Economic Issues & Residential Real Estate Business Trends Forum 

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Presentations by Lawrence Yun, NAR Chief Economist; Mark Vitner, Wells Fargo Senior Economist; George Ratiu, NAR Research Economist

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  • Lee atentamente esta oración y haz lo que te dice sin ignorar los pasos que te pide seguir, porque si no solo obtendrás los resultados contrarios de lo que pidas . Piensa en la persona con la que quieres estar y di su nombre para ti 3 veces. Piensa en lo que quieres que ocurra con esta persona en la siguiente semana y repítelo para ti 6 veces. Ahora piensa en lo que quieres con esa persona y dilo una vez. y ahora di.. Rayo de luz yo te invoco para que desentierres a -nombre de la persona- de donde este o con quien este y le hagas llamarme hoy mismo enamorado y arrepentido. Desentierra todo lo que esta impidiendo que -su nombre- venga a mi -nuestro nombre-. Aparta a todos los que contribuyan a que nos apartemos y que el no piense mas en otras mujeres que solo piense en mi -nuestro nombre- Que el me llame y me ame. gracias, gracias por tu misterioso poder que siempre cumple con lo que se le pide. Luego tienes que publicar la oración tres veces, en tres sitios diferentes. Suerte.
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Economic Issues & Residential Real Estate Business Trends Forum 

  1. 1. Economic Issues & Residential Real Estate Business Trends Forum
  2. 2. Patrick Bissett ChairResidential Real Estate Forum
  3. 3. Economic Issues & Residential Real Estate Business Trends Forum
  4. 4. Dean AsherFlorida State Association President-Elect
  5. 5. Economic Issues & Residential Real Estate Business Trends Forum
  6. 6. Mayor Buddy Dyer
  7. 7. Economic Issues & Residential Real Estate Business Trends Forum
  8. 8. U.S. Economic OutlookMark Vitner, Managing Director &Senior EconomistNovember 9, 2012
  9. 9. Economic Growth U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change 10% 10% GDP - CAGR: Q3 @ 2.0% 8% GDP - Yr/Yr Percent Change: Q3 @ 2.3% 8% 6% 6% We are more than three years 4% Forecast 4% into the economic recovery and 2% 2% there is still a considerable amount of uncertainty regarding 0% 0% sovereign debt issues in Europe, -2% -2% the federal budget deficit and the willingness of businesses -4% -4% and households to commit to -6% -6% major capital purchases. -8% -8% -10% -10% 2000 2002 2004 2006 2008 2010 2012 2014 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 10
  10. 10. Financial Crises Are Becoming More Frequent 10-Year Treasury & Fed Funds Target Yield 21% 21% 10-Year Treasury Yield: Oct @ 1.75% Fed Funds Target: Oct @ 0.25% 18% 18% 15% 15% Treasury yields are currently 12% 12% near record low levels. We believe uncertainty is the 9% 9% primary driver of ultra-low interest rates. 6% 6% 3% 3% 0% 0% 1971 1976 1981 1986 1991 1996 2002 2007 2012 Source: IHS Global Insight and Wells Fargo Securities, LLCEconomic Outlook 11
  11. 11. The Timing of The First Fed Rate Hike The timing for the Fed’s first tightening move has been pushed even further out. Long-term growth estimates have also been scaled back. Consensus Fed Funds Rate Hike Individual FOMC Member Forecasts Appropriate Timing of Policy Firming Appropriate Pace of Policy Firming Number of Participants Target Federal Funds Rate at Year-End 14 14 5.0% 5.0% June Release June Projection September Release 4.5% September Projection 4.5% 12 12 4.0% 4.0% 10 10 3.5% 3.5% 3.0% 3.0% 8 8 2.5% 2.5% 6 6 2.0% 2.0% 4 4 1.5% 1.5% 1.0% 1.0% 2 2 0.5% 0.5% 0 0 0.0% 0.0% 2012 2013 2014 2015 2016 2012 2013 2014 2015 Longer Run Source: Federal Reserve Board and Wells Fargo Securities, LLCEconomic Outlook 12
