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Market Update Oct2007

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Real Estate Update-

Real Estate Update-

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Market Update Oct2007 Market Update Oct2007 Presentation Transcript

  • October 8, 2007 NAR Research Market Update
  • Why Buy Now?
    • Time of “crisis” often turns out to have been a time of opportunity in hindsight
    • Wide selection of housing inventory
    • Favorable mortgage rates
        • Prime borrowers – low favorable conforming rate loans
        • Jumbo borrowers – rates coming down after August credit crunch
        • Non-prime borrowers – moving away from the risky subprime loans into safer FHA loans (Major reform in FHA program taking place)
        • Worst in credit crunch is over – Alan Greenspan
    • More jobs, more income, more wealth --- significant pent-up demand --- buy before others do
    • Homeowners in it for the long-term nearly always come out ahead in building wealth
  • Latest Key Data Plenty of financial wherewithal Up 7% Aggregate Income Pent-up demand accumulating 1.6 million Net New Jobs Historically favorable 6.3% Mortgage Rates A lot of choices for buyers Up 19% Existing home inventory Good news to thin out inventory Down 27% Single-family Housing Starts First increase in 13 months Up 0.2% Home Price Impact of August credit crunch Down 13% Existing Home Sales Comment Trend from a year ago Indicator
  • Monthly Existing-Home Sales (from 7 million in peak to 5.5 million now) Source: NAR In thousand units Peak
  • Annual Existing-Home Sales and Forecast (5 th best year in 2007 and recovery in 2008) Source: NAR In thousand units
  • Existing Home Inventory (From 2 million to 4.5 million) Source: NAR
  • New Home Inventory (Already Topped Out) Source: Census
  • Single-Family Housing Starts (Major fall – but, good trend to control inventory) Source: Census
  • Home Price Change (1st rise in 13 months) Source: NAR
  • Home Price Change in the Northeast (First region to undergo a slump – but now already into a respectable recovery) Source: NAR Positive Gains
  • Interest Rates (Another Fed rate cut likely before year end) Source: Freddie Mac, Federal Reserve
  • Jumbo Loan Rate Spread (August panic over – but still not back to norm) Source: Freddie Mac Basis Points
  • U.S. Job Gains- Less Strong (Still 4 million new jobs in past 24 months – time period when sales were falling …. points to Accumulating pent-up demand) Source: BLS 12-month payroll job changes in millions
  • Resetting Mortgage Burden
    • There are $450 billion in resetting mortgages over the next 12 months (about 2 million loans)
      • If all reset (without any refis) to rates 4 to 5 percentage points higher, then $18 to $22 billion in additional mortgage payments
      • About 10% to 20% (worst case scenario) of subprimes will default … 200,000 to 400,000 additional inventory
    • Personal Income (aggregate) to rise by $700 billion in 2007
    • Resets are burdensome and will raise foreclosures. But the impact to the economy is small in relation to the positive income gains ... and the impact on overall inventory is about 5% to 10% to the current inventory.
  • Bottom Line
    • Home sales weak and growing inventory
    • The national median home price – interestingly - remains flat
    • Local price trends vary – Northeast showing good appreciation
      • Seattle, Austin, Raleigh, and 2/3 of the country with price gains
    • Job gains evidently supporting prices
    • Plenty of wealth -- solid income gains and record high stock market
    • Pent-up demand accumulating
    • Few more months of “bad” press coverage
    • Media coverage to become positive in 2008
    • Forecast: 2008 will be better than 2007; 2009 to improve further
  • Consumer Messages
  • Something appears Out of Whack! (If viewing solely by home price and income, but … next page) Income and Price set to Index of 100 in 1990 Source: NAR
  • Rates: Near 45-Year Lows (Low rate permit people to take out a larger loan with less burden) Source: Freddie Mac 1970s 9% average 1980s 13% average 1990s 8% average 2000s 6.5% average
  • Mortgage Obligation to Income (better indicator of to assess “bubble” and it is not out of whack) Manageable and not out of Whack Source: NAR %
  • Apartment Rents (Rising rents force some renters to about ownership) Source: Torto-Wheaton Research %
  • Subprime Loan Exposure (subprime makes up less than 10% of homeowners) Source: NAR Estimate
  • Foreclosed Homes (less than 10% of subprime owners make up more than ½ of foreclosures) Source: NAR Estimate
  • Foreclosure Rates by Loan Type 2007 Q2 (Problem is principally the resetting subprime loans) Data: MBA
  • Foreclosure Probability once becoming Delinquent (Latest Foreclosure/Delinquency ratio) Better Loss Mitigation Programs for VA and FHA
  • FHA Loan Impact
    • FHA had been the choice for first-time homebuyers and for those with blemished credit in the past
    • FHA dramatically lost market share to subprime loans in the past 5 years
    • FHA interest rates are much more favorable than APR of subprime loans (after considering resets)
    • Major FHA reform will better help first time homebuyers to enter the market
  • FHA Market Share for Home Purchase Source: HMDA,NAR estimate
  • U.S. Job Gains (Still 4 million new jobs in past 24 months – time period when sales were falling …. points to Accumulating pent-up demand) Source: BLS 12-month payroll job changes in millions
  • Wage Growth Rising Strongly % Source: BLS
  • Total U.S. Wages and Salary Disbursement Rising Strongly Source: BEA $ billion
  • Corporate Profits – at near Record High Source: BEA $ billion
  • Stock Market at Record High S&P 500 Index Source: NYSE
  • Best Evidence: Household Wealth Accumulation Source: Federal Reserve Median Net Worth $184,400 $4,000
  • Wealth Accumulation – The Power of Leverage for Homeowners ($10,000 down payment on a $200,000 home) 10% appreciations 15% appreciations 5% appreciations
  • Why Buy Now? – Repeat the Mantra
    • Time of “crisis” often turns out to have been a time of opportunity in hindsight
    • Wide selection of housing inventory
    • Favorable mortgage rates
        • Prime borrowers – low favorable conforming rate loans
        • Jumbo borrowers – rates coming down after August credit crunch
        • Non-prime borrowers – moving away from the risky subprime loans into safer FHA loans (Major reform in FHA program taking place)
        • Worst in credit crunch is over – Alan Greenspan
    • More jobs, more income, more wealth --- significant pent-up demand --- buy before others do
    • Homeowners in it for the long-term nearly always come out ahead in building wealth