Presentation: Dr Yun - Charlotte

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Presentation: Dr Yun - Charlotte

  1. 1. Housing Market and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS®Presentation at Charlotte Regional REALTOR® Association Charlotte, NC November 1, 2011
  2. 2. U.S. Annual Existing Home Sales …Ready to Breakout?8,000,0007,000,0006,000,0005,000,0004,000,0003,000,0002,000,0001,000,000 0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
  3. 3. 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 5,500,000 6,000,000 6,500,000 7,000,000 2008 - Jan2008 - Mar2008 - May 2008 - Jul2008 - Sep2008 - Nov 2009 - Jan2009 - Mar2009 - May 2009 - Jul2009 - Sep2009 - Nov 2010 - Jan2010 - Mar2010 - May Tax Credit Impact 2010 - Jul2010 - Sep2010 - Nov 2011 - Jan Flat Line outside of Tax Credit Monthly Existing Home Sales …2011 - Mar2011 - May 2011 - Jul2011 - Sep
  4. 4. 0 1 2 3 4 5 6 7 8 92000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul 30-year Mortgage2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul Fed Funds2009 - Jan2009 - Jul2010 - Jan … Despite Record Low Rates2010 - Jul2011 - Jan2011 - Jul
  5. 5. 0 2 4 6 8 10-10 -8 -6 -4 -2 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 not 1% as in 1st half in 2011) 2008 - Q3 2009 - Q1 2009 - Q3 Economy Losing Momentum 2010 - Q1 2010 - Q3 2011 - Q1 (GDP growth after recession should be sustained 4% to 5% … Desired Pace 2011 - Q3
  6. 6. Consumer Confidence in the Tanks160140120100 80 60 40 20 0 2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
  7. 7. 0 50 100 150 200 250199019911992199319941995199619971998199920002001200220032004200520062007 NC Home Sales - Annual2008200920102011
  8. 8. 0 50 100 150 200 250 3001990 - Jan1991 - Jan1992 - Jan1993 - Jan1994 - Jan1995 - Jan1996 - Jan1997 - Jan1998 - Jan1999 - Jan2000 - Jan2001 - Jan2002 - Jan2003 - Jan2004 - Jan2005 - Jan2006 - Jan2007 - Jan2008 - Jan2009 - Jan2010 - Jan Case-Shiller Index: Charlotte and Miami2011 - Jan
  9. 9. Charlotte Region Activity• September 2011 YTD … up 1.1%• September 2010 YTD … up 4.0% (with tax credit)• Inventory … down 20%• Closed average price … down 6.5%• Listed average price … up 5%• Case-Shiller price index … bottomed ??? … up 2 out of the past 3 monthsSource: CRRA 10K reports
  10. 10. U.S. Housing Starts… Very Low and much below Long-term Average2500 Housing Starts in thousands2000 Long-term Average;1500 Long-term Requirement1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
  11. 11. 0 100 200 300 400 500 600 7002000 - Feb2000 - Aug2001 - Feb2001 - Aug In thousands2002 - Feb2002 - Aug2003 - Feb2003 - Aug2004 - Feb2004 - Aug2005 - Feb2005 - Aug2006 - Feb2006 - Aug (40 year lows)2007 - Feb2007 - Aug2008 - Feb2008 - Aug2009 - Feb2009 - Aug Newly Built Home Inventory2010 - Feb2010 - Aug2011 - Feb2011 - Aug
  12. 12. Charlotte Housing Permits30000250002000015000100005000 0
  13. 13. Improving Factors for Higher Home Sales• Improving Factors – Job Creation (though slowly) – Stock market recovery from 2008 – Rising rents and larger pool of qualified renters – Buyers want distressed properties … at deep discounts – International buyers cashing in on the weakened dollar – Smart money chasing real estate• Potential Huge Positive … Lending opens up• Potential Huge Negative … Washington policy change
  14. 14. 124000 126000 128000 130000 132000 134000 136000 138000 1400002000 - Jan2000 - Jul2001 - Jan In thousands2001 - Jul In thousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan (1.3 million in the past 12 months)2008 - Jul2009 - Jan2009 - Jul2010 - Jan2010 - Jul2011 - Jan 6.5 million Total U.S. Payroll Jobs – Modest Recovery2011 - Jul below prior peak