  12. 12. Federal Reserve Balance Sheet Federal Reserve Balance Sheet Trillions $3.5 $3.5 Other: Oct @ $206.0B Foreign Swaps: Oct @ $12.6B $3.0 PDCF & TAF $3.0 Commercial Paper & Money Market Repos & Dis. Window: Oct @ $0.1B $2.5 Agencies & MBS: Oct @ $918.4B $2.5 Treasuries: Oct @ $1,648.5B The massive expansion of the $2.0 $2.0 Fed’s balance sheet has lifted asset prices and has also given $1.5 $1.5 the economy a boost. But all magic comes with a price! $1.0 $1.0 $0.5 $0.5 $0.0 $0.0 2007 2008 2009 2010 2011 2012 Source: Federal Reserve Board and Wells Fargo Securities, LLCEconomic Outlook 13
  13. 13. Labor Market Unemployment Rate - SA vs. NSA Percent 12.0% 12.0% 12-Month Rolling Average (NSA): Oct @ 8.2% Unemployment Rate (SA): Oct @ 7.9% 10.0% 10.0% 8.0% 8.0% Unemployment is gradually trending down, although much of the improvement has come 6.0% 6.0% from unusual forces. 4.0% 4.0% 2.0% 2.0% 1994 1997 2000 2003 2006 2009 2012 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomic Outlook 14
  14. 14. Labor Market Employment Cycles Percent Change from Cycle Peak 20% 20% 1948-1949 Cycle 1981-1982 Cycle 16% 1989-1991 Cycle 16% 2001 Cycle 2007-To-Date 12% Forecast 12% 8% 8% Job losses exceeded every post- World War II downturn, and the 4% 4% modest recovery to date has been extremely disappointing. 0% 0% -4% -4% -8% -8% 0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomic Outlook 15
  15. 15. Consumer Related This year’s improved stock market has helped bolster consumer spending at a time when real incomes are barely growing, and consumer confidence remains historically low. Household Wealth Consumer Confidence Household Assets Confidence vs. Retail Sales and Income Trillions of Dollars Conference Board Consumer Confidence, Yr/Yr % Chg. 3-MMA $90 $90 210 16.0% Financial Assets: Q2 @ $51.9 Trillion Confidence Yr/Yr % Chg: Oct @ 76.7% $80 Household Real Estate Holdings: Q2 @ $16.9 Trillion $80 Confidence: Oct @ 72.2 (Left Axis) 180 Retail Sales Ex-Auto: Sep @ 3.9% (Right Axis) 12.0% Other Tangible Assets: Q2 @ $7.3 Trillion Real Disposible Per Cap Inc.: Sep @ 1.1% (Right Axis) $70 $70 150 8.0% $60 $60 $50 $50 120 4.0% $40 $40 90 0.0% $30 $30 60 -4.0% $20 $20 30 -8.0% $10 $10 $0 $0 0 -12.0% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 93 95 97 99 01 03 05 07 09 11 Source: U.S. Department of Commerce, Conference Board and Wells Fargo Securities, LLCEconomic Outlook 16
  16. 16. Consumer Confidence Economic growth is unlikely to accelerate in a meaningful way until consumers feel better about current economic conditions than they do about future economic prospects. Consumer Confidence Confidence Gap Conference Board Consumer Confidence Confidence Gap Present Situation and Expectations Index Present Situation Minus Expectations 250 250 100 100 Present Situation Yr/Yr % Chg: Oct @ 107.1% Expectations Yr/Yr % Chg: Oct @ 65.8% 75 75 Present Situation: Oct @ 56.2 200 Expectations: Oct @ 82.9 200 50 50 25 25 150 150 0 0 100 100 -25 -25 -50 -50 50 50 -75 -75 Confidence Gap: Oct @ -26.8 0 0 -100 -100 87 89 91 93 95 97 99 01 03 05 07 09 11 87 89 91 93 95 97 99 01 03 05 07 09 11 Source: Conference Board and Wells Fargo Securities, LLCEconomic Outlook 17
  17. 17. Retail Sales Retail Sales Ex. Auto & Gas Stations vs. Income 3-Month Moving Average 15% 15% Stock Market Tax Cut 2 Housing Refi Bubble Tax Cut 1 Boom Tax Rebates 10% 10% 5% 5% Retail sales have risen sharply in 0% 0% recent months, while disposable income growth has begun to stagnate. -5% -5% -10% -10% Disposable Personal Income, Yr/Yr % Change: Aug @ 3.2% Retail Sales, ex. Autos & Gas, 3-Month Annual Rate: Sep @ 4.6% -15% -15% 96 98 00 02 04 06 08 10 12 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 18
  18. 18. Retail Sales Furniture Stores Sales 3-Month Moving Average 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Furniture store sales continue to -5% -5% rise, but the pace is decelerating. -10% -10% -15% -15% -20% -20% -25% Year-over-Year Percent Change: Sep @ 8.9% -25% 3-Month Annual Rate: Sep @ 7.6% -30% -30% 93 95 97 99 01 03 05 07 09 11 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 19
