Real Estate In Perspective
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Real Estate In Perspective

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This is adapted from Gary Keller's 2010 Vision Speech at Keller Williams annual "Family Reunion" national convention. The series of charts put home sales, home prices, housing inventory, mortgage ...

This is adapted from Gary Keller's 2010 Vision Speech at Keller Williams annual "Family Reunion" national convention. The series of charts put home sales, home prices, housing inventory, mortgage rates and distressed sales into an historical perspective.

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  • 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Home sales declined 5% in 2009, the first annual sales gain since the market peaked in 2005. 2009: 5,156,000 2008: 4,913,000 2007: 5,652,000 2006: 6,478,000 2005: 7,076,000 2004: 6,778,000 2003: 6,175,000 2002: 5,632,000 2001: 5,335,000 2000: 5,174,000 1999: 5,183,000 1998: 4,966,000 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Median Home Price The median home price declined by 12.4% in 2009. 2009: $173,500 – 17% ($29,605) below the 4% trend 2008: $198,100 The reason for big drop = 1 st time buyers + no jumbos Distressed homes accounted for 36% of total sales in 2009. Distressed properties typically sell for 15 to 20 percent less than traditional homes. The lack of financing available for upper-priced homes also puts downward pressures on national average price. Originations of jumbo mortgages have fallen by more than 70%, according to various industry sources. The market share of jumbo loan originations has fallen to 6% from the typical 15% (Inside Mortgage Finance). High-end home sales, which priced above $750,000 and typically requiring a jumbo loan, have fallen from 4.4% of sales in 2007 to only 2.3% in 2009. In 2009, the months supply of high-priced homes stood at 41 months compared to 18 months 2007, in sharp contrast with the months supply of all homes which has risen only modestly from 9 months to 10 months over the comparable period. The luxury home market remained stagnant with homes priced over $1 million spent an average of 167 days on the market in 2009 as opposed to 148 days in 2008, according to a ZipRealty survey. 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Home Price Appreciation From 1989 to 2000, home prices grew by 3.9% on average. From 2000 to 2005, home price appreciation ranged from 7 to 13%. If home prices actually grew by 4% every year from 1989, the median home price would be $203,105 which is approximately 17% above where we are today. In other words, at $173,500 in 2009, homes are undervalued by 17%. That’s the repercussions of 5 years of inflated prices (2001-2005). You can’t mess with the trend line. 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Inventory – Months Supply Definition: Number of months it would take to sell all the homes on the market at the current rate of sales. Stronger sales activity in the second half of the year driven by first-time buyers rushing to beat the November deadline for the tax credit helped draw down inventory of existing homes 16% to 8.8 months in 2009. 2009: 8.8 months 2008: 10.5 months Also noteworthy is the number of investors jumping back into the market. Both foreign and domestic real estate investors took advantage of slashed prices to scoop up properties across the country. According to MDA Dataquick’s October home sales report, absentee buyers bought 41% of all Las Vegas-area homes sold in October – the highest figure for any month this decade. In phoenix, absentee buyers purchased 38% of all homes sold – a relatively high percentage in the West. Absentee buyers are often investors, but can include second-home buyers and others who, for various reasons, indicate at the time of sale that the property tax bill will go to a different address. The housing supply is now at the lowest level in more than two and a half years. As of December 2009, there were 3.29 million existing homes available for sale, down 11.1% from a year ago and 28.2% below the record of 4.58 million in July 2008. Dec 2009: 3,289,000 Dec 2008: 3700,000 July 2008: 4,575,000 Raw unsold homes on the market has been trending down and “… a shrinking supply of unsold inventory suggests we are getting closer to price stabilization in many areas, but we need a steady stream of financially qualified buyers to further reduce inventory and get us to a self-sustaining market,” according to Lawrence Yun, NAR chief economist. “Foreclosures will continue to come on the market, but rising sales from the expanded tax credit should stabilize home prices by next spring and help to stem future foreclosures.” While we’ll likely have another surge in the spring as home buyers take advantage of the extended and expanded tax credit, many economists and industry experts caution against the next wave of foreclosures. Resets and recasts of Opt ARM and Alt-A loans, a large percentage of which are already delinquent Shadow inventory of foreclosed homes controlled by lending institutions that could flood the market once the moratorium. One estimate puts it at seven million (WSJ, Nov 23, “Low Housing Inventory Count Likely to Be Fleeting”). Federal deficit will cause investors to require more returns on government’s debts, which in turn will push the cost of borrowing up. At the current pace of sales, assuming that the