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Recovery to Normalcy<br />Lawrence Yun, Ph.D.<br />Chief Economist<br />NATIONAL ASSOCIATION  OF REALTORS®<br />Presentati...
Federal Reserve FOMC  <br /><ul><li>Ben Bernanke (Chairman):
“Outlook remains unusually uncertain”
Alan Greenspan (former Chairman):
“If home prices start falling again, we could be facing a double-dip recession”
James Bullard (St. Louis Fed):
“The U.S. is closer to a Japanese-style deflationary outcome”
Thomas Hoenig(Kansas City Fed):
“Too rapid money creation results in eventual high inflation”</li></li></ul><li>Consumer Confidence about Present Conditio...
Consumer Confidence about Future Conditions – Not good but not as bad<br />9.6% unemployment rate, <br />but different con...
Business Spending shows weak confidence in relation to profits<br />$ billion<br />
REALTORS’ Home Value Expectation:over the next 12 months<br />Increase or Stable<br />Decrease<br />
REALTOR Expectation vs Reality<br />
Government Spending (Confidence)<br />$ billion<br />
GDP Growing, but without vigor<br />annualized % growth rate<br />
U.S. Private Sector Job Gains(863,000 from Jan. to Sep. 2010)<br />Month-to-month job gains in thousands<br />
Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)<br />
How Many Years to Get Job Market Back to Normal?<br />
Total Payroll Jobs in Boulder and Ft. Collins<br />In thousands<br />Source: BLS<br />
Total Payroll Jobs in Denver-Aurora<br />In thousands<br />Source: BLS<br />
Total Payroll Jobs in Michigan<br />In thousands<br />Source: BLS<br />
Total Payroll Jobs in Washington D.C. Metro<br />In thousands<br />Source: BLS)<br />
Long-term Job Growth in Colorado (30 years)<br />In thousands<br />Source: BLS<br />
Existing Home Sales (Closings)<br />Tax Credit Impact<br />
Colorado Existing Home Sales: Quarterly Change<br />% change from a year ago<br />Tax Credit Impact<br />
Long-term Colorado Home Sales: 30 years<br />In thousands<br />
Median Home Price in Denver Area<br />$ thousand<br />Separate Case-Shiller Index shows Denver price gain of 2% from 18 mo...
Distressed Loans and Shadow Inventory<br />Bad loans are nearly always made in good times.  But recently originated loans ...
Newly Built Home Inventory and Its Shadow Inventory<br />
Depressed Housing Starts<br />In thousands<br />
Housing Starts in Boulder<br />In thousands<br />
Housing Starts in Denver-Aurora<br />In thousands<br />
Housing Starts in Ft. Collins-Loveland<br />In thousands<br />
Return to Normalcy<br />Unprecedented Boom and Bust: 2000 to 2010<br />Sales Boomed and Retreated <br />Prices Overshot an...
Existing-Home Sales <br />In million units<br />29<br />
Home Sale to Jobs<br />30<br />
National Median Home Price<br />Source: NAR<br />
Home Price-to-Income Ratio (No Bubble Now)<br />Source: NAR<br />
Home Price and Construction Cost(No Bubble Now)<br />
Credit Bubble DeadSubprime, Alt-A, Home Equity Mortgage Origination<br />$ billion<br />Source: NAR estimate based on Insi...
Long Standing Housing Policy<br />Mortgage Interest Deduction<br />If eliminated, about 15% hit to home values<br />Massiv...
Long-Term Path to Self Reliance may be Helped from Long-Term Housing Wealth Gains <br />Median Family Net Worth<br />2010<...
Compelling AffordabilityMonthly Mortgage to buy a Median Priced Home<br />
Inflationary Pressure ?<br />
CPI-Housing Rent Inflation(Home price is not part of CPI because of asset/investment aspect)<br />
Homeownership Rate<br />
Commercial Real Estate<br />
Real Estate Price<br />Residential: Case-Shiller<br />Commercial: MIT<br />
2010.Q3: <br />UP 115% Y-o-Y<br />
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Recovery to Normalcy - Colorado Housing Overview and Forecast

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Lawrence Yun, Ph.D., Chief Economist, NATIONAL ASSOCIATION OF REALTORS®

Presentation to Denver Metro REALTORS®, Denver, Colorado, November 17, 2010

Published in: Real Estate
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Recovery to Normalcy - Colorado Housing Overview and Forecast

  1. 1. Recovery to Normalcy<br />Lawrence Yun, Ph.D.<br />Chief Economist<br />NATIONAL ASSOCIATION OF REALTORS®<br />Presentation to Denver Metro REALTORS®<br />Denver, Colorado<br />November 17, 2010<br />
  2. 2. Federal Reserve FOMC <br /><ul><li>Ben Bernanke (Chairman):
  3. 3. “Outlook remains unusually uncertain”
  4. 4. Alan Greenspan (former Chairman):
  5. 5. “If home prices start falling again, we could be facing a double-dip recession”
  6. 6. James Bullard (St. Louis Fed):
  7. 7. “The U.S. is closer to a Japanese-style deflationary outcome”
  8. 8. Thomas Hoenig(Kansas City Fed):
  9. 9. “Too rapid money creation results in eventual high inflation”</li></li></ul><li>Consumer Confidence about Present Conditions: Awful<br />
  10. 10. Consumer Confidence about Future Conditions – Not good but not as bad<br />9.6% unemployment rate, <br />but different confidence level<br />
  11. 11. Business Spending shows weak confidence in relation to profits<br />$ billion<br />
  12. 12. REALTORS’ Home Value Expectation:over the next 12 months<br />Increase or Stable<br />Decrease<br />
  13. 13. REALTOR Expectation vs Reality<br />
  14. 14. Government Spending (Confidence)<br />$ billion<br />
  15. 15. GDP Growing, but without vigor<br />annualized % growth rate<br />
  16. 16. U.S. Private Sector Job Gains(863,000 from Jan. to Sep. 2010)<br />Month-to-month job gains in thousands<br />
  17. 17. Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)<br />
  18. 18. How Many Years to Get Job Market Back to Normal?<br />
  19. 19. Total Payroll Jobs in Boulder and Ft. Collins<br />In thousands<br />Source: BLS<br />
  20. 20. Total Payroll Jobs in Denver-Aurora<br />In thousands<br />Source: BLS<br />
  21. 21. Total Payroll Jobs in Michigan<br />In thousands<br />Source: BLS<br />
  22. 22. Total Payroll Jobs in Washington D.C. Metro<br />In thousands<br />Source: BLS)<br />
  23. 23. Long-term Job Growth in Colorado (30 years)<br />In thousands<br />Source: BLS<br />
  24. 24. Existing Home Sales (Closings)<br />Tax Credit Impact<br />
  25. 25. Colorado Existing Home Sales: Quarterly Change<br />% change from a year ago<br />Tax Credit Impact<br />
  26. 26. Long-term Colorado Home Sales: 30 years<br />In thousands<br />
  27. 27. Median Home Price in Denver Area<br />$ thousand<br />Separate Case-Shiller Index shows Denver price gain of 2% from 18 months ago<br />Source: NAR<br />
  28. 28. Distressed Loans and Shadow Inventory<br />Bad loans are nearly always made in good times. But recently originated loans are performing very well.<br />
  29. 29. Newly Built Home Inventory and Its Shadow Inventory<br />
  30. 30. Depressed Housing Starts<br />In thousands<br />
  31. 31. Housing Starts in Boulder<br />In thousands<br />
  32. 32. Housing Starts in Denver-Aurora<br />In thousands<br />
  33. 33. Housing Starts in Ft. Collins-Loveland<br />In thousands<br />
  34. 34. Return to Normalcy<br />Unprecedented Boom and Bust: 2000 to 2010<br />Sales Boomed and Retreated <br />Prices Overshot and Corrected <br />Fundamental Back to Justifiable Levels<br />Long-standing Housing Policy still in place<br />Credit Market Bubble … out the window<br />
  35. 35. Existing-Home Sales <br />In million units<br />29<br />
  36. 36. Home Sale to Jobs<br />30<br />
  37. 37. National Median Home Price<br />Source: NAR<br />