  19. 19. Residential Investment Real Residential Investment Bars = CAGR Line = Yr/Yr Percent Change 30% 30% Forecast 20% 20% 10% 10% 0% 0% Our forecast calls for continued -10% -10% strengthening in residential investment. -20% -20% -30% -30% -40% -40% Res. Investment - CAGR: Q3 @ 14.4% Res. Construction - Yr/Yr Percent Change: Q3 @ 13.8% -50% -50% 2000 2002 2004 2006 2008 2010 2012 2014 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 20
  20. 20. Homebuilding Housing Starts Millions of Units 2.4 2.4 Thousands Multifamily Starts Multifamily Forecast 2.1 2.1 Single-family Starts Single-family Forecast 1.8 1.8 Forecast 1.5 1.5 We believe housing starts have 1.2 1.2 bottomed and will increase modestly over the next few 0.9 0.9 years. 0.6 0.6 0.3 0.3 0.0 0.0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 21
  21. 21. Housing Market NAHB Housing Market Index & U.S. Distressed Sales 50 50 Total Distressed: Sep @ 24.0% NAHB Housing Market Index: Oct @ 41.0 40 40 30 30 The share of distressed sales has come down concurrently with the rise of the the NAHB 20 20 Housing Market Index. 10 10 0 0 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Source: NAHB, NAR and Wells Fargo Securities, LLCEconomic Outlook 22
  22. 22. Housing Starts Apartment construction accounts for much of the recent improvement in homebuilding. We believe multifamily housing will account for a larger proportion of future starts. Single & Multifamily Housing Starts Multifamily Housing Starts Single & Multifamily Housing Starts Multifamily Housing Starts SAAR, In Thousands, 3-Month Moving Average SAAR, In Thousands, 3-Month Moving Average 2,000 600 500 200 5+ Units: Sep @ 226.3 (Left Axis) 1,800 540 2-4 Units: Sep @ 9.0 (Right Axis) 1,600 480 400 160 1,400 420 1,200 360 300 120 1,000 300 800 240 200 80 600 180 400 120 100 40 Single-family Housing Starts: Sep @ 551K (Left Axis) 200 60 Multifamily Housing Starts: Sep @ 235K (Right Axis) 0 0 0 0 87 89 91 93 95 97 99 01 03 05 07 09 11 87 89 91 93 95 97 99 01 03 05 07 09 11 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 23
  23. 23. New Home Sales New home sales have begun to creep back up but are still near the lows of the Great Recession. Inventories of new homes have come down, and month’s supply has dropped to 4.5 months in September, which may lead to improvement in the housing market. New Home Sales Inventory of New Homes New Home Sales Inventory of New Homes for Sale Seasonally Adjusted Annual Rate, In Thousands Non-Seasonally Adjusted, In Thousands 1,500 1,500 600 600 Inventory: Sep @ 146,000 Completed New Homes: Sep @ 38,000 1,300 1,300 450 450 1,100 1,100 900 900 300 300 700 700 500 500 150 150 300 300 New Home Sales: Sep @ 389,000 3-Month Moving Average: Sep @ 376,667 100 100 0 0 89 91 93 95 97 99 01 03 05 07 09 11 89 91 93 95 97 99 01 03 05 07 09 11 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 24
  24. 24. Existing Home Sales Existing home sales have recovered much faster than new home sales. New Home Sales Inventory of New Homes Existing Home Resales Existing & New Single-Family Home Sales Seasonally Adjusted Annual Rate - In Millions In Millions, Seasonally Adjusted Annual Rate 7.5 7.5 1.6 8.0 7.0 7.0 1.4 7.0 6.5 6.5 1.2 6.0 6.0 6.0 1.0 5.0 5.5 5.5 0.8 4.0 5.0 5.0 0.6 3.0 4.5 4.5 0.4 2.0 4.0 4.0 0.2 New Home Sales: Sep @ 389 Thousand (Left Axis) 1.0 3.5 3.5 Existing Home Sales: Sep @ 4.75 Million Existing Home Sales: Sep @ 4.2 Million (Right Axis) 3.0 3.0 0.0 0.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 94 96 98 00 02 04 06 08 10 12 Source: NAR, U.S. Department of Commerce and Wells Fargo Securities, LLCEconomic Outlook 25
