- The housing market outlook report discusses factors that could lead to higher home sales in 2011 such as improving job creation, a stabilizing real estate market, and more potential home buyers who can afford to purchase. - However, there are also risks like tight lending standards, high unemployment, and potential changes in housing policies that could negatively impact the housing market recovery. - The baseline housing market outlook predicts a moderate economic expansion with rising home sales and values but stable national home prices over the next two years.

1. Housing Market Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Midyear Legislative Meetings Washington, D.C. May 12, 2011

2. U.S. Annual Existing Home Sales… Ready to Breakout?

3. Monthly Existing Home Sales Tax Credit Impact

5. Total U.S. Payroll Jobs (1.3 million in the past 12 months) 6.5 million below prior peak In thousands

6. Alaska Payroll Jobs – Booming

7. North Dakota Jobs – Outperforms Alaska

8. Texas Payroll Jobs – Fully Recovered

9. Kansas Payroll Jobs – No Recovery

10. Missouri Payroll Jobs – Barely Registering

11. Most States follow U.S. Payroll Pattern (Modest Job Recovery) In thousands

12. Weekly Fresh Unemployment Claims… Not Going under 400,000 In thousands

13. Financial Asset at $50 trillion… Full Recovery Source: Federal Reserve

14. Residential Real Estate Net Worth… Long way to recover, but not falling Source: Federal Reserve

15. New Home Price vs. Existing Home Price 30% premium rather than 10-15% normal premium 12 month moving average Existing Home Price New Home Price

16. CPI Apartment Rent

17. Home Price vs Rent (index = 100 in 1980)

18. Qualified Renters who can buy a Median Priced Home 2005 2010 Median Price $219,000 Median Price $173,100 Mortgage Rate 6% Mortgage Rate 5% Down payment 10% Down payment 10% Monthly Payment $1,180 Monthly Payment $840 Qualifying Income $56,600 Qualifying Income $40,300 How many renters have at least this income? 7,700,000 (21% of renters) How many renters have at least this income? 15,000,000 (39% of renters)

19. Renter Households In million

20. Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years

21. # of Serious Delinquent Mortgages… Mostly Borrowers prior to 2009 (90+ days late or in foreclosure process) In 2010, there were 1.5 million distressed sales… need to wait 2.7 years

22. One U.S. Dollar gets…

23. U.S. Home Price after Currency Conversion

25. REALTORS ® ’ Home Value Expectation: Survey of REALTORS ® regarding prices in 12 months Increase or Stable Decrease

26. Real Estate as Inflation Hedge? (single-family home price in blue vs CPI in red) Good inflation hedge in the past before the housing bubble/bust

27. U.S. Housing Starts Housing Starts in thousands Long-Term Average

28. Upside Potential Surprise

29. Average Credit Score for Loan Origination 15% to 20% Higher Sales Normal 2009 2010 If Fannie 720 761 762 720 Freddie 720 757 758 720 FHA 650 682 698 660

30. QE2… to keep rates low… are inconsequential if too strict underwriting standards Fannie and Freddie Backed Mortgage Loan Performance Source: Federal Housing Finance Agency Fannie Mae Vintage Cumulative Default Rate after 18 months 2002 3.1% 2003 2.5% 2004 4.6% 2005 4.8% 2006 11.6% 2007 28.7% 2008 12.6% 2009 1.2% Freddie Mac Vintage Cumulative Default Rate after 18 months 2002 2.7% 2003 1.2% 2004 2.0% 2005 1.8% 2006 6.0% 2007 22.3% 2008 13.7% 2009 1.1%

31. Downside Potential Surprise

33. Current Savings Rate = 6% Takes 9 years to save $20,000 based on average $2,200 per year

35. CPI Inflation and PPI Inflation (% change from one year ago) Prices falling on consumer electronic products : Smartphone1 = $200 to Smartphone2 = $200 is computed as falling prices; even though your wallet did not get any relief

36. # Unemployed (looking but cannot find job)

37. Adults in the Labor Force (Rest are not looking for job and officially not included in unemployment rate)

38. Government Spending and Tax Receipts $ billion

39. Government Default?

40. U.S. 10-year Treasury Rate

41. Consumer Confidence Index (Under 100; incumbents in trouble)