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2010 Real Estate Market Forecast: Jed Smith Real Estate Roundtable Presentation


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Real estate market forecast for the rest of 2010 provided by Jed Smith, economist for National Association of REALTORS - presented on the Real Estate RoundTable show on BlogTalkRadio March 5, 2010.

2010 Real Estate Market Forecast: Jed Smith Real Estate Roundtable Presentation

  1. 1. NPMA Legislative Day, Monday, March 1, 2010, at the Mayflower Hotel on Connecticut Avenue. <br />As the session stands, we are set for 10:30am to noon and it is a breakout. <br />Economic Outlook<br />Residential and Commercial Real Estate Market Conditions<br />Jed Smith <br />Managing Director for Quantitative Research<br />NATIONAL ASSOCIATION OF REALTORS®<br />
  2. 2. Economic Snapshot<br />Recovering from a recession—slowly.<br />Continued high unemployment.<br />Key Issue: JOBS, JOBS, JOBS. <br />Consumer Confidence: Short term and long term outlooks.<br />Entitlement Programs, Government Spending, and Budget.<br />National Debt.<br />National Wealth<br />Housing Issues<br />Liquidity<br />For 2010: EHS: 5.7 Million.<br />Price: +3%, Starts 668,000 up from 552,000.<br />
  3. 3. Key IssuesRecession/Recovery and JOBS<br /><ul><li>What Happened to the Economy?
  4. 4. Where are We Now?
  5. 5. What’s the Economic Outlook?
  6. 6. What’s the Housing Outlook?
  7. 7. What are the Forecast Risks?
  8. 8. What’s the Commercial Outlook
  9. 9. Conclusions</li></li></ul><li>What Happened to the Economy?Shadow Banking System/Recession—CRASH<br />May<br />2008<br />Aug 2008<br />Jun 2008<br />July 2008<br />Sep 2008<br />2009<br />
  10. 10. Unemployment Rate<br />%<br />Source: BLS<br />
  11. 11. What Happened?Consumer Confidence: The Cyber Cracker Barrel<br />
  12. 12. Longer Unemployment—Slow to Find a Job<br />
  13. 13. What Happened--Total U.S. JobsNon-Farm, Establishment Data<br />Source: BLS<br />
  14. 14. Single-Family Housing Starts<br />In thousand units<br />Source: Census<br />
  15. 15. Construction Spending<br />$ million<br />Source: Census<br />
  16. 16. Foreclosures—A Major Problem<br />$ million<br />Source: Mortgage Bankers<br />
  17. 17. GDP Growth<br />% annualized growth rate<br />Source: BEA<br />
  18. 18. Where Are We Now?Recent Real Estate Market Experience <br />Financial System: Cleaning Up From The Tsunami.<br />Weakened Balance Sheets, Increased Risk Aversion.<br />Financial Institutions: Credit less available.<br />Impacting Housing Markets: Debris from Tsunami. <br />Major Loss of Wealth, Low Consumer Confidence, Lost Jobs. <br />Distressed Property: Foreclosures and Short Sales<br />Negative Equity.<br />The Current Housing Markets. <br />Residential Sales: Recovering, Price Still an Issue. <br />Commercial: Financing, Price, Foreclosures, Slow Recovery.<br />Continuing Issues: Concern over market trends and outlook.<br />The KEY ISSUE: Jobs<br />
  19. 19. Where Are We Now?Recent Real Estate Market Experience<br />National Sales – Existing Homes.<br />Down 30% as of January ‘10 from Sept 05 peak.<br />Up 11.5% January 09 vs. January ‘10. <br />Market forecast is 5,700,000 nationally for 2010.<br />National Prices – Existing Homes.<br />Median Down 29% as of January 09 from July 2006 peak.<br />Median Constant January 09 vs. January ‘10. <br />Sales – New Single Family Homes Sold.<br />National Down 78% from July 2005 peak as of January ‘10. <br />National Down 6% January ‘10 vs. January ‘09. <br />Real Estate Trends.<br />Distressed Sales: 38% of total including foreclosures and short sales. <br />Negative Equity—est. at 25 percent of mortgages– continuing problem. <br />REALTOR® expectations: 67% currently see constant/rising prices during next year, vs. 61% who saw declining prices in January 09. <br />
  20. 20. Where Are We Now?Interest Rates: At Historic Lows<br />Source: Freddie Mac<br />
  21. 21. Existing-Home Inventory<br />Source: NAR<br />
  22. 22. Single Family New Home Inventory<br />Source: Census<br />
  23. 23. What’s the Economic Outlook?<br />
  24. 24. What is the Housing Outlook?<br />Home Sales—Have recovered from their lows.<br />Foreclosures—are clearing the market.<br />Price—Stabilizing/Stabilized—depending on market.<br />New Attitudes towards risk, spending, expectations.<br />Housing Affordability High—Interest rates, price.<br />Tax Credit and Higher Loan Limits<br />Raised Sales by 350,000 to 400,000.<br />Extended to move-up market.<br />Outlook.<br />Government Programs: Mixed Results.<br />
  25. 25. Housing Outlook--Affordability: Median Mortgage Payment (Principle and Interest) as Percent of Income<br />%<br />Source: NAR<br />
  26. 26. Months Supply<br />Months Supply<br />Source: NAR<br />