  25. 25. Home Prices Home Prices Year-over-Year Percentage Change 24% 24% 16% 16% 8% 8% Home prices have firmed recently as foreclosures have 0% 0% become a smaller portion of overall sales. Prices will likely -8% -8% fluctuate along a low trajectory until more foreclosures clear -16% -16% through the pipeline. Median Sale Price: Sep @ $184,300 -24% Median Sales Price 3-M Mov. Avg.: Sep @ 9.9% -24% FHFA (OFHEO) Purchase Only Index: Aug @ 4.7% S&P Case-Shiller Composite 10: Aug @ 1.3% -32% -32% 96 98 00 02 04 06 08 10 12 Source: Federal Housing Finance Agency, National Association of Realtors, S&P Corp. and Wells Fargo Securities, LLCEconomic Outlook 26
  26. 26. NAHB/Wells Fargo Housing Market Index NAHB/Wells Fargo Housing Market Index Diffusion Index 90 90 80 80 70 70 60 60 Homebuilder sentiment has 50 50 risen significantly over the past 40 40 year, but it is still at a relatively low level. 30 30 20 20 10 10 NAHB Housing Market Index: Oct @ 41.0 0 0 87 89 91 93 95 97 99 01 03 05 07 09 11 Source: National Association of Home Builders and Wells Fargo Securities, LLCEconomic Outlook 27
  27. 27. U.S. Mortgage Rates Conventional 30-Year Mortgage Rate Percent, FHLMC Fixed-Rate Mortgage 7.0% 7.0% 6.5% 6.5% 6.0% 6.0% 5.5% 5.5% 5.0% 5.0% Mortgage rates are at historic lows and are likely to remain 4.5% 4.5% low for some time. 4.0% 4.0% 3.5% 3.5% 3.0% 3.0% Conventional 30-Year Fixed Mortg. Rate: Oct @ 3.4% 2.5% 2.5% 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: FHLMC and Wells Fargo Securities, LLCEconomic Outlook 28
  28. 28. International Forecast Real Global GDP Growth (Wells Fargo) Year-over-Year Percent Change, PPP Weights 7.5% 7.5% 6.0% 6.0% Period Average 4.5% 4.5% The European financial crisis is dragging global economic 3.0% 3.0% growth lower, but we believe growth should pick up by 2014. 1.5% 1.5% 0.0% 0.0% -1.5% -1.5% 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Congressional International Monetary Fund and Wells Fargo Securities, LLCEconomic Outlook 29
  29. 29. Issues to Watch European Credit Availability Debt Crisis & Financial Reform Fiscal Cliff Deleveraging Uncertainty China Economic Fiscal & Slowdown Monetary Policy Geopolitical Energy/Commodity Tensions Price SwingsEconomic Outlook 30
  30. 30. Our Forecast Wells Fargo U.S. Economic Forecast Actual Forecast Actual Forecast 2012 2013 2010 2011 2012 2013 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Real Gross Domestic Product 1 2.0 1.3 2.0 1.4 1.0 2.1 2.2 2.2 2.4 1.8 2.1 1.6 Personal Consumption 2.4 1.5 2.0 2.4 0.6 1.2 1.4 1.3 1.8 2.5 1.9 1.4 2 Inflation Indicators PCE Deflator 2.4 1.6 1.5 1.8 1.5 1.7 1.6 1.5 1.9 2.4 1.8 1.6 Consumer Price Index 2.8 1.9 1.7 2.3 2.2 2.7 2.7 2.3 1.6 3.1 2.2 2.5 1 5.9 2.6 -0.4 0.5 0.7 3.5 4.1 4.1 5.4 4.1 3.6 1.8 Industrial Production Corporate Profits Before Taxes 2 10.3 6.7 5.7 5.3 4.8 5.2 5.7 6.3 26.8 7.3 6.9 5.5 Trade Weighted Dollar Index 3 72.7 74.5 72.7 73.0 74.0 75.0 76.0 77.0 75.4 70.9 73.2 75.5 Unemployment Rate 8.3 8.2 8.1 7.8 7.7 7.8 7.9 7.9 9.6 9.0 8.1 7.8 Housing Starts 4 0.71 0.74 0.79 0.84 0.90 0.96 1.02 1.08 0.59 0.61 0.77 0.99 Quarter-End Interest Rates 5 Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 Conventional Mortgage Rate 3.95 3.68 3.50 3.40 3.40 3.40 3.45 3.50 4.69 4.46 3.63 3.44 10 Year Note 2.23 1.67 1.65 1.70 1.70 1.80 1.85 1.90 3.22 2.78 1.81 1.81 Forecast as of: November 8, 2012 1 C ompound Annual Growth Rate Quarter-over-Quarter 2 Year-over-Year Percentage C hange 3 Federal Reserve Major C urrency Index, 1973=100 - Quarter End 4 Millions of Units 5 Annual Numbers Represent AveragesEconomic Outlook 31
  31. 31. Appendix
