2010 Economic Forecast with Lawrence Yun


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2010 Economic Forecast with Lawrence Yun

  1. 1. Real Estate Market Trends & Outlook<br />Lawrence Yun, Ph.D.<br />Chief Economist<br />NATIONAL ASSOCIATION OF REALTORS®<br />Presentation at Vanderbilt University <br />March 17, 2010<br />
  2. 2. Housing Stimulus Impact<br />Tax Credit and Higher Loan Limit<br />2 million 1st-time buyers by end of November<br />Additional 2.4 million buyers (1st time and many repeat buyers) by end of June 2010<br />About 1 million induced-impact<br />Existing Home Sales gets 15% boost<br />Home Price gets 3% to 5% support<br />Preservation of Middle-Class Wealth<br />
  3. 3. Recent Pending Home Sales <br />Recovery pre-dominantly in lower-end and taking longer to close in recent months<br />Source: NAR<br />
  4. 4. Bifurcated Recovery<br />$ thousand <br />% change from one year ago<br />Homes priced under $100K<br />Homes priced above $500K<br />Source: NAR<br />
  5. 5. Aggregate Months Supply<br />In thousand units<br />Source: NAR<br />
  6. 6. National Existing Home Sales<br />Pre-boom sales<br />Source: NAR<br />
  7. 7. Vacation Home Sales Nationwide<br />Thousand units<br />Source: NAR<br />
  8. 8. First-Time Buyers Used Up or Pent-Up Demand ?<br />In year 2000 (pre-boom)<br />11 million renters with qualifying income to buy a median priced home<br />In 2009 <br />16 million renters with qualifying income to buy a median priced home<br />Most renters are not qualified and should not be homeowners <br />
  9. 9. First-Time Buyers Used Up or Pent-Up Demand ?<br />
  10. 10. Household Formation(2-year moving average)<br />
  11. 11. Preservation of Middle Class Wealth<br /><ul><li>$8000 Price Drop or $8000 Tax Credit ?
  12. 12. No difference from buyer’s perspective
  13. 13. Major differences on market impact
  14. 14. $8,000 or 4% decline value means $730 billion in housing wealth destruction
  15. 15. Consumer wealth effects
  16. 16. Consumer’s rational postponement of purchase </li></li></ul><li>Financial Wealth Rising<br />$ billion<br />Source: Federal Reserve, NAR estimate<br />Source: Federal Reserve<br />
  17. 17. Housing Wealth to Rise<br />($4 trillion wealth loss in housing from peak)<br />If additional $8,000 price decline … $700 billion further loss<br />$ billion<br />Source: Federal Reserve, NAR estimate<br />Source: Federal Reserve<br />
  18. 18. Metro Median Home Price<br />$ thousand <br />Riverside<br />Indianapolis<br />Source: NAR<br />
  19. 19. National Existing Home Price <br />
  20. 20. Overcorrection Needs to be Halted(Home Price to Income Ratio)<br />Stay within Budget and all will be OK !<br />Source: NAR<br />
  21. 21. Mortgage Payment to Income(by middle income person buying a median priced home)<br />Stay within Budget and all will be OK !<br />Source: NAR<br />
  22. 22. Latest Home Price Trend<br />% change from one year ago <br />FHFA in Red<br />NAR in blue<br />Case-Shiller in Green<br />
  23. 23. Housing Starts: Too Much to Too Little<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 />
  24. 24. Serious Delinquency Rate(90+ days late or foreclosure)<br />%<br />Subprime<br />FHA<br />VA (purple)<br />Prime (green)<br /><ul><li>FHA Reserve Fund depleting … Bailout ???
  25. 25. Fannie-Freddie … future reform without private profit and taxpayer loss
  26. 26. Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!</li></li></ul><li>Economy Recovering<br />GDP annualized growth rate<br />Forecast<br />Source: BEA<br />
  27. 27. Total Payroll Jobs in U.S.<br />Job Changes in U.S.<br />(Monthly Payroll Job Change)<br />In thousands<br />Source: BLS<br />
  28. 28. Total Payroll Jobs in U.S.<br />Temp Hire Job Changes in U.S.<br />(monthly payroll job change)<br />In thousands<br />Source: BLS<br />
  29. 29. Total Payroll Jobs in Michigan<br />In thousands<br />Source: BLS<br />
  30. 30. Total Payroll Jobs in Washington D.C. Metro<br />In thousands<br />Source: BLS; (12-month moving average)<br />
  31. 31. Federal Budget Deficit <br />Source: Congressional Budget Office Projections<br />Source: CBO, NAR estimate<br />
  32. 32. Federal Housing Policy<br />Tax Favoritism<br />Mortgage interest deduction <br />Capital gains tax exclusion<br />Property tax deduction<br />But who pays taxes?<br />Ownership and Positive Externalities<br />Student test scores, teen pregnancy, juvenile delinquency<br />What is the proper homeownership rate?<br />Any Ownership vs Successful Ownership<br />
  33. 33. Economic Outlook <br />Unemployment Rate Peak at 10.5% in few months before going down consistently<br />
  34. 34. Housing Outlook <br />
  35. 35. Commercial and Residential Property Prices<br />Index = 100 in 1990<br />Case-Shiller Residential<br />MIT Commercial<br />2009 data is for Q2 <br />
  36. 36. Who Is Buying?<br />
  37. 37. Credit Crisis 2008: Libor vs. Fed Funds Rate<br />Lehman Brothers <br />belly up<br />Subprime acting up<br />Bear Stearns<br />
  38. 38. Credit Crunch Ending?<br />Libor Rates improving<br />Junk Bond yields becoming less wild<br />Banks making profit … but are they getting too big again (75% of assets controlled by 10 banks)<br />Federal Reserve lending at zero (though not to consumers)<br />Not Yet … Need to see<br />Lower rate on jumbo mortgages<br />Lower rate on second home purchases <br />Lower rate on condo purchases<br />Lower rate on commercial real estate loans<br />
  39. 39. Office Market Fundamentals<br />
  40. 40. Office Rent Growth<br />
  41. 41. Commercial Market Outlook<br />2008 to 2009 <br />Net absorption turns negative<br />Rising Vacancy Rates and Stagnant Rent<br />Markedly Fewer Transactions<br />Property Prices Falling<br />Distress Rising<br />2010<br />Economic recovery <br />Local market recovery <br />Commercial recovery with lag time<br />Modestly Positive net absorption<br />Rent struggles to move positive<br />