Lawrence Yun, the Chief Economist for the National Association of Realtors, presented an economic and housing market outlook emphasizing the stimulative impact of the tax credit for homebuyers, indicating that while it helped millions enter the market, a significant portion were buyers who would have bought anyway. The presentation highlighted the challenges of job recovery and household formation, as well as potential future housing shortages due to slow construction rates and high inventory of distressed homes. The overall economic forecast for 2010 suggests a continued recovery with modest growth in home sales and a slight increase in home prices.

1. Economic and
Housing Market
Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR’s Midyear
Economic Issues and Residential Forum
Washington, D.C.
May 13, 2010

2. Recent Pending Home Sales
120
110
100
90
80
70
60
Source: NAR

3. Recent National Pending Home Sales
(year-over-year % change)
Tax Credit Help to Sales
Despite 3.7 million job losses
40
30
20
10
0
-10
-20
-30
Source: NAR

4. Share of First-Time Buyers
50% 47%
45%
42%
40% 40% 40% 41%
40% 39%
36%
35%
30%
25%
20%
2001 2003 2004 2005 2006 2007 2008 2009

5. Distressed Home Sales
Foreclosed
35
30
25
20
15
10 Short-Sale
5
0
Source: NAR

6. Latest Home Price Trend - Stabilizing
% change from one year ago
5
Pre-tax credit Tax credit
0
-5
NAR in Blue
-10
FHFA in Red
-15
Case-Shiller in Green
-20
Loan Performance in Yellow
-25

7. Sample Markets with Price Increases
% change from one year ago
16
14
12
10
8
6
4
2
0
San Diego Orange Cty Boston Houston Buffalo Washington Columbia
Source: NAR

8. Tax Credit was Not-Impactful
• 4.4 million homebuyers to get tax credit
– 2/3 to 1st-time buyers
– 1/3 to repeat buyers
• 1.0 million buyers would not have entered
without tax credit (stimulative impact)
• 3.4 million getting bonus money
• $30 billion tax credit wasted on people who
would have bought anyway

9. Tax Credit was Huge Success
• 1 million additional buyers
• 1 million fewer inventory
• Reduced months supply by 2 to 2.5 months
• Correspond to price impact of 5% to 8% points
• Preserved Housing Wealth (mostly middle-class) by
nearly $1 trillion
• Consumer spending impact
• Banks’ capital pushed above ‘stress levels’
• Builds home buying confidence … with no further big
price worries
• Limit future foreclosures

10. After the Tax Credit
• Need Job Creation
• Need Household Formation
• Need Mobility
• Improved Consumer Confidence
• Low Mortgage Rates
• Lending for Jumbo and Second Home Mortgages

11. NET Job Changes in U.S.
(Monthly Payroll Job Change)
In thousands
600
400
200
0
-200
-400
-600
-800
-1000
2 million job creation each year … will take 4 years to recover all the job losses …
will take 6 years to fully absorb new workers and get back to 6% unemployment rate
Source: BLS

12. Job Turnover in U.S.
(Total job gains and total job losses)
6000 In thousands
5500
5000
4500
4000
3500
Fewer firings but people seeking for unemployment insurance because of lack of hirings
Source: BLS

13. 500
1000
1500
2000
2500
3000
3500
4000
4500
0
Thousands
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
(2-year moving average)
2002
2003
2004
2005
Household Formation
2006
2007
2008
2009
Growth
Weak

14. People Mobility
(How many move each year?)
%
Intra-state mobility modestly down
22
20 Inter-state mobility significantly down
18
16
14
12
10
2009 est.
1980
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
S C

15. 10
30
50
70
90
110
130
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
But no true measure for home buying confidence
2008 - Jan
2008 - Jul
Consumer Confidence
2009 - Jan
2009 - Jul
2010 - Jan
Chart about future expectations according to Conference Board

16. 30-year Rate on Conforming and FHA
(Not Jumbo or 2nd Home)
7.0
6.5
6.0
5.5
5.0
4.5
4.0
Source: Freddie Mac