  27. 27. Prices Increasingly In Line With History(Median Home Price to Median Income Ratio)<br />Source: NAR<br />
  28. 28. Monthly Home Price TrendsCase-Shiller, Government (FHFA), NARSeasonally Adjusted Data<br />$ thousand <br />FHFA<br />NAR<br />Case-Shiller<br />
  29. 29. Housing Starts: Down Significantly<br />New Units Needed<br />3 million more people each year … 1 to 1.4 million household formation <br />… need to account for 300,000 demolitions …. need 1.3 to 1.7 new units<br />
  30. 30. What is the Housing Outlook?Existing Home Sales<br />In thousand units<br />Source: NAR<br />
  31. 31. Housing Outlook—Median Home Prices Actual and Forecast<br />% change from a year ago<br />Source: NAR<br />
  32. 32. Commercial Market OutlookReasons for Concern<br />Office<br />Demand drives slowdown.<br />Financial/other employment – impacting downtown markets.<br />Rent growth – negative.<br />Industrial<br />Import decline affects coastal warehouse demand.<br />Manufacturing and storage requirements—declining.<br />Warehouse demand moves inland.<br />Increased transportation costs – closer to consumer<br />Rail, intermodal centers<br /><ul><li>Retail
  33. 33. Consumer spending – down to necessities.
  34. 34. Bankruptcies – Circuit City, General Growth Properties, Eddie Bauer.
  35. 35. Space availability—plentiful.
  36. 36. Multi-Family
  37. 37. Moderate growth ahead.
  38. 38. Foreclosures generally increase rental demand.
  39. 39. Supply pipeline – possible overhang.
  40. 40. Wide variations among markets.</li></li></ul><li>Commercial and Residential Property Prices<br />Index = 100 in 1990<br />Case-Shiller<br />MIT<br />2009 data is for Q2 <br />
  41. 41. Office Market Fundamentals<br />
  42. 42. Office Rent Growth<br />
  43. 43. Commercial Market Overview<br />CRE Estimated Value: $6.5 Trillion.<br />Estimated Debt: $3.25 Trillion <br />Bank Debt: $1.7 Trillion; ultimate losses of $115 to $150 Billion.<br />CMBS: $700 Billion; ultimate losses of $65-85 Billion.<br />CRE Issues: Prices, Rents, Vacancies, Inventories, Refinancing, Credit Markets.<br />Economic Outlook.<br />Commercial recovery a year or more away—strongly dependent on employment.<br />Economic Uncertainty: Equity capital difficult to obtain.<br />
  44. 44. Commercial Core Property SalesNational, Through November 2009<br />
  45. 45. Commercial Real EstateRefinancing—Billions of Dollars<br />
  46. 46. Commercial Distressed PropertyRelatively Minimal. Alternatives for Lenders<br />
  47. 47. Prices Mixed Due to Low Sales<br />
  48. 48. Many Problem Loans Not ResolvedDistressed Problem Potentially Significant<br />Source: Real Capital Analytics<br />
  49. 49. Major Changes in Funding SourcesFinancing: Sellers, Assumptions, Regional Banks<br />Source Real Capital Analytics<br />
  50. 50. Commercial Market Outlook<br />Negative Absorption, Higher Vacancies, Declining Rents.<br />Pricing and Financing Challenges.<br />CMBS—Modest recovery; insufficient to address maturing debt. <br />Vacancy Rates—2010.<br />Office: National 18.3%, up from 15.8%. <br />Industrial: National 15.2%, up from 13.2%. <br />Retail: 13% up from 11.9%. <br />Multi-Family: 7.6% up from 7.3%. <br />Economic Recovery: Jobs, spending, uncertainties.<br />Commercial Sector--Dependent on Additional Jobs, Consumer Spending.<br />
  51. 51. Using NAR Information During A Difficult Economy<br />Examples of NAR Information on Housing Markets.<br />Local Market Reports:<br /><br />Realtors Confidence Index:<br /><br />Existing-Home Sales Series:<br /><br />Prices and Sales at MSA and State levels:<br /><br />Local Market Data:<br />Commercial Real Estate Market Survey:<br /><br />Commercial Outlook:<br /><br />
  52. 52. Major NAR ReportsProviding Customer Information<br />NAR Profile of Home Buyers and Sellers: Extensive information on the market.<br />NAR Investment and Vacation Home Buyers Survey.<br />NAR Member Profile.<br />NAR Commercial Member Profile.<br />NAR Profile of Buyer’s Home Feature Preferences.<br />
  53. 53. Concluding Comments<br />GDP: Weak recovery. <br />Major Issues: Jobs, Consumer Confidence, Consumer Balance Sheets, Financial System/Credit Availability, Deficit.<br />Highly dependent on Administration/Fed actions.<br />U.S. Real Estate Outlook<br /> Residential: Distressed real estate: clearing market/lower price. <br />Sales—Have recovered from lows. Price: Varies by individual market-- distressed real estate, consumer expectations/confidence.<br />Bifurcated Markets<br />Commercial: Still declining; slow markets; financing issues.<br />Foreign transactions: U.S. is attractive.<br />Looking Forward: Consumer Confidence, risk management, addressing balance sheets, caution. <br />Jobs, Jobs, Jobs!<br />