  32. 32. Wells Fargo Economics Group Publications A Sampling of Our Recent Special, Regional & Industry Commentary Recent Special Commentary Date Title Authors November-01 North Carolina Economic Outlook Vitner, Brown & Watt October-29 Housing Data Wrap-Up: October 2012 Vitner & Khan October-24 2012 Holiday Sales Outlook Aleman, Iqubal & Brown October-18 U.S. Fiscal Primer III: Federal Revenues Silvia, Bryson & Brown October-18 Retirement in America: Extending the Finish Line Bryson, Iqbal & Watt October-12 The Great Unemplyoment Rate Debate Silvia, Watt & Swankoski October-08 The Unemployment Rate: Seasonality and Sampling Silvia, Iqbal & Watt October-02 Housing Chartbook: September 2012 Vitner, Khan & Silverman To view any of our past research September-25 September-17 Local Budgets Under Pressure: A Fiscal Outlook Global Chartbook: September 2012 Silvia & Brown Bryson, Aleman & Quinlan please visit: September-10 September-06 U.S. Fiscal Primer II: Federal Government Spending Commercial Real Estate Chartbook: Quarter 2 Silvia, Bryson & Brown Vitner & Khan September-05 Brazilian Economy Slows Down; Better Times Ahead Aleman http://www.wellsfargo.com/ August-22 Mexico: Thanks to Auto Demand Aleman economics August-15 August-14 Californias Economy: Gaining Momentum Real GDP in Eurozone Slumped in Q2 Vitner & Watt Bryson August-09 Rocky Mountain Summit: July 2012 Silvia August-06 Orders and Production: No Time for Complacency Silvia, Quinlan & Watt August-01 U.S. Fiscal Primer I: The Deficit and Debt Silvia, Bryson & Brown July-19 U.S. States Grapple with Europes Woes Vitner & Brown To join any of our research July-13 July-11 The Lowdown on Consumer Spending Employment: Beyond the Sound Bites—Reading the Signals IX Vitner & Quinlan Silvia & Watt distribution lists please visit: July-10 July-09 Employment: Beyond the Sound Bites—Reading the Signals VIII Employment: Beyond the Sound Bites—Reading the Signals VII Silvia & Watt Silvia & Watt July-05 Housing Data Wrap-Up: June 2012 Vitner & Khan http://www.wellsfargo.com/ July-02 Do Too Many Dollars Make Us an Inflation Nation? Bullard & Quinlan economicsemail June-29 June-22 2012 State Budget Outlook Student Loans: The Best of Intentions Silvia & Brown Silvia, Seydl & Watt June-20 FOMC: Keep On Twisting Until Europes Fever Breaks Vitner June-20 The Fiscal Cliff: Likelihood and Economic Impact Silvia, Brown & Watt June-20 Credit Quality Monitor: June 2012 Anderson & Kashmarkek June-19 The Fed: Same Goal, Different Method Silvia & Khan June-15 Economic Growth Appears to Be Lost in a Fog of Uncertainty Vitner June-07 What Happens if Span or Italy Leaves EMU? Bryson, Quinlan & Swankoski June-07 Housing Chartbook: May 2012 Vitner, Khan & Seydl May-29 Implications of a Euro Exit to Greece Bryson, Quinlan & SwankoskiEconomic Outlook 33
  33. 33. Wells Fargo Securities, LLC Economics Group Global Head of Research and Economics Economists Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com …… Azhar Iqbal, Econometrician………………………………azhar.iqbal@wellsfargo.com Global Head of Research & Economics Tim Quinlan, Economist …………………………………..tim.quinlan@wellsfargo.com Chief Economist Michael A. Brown, Economist ………………… michael.a.brown@wellsfargo.com John Silvia … ...................... … . john.silvia@wellsfargo.com Economic Analysts Senior Economists Sarah Watt, Economic Analyst …………………………… .sarah.watt@wellsfargo.com Mark Vitner, Senior Economist……………....………. . mark.vitner@wellsfargo.com Kaylyn Swankoski, Economic Analyst kaylyn.swankoski@wellsfargo.com . Jay Bryson, Global Economist …………………....……….jay.bryson@wellsfargo.com Zachary Griffiths, Economic Analyst zachary.griffiths@wellsfargo.com Eugenio Aleman, Senior Economist …………….eugenio.j.aleman@wellsfargo.com Sara Silverman, Economic Analyst sara.silverman@wellsfargo.com Sam Bullard, Senior Economist ………………………….sam.bullard@wellsfargo.com Administrative Assistants Anika Khan, Senior Economist .… . anika.khan@wellsfargo.com Peg Gavin, Executive Assistant. peg.gavin@wellsfargo.com Cyndi Flowe, Administrative Assistant cyndi.h.flowe@wellsfargo.com Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the “Materials”) are provided for general informational purposes only.Economic Outlook 34