estimate 7 million of shadow inventories would become mainstream, the months supply would surge a whopping 213% to 23.5 months from the 8.8 months recorded at the end of 2009. Demand doesn’t go away, it just goes to the sidelines. For much of 2009, many areas remained segmented, with at least two different markets coexisting within each market. Definitions: Buyers market: more than 6 months of inventory Balanced market: 6 months of inventory Sellers market: less than 6 months of inventory Lower home prices coupled with reduced inventory of moderately priced homes created multiple bids for homes in some entry level markets. In some fast recovering markets like Las Vegas, Southern California, and south Florida, there is an inventory shortage of lower-priced homes (National Association of Realtors). At the high-end, sales of homes above the “conforming loan limits” have ground to a halt due to tight lending conditions. 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Mortgage Rates Mortgage rates averaged 5.04% in 2009, an all-time low since Freddie Mac started its mortgage survey in 1971. Mortgage rates ranged from 4.81% to 5.59% in 2009. At the end of December, rates stood at 4.93%. In the week ending February 4 th , rates edged up to 5.01%. However, economists expect interest rates to climb back up as soon as the 2 nd quarter this year as: Market conditions improve Inflation pressure emerges The Federal Reserve’s reeling in its $1.25 trillion mortgage-backed-securities (MBS) program by March 2010 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Affordability - % of Income Definition: The percentage of a median family’s income required to make mortgage payments (principal and interest) on a median priced home. Unprecedented interest rates, low mortgage rates as well as the first-time buyer tax credit continue to contribute to improving affordability conditions. The median mortgage payment (principal and interest) in 2009 consumed about 15% of family income in comparison to the historical standard of 25%. 2009: 15% 2008: 18.5% 2006: 23.2% 15% in 2009 is the lowest on record (since 1970). In 2003, it was at 19.1% due to significantly lower mortgage rates that year. The highest price-to-income ratio ever recorded was in 1981 when it hit 36.3%. Interest rates during this year averaged 15.12%, the second highest on record after 1982’s 15.38%. 10-Year Average: 2000-2009: 20% 1990-1999: 20.3% 1980-1989: 28% 1970-1979: 19.5% 20-Year Average: 20.1% 40-Year Average: 21.9% 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Stimulus aid continued to gain traction Case in point: First-time home buyer tax credit 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Note: Foreclosures/short sales represented approximately 36% of all sales transactions in 2009. In 2008, average distressed sales as a percentage of total sales were computed based on the monthly distressed sales percentage for the last 3 months of the year, starting with October, which is when NAR started tracking the ratio. 1 in 45 (2.21%) housing units received at least one foreclosure filing in 2009. This is up from 1.84% in 2008, 1.03% in 2007 and 0.58% in 2006. Total number of filings: 4 million So far, foreclosure prevention programs have had limited impact on slowing foreclosure rates. January 2010: Foreclosure filings were reported on 315,716 properties, a decrease of 10% from the previous month but still 15% above the level reported in January 2009. One in every 409 U.S. housing units received a foreclosure filing. REO activity nationwide was down 5 percent from the previous month but still up 31 percent from January 2009. “ January foreclosure numbers are exhibiting a pattern very similar to a  year ago: a double-digit percentage jump in December foreclosure activity  followed by a 10 percent drop in January,” said James J. Saccacio, chief  executive officer of RealtyTrac  “If  history repeats itself we will see a surge in the numbers over the next few  months as lenders foreclose on delinquent loans where neither the existing loan  modification programs or the new short sale and deed-in-lieu of foreclosure  alternatives works” (RealtyTrac). “ As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James J. Saccacio, chief executive officer of RealtyTrac. “After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline. “ Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December,” said Saccacio. “In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.” The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners. Fannie Mae and Freddie Mac, as well as a few major banks, have announced a temporary halt in foreclosures at least through the holiday season. This extra breathing room should be used by homeowners to talk to their lender and apply for a more permanent loan modification plan offered from the Treasury. However, current economic and market conditions still point towards continuing high foreclosures in 2010. Unemployment rate remained at historically high level of 10% and is likely to stay elevated for most of 2010. There’s a sizable number of homeowners who are underwater. A large number of Alt-A and Opt ARM mortgages, many of which are already delinquent, are scheduled to reset and recast in the near term. Shadow inventories are estimated to be in the millions. From the market perspective, these inventories are drawing great interest from first-time buyers and investors as these properties