  15. 15. 300 310 320 330 340 350 360 370 380 390 4002000 - Jan2000 - Jul2001 - Jan In thousands2001 - Jul In thousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan North Dakota Jobs - Booming2009 - Jul2010 - Jan2010 - Jul2011 - Jan
  16. 16. 8500 9000 9500 10000 10500 110002000 - Jan2000 - Jul2001 - Jan In thousands2001 - Jul In thousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan2009 - Jul2010 - Jan2010 - Jul Texas Payroll Jobs – Fully Recovered2011 - Jan
  17. 17. 3500 3700 3900 4100 4300 4500 4700 49002000 - Jan2000 - Jul In thousands2001 - Jan In thousands2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul Michigan Payroll Jobs –2009 - Jan Ongoing Structural Changes2009 - Jul2010 - Jan2010 - Jul2011 - Jan
  18. 18. 3500 3600 3700 3800 3900 4000 4100 4200 43002000 - Jan2000 - Jul2001 - Jan thousands2001 - Jul InInthousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul2009 - Jan2009 - Jul2010 - Jan NC Jobs – Recovery Starting2010 - Jul2011 - Jan2011 - Jul
  19. 19. 400 450 500 550 600 650 700 750 800 850 9001990 - Jan1991 - Jan1992 - Jan In thousands1993 - Jan In thousands1994 - Jan1995 - Jan1996 - Jan1997 - Jan1998 - Jan1999 - Jan2000 - Jan2001 - Jan2002 - Jan2003 - Jan2004 - Jan2005 - Jan2006 - Jan2007 - Jan2008 - Jan2009 - Jan2010 - Jan Charlotte Long-Term Job Growth2011 - Jan
  20. 20. 0 100 200 300 400 500 600 7002000 - Jan2000 - Jul2001 - Jan In thousands2001 - Jul In thousands2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul Not Going under 400,0002009 - Jan2009 - Jul2010 - Jan2010 - Jul Weekly Fresh Unemployment Claims …2011 - Jan2011 - Jul
  21. 21. Financial Asset at $45 trillion … Good Recovery from 2008550005000045000400003500030000 2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 est. Source: Federal Reserve
  22. 22. 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3Source: Federal Reserve 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 small business owners) … Down 2010 - Q1 Housing Equity (source of funds for 2010 - Q3 2011 - Q1
  23. 23. 0 1 2 3 4 5 -1 6 %2000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul (3-month moving avg., annualized rate) CPI Apartment Rent2009 - Jan2009 - Jul2010 - Jan2010 - Jul2011 - Jan2011 - Jul
  24. 24. Home Price vs Rent (index = 100 in 1980) rent price450.0400.0350.0300.0250.0200.0150.0100.0 50.0 0.0 1980 - 1984 - 1988 - 1992 - 1996 - 2000 - 2004 - 2008 - Jan Jan Jan Jan Jan Jan Jan Jan
  25. 25. Serious Delinquent Mortgages … Mostly those who took out loans in bubble years (90+ days late or in foreclosure process)12.0 In millions10.0 8.0 6.0 4.0 2.0 0.0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 U.S. NC In 2010, there were 1.5 million distressed sales … need to wait 2.7 years
  26. 26. Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years55%50%45%40%35%30%25%20% 2008 - 2009 - 2009 - 2009 - 2009 - 2010 - 2010 - 2010 - 2010 - 2011 - 2011 - Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
  27. 27. Very Low Default among Recent Homebuyers Fannie and Freddie Backed Mortgage Loan PerformanceFannie Mae Cumulative Freddie Mac CumulativeVintage Default Rate Vintage Default Rate after 18 months after 18 months2002 3.1% 2002 2.7%2003 2.5% 2003 1.2%2004 4.6% 2004 2.0%2005 4.8% 2005 1.8%2006 11.6% 2006 6.0%2007 28.7% 2007 22.3%2008 12.6% 2008 13.7%2009 1.2% 2009 1.1%Source: Federal Housing Finance Agency
  28. 28. Smart Money Buying?• All-cash record high at 30% to 35% of all sales – Investors want quick deals – Investors cannot get mortgage – Some do not want to bother with appraisals – Financial asset recovery helping with cash – Hedge against future inflation … alternative to expensive gold – Hedge against future housing shortage? – Empty nesters downsizing and using leftover cash for kids’ home?