  34. 34. Economic Issues & Residential Real Estate Business Trends Forum
  35. 35. GEORGE RATIUManager, Quantitative & Commercial Research National Association of REALTORS® Economic Issues & Residential Real Estate Business Trends Forum 2012 REALTORS® Conference & Expo Orange County Convention Center November 9, 2012 Orlando, FL
  36. 36. Discover Your Magic…
  37. 37. Discover Your Magic…
  38. 38. REALTORS® and Commercial CRE Sales CRE Apartment Rental 4% 4% 3% 3% 3% 2%2% 2%Jul 2012 Aug 2012 Sep 2012 Oct 2012 Source: NAR
  39. 39. By The Numbers • 79,000 Commercial REALTORS® • 200,000 – 400,000 REALTORS® handled commercial real estate in 2012
  40. 40. 0.0 -40.0 -30.0 -20.0 -10.0 30.0 10.0 20.0 2001 - Q1 2001 - Q2 2001 - Q3 2001 - Q4 2002 - Q1 2002 - Q2 2002 - Q3 2002 - Q4 2003 - Q1 2003 - Q2 2003 - Q3 2003 - Q4 2004 - Q1 2004 - Q2 2004 - Q3 2004 - Q4 2005 - Q1 2005 - Q2 2005 - Q3 2005 - Q4 2006 - Q1 EHS (YoY % Chg) 2006 - Q2 2006 - Q3 2006 - Q4 2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4 2009 - Q1 2009 - Q2 2009 - Q3 2009 - Q4 CRE Sales (YoY % Chg) 2010 - Q1 2010 - Q2 2010 - Q3 2010 - Q4 2011 - Q1 2011 - Q2 2011 - Q3 2011 - Q4 2012 - Q1 2012 - Q2 Residential vs. Commercial 2013 - Q3 0 1 2 -2 -1 0.5 1.5 -2.5 -1.5 -0.5Source: NAR, Real Capital Analytics
  41. 41. Commercial Sales $160 Office Industrial Retail Apartment HotelBillions $140 $120 $570B in 2007 $181 B in 2012.ytd $100 $80 $60 $40 $20 $- Source: Real Capital Analytics
  42. 42. 110 130 170 190 210 150 90 2000 December April August 2001 December April August 2002 December April August 2003 December April August 2004 December Apartment April August 2005 December April Retail August 2006 December April August 2007 December Industrial April August Moodys/RCA CPPI - Composite Indices 2008 December April Office August 2009 December April Commercial Prices August 2010 December April August 2011 December AprilSource: Real Capital Analytics
  43. 43. Tale of Two Commercial Markets Sales Volume (YoY % Chg) Major CRE Markets REALTOR Markets200%150%100% Deals of $2M + 50% 0% 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 -50% Deals < $2M +-100% Source: NAR, Real Capital Analytics
  44. 44. REALTOR® Commercial Markets Did you complete a sales Dollar amount of last transaction transaction? Under $250K 33% Between $250K and $500K 23% Between $500K and $1 M 19% 35% Yes Between $1 M and $2 M 17% No 65% $2 M and $5 M 6% 92% of deals are <$2M Between $5 M and $10 M 1% Over $10 M 1%Source: National Association of REALTORS®
  45. 45. REALTOR® Commercial Markets Commercial Sales Trends, Quarterly Sales Volume Sales Prices Business Opportunity10% 4% 5% 2% 0% 0% 2008.Q4 2009.Q1 2009.Q2 2009.Q3 2009.Q4 2010.Q1 2010.Q2 2010.Q3 2010.Q4 2011.Q1 2011.Q2 2011.Q3 2011.Q4 2012.Q1 2012.Q2 2012.Q3 -2%-5% -4%-10% -6%-15% -8%-20% -10%-25% -12% Source: National Association of Realtors®
  46. 46. REALTOR® Commercial Concerns REALTORS® Most Pressing Challenges Inventory Distress2012.Q2 Financing Local Economy National Economy2012.Q3 Pricing Gap: Buyers vs Sellers Other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
  47. 47. Major Markets - FinancingSource: Real Capital Analytics
  48. 48. REALTOR® Markets - Financing REALTORS® 2012 Commercial Lending Survey Other, please specify 3%Small Business Administration 11% Public companies 1% Private investors 18% REITs 4% Life insurance companies 6% Credit unions 7% Local banks 25% Regional banks 17% National banks (“Big four”) 8% Source: National Association of REALTORS® 0% 5% 10% 15% 20% 25% 30%
  49. 49. REALTOR® Markets – Financing Lending Hampers Sales Have you had a sales transaction fail Have your clients failed to complete a during the past 12 months due to re-financing transaction during the lack of financing? past 12 months? 33% Yes Yes 50% 50% No No 67%Source: National Association of REALTORS®