are typically sold at steep discount (15%-40%). In some fast recovering markets like Las Vegas, Southern California, and south Florida, there is in fact an inventory shortage of lower-priced homes. Bidding wars are common in these markets. The case of short-sales vs. foreclosures: According to Clayton Holdings, a loan analytics provider, lenders typically lose about 19% of a mortgage's value in a short sale while they lose an average of 40% on loans that go into foreclosure. There are people who are significantly underwater on their mortgages, particularly in the hardest hit regions. Often it is financially in their best interest to not own their home anymore, however these homeowners have more options than a “strategic default”. Often distressed home owners FEEL it is financially in their best interest. It’s an emotional time. They are feeling overwhelmed. They may not have examined the facts and done the projections on personal financial impact, including credit. The walk away decision is possibly also impacted by the degree of market decline in an area. Where it is severe, the math gets worse and worse. Short Sales are another option that can help troubled homeowners arrive at the same result with a less damaging impact on the homeowner financially, on the community, and on the lenders. On the Lender’s Side: short sales cost less. Lenders don’t need to pay the legal fees associated with foreclosure and they don’t have the liability of having the home. In some states, lenders must wait up to a year or more after foreclosing before they can sell the home. According to the report by the Joint Economic Committee of Congress on April 11, 2007, “Sheltering Neighborhoods from the Subprime Foreclosure Storm,” each foreclosure costs lenders approximately $50,000. That figure is now approaching $60,000 by some estimates. Additionally, vacant properties are not good for neighborhoods or communities. On the Home Owners Side: many of these homeowners discussed in the article are in a tricky position. They don’t want to continue to pay these outrageous payments when renting costs are a fraction of their mortgage but many of them still have a desire to do the right thing – even if they don’t know what it is. Short sales release consumers from homeownership debt. Their home is sold and the lender forgives most, if not all, of their debt. 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Note: Nontraditional category of residential mortgages includes, but is not limited to, adjustable-rate mortgages with multiple payment options, interest-only mortgages, and “Alt-A” products such as mortgages with limited income verification and mortgages secured by non-owner-occupied properties. It excludes standard adjustable-rate mortgages and common hybrid adjustable-rate mortgages. With the onset of a global financial crisis, lenders got back to conservative practices. Higher down payments and credit scores were required. Fannie Mae raised its minimum credit score from a 580 to a 620. With the tightening of standards, a substantially larger proportion of borrowers have looked to FHA for financing because it requires a smaller down payment and typically has lower credit score requirements than conventional financing. In 2009, FHA accounted for 24% of all loans made (as of June), up from 2% three years ago. With this massive expansion, there has been concern that the agency could be growing faster than it can keep up with which may lead to problems down the line. FHA’s cash reserves fell below the 2% limit to a little over .5%. There has also been a comparison between FHA and subprime loans since both attracted low down payment and/or more risky borrowers with lower credit scores. The agency has defended this, stating that the loans with the highest delinquency rates are from seller funded down payment loans that are no longer allowed. Without the losses from these loans it believes it would be above the 2% reserve requirement. (Washington Post) FHA has stated that it will be increasing its risk management measures, indicating it will likely raise the minimum down payment, credit score requirements, and possibly FHA insurance premiums. Because banks don’t want to keep the loans they’re making on their books, they have tended to primarily make loans that fit into Fannie Mae, Freddie Mac, and Ginnie Mae (FHA, VA) requirements so it can then hand the loan over to them. The stimulus bill included the following provisions about the loan limits that they (Fannie, Freddie, FHA) require: Reinstates the conforming loan limit that expired at the end of 2008 to either 125% of local median home price or $271,050 for FHA loans or $417,000 for loans guaranteed by Fannie Mae or Freddie Mac with an overall cap of $729,750. In October, this was extended through 2010. Loans that are above the conforming limit are called j umbo loans. This means that jumbo loans are much harder and more expensive (in terms of points and rates) for consumers to obtain. Originations of jumbo mortgages have fallen by more than 70 percent according to various industry sources. The market share of jumbo loan originations has fallen to 6 percent from the typical 15 percent (according to Inside Mortgage Finance). High-end home sales, those homes priced above$750,000 and typically requiring a jumbo loan, have fallen from 4.4 percent of sales in 2007 to only 2.3 percent in 2009. The months’ supply of high-priced homes for sale