Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

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Housing and Economic Outlook
NAR Midyear Meeting
May 17, 2012
NAR Chief Economist Lawrence Yun

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Housing and Economic Outlook: Residential Forum, NAR Midyear Meeting

  1. 1. Housing and Economic Outlook Midyear Meeting Marriot Wardman Park May 17, 2012 By Lawrence Yun
  2. 2. Annual Existing Home Sales: A Tough, Flat 4 years8 In million units7 7.086 6.525 5.024 4.12 4.34 4.18 4.263210 2005 2006 2007 2008 2009 2010 2011
  3. 3. Despite Second Home Sales Recovery In thousands 4000 3500 3000 2500 2000 Investment 1500 1000 Vacation 500 0 2005 2006 2007 2008 2009 2010 2011Buy a condo for your college student53% of REALTOR® members own a residential investment property29% own a commercial property19% own a vacation home
  4. 4. Owner-Occupancy Sales Falling(All-Cash deals hiding the current dysfunctional mortgage market) In thousands 6000 5000 4000 3000 2000 1000 0 2005 2006 2007 2008 2009 2010 2011QRM rulesRaising g-fees to fund non-housing issuesBanks hoarding cash! … from regulatory uncertainties and lawsuits?
  5. 5. 50,000 55,000 65,000 70,000 75,000 80,000 60,0001980 - Q11981 - Q31983 - Q11984 - Q31986 - Q11987 - Q31989 - Q11990 - Q31992 - Q11993 - Q31995 - Q11996 - Q3 Homeowners1998 - Q11999 - Q32001 - Q12002 - Q32004 - Q12005 - Q32007 - Q1 Owner Occupied Housing Units2008 - Q32010 - Q12011 - Q3
  6. 6. 25,000 29,000 31,000 33,000 35,000 39,000 41,000 27,000 37,0001980 - Q11981 - Q31983 - Q11984 - Q31986 - Q11987 - Q31989 - Q11990 - Q31992 - Q11993 - Q31995 - Q11996 - Q31998 - Q1 Rental Households1999 - Q32001 - Q12002 - Q32004 - Q12005 - Q32007 - Q1 Rental Occupied Housing Units2008 - Q32010 - Q12011 - Q3
  7. 7. 59 60 61 62 64 65 66 67 69 70 63 68 %1965 - Q11967 - Q11969 - Q11971 - Q11973 - Q11975 - Q11977 - Q11979 - Q11981 - Q11983 - Q11985 - Q11987 - Q11989 - Q11991 - Q1 (Lowest in 15 years)1993 - Q11995 - Q11997 - Q11999 - Q12001 - Q12003 - Q12005 - Q1 Homeownership Rate at 65.4%2007 - Q12009 - Q12011 - Q1
  8. 8. 2012 First Quarter Sales: Strongest in 5 years6,000,0005,000,0004,000,000 2008 20093,000,000 20102,000,000 2011 20121,000,000 0 Q1 Q2 Q3 Q4
  9. 9. Pending Contracts Point to Strongest Second Quarter in 5 years115 Homebuyer Tax Credit110105100959085807570 2007 - 2007 - 2008 - 2008 - 2009 - 2009 - 2010 - 2010 - 2011 - 2011 - 2012 - Jan Jul Jan Jul Jan Jul Jan Jul Jan July Jan Source: NAR
  10. 10. 10 30 40 50 20-40 -30 -20 -10 0 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul (Year-over-Year % changes) 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan Pending and Closings of Existing Homes Closing Pending
  11. 11. Improving Factors for Higher Sales in 2012:1. High Affordability and Job Creation2. Solid stock market recovery from 20083. Rising rents and a larger pool of qualified renters4. Pent-up release of Household Formation • Rising demand for ownership and rentals as young-adults move out of parent’s basement5. Smart money chasing real estate (i.e., investors)6. Consumer confidence in buying an appreciating asset
  12. 12. 50 70 90 110 130 150 170 190 21019701972197419761978198019821984198619881990199219941996199820002002 Best Affordability Conditions20042006200820102012