  50. 50. 50% 100% 150% 200% 250% -100% 0% -50% Manhattan Los Angeles Chicago San FranciscoSource: Real Capital Analytics Dallas Seattle Boston Phoenix Houston San Jose Atlanta Denver Miami DC San Diego NYC Boroughs Improving Fundamentals & Rising Sales Growth of Secondary & Tertiary Markets Orange Co. Charlotte Baltimore 2012.H1 Sales Volume (YoY % Chg) Broward Co. East Bay Austin Minneapolis Nashville Raleigh/Durham Orlando Portland Hawaii Detroit Commercial Markets Outlook Las Vegas
  51. 51. Light at End of Tunnel – Exit? Total ($Bil) Loans with LTV > 100% Banks CMBS Life Cos. Other350 70% 350300 60% 300250 50% 250200 40% 200150 30% 150100 20% 100 50 10% 50 0 0% 0 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Source: Foresight Analytics Source: Foresight Analytics
  52. 52. Light at End of Tunnel – Train? FEDERAL VS REGULATIONS + “FISCAL CLIFF” Source: Real Capital Analytics
  53. 53. For More Information…
  54. 54. REALTOR® Resources• > economistsoutlook.blogs.realtor.org• > www.facebook.com/narresearchgroup• > twitter.com/#!/NAR_Research• > www.realtor.org/research-and-statistics
  55. 55. Discover Your Magic…
  56. 56. Discover Your Magic…
  57. 57. Economic Issues & Residential Real Estate Business Trends Forum
  58. 58. Housing Market andEconomic Outlook Lawrence Yun, Ph.D. Chief EconomistNATIONAL ASSOCIATION OF REALTORS®Presentation at NAR Annual Conference Orlando, FL November 9, 2012
  59. 59. Forecast #1: Inflation will be Notably Higher by 2015• No Threatening Inflation Signs for 2013• But Inflation rises to 4% to 6% in 2015• Well above Fed’s preferred rate of 2%• But not in double-digits as in 1970s
  60. 60. -4 -2 0 2 4 6 8 10 12 16 141970 - Jan1972 - Jan1974 - Jan1976 - Jan1978 - Jan1980 - Jan1982 - Jan1984 - Jan1986 - Jan Core1988 - Jan1990 - Jan1992 - Jan1994 - Jan1996 - Jan Overall1998 - Jan (% change from one year ago)2000 - Jan2002 - Jan2004 - Jan Consumer Price Inflation2006 - Jan2008 - Jan2010 - Jan2012 - Jan
  61. 61. 0 1 2 3 4 5 -12000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul Owners Equivalent Rent2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan2009 - Jul2010 - Jan (the biggest weight to Consumer Price Index)2010 - Jul Renters Rent2011 - Jan2011 - Jul2012 - Jan Rising Renters’ and Homeowners’ Rent Growth2012 - Jul
  62. 62. Percent of REALTORS® Reporting Changing Rent Levels as Compared to 12 Months Ago60% Sept 12: Rising rent: 57%50%40%30%20%10%0% Higher Rents Lower Rents Constant rents
  63. 63. Monetary Policy by Federal Reserve (zero rate policy to 2015 ?) Fed Funds6 %543210
  64. 64. Federal Reserve Balance Sheet from Quantitative Easing Total Assets35000003000000 $ million2500000200000015000001000000 500000 0 1-Aug-07 1-Aug-08 1-Aug-09 1-Aug-10 1-Aug-11 1-Aug-12
  65. 65. 1000000 1500000 2000000 2500000 3000000 4000000 0 500000 1970 - Jan1971 - Nov 1973 - Sep 1975 - Jul1977 - May1979 - Mar 1981 - Jan1982 - Nov 3500000 12-month tally in $ million 1984 - Sep 1986 - Jul Revenue1988 - May1990 - Mar 1992 - Jan1993 - Nov 1995 - Sep Spending 1997 - Jul1999 - May Federal Government2001 - Mar 2003 - Jan Tax Revenue and Spending2004 - Nov 2006 - Sep 2008 - Jul2010 - May2012 - Mar
  66. 66. Huge Federal Budget Deficit … Will Push Up Borrowing Cost and/or Ignite Inflation 4 Deficit in relation to GDP 2 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 -2 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan -4 -6 -8-10-12
  67. 67. Impact to Deficit• Mortgage Interest Deduction … $90 billion – Not the source of the current budget deficit since MID was present for nearly 100 years• Interest Rates Revert back to historical average … $300 billion in extra interest expense
  68. 68. Mortgage Rate Forecast (Average Rate of 5.5% in 2015 ?) 30-year Mortgage % 7 6 5 4 3 2 1 0Modestly higher rates could help home sales as banks re-staff mortgagework for home purchase applications and less refinance applications.