generally is higher than lower priced homes. However, the inventory situation has dramatically worsened in the high-end market with months’ supply in 2009 at 41 months compared to 18 months in 2007. By comparison, the months’ supply of all homes has risen only modestly from 9 months to 10 months over the comparable period. (Months’ supply: the number of months it would take to sell all of the current inventory at the current pace of sales) “ Lenders are keeping credit standards overly stringent for borrowers at the higher end of the market, and are increasingly reluctant to make jumbo loans,” said NAR Chief Economist Lawrence Yun. “The interest rate spread between 10-year treasuries and jumbo loans has also substantially increased, making jumbo loans much more costly than has previously been the case. Many people believe that the jumbo market is for the very rich, but in many areas of the country, middle-class families need these loans to buy a median-priced home.” 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202
  • Stimulus aid continued to gain traction Case in point: First-time home buyer tax credit: 1.2009 can be characterized as the year of first-time buyers. From mid 2008 to 2009, the number of first-time home buyers increased to 47% of home purchasers from 41% (NARs 2009 Profile of Home Buyers and Sellers). 2001-2009 average is 41%. 2009: 47% 2008: 41% 2007: 39% 2006: 36% 2005: 40% 2004: 40% 2003: 40% 2001: 42% 2.Favorable affordability condition due to historically low interest rates and unprecedented home prices as well as the tax credit are attracting more and more first-time buyers into the market, especially in the low-priced home markets. Lower home prices coupled with reduced inventory of moderately priced homes are creating multiple-offer situations in some entry level markets. 3.According to NAR chief economist Lawrence Yun, 4.4 million Americans are expected to take advantage of the home buyer tax credit before it expires by the middle of 2010. From the enactment in February of this year through October, NAR estimates 1.8 million households would have qualified to claim the first-time home buyer tax credit. NAR estimated that approximately 350,000 additional sales would not have taken place without the tax credit. Notes: 2002: Survey not available 03/11/10 00:20 Victoria's Event Productions Keller Williams - Vision Speech Template v2_100202

Real Estate In Perspective Presentation Transcript

  • 1. Real Estate in Perspective Review of trends as we exit 2009
  • 2. The Numbers that Drive Real Estate
    • Home Sales
    • Home Prices
    • Inventory
    • Mortgage Rates
    • Affordability
  • 3. 2009 Was A “Top Ten” Year Sales increased 5% in 2009, the first annual sales gain since 2005 and the tenth highest annual activity level on record. Source: National Association of Realtors Millions of Homes Sold Each Year since 1989
  • 4. Returning to 4% Appreciation Rate $174K $203K Historical appreciation rate is 4%
  • 5. Annual Appreciation Rate If home prices actually grew by 4% every year from 1989 the median home price would be 17% above where we are today Historical appreciation rate is 4%
  • 6. Housing Inventory Peaked in 2008 Stronger sales activity in the second half of the year helped draw down inventory of existing homes to 8.8 months in 2009 Source: National Association of Realtors Measure is the number of months it would take to sell existing inventory at current sales rate Buyers Market Sellers Market
  • 7. Mortgage Rates at Historical Low
    • Mortgage rates averaged 5.04% in 2009 which is an all-time low since Freddie Mac started tracking in 1971.
    • Mortgage rate ranged from 4.81% to 5.59% in 2009.
    • At the end of December, rates stood at 4.93%.
    Source: Freddie Mac
  • 8. All-Time Affordability Record 18.5% 15% 40 Year Average Source: National Association of Realtors Percent of a median family’s income required to make mortgage payment on a median-priced home
  • 9.
    • Foreclosures and short sales continued to skew home prices downward
    • Banks continued to tighten their lending standards
    • Stimulus aid continued to gain traction
    • The available sides per agent ticked back up
    Events that Shape the Market
  • 10.
    • Four million foreclosure filings in 2009
      • One filing for every 45 housing unit (2.2%)
    • So far, foreclosure prevention programs have had limited impact on slowing foreclosure rates.
    Downward Pricing Pressure from Foreclosures and Short Sales
  • 11. Tightening of Credit Standards Source: Federal Reserve. Percent of Banks Tightening their lending standards in each of the last four quarters. Many banks tightened more than once; virtually every bank tightened at least once. Non-Traditional includes adjustable rate mortgages with multiple payment options, interest only, Alt-A (limited income verification and mortgages secured by non-owner occupied properties)
    • Jumbo Mortgage Originations Down 70 %
      • 6% of loans v 15% historical norm
    • High-End homes (>$750K) only 2.3% of home sales
      • Down from 4.4%
    Non-Traditional Prime
  • 12. Stimulus Package Helping First-Time Homebuyers
    • Historically low interest rates and unprecedented home prices continually contributed to positive affordability conditions.
    • The market share of first-time home buyers rose to 47% in 2009.
    Percent of First-time Home Buyers Source: National Association of Realtors