Housing Market and Economic Outlook: July 2011

1,846 views

Published on

Chicago Chase Event July 2011

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,846
On SlideShare
0
From Embeds
0
Number of Embeds
476
Actions
Shares
0
Downloads
30
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Housing Market and Economic Outlook: July 2011

  1. 1. Housing Market and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at JP Morgan Chase Event & Chicago Association of REALTORS ® Chicago, IL July 21, 2011
  2. 2. U.S. Annual Existing Home Sales …Ready to Breakout?
  3. 3. Monthly Existing Home Sales Tax Credit Impact
  4. 4. Pending Existing Home Sales Index 2010 to 2011 Tax Credit Impact
  5. 5. Activity in Chicagoland <ul><li>First Quarter Sales (no tax credit in 2011 vs. tax credit in 2010) </li></ul><ul><ul><li>Cook County down 12% from 2010 Q1 </li></ul></ul><ul><ul><li>DuPage County down 1% </li></ul></ul><ul><ul><li>Kane County down 2% </li></ul></ul><ul><ul><li>Lake County down 7% </li></ul></ul><ul><ul><li>McHenry County down 16% </li></ul></ul><ul><li>First Quarter Prices </li></ul><ul><ul><li>Chicagoland MLS data down 7.3% from 2010 Q1 </li></ul></ul><ul><ul><li>Federal Housing Finance down 5.0% </li></ul></ul><ul><ul><li>Case-Shiller down 7.5% </li></ul></ul><ul><li>Source: IAR and Case-Shiller, FHFA </li></ul>
  6. 6. Midwest Weather Impact
  7. 7. Solid Gains of 30% or more (from one year ago among major markets) <ul><ul><ul><ul><ul><li>Austin </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Baltimore </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Chicago </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Hartford </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Houston </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Indianapolis </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Kansas City </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Portland, OR </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>San Antonio </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Seattle </li></ul></ul></ul></ul></ul>
  8. 8. New Home Sales (Pending contracts, not Closings) In thousands
  9. 9. U.S. Housing Starts Housing Starts in thousands
  10. 10. Chicago MSA Housing Permits
  11. 11. Newly Built Home Inventory In thousands
  12. 12. New Home Price vs. Existing Home Price 30% premium rather than 10-15% normal premium 12 month moving average Existing Home Price New Home Price
  13. 13. Improving Factors for Higher Home Sales <ul><li>First quarter at 5.1 million annualized pace … if sales can hold at current levels then 4% annual increase in 2011 … without homebuyer tax credit stimulus </li></ul><ul><li>The remainder of the year looks to be better </li></ul><ul><ul><li>Job Creation </li></ul></ul><ul><ul><li>Robust stock market recovery from 2008 </li></ul></ul><ul><ul><li>Rising rents and larger pool of qualified renters </li></ul></ul><ul><ul><li>Buyers want distressed properties … at deep discounts </li></ul></ul><ul><ul><li>International buyers cashing in on the weakened dollar </li></ul></ul><ul><ul><li>Smart money chasing real estate </li></ul></ul><ul><ul><li>Potential Huge Positive … Lending opens up </li></ul></ul><ul><ul><li>Potential Huge Negative … Washington policy change </li></ul></ul>
  14. 14. Total U.S. Payroll Jobs – Modest Recovery In thousands 7 million below prior peak In thousands
  15. 15. North Dakota Jobs In thousands
  16. 16. Texas Payroll Jobs – Fully Recovered In thousands
  17. 17. Chicagoland Payroll Jobs – Recovery? In thousands
  18. 18. Weekly Fresh Unemployment Claims … Not Going under 400,000 In thousands In thousands
  19. 19. Financial Asset at $50 trillion … Full Recovery Source: Federal Reserve
  20. 20. Realtors Reporting Rising Apartment Rents
  21. 21. CPI Apartment Rent
  22. 22. Home Price vs Rent (index = 100 in 1980)
  23. 23. # of Serious Delinquent Mortgages … Mostly Borrowers prior to 2009 (90+ days late or in foreclosure process) In 2010, there were 1.5 million distressed sales … need to wait 2.7 years
  24. 24. Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years
  25. 25. One U.S. Dollar gets …
  26. 26. U.S. Home Price after Currency Conversion
