Real Estate Market Trends & Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at Northern Virginia Association of REALTORS ® September 23, 2009

National Existing Home Sales

Recent Pending Home Sales Rising, but Taking Longer to Close in Recent Months

Appraisal Issues from HVCC Good Intended Policy Gone Bad Appraisers getting paid less Appraiser driving long distances Appraisal process taking shorter time Consumers paying higher fee Homeowners unable to refinance Homebuyers wanting to buy but cannot Unintended Consequences of Slowing Housing Market Recovery … Slowing Economic Recovery

Good Intended Policy Gone Bad

Appraisers getting paid less

Appraiser driving long distances

Appraisal process taking shorter time

Consumers paying higher fee

Homeowners unable to refinance

Homebuyers wanting to buy but cannot

Unintended Consequences of Slowing Housing Market Recovery … Slowing Economic Recovery

National Existing Median Home Price $

Dallas, San Diego, Washington Home Price Source: NAR $ thousand SD DC Dallas

Home Price to Income Ratio (Enticing for All-Cash Buyers) Stay within Budget and all will be OK !

Housing Affordability Index (Higher numbers mean more people can afford to buy a home) ALL-TIME HIGH … on conforming loans …if people need to stay within budget

Latest Monthly Home Price Trend Case-Shiller, Govt (FHFA), NAR … Seasonally Adjusted Data $ thousand NAR FHFA Case-Shiller

Serious Delinquency Rate (90+ days late or foreclosure) % Subprime FHA Reserve Fund depleting … may need funds to implement a countercyclical policy Fannie-Freddie will need funds … future reform of the secondary mortgage market VA … slight rise … even though a zero-down product … stay within budget and all will be OK! VA (purple) FHA Prime (green)

FHA Reserve Fund depleting … may need funds to implement a countercyclical policy

Fannie-Freddie will need funds … future reform of the secondary mortgage market

VA … slight rise … even though a zero-down product … stay within budget and all will be OK!

Foreclosure Rates Virginia vs Nation % US Virginia

Home Price Up in Select Regions April to May according FHFA (Government) Home Price Index %

April to May according FHFA (Government) Home Price Index

Homebuilders Down and Out (Single Family Starts and New Home Sales) Source: Census In thousand units

New Home Inventory for Sale Source: Census In thousand units In thousands

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

Economy to Recover Slowly GDP annualized growth rate Source: BEA Latest Data Forecast

Job Changes in U.S. … Unemployment Rate to 10.5% Source: BLS, NAR forecast One-month payroll job changes in thousands

Federal Budget Deficit .. Impact? Future Generation and Housing $ million Source: Congressional Budget Office Projections

Tax Revenue Collections (4-quarter change as of 2009 Q1) Tax Assessors and Appraisers need to meet %

Housing Market Recovery Helps Reduce Budget Deficit Housing Market Impact on the Economy $62,000 from each home sale (furniture, moving truck, carpeting, title search, etc.) Home values are most American’s wealth … and consumer spending Higher home sales … reduce inventory … stabilize home values Home values strongly impact bank balance sheets and foreclosures Home Buyer Tax Credit … Extend and Expand

Housing Market Impact on the Economy

$62,000 from each home sale (furniture, moving truck, carpeting, title search, etc.)

Home values are most American’s wealth … and consumer spending

Higher home sales … reduce inventory … stabilize home values

Home values strongly impact bank balance sheets and foreclosures

Home Buyer Tax Credit … Extend and Expand

Economic Outlook 2008 2009 2010 forecast 50 year average GDP 1.1% -2.9% 1.5% 3.3% CPI Inflation 3.8% -0.5% 2.1% 4.1% Unemployment Rate 5.8% 9.5% 10.0% 5.9% Mortgage Rate 6.1% 5.2% 5.8% 9.1% Existing Home Sales 4.9 m 4.9 m 5.2 m 5.2 m in 2000 (before bubble)

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) True Test of credit easing Lower rate on jumbo mortgages Lower rate on second home purchases Lower rate on condo purchases Lower rate on commercial real estate loans

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)

True Test of credit easing

Lower rate on jumbo mortgages

Lower rate on second home purchases

Lower rate on condo purchases

Lower rate on commercial real estate loans

Commercial Credit Freeze

Commercial Real Estate Loan Delinquency Rate Source: Federal Reserve

Housing Forecast Stimulus and falling inventory will help stabilize prices … and change in psychology “ Why buy now when I can buy later” “ Not to miss out on a golden opportunity” Current Sales about 10% short of Normal (5.0 million to 5.5 million) Builders may not see a full recovery till 2011

Stimulus and falling inventory will help stabilize prices … and change in psychology

“ Why buy now when I can buy later”

“ Not to miss out on a golden opportunity”

Current Sales about 10% short of Normal

(5.0 million to 5.5 million)

Builders may not see a full recovery till 2011

Inflation or Deflation in 2011 ? Inflation: Print money and there goes the inflation Deflation: Excess capacity and high unemployment rate keeps prices in check. Fed’s exit strategy to reclaim printed money Which one is more dangerous? Which one will occur? … Watch the energy price as the catalyst for both scenarios If Inflation … winners will be property owners who locked-in low rate If deflation … losers will be responsible property owners with mortgages

Inflation: Print money and there goes the inflation

Deflation: Excess capacity and high unemployment rate keeps prices in check.

Fed’s exit strategy to reclaim printed money

Which one is more dangerous?

Which one will occur? … Watch the energy price as the catalyst for both scenarios

If Inflation … winners will be property owners who locked-in low rate

If deflation … losers will be responsible property owners with mortgages

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REALTOR Member Profile

Home Buyer and Home Seller Survey

Daily Forecast Update

www.realtors.org

click Research

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