Real Estate and Economic Outlook, Presentation at CRE Finance Council Annual Conference, NAR Chief Economist Dr. Lawrence Yun

1. Real Estate and Economic Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at CRE Finance Council Annual Conference
Washington, D.C.
June 12, 2012

2. Annual Existing Home Sales:
A Tough, Flat 4 years
8
In million units
7 7.08
6 6.52
5
5.02
4 4.12 4.34 4.18 4.26
3
2
1
0
2005 2006 2007 2008 2009 2010 2011

3. Despite Second Home Sales Recovery
In thousands
4000
3500
3000
2500
2000 Investment
1500
1000 Vacation
500
0
2005 2006 2007 2008 2009 2010 2011
Buy a condo for your college student
53% of REALTOR® members own a residential investment property
29% own a commercial property
19% own a vacation home

4. Owner-Occupancy Sales Falling
(All-Cash deals hiding the current dysfunctional mortgage market)
In thousands
6000
5000
4000
3000
2000
1000
0
2005 2006 2007 2008 2009 2010 2011
QRM rules
Raising g-fees to fund non-housing issues
Banks hoarding cash! … from regulatory uncertainties and lawsuits?

5. 50,000
55,000
65,000
70,000
75,000
80,000
60,000
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
Homeowners
1998 - Q1
1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
2005 - Q3
2007 - Q1
Owner Occupied Housing Units
2008 - Q3
2010 - Q1
2011 - Q3

6. 25,000
29,000
31,000
33,000
35,000
39,000
41,000
27,000
37,000
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
1998 - Q1
Rental Households
1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
2005 - Q3
2007 - Q1
Rental Occupied Housing Units
2008 - Q3
2010 - Q1
2011 - Q3

7. 59
60
61
62
64
65
66
67
69
70
63
68
%
1965 - Q1
1967 - Q1
1969 - Q1
1971 - Q1
1973 - Q1
1975 - Q1
1977 - Q1
1979 - Q1
1981 - Q1
1983 - Q1
1985 - Q1
1987 - Q1
1989 - Q1
1991 - Q1
(Lowest in 15 years)
1993 - Q1
1995 - Q1
1997 - Q1
1999 - Q1
2001 - Q1
2003 - Q1
2005 - Q1
Homeownership Rate at 65.4%
2007 - Q1
2009 - Q1
2011 - Q1

8. 2012 First Quarter Sales: Strongest in 5 years
6,000,000
5,000,000
4,000,000
2008
2009
3,000,000
2010
2,000,000 2011
2012
1,000,000
0
Q1 Q2 Q3 Q4

9. Monthly Pending Home Sales Index
Point to Strongest Second Quarter in 5 years
115
110
105 Homebuyer Tax Credit
100
95
90
85
80
75
70
2007 - 2007 - 2008 - 2008 - 2009 - 2009 - 2010 - 2010 - 2011 - 2011 - 2012 -
Jan Jul Jan Jul Jan Jul Jan Jul Jan July Jan
Source: NAR

10. Improving Factors for Higher Sales in 2012:
1. High Affordability
2. Growing Economy and Job Creation
3. Solid stock market recovery from 2008
4. Rising rents and a larger pool of qualified renters
5. Pent-up release of Household Formation
• Rising demand for ownership and rentals as
young-adults move out of parent’s basement
6. Smart money chasing real estate (i.e., investors)
7. Consumer confidence in buying an appreciating asset

11. 50
70
90
110
130
150
170
190
210
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Best Affordability Conditions
2004
2006
2008
2010
2012

12. 10
-10
-4
-2
0
2
4
6
8
-8
-6
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
GDP growth for 11 straight quarters
2010 - Q1
2010 - Q3
2011 - Q1
Economy out of Recession and Growing
2011 - Q3
2012 - Q1

13. -500
500
1000
1500
2000
2500
0
2000 - Q1
$ billion
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
Corporate Profits … Sky High
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1

14. 10
20
30
-40
-30
-20
-10
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
Home Buyer Tax Credit
Residential Investment Spending Growth
2011 - Q3
2012 - Q1

15. 124000
126000
128000
130000
132000
134000
136000
138000
140000
2000 - Jan
2000 - Jul
2001 - Jan
In thousands
2001 - Jul
In thousands
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
2008 - Jul
2009 - Jan
2009 - Jul
8 million job losses
2010 - Jan
2010 - Jul
2011 - Jan
Total U.S. Payroll Jobs Increasing
2011 - Jul
4 million
job gains
2012 - Jan