  13. 13. 1,000 1,500 2,000 2,500 3,000 3,500 500 0 2005 - Jan 2005 - Jun2005 - Nov 2006 - Apr 2006 - Sep 2007 - Feb 2007 - Jul2007 - Dec2008 - May 2008 - Oct2009 - Mar2009 - Aug 2010 - Jan 2010 - Jun2010 - Nov 2011 - Apr 2011 - Sep S&P 500 (Almost 100% from low point) 2012 - Feb NASDAQ (More than 100% increase from low point) S&P 500 NASDAQ
  14. 14. Mind GAP the 2012 - Jan (Recovered half of jobs lost a few years ago, but still down by 10 million 2010 - Jan 2008 - Jan 2006 - Jan 2004 - Jan 2002 - Jan compared to long-term projections)Total Payroll Jobs 2000 - Jan 1998 - Jan 1996 - Jan 1994 - Jan 1992 - Jan 1990 - Jan 1988 - Jan 1986 - Jan 1984 - Jan 1982 - Jan 1980 - Jan 1978 - Jan 1976 - Jan In millions 1974 - Jan 1972 - Jan 1970 - Jan 150 140 130 120 110 100 90 80 70 60 50
  15. 15. 50 52 54 56 58 60 62 64 1948 - Jan 66 % 1951 - Jan 1954 - Jan 1957 - Jan 1960 - Jan 1963 - Jan 1966 - Jan 1969 - Jan 1972 - Jan Father-Knows-Best Years 1975 - Jan 1978 - Jan 1981 - Jan 1984 - Jan 1987 - Jan 1990 - JanSource: BLS, among those 16 years old and older 1993 - Jan 1996 - Jan 1999 - Jan 2002 - Jan Reverting Back to Old Days? 2005 - Jan 2008 - Jan Employment-to-Population Ratio: 2011 - Jan
  16. 16. 0 5 10 15 20 30 1948 - Jan million 1951 - Jan 1954 - Jan 1957 - JanSource: BLS 1960 - Jan 1963 - Jan 1966 - Jan 1969 - Jan 1972 - Jan 25 Manufacturing and Construction 1975 - Jan 1978 - Jan vs. 1981 - Jan 1984 - Jan 1987 - Jan 1990 - Jan 1993 - Jan 1996 - Jan 1999 - Jan 2002 - Jan 2005 - Jan Education and Healthcare Services Education and Healthcare 2008 - Jan Jobs: Manufacturing and Construction 2011 - Jan
  17. 17. % 10 20 30 40 50 60 70 80 90 0 100 1948 - Jan 1951 - Jan 1954 - Jan 1957 - JanSource: BLS 1960 - Jan 1963 - Jan 1966 - Jan 1969 - Jan 1972 - Jan 1975 - Jan 1978 - Jan 1981 - Jan 1984 - Jan 1987 - Jan 1990 - Jan 1993 - Jan Women Men 1996 - Jan 1999 - Jan Labor Force Participation Rate 2002 - Jan 2005 - Jan 2008 - Jan 2011 - Jan
  18. 18. -1000 -800 -600 -400 -200 0 200 400 600 2005 - Jan 2005 - Apr 2005 - Jul 2005 - Oct 2006 - Jan 2006 - Apr In thousands 2006 - Jul 2006 - Oct 2007 - Jan 2007 - Apr 2007 - Jul 2007 - Oct 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan 2009 - Apr 2009 - Jul 2009 - Oct 2010 - Jan 2010 - Apr 2010 - Jul 2010 - Oct 2011 - Jan Monthly Payroll Job Gains … 2011 - Apr 2011 - Jul 2011 - Oct paving the way for higher home sales 2012 - Jan 2012 - Apr
  19. 19. 0 1 2 3 4 5 -12000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul Rent Growth2008 - Jan % change from one year ago2008 - Jul2009 - Jan2009 - Jul2010 - Jan2010 - Jul (Component from Consumer Price Index)2011 - Jan2011 - Jul2012 - Jan
  20. 20. Visible Inventory of Homes (6-year low for Existing Homes and 50-year low for New Homes)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 Existing New Source: NAR, Census
  21. 21. 0.0 4.0 6.0 8.0 10.0 2.0 12.0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 U.S.U.S. 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 Shadow Inventory 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 (Seriously Delinquent: 90+ days late or in foreclosure process) 2011 - Q1 2011-Q3
  22. 22. 500 1000 1500 2000 2500 0 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - JanSource: Census, HUD 2002 - Jul 2003 - Jan 2003 - Jul Thousand units (annualized) 2004 - Jan 2004 - Jul 2005 - Jan multifamily 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul single-family Housing Starts 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan (Well Below 50-year average of 1.5 million each year) 2011 - Jul 2012 - Jan Long-term Average
  23. 23. Home Price: Big Declines from 2006 to 2008 Small Declines from 2009 to 2011 (index set at 100 from 2000) Case-Shiller FHFA220200180160140120100 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
  24. 24. Latest Home Price Trend in early 2012 (Lagging Indicator … reflects price negotiations from late 2011)• NAR: Up in more than half of local markets• FHFA: Up in deep-middle America, New England, South Atlantic, Mountain states• Case-Shiller: Up in Charlotte, Dallas, Las Vegas, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Tampa, Washington D.C.• Core Logic and LPS: many markets with price gains
  25. 25. Listing Price Changes Market % Change from March 2011 to March 2012 Miami Double-digit gains Phoenix Double-digit gains San Antonio Double-digit gains Washington D.C. Double-digit gainsPlease note that a part of the price change may reflect more upper-end homes being listed and fewer lower-end homes .Therefore, not all of the price change is due to price appreciation of a particular property. Source: Realtor.com
  26. 26. REALTOR® Confidence Index Showing Signs of Recovery: 5 year-high60.050.040.030.020.010.0 0.0 Oct08 Oct09 Oct10 Oct11 Apr08 Apr09 Apr10 Apr11 Jul08 Jul09 Jul10 Jul11 Jan08 Jan09 Jan10 Jan11 Jan12 Single Family Townhouses Condos
  27. 27. Prepare for Early Move (2014) by Federal Reserve Fed Funds 30-year Mortgage %76543210 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 forecast forecast forecast Modestly higher rates could help home sales as banks re-staff mortgage work for home purchase applications and less refinance applications.
  28. 28. Consumer Price Inflation (Above Fed’s preferred 2% core inflation rate) Rent All Items Core %543210 2005 2006 2007 2008 2009 2010 2011 2012 2013-1 forecast forecast
  29. 29. Annual Membership (NRDS count at year-end)1,500,0001,400,0001,300,0001,200,0001,100,0001,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 29
  30. 30. Annual Forecast 2011 2012 2013 History Forecast ForecastExisting Home Sales 4.26 million 4.6 to 4.7 million 4.7 to 4.8 millionNew Home Sales 304,000 400,000 530,000Housing Starts 610,000 770,000 970,000Existing Home Price $166,100 $168,100 $173,100(Growth) (-3.9%) (+1.2%) (+3.1%)GDP Growth +1.8% +2.4% +3.1%Payroll Job Gains +1.7 million +2.2 million +2.5 millionFed Funds Rate 0.1% 0.1% 0.1%30-yr Mortgage 4.7% 4.2% 4.9%
  31. 31. Risks to Forecast• Washington Policy – QRM 20% down payment requirement? – Other Dodd-Frank rules? Help or Hurt? – Trim mortgage interest deduction? – Capital gains tax on home sale? – Fiscal Cliff on January 1, 2013 … if no new compromised budget, then: • Automatic deep cuts to military and domestic spending • Automatic higher taxes • 3% shaved off GDP
  32. 32. Wealth Distribution (Federal Reserve data on median net worth, with 2011 NAR estimate) $250,000 $200,000 1998 $150,000 2001 $100,000 2004 $50,000 2007 $0 2011 estimate Renter OwnerBig Drivers of Future Income and Wealth will be: • Tax and Spend policy • Voting • Graduate from high school • Stay in school • Ability to buy a home • Buy a home within means Data Source for Median Net Worth: Federal Reserve, NAR estimate for 2011

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