% to 8% points • Preserved Housing Wealth (mostly middle-class) by nearly $1 trillion • Consumer spending impact • Banks’ capital pushed above ‘stress levels’ • Builds home buying confidence … with no further big price worries • Limit future foreclosures

After the Tax Credit • Need Job Creation • Need Household Formation • Need Mobility • Improved Consumer Confidence • Low Mortgage Rates • Lending for Jumbo and Second Home Mortgages

NET Job Changes in U.S. (Monthly Payroll Job Change) In thousands 600 400 200 0 -200 -400 -600 -800 -1000 2 million job creation each year … will take 4 years to recover all the job losses … will take 6 years to fully absorb new workers and get back to 6% unemployment rate Source: BLS

Job Turnover in U.S. (Total job gains and total job losses) 6000 In thousands 5500 5000 4500 4000 3500 Fewer firings but people seeking for unemployment insurance because of lack of hirings Source: BLS

500 1000 1500 2000 2500 3000 3500 4000 4500 0 Thousands 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 (2-year moving average) 2002 2003 2004 2005 Household Formation 2006 2007 2008 2009 Growth Weak

People Mobility (How many move each year?) % Intra-state mobility modestly down 22 20 Inter-state mobility significantly down 18 16 14 12 10 2009 est. 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 S C

10 30 50 70 90 110 130 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 But no true measure for home buying confidence 2008 - Jan 2008 - Jul Consumer Confidence 2009 - Jan 2009 - Jul 2010 - Jan Chart about future expectations according to Conference Board

30-year Rate on Conforming and FHA (Not Jumbo or 2nd Home) 7.0 6.5 6.0 5.5 5.0 4.5 4.0 Source: Freddie Mac

0 1 2 3 1.5 2.5 3.5 2004 - Jan 2004 - Apr 2004 - Jul 2004 - Oct % points 2005 - Jan 2005 - Apr 2005 - Jul 2005 - Oct 2006 - Jan 2006 - Apr 2006 - Jul 2006 - Oct 2007 - Jan 2007 - Apr 2007 - Jul 2007 - Oct 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan Financial Crisis 2009 - Apr 2009 - Jul 2009 - Oct 0.5 Future mortgage rates driven by 10-year Treasury borrowing cost 30yr Mortgage and 10yr Treasury Spread 2010 - Jan

Swings in Primary and Second Home Sales Index 1.6 1.4 2nd Home Sales 1.2 1 0.8 Primary Home Sales 0.6 0.4 0.2 0 2003 2004 2005 2006 2007 2008 2009 Source: NAR

Non-Government Backed Mortgages • Jumbo Mortgages • Second Home Mortgages • Commercial Real Estate Loans • Construction Loans • Many Small Business Loans • Showing nascent recovery signs because banks are making profits and easily above ‘stress-test levels’

Risk to Recovery • Future Housing Shortage – Too fast price growth means fewer buyers qualifying for mortgages – Past lax lending should not and will not return • Lingering Past Lending Mistakes and Continuing High Foreclosures • Greece

High Existing Home Inventory In thousand units 5,000,000 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

High Homeowner Vacancy Rate In thousand units % 3.5 3.0 2.5 2.0 1.5 1.0 0.5 About 700,000 extra vacant homes above normal 0.0

Depressed Housing Starts In thousandsunits In thousand 2,500 2,000 1,500 1,000 500 0

Low New Home Inventory In thousandsunits In thousand 600 550 500 450 400 350 300 250 200

Future Housing Shortage? Year Housing Starts Historical Normal Cumulative Surplus/Deficit 2003 1.85 million 1.6 million + 0.25 million 2004 1.95 million 1.6 million + 0.60 million 2005 2.07 million 1.6 million + 1.07 million 2006 1.81 million 1.6 million + 1.28 million 2007 1.34 million 1.6 million +1.02 million 2008 0.90 million 1.6 million + 0.32 million 2009 0.55 million 1.6 million - 0.73 million 2010 forecast 0.68 million 1.6 million -1.65 million 2011 forecast 0.95 million 1.6 million - 2.30 million

Serious Delinquency Rate (90+ days late or foreclosure) % 30.0 25.0 Subprime 20.0 15.0 10.0 FHA 5.0 VA (purple) 0.0 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!

Number of Distressed Loans

Greece • One of the Highest Homeownership Rate with few mortgage defaults – Bridal families often buy a home all-cash • But Greece Government potential default – Too high deficit and too high debt – Default … European banks’ capital reserve take hit … less lending to Portugal and Spain – Debt default contagion spreads – Less capital available for jumbo and 2nd homes

U.S. Budget Deficit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 500,000 0 -500,000 -1,000,000 -1,500,000 U.S. to be Greece in 25 years? -2,000,000 Source: Congressional Budget Office Projections Source: CBO, NAR estimate

Economic Outlook 2010 2008 2009 forecast GDP 0.4% -2.5% 3.1% CPI Inflation 3.8% -0.2% 2.0% Unemployment Rate 5.8% 9.3% 9.7% 10-year Treasury 3.7% 3.3% 3.9%

Housing Outlook 2010 2008 2009 forecast Existing Home Sales 4.9 m 5.2 m 5.4 m New Home Sales 485 k 375 k 400 k Home Price Growth -10% -13% 2% to 3% Mortgage Rate 6.1% 5.1% 5.3% Consumer confidence Down Down Up about home buying

Right Tools Right Now • Many Free Products – REALTOR Member Profile • Difficult to make it in the first few years – Home Buyer and Home Seller Survey • Referrals and Repeat Clients are Important – Daily Forecast Update – Connect to Facebook • www.realtors.org – Then click Research

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Market Outlook with Lawrence Yun

by Amy Chorew on May 12, 2010

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Market Outlook with Lawrence Yun — Presentation Transcript