16. Mind
GAP
the
2012 - Jan
(Recovered half of jobs lost a few years ago, but still down by 10 million
2010 - Jan
2008 - Jan
2006 - Jan
2004 - Jan
2002 - Jan
compared to long-term projections)
Total Payroll Jobs
2000 - Jan
1998 - Jan
1996 - Jan
1994 - Jan
1992 - Jan
1990 - Jan
1988 - Jan
1986 - Jan
1984 - Jan
1982 - Jan
1980 - Jan
1978 - Jan
1976 - Jan
In millions 1974 - Jan
1972 - Jan
1970 - Jan
150
140
130
120
110
100
90
80
70
60
50

17. 300
320
360
380
400
420
340
2000 -…
2000 -…
2001 -… In thousands
2001 -…
2002 -…
2002 -…
2003 -…
2003 -…
2004 -…
2004 -…
2005 -…
2005 -…
2006 -…
2006 -…
2007 -…
2007 -…
2008 -…
2008 -…
2009 -…
2009 -…
2010 -…
2010 -…
2011 -…
2011 -…
2012 -…
North Dakota … Jobs Everywhere

18. 3500
3700
3900
4100
4300
4500
4900
4700
2000 -…
2000 -…
2001 -…
In thousands
2001 -…
In thousands
2002 -…
2002 -…
2003 -…
2003 -…
2004 -…
2004 -…
2005 -…
2005 -…
2006 -…
2006 -…
2007 -…
2007 -…
2008 -…
2008 -…
2009 -…
2009 -…
2010 -…
2010 -…
2011 -…
2011 -…
Michigan … Beginning to Smile
2012 -…

19. 1,000
1,500
2,000
2,500
3,000
3,500
500
0
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
S&P 500 and NASDAQ
2011 - Sep
(More than 80% increase from low point)
2012 - Feb
S&P 500
NASDAQ

20. 0
1
2
3
4
5
-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
Rent Growth
2008 - Jan
% change from one year ago
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
(Component from Consumer Price Index)
2011 - Jan
2011 - Jul
2012 - Jan

21. Annual Household Formation…
Future Rent Pressure?
(3 separate Census data)
In millions
Household Formation leads to increase ownership and renters;
Could begin to return to normal of at least 1 million from 2012.

22. Banks/Regulators
Restricting Credit
(Average Credit Scores of Approved Loans)
Normal 2009 2010 If Normal
Fannie 720 761 762 720
Freddie 720 757 758 720
FHA 650 682 698 660
15% to 20% Higher Sales

23. -200
-100
0
100
200
300
400
500
2001 - Q1
$ billion
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
(excluding Federal Reserve)
2008 - Q3
2009 - Q1
2009 - Q3
Financial Industry Profits
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1

24. Visible Inventory of Homes
(6-year low for Existing Homes and 50-year low for New Homes)
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
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Existing New
Source: NAR, Census

25. 0.0
4.0
6.0
8.0
10.0
2.0
12.0
2000 - Q1
2000 - Q3
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
U.S.
U.S.
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
Shadow Inventory
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
(Seriously Delinquent: 90+ days late or in foreclosure process)
2011 - Q1
2011-Q3

26. 500
1000
1500
2000
2500
0
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
Source: Census, HUD
2002 - Jul
2003 - Jan
2003 - Jul
Thousand units (annualized)
2004 - Jan
2004 - Jul
2005 - Jan
multifamily
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
single-family
Housing Starts
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
(Well Below 50-year average of 1.5 million each year)
2011 - Jul
2012 - Jan
Long-term Average

27. Home Price:
Big Declines from 2006 to 2008
Small Declines from 2009 to 2011
(index set at 100 from 2000)
Case-Shiller FHFA
220
200
180
160
140
120
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

28. Latest Home Price Trend in early 2012
(Lagging Indicator … reflects price negotiations from late 2011)
• NAR: Up in more than half of local markets
• FHFA: Up in deep-middle America, New England, South
Atlantic, Mountain states
• Case-Shiller: Up in Charlotte, Dallas, Las
Vegas, Miami, Minneapolis, Phoenix, Portland, San Diego, San
Francisco, Tampa, Washington D.C.
• LPS and Core Logic: many markets with price gains

29. Listing Price Changes
Market % Change from
March 2011 to March 2012
Miami Double-digit gains
Phoenix Double-digit gains
San Antonio Double-digit gains
Washington D.C. Double-digit gains
Please note that a part of the price change may reflect more upper-end homes being listed and fewer lower-end homes .
Therefore, not all of the price change is due to price appreciation of a particular property.
Source: Realtor.com

30. Equity and Underwater Homeowners
Positive Equity Negative Equity
Homeowners Homeowners
Early 2012 About 65 million 11 to 12 million
Of which 25 million have
no mortgages
After 5% price 67 million 9 million
appreciation
After 10% price 69 million 7 million
appreciation
Source: Census, Federal Reserve, CoreLogic, NAR estimates

31. Prepare for Early Move (2014)