  69. 69. Forecast #2: Meaningfully Higher Home Prices• Demand is Up … Supply is Down• 4% to 5% in 2012 (Case-Shiller, FHFA)• 5% to 7% in 2012 (Median Home Price)• Home price growth could slow or accelerate … all depends on housing starts• Probably 15% cumulative growth over 3 years
  70. 70. 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0.02008 - Jan2008 - Apr2008 - Jul2008 - Oct2009 - Jan2009 - Apr2009 - Jul2009 - Oct Buyer2010 - Jan2010 - Apr2010 - Jul2010 - Oct Seller2011 - Jan2011 - Apr2011 - Jul from REALTOR® Survey Buyer and Seller Traffic2011 - Oct2012 - Jan2012 - Apr2012 - Jul
  71. 71. SentriLock Key Usage(limited region; adjusted to get us comparable data)
  72. 72. 70 75 80 85 90 95 100 105 110 115 2007 - Jan 2007 - AprSource: NAR 2007 - Jul 2007 - Oct 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan 2009 - Apr Homebuyer Tax Credit 2009 - Jul 2009 - Oct 2010 - Jan 2010 - Apr (Seasonally Adjusted) 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - July 2011 - Oct 2012 - Jan 2012-Apr 2012 - Jul Monthly Pending Home Sales Index
  73. 73. Annual Existing Home Sales: U-Shaped Recovery8 In million units7 7.086 6.525 5.3 5.6 5.02 5.054 4.65 4.12 4.34 4.18 4.263210 2014 2005 2006 2007 2008 2009 2010 2011 2013 2015 2012 est.
  74. 74. 124000 126000 128000 130000 132000 134000 136000 1380002000 - Jan2000 - Jul2001 - Jan2001 - Jul 140000 In thousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan Total Payroll Jobs2008 - Jul2009 - Jan2009 - Jul2010 - Jan2010 - Jul2011 - Jan (Lost Decade: Up, Down, ½ Up)2011 - Jul2012 - Jan2012 - Jul
  75. 75. 0 4 6 8 10 12 22000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan Unemployment Rate2009 - Jul (Slow Steady Progress)2010 - Jan2010 - Jul2011 - Jan2011 - Jul2012 - Jan2012 - Jul
  76. 76. 54% 58% 60% 62% 64% 66% 56%2000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan2009 - Jul2010 - Jan2010 - Jul (How many of the civilian population is working)2011 - Jan Employment Rate … No Progress2011 - Jul2012 - Jan2012 - Jul
  77. 77. Visible Housing Inventory (Existing home inventory at 8-year low)4,500,0004,000,0003,500,0003,000,0002,500,0002,000,0001,500,0001,000,000 500,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
  78. 78. 0 100 200 300 400 500 700 6001964 - Jan1966 - Jan1968 - Jan1970 - Jan1972 - Jan1974 - Jan1976 - Jan1978 - Jan1980 - Jan1982 - Jan1984 - Jan1986 - Jan1988 - Jan1990 - Jan1992 - Jan1994 - Jan1996 - Jan1998 - Jan2000 - Jan2002 - Jan Visible Housing Inventory2004 - Jan2006 - Jan2008 - Jan (Newly Constructed Homes Inventory at 50-year low)2010 - Jan2012 - Jan
  79. 79. Housing Starts (Well Below 50-year average of 1.5 million each year) multifamily single-family Thousand units (annualized)25002000 Long-term Average NASDAQ up 13%1500 Dow up 9% Homebuilder stocks up 62%1000 in 12 months500 0 2002 - Apr 2005 - Apr 2008 - Apr 2011 - Apr 2000 - Oct 2003 - Oct 2006 - Oct 2009 - Oct 2001 - Jul 2004 - Jul 2007 - Jul 2010 - Jul 2000 - Jan 2003 - Jan 2006 - Jan 2009 - Jan 2012 - Jan

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