  27. 27. Smart Money Buying? <ul><li>All-cash record high at 35% of all sales </li></ul><ul><ul><li>Investors want quick deals </li></ul></ul><ul><ul><li>Investors cannot get mortgage </li></ul></ul><ul><ul><li>Some do not want to bother with appraisals </li></ul></ul><ul><ul><li>Financial asset recovery helping with cash </li></ul></ul><ul><ul><li>Hedge against future inflation </li></ul></ul><ul><ul><li>Hedge against future housing shortage? </li></ul></ul><ul><ul><li>Empty nesters downsizing and using leftover cash for kids’ home? </li></ul></ul><ul><li>Upper-end market beginning to move </li></ul>
  28. 28. Real Estate as Inflation Hedge? (single-family home price in blue vs CPI in red) Good inflation hedge in the past before the housing bubble/bust
  29. 29. Upside Potential Surprise
  30. 30. Average Credit Score for Loan Origination 15% to 20% Higher Sales Normal 2009 2010 If Fannie 720 761 762 720 Freddie 720 757 758 720 FHA 650 682 698 660
  31. 31. QE2 … to keep rates low … are inconsequential if too strict underwriting standards Fannie and Freddie Backed Mortgage Loan Performance Source: Federal Housing Finance Agency Fannie Mae Vintage Cumulative Default Rate after 18 months 2002 3.1% 2003 2.5% 2004 4.6% 2005 4.8% 2006 11.6% 2007 28.7% 2008 12.6% 2009 1.2% Freddie Mac Vintage Cumulative Default Rate after 18 months 2002 2.7% 2003 1.2% 2004 2.0% 2005 1.8% 2006 6.0% 2007 22.3% 2008 13.7% 2009 1.1%
  32. 32. Downside Potential Surprise
  33. 33. Washington Policy Change? <ul><li>Going after the Middle-Class by Republicans </li></ul><ul><ul><li>Raise down payment to 20% ??? </li></ul></ul><ul><ul><li>Despite no taxpayer bailout for FHA and VA program </li></ul></ul><ul><li>Going after the Rich by Democrats </li></ul><ul><ul><li>Limit mortgage interest deduction for high income and second homes ??? </li></ul></ul><ul><ul><li>Crush the working class in resort areas (Yacht Tax Impact) </li></ul></ul><ul><li>Going after the Rich by Republicans </li></ul><ul><ul><li>Lower conforming loan limit ??? </li></ul></ul><ul><ul><li>Income redistribution from consumers to banks </li></ul></ul><ul><li>Going after the Small Business “Tax Cheats” by Democrats </li></ul><ul><ul><li>Force massive 1099 paperwork to run a business and hire IRS agents </li></ul></ul><ul><ul><li>REPEALED !!! </li></ul></ul><ul><li>Fannie and Freddie model was flawed (private profit/taxpayer loss) and need a fundamental restructuring </li></ul>
  34. 34. Current Savings Rate = 6% Takes 9 years to save $20,000 based on average $2,200 per year Takes 14 years to save $32,000 (20% of today’s median price)
  35. 35. Economic Hurdles <ul><li>Inflation hitting pocketbooks </li></ul><ul><ul><li>Gas and Oil … daily reminder </li></ul></ul><ul><ul><li>Food and grocery … daily reminder </li></ul></ul><ul><li>Huge pool of underemployed … everything is unaffordable even if no inflation </li></ul><ul><li>Budget Deficit … no impact now but when? </li></ul><ul><li>Consumer confidence … another losing election for incumbents </li></ul>
  36. 36. CPI Inflation and PPI Inflation (% change from one year ago) Prices falling on consumer electronic products : Smartphone1 = $200 to Smartphone2 = $200 is computed as falling prices; even though your wallet did not get any relief
  37. 37. Broad Inflationary Pressure Indicator % change from one year ago Consumer Price Index 3.4% Producer Price Index (Finished Product) 7.0% Producer Price Index (Intermediate Product) 11.0% Producer Price Index (Crude Product) 25.5% Dow Jones Commodity Spot Price Index 38.1% Gold Price Around Record High Price
  38. 38. # Unemployed (looking but cannot find job)
  39. 39. Adults in the Labor Force (Rest are not looking for job and officially not included in unemployment rate)
  40. 40. Government Spending and Tax Receipts $ billion
  41. 41. Government Default?
  42. 42. Consumer Confidence Index
  43. 43. Housing Baseline Outlook <ul><li>Moderate GDP Expansion 1.5% to 2.5% in the next 2 years </li></ul><ul><li>1.2 to 1.7 million annual job additions yearly in the next 2 years </li></ul><ul><li>Mortgage Rates rising to 5.5% by year-end 2011 and 6% in 2012 </li></ul><ul><li>Home values – no meaningful change in the national price in the next 2 years </li></ul><ul><li>Chicago Market ??? </li></ul>
  44. 44. Presidential Quotes <ul><li>Franklin Delano Roosevelt: </li></ul><ul><ul><li>“ A nation of homeowners is unconquerable.” </li></ul></ul><ul><li>Ronald Reagan </li></ul><ul><li>“ We will preserve the part of the American dream which the mortgage-interest deduction symbolizes.&quot; </li></ul><ul><li>  </li></ul>
  45. 45. For More Information <ul><li>realtors.org/research </li></ul><ul><ul><li>Research data and analysis </li></ul></ul><ul><ul><li>facebook, twitter for daily economic updates </li></ul></ul>

×