17. 0
1
2
3
1.5
2.5
3.5
2004 - Jan
2004 - Apr
2004 - Jul
2004 - Oct % points
2005 - Jan
2005 - Apr
2005 - Jul
2005 - Oct
2006 - Jan
2006 - Apr
2006 - Jul
2006 - Oct
2007 - Jan
2007 - Apr
2007 - Jul
2007 - Oct
2008 - Jan
2008 - Apr
2008 - Jul
2008 - Oct
2009 - Jan
Financial Crisis
2009 - Apr
2009 - Jul
2009 - Oct
0.5 Future mortgage rates driven by 10-year Treasury borrowing cost
30yr Mortgage and 10yr Treasury Spread
2010 - Jan

18. Swings in Primary and Second
Home Sales
Index
1.6
1.4
2nd Home Sales
1.2
1
0.8 Primary Home Sales
0.6
0.4
0.2
0
2003 2004 2005 2006 2007 2008 2009
Source: NAR

19. Non-Government Backed Mortgages
• Jumbo Mortgages
• Second Home Mortgages
• Commercial Real Estate Loans
• Construction Loans
• Many Small Business Loans
• Showing nascent recovery signs because
banks are making profits and easily above
‘stress-test levels’

20. Risk to Recovery
• Future Housing Shortage
– Too fast price growth means fewer buyers
qualifying for mortgages
– Past lax lending should not and will not
return
• Lingering Past Lending Mistakes and
Continuing High Foreclosures
• Greece

21. High Existing Home Inventory
In thousand units
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0

22. High Homeowner Vacancy Rate
In thousand units
%
3.5
3.0
2.5
2.0
1.5
1.0
0.5 About 700,000 extra vacant homes above normal
0.0

23. Depressed Housing Starts
In thousandsunits
In thousand
2,500
2,000
1,500
1,000
500
0

24. Low New Home Inventory
In thousandsunits
In thousand
600
550
500
450
400
350
300
250
200

25. Future Housing Shortage?
Year Housing Starts Historical Normal Cumulative
Surplus/Deficit
2003 1.85 million 1.6 million + 0.25 million
2004 1.95 million 1.6 million + 0.60 million
2005 2.07 million 1.6 million + 1.07 million
2006 1.81 million 1.6 million + 1.28 million
2007 1.34 million 1.6 million +1.02 million
2008 0.90 million 1.6 million + 0.32 million
2009 0.55 million 1.6 million - 0.73 million
2010 forecast 0.68 million 1.6 million -1.65 million
2011 forecast 0.95 million 1.6 million - 2.30 million

26. Serious Delinquency Rate
(90+ days late or foreclosure)
%
30.0
25.0
Subprime
20.0
15.0
10.0 FHA
5.0
VA (purple)
0.0
Prime (green)
•FHA Reserve Fund depleting … Bailout ???
•Fannie-Freddie … future reform without private profit and taxpayer loss
•Veterans Affairs backed mortgages … slight rise … even though a zero-down product
… stay within budget and all will be OK!

27. Number of Distressed Loans

28. Greece
• One of the Highest Homeownership Rate with
few mortgage defaults
– Bridal families often buy a home all-cash
• But Greece Government potential default
– Too high deficit and too high debt
– Default … European banks’ capital reserve take
hit … less lending to Portugal and Spain
– Debt default contagion spreads
– Less capital available for jumbo and 2nd homes

29. U.S. Budget Deficit
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2012
2011
500,000
0
-500,000
-1,000,000
-1,500,000
U.S. to be Greece in 25 years?
-2,000,000
Source: Congressional Budget Office Projections
Source: CBO, NAR estimate

30. Economic Outlook
2010
2008 2009
forecast
GDP 0.4% -2.5% 3.1%
CPI Inflation 3.8% -0.2% 2.0%
Unemployment Rate 5.8% 9.3% 9.7%
10-year Treasury 3.7% 3.3% 3.9%

31. Housing Outlook
2010
2008 2009
forecast
Existing Home Sales 4.9 m 5.2 m 5.4 m
New Home Sales 485 k 375 k 400 k
Home Price Growth -10% -13% 2% to 3%
Mortgage Rate 6.1% 5.1% 5.3%
Consumer confidence
Down Down Up
about home buying

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