  29. 29. 0 5 10 15 20-20 -15 -10 -5 1969 - Jan 1971 - Jan 1973 - Jan 1975 - Jan 1977 - Jan 1979 - Jan 1981 - Jan 1983 - Jan 1985 - Jan 1987 - Jan 1989 - Jan 1991 - Jan 1993 - Jan 1995 - Jan 1997 - Jan 1999 - Jan 2001 - Jan (single-family home price in blue vs CPI in red) 2003 - Jan Real Estate as Inflation Hedge? Good inflation hedge in the past before the housing bubble/bust 2005 - Jan 2007 - Jan 2009 - Jan 2011 - Jan
  30. 30. 0 1 2 3 4 5 6 -2 -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 2008 - Jan (% change from one year ago)• Workers Wage to rise by 1.7% in 2011 2008 - Jul CPI Inflation Rising 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul• Social Security COLA forecast to rise 3.5% in 2012 2011 - Jan 2011 - Jul
  31. 31. Broad Inflationary PressureIndicator % change from one year agoConsumer Price Index 3.8%Producer Price Index (Finished Product) 6.5%Producer Price Index (Intermediate Product) 7.5%Producer Price Index (Crude Product) 24.2%Dow Jones Commodity Spot Price Index 28.3%Gold Price Off Record High Price … but very high
  32. 32. Upside Potential Surprise
  33. 33. Average Credit Score for Loan Origination Normal 2009 2010 IfFannie 720 761 762 720Freddie 720 757 758 720FHA 650 682 698 660 15% to 20% Higher Sales
  34. 34. Downside Potential Surprise
  35. 35. Washington Policy Change?• QRM and 20% downpayment requirement ??? – Affordability (staying within budget) more important than down payment – No taxpayer bailout for FHA and VA program• Limit mortgage interest deduction for high income and second homes ??? – Crush the working class in resort areas (Yacht Tax Impact) – Cascading impact to middle class homes and hurts confidence to buy a home• Lower conforming loan limit ???• Fannie and Freddie model was flawed (private profit/taxpayer loss) and need a fundamental restructuring … not total privatization – Jumbo interest rates on all loans? – Non-existent loans in times of crisis?
  36. 36. National Museum of American History• 4 million no-down-payment VA mortgages for World War II veterans• Fueled an unprecedented growth of America’s middle class
  37. 37. Real Estate Baseline Outlook• Moderate GDP Expansion 1.5% to 2.5% in the next 2 years• 1.0 to 1.5 million annual job additions yearly in the next 2 years• Mortgage Rates rising to 4.3% by year-end 2011 and 5.0% in 2012 • Not that important compared to underwriting standards• Home sales – no reason to go lower … slight increases next 2 years• Home values – steady and slow growth in the national price in the next 2 years … critical source of small business start-up funds• Commercial : net absorption rising, vacancy rates falling, cap rates falling
  38. 38. Presidential Quotes• Franklin Delano Roosevelt: “A nation of homeowners is unconquerable.”• Ronald Reagan “We will preserve the part of the American dreamwhich the mortgage-interest deduction symbolizes."
  39. 39. For More Information– Daily Data and Analysis on Latest Trends– http://www.facebook.com/narresearchgroup– Twitter @NAR_Research

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