  38. 38. Home Price-to-Income Ratio (No Bubble Now)<br />Source: NAR<br />
  39. 39. Home Price and Construction Cost(No Bubble Now)<br />
  40. 40. Credit Bubble DeadSubprime, Alt-A, Home Equity Mortgage Origination<br />$ billion<br />Source: NAR estimate based on Inside Mortgage Finance data<br />
  41. 41. Long Standing Housing Policy<br />Mortgage Interest Deduction<br />If eliminated, about 15% hit to home values<br />Massive wealth destruction on property owners who have saved and saved (in many cases to pass it on to the next generation)<br />FHA<br />Self-financing without ever needing taxpayer funds (as of yet)<br />Fannie and Freddie<br />Made mistakes and need to be restructured <br />
  42. 42. Long-Term Path to Self Reliance may be Helped from Long-Term Housing Wealth Gains <br />Median Family Net Worth<br />2010<br />2010<br />Source: Federal Reserve, NAR estimate for 2010<br />
  43. 43. Compelling AffordabilityMonthly Mortgage to buy a Median Priced Home<br />
  44. 44. Inflationary Pressure ?<br />
  45. 45. CPI-Housing Rent Inflation(Home price is not part of CPI because of asset/investment aspect)<br />
  46. 46. Homeownership Rate<br />
  47. 47. Commercial Real Estate<br />
  48. 48. Real Estate Price<br />Residential: Case-Shiller<br />Commercial: MIT<br />
  49. 49.
  50. 50.
  51. 51. 2010.Q3: <br />UP 115% Y-o-Y<br />
  52. 52. 2011 Outlook<br />
  53. 53. Baseline Outlook<br /><ul><li>Moderate GDP Expansion 2 to 2.5% in the next 2 years (historical average is 3%)
  54. 54. 1.5 million annual job additions in the next 2 years
  55. 55. Unemployment rate of 9% in 2011 … and normal 6% in 2015</li></li></ul><li>Baseline Outlook Cont.<br /><ul><li>Mortgage Rates rising to 5.0% in 2011 and 5.9% in 2012
  56. 56. People fussing about home value could miss out on low rates
  57. 57. Home values – no meaningful change in the national price in the next 2 years
  58. 58. Home sales to be choppy but overall improving in line with job growth … 5.2 million in 2011 (up from 4.8 m in 2010, but same as in 2000)
  59. 59. Affordability conditions are too compelling
  60. 60. There maybe a pent-up demand. 30 million additional people from 2000 but same home sales as in 2000.</li></li></ul><li>Baseline Outlook Cont.<br /><ul><li>Commercial lending to steadily improve … because of record high bank profits
  61. 61. Net absorption steadily improve … because of recovering job market
  62. 62. Rents stabilize (but no meaningful increase) … because of very low newly built inventory
  63. 63. Cap rate falls … price floor established and because of improved investor confidence (to move money out of low yielding Treasuries)</li></li></ul><li>Alternative Possibility<br /><ul><li>High inflation … people desire tangible investment like real estate, but interest rate will be higher
  64. 64. Deflation … people hold back for better price … holds back economy
  65. 65. Budget deficit tipping point … higher interest rate and sharp cut back in standard of living
  66. 66. Sharp 4% to 5% GDP growth … release of pent-up housing demand (30 million more people today versus 2000 when home sales were similar) … surprisingly higher home sales and home prices</li></li></ul><li>Virtuous or Vicious Cycle?<br />Home values stabilizing scenario<br />Foreclosures steadily fall<br />Strategic default lessens and underwater homeowners become hopeful <br />FHA and Fannie/Freddie finances improve (will need less taxpayer funds)<br />Consumer spending opens up<br />Home value stabilize further or even begin to rise …<br />Self-sustaining normal growth rates in sales and prices<br />Home values fall meaningfully … ugly scenario<br />

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