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Economic update ltm (june 2012)
1. Real Estate and Economic Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Leadership Team Meeting
Chicago, IL.
June 28, 2012
2. Annual Existing Home Sales:
A Tough, Flat 4 years
8
In million units
7 7.08
6 6.52
5
5.02
4 4.12 4.34 4.18 4.26
3
2
1
0
2005 2006 2007 2008 2009 2010 2011
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 2011
QRM rules
Raising g-fees to fund non-housing issues
Banks hoarding cash! … from regulatory uncertainties and lawsuits?
5. Despite Second Home Sales Recovery
In thousands
4000
3500
3000
2500
2000 Investment
1500
1000 Vacation
500
0
2005 2006 2007 2008 2009 2010 2011
Buy a condo for your college student
53% of REALTOR® members own a residential investment property
29% own a commercial property
19% own a vacation home
6. 2012 First Quarter Sales: Strongest in 5 years
6,000,000
5,000,000
4,000,000
2008
2009
3,000,000
2010
2,000,000 2011
2012
1,000,000
0
Q1 Q2 Q3 Q4
7. Monthly Pending Home Sales Index
Point to Strongest Second Quarter in 5 years
115
110
105 Homebuyer Tax Credit
100
95
90
85
80
75
70
2007 - 2007 - 2008 - 2008 - 2009 - 2009 - 2010 - 2010 - 2011 - 2011 - 2012 -
Jan Jul Jan Jul Jan Jul Jan Jul Jan July Jan
Source: NAR
8. 10
15
20
25
-30
-25
-20
-15
-10
-5
0
5
2010 - May
2010 - Jun
2010 - Jul
2010 - Aug
2010 - Sep
2010 - Oct
2010 - Nov
2010 - Dec
2011 - Jan
2011 - Feb
2011 - Mar
2011 - Apr
2011 - May
2011 - Jun
2011 - Jul
2011 - Aug
2011 - Sep
% change from one year ago
2011 - Oct
Up for 12 straight months
2011 - Nov
2011 - Dec
2012 - Jan
2012 - Feb
2012 - Mar
2012 - Mar
Year-over-Year Change in Pending Contracts:
2012 - Apr
9. Improving Factors for Higher Sales in 2012:
1. High Affordability
2. Growing Economy and Job Creation
3. Solid stock market recovery from 2008
4. Rising rents and a larger pool of qualified renters
5. Pent-up release of Household Formation
• Rising demand for ownership and rentals as
young-adults move out of parent’s basement
6. Smart money chasing real estate (i.e., investors)
7. Consumer confidence in buying an appreciating asset
14. 124000
126000
128000
130000
132000
134000
136000
138000
140000
2000 - Jan
2000 - Jul
2001 - Jan
In thousands
2001 - Jul
In thousands
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
8 million job losses
2010 - Jan
2010 - Jul
2011 - Jan
Total U.S. Payroll Jobs Increasing
2011 - Jul
4 million
job gains
2012 - Jan
15. 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
16. 0
1
2
3
4
5
-1
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
Rent Growth
2008 - Jan
% change from one year ago
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
(Component from Consumer Price Index)
2011 - Jan
2011 - Jul
2012 - Jan
17. Visible Inventory of Homes
(6-year low for Existing Homes and 50-year low for New Homes)
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
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
19. 500
1000
1500
2000
2500
0
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
Source: 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
20. 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.
• LPS and Core Logic: many markets with price gains
21. Equity and Underwater Homeowners
Positive Equity Negative Equity
Homeowners Homeowners
Early 2012 About 65 million 11 to 12 million
Of which 25 million have
no mortgages
After 5% price 67 million 9 million
appreciation
After 10% price 69 million 7 million
appreciation
Source: Census, Federal Reserve, CoreLogic, NAR estimates
22. Wealth Distribution
(Federal Reserve data on median net worth, with 2011 NAR estimate)
$250,000
$200,000
1998
$150,000
2001
2004
$100,000
2007
2011 estimate
$50,000
$0
Renter Owner
Data Source for Median Net Worth: Federal Reserve, NAR estimate for 2011
23. 10
15
20
-20
-15
-10
-5
0
5
%
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
Finished
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
Diminishing
2007 - Jul
Intermediate
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
Producer Price Inflationary Pressure …
2012 - Jan
25. Prepare for Early Move (2014)
by Federal Reserve
Fed Funds 30-year Mortgage
%
7
6
5
4
3
2
1
0
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.
26. -1600000
-1400000
-1200000
-1000000
-800000
-600000
-400000
400000
-200000
200000
0
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
$ million; 12-month Total
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
U.S. Federal Budget Deficit
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
27. Housing Forecast
2011 2012 2013
History Forecast Forecast
Existing Home Sales 4.26 million 4.6 to 4.7 million 4.8 to 5.0 million
New Home Sales 304,000 400,000 500,000 to 600,000
Housing Starts 610,000 770,000 1 million
Existing Home Price $166,100 $170,100 $177,300
(Growth) (-3.9%) (+2.4%) (+4.2%)
GDP Growth +1.8% +2.3% +3.1%
Payroll Job Gains +1.7 million +1.8 million +2.5 million
Fed Funds Rate 0.1% 0.1% 0.1%
30-yr Mortgage 4.7% 4.0% 4.5%
28. 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
39. Twenty Seven Percent of Realtors® Reported Working
with an International Client
Twelve Months Ending March 2012
Realtors® with International Clients
Percentage of Respondents
40%
38%
36%
34%
32%
32%
30%
28% 28% 27%
28%
26%
26%
23%
24%
22%
20%
2007 2008 2009 2010 2011 2012
40. Residents from Most Countries Have Some
Participation in U.S. Residential Market
Major Purchasers Listed Below
41. International Buyers Are Throughout the U.S.
But Concentrated in a Few States
Percent of International Sales by State
35%
30%
25%
20%
15%
10%
5%
0%
Arizona California Florida Georgia Nevada New York Texas
2007 5% 16% 10% 2% 2% 4% 8%
2008 5% 11% 9% 3% 2% 4% 7%
2009 7% 13% 23% 1% 1% 2% 11%
2010 11% 12% 22% 5% 3% 4% 8%
2011 6% 12% 31% 2% 2% 3% 9%
2012 7% 11% 26% 4% 2% 4% 7%
42. International Purchasers
Cash for Majority of Purchases
Type of Financing
80%
69%
70% 62% 62%
55%
60% 54% 52%
50% 46%
43% 44%
40% 36% 37%
28%
30%
20%
10%
0%
2007 2008 2009 2010 2011 2012
All cash With mortgage financing
Editor's Notes
Currently, deal flow remains significantly below the 2007 peak, but sizable transactions have been reported recently, and there has been a year-over-year improvement in transaction volume. In 2010, commercial real estate deal volume rose 124.3 percent year-over-year, to $122.7 billion, compared to $54.7 billion in 2009. Gains were higher for high-quality core assets, especially in the office segment, where sales volume rose 156.6 percent YoY to $41.1 billion in 2010, from $16.0 billion in 2009. The growth has continued so far in 2011, with CRE deal volume rising 69.5 percent YoY in 1Q11 to $30.5 billion. While this improvement is a positive development, it has yet to be sustained for a long enough to confirm 2009 as the bottom for transactions in this cycle. Transaction levels remain below peak, but private investors continue to account for the largest share of the total. The recent increase, however, has been driven by public investors (including REITs) and foreign investors, with both categories surpassing 2009 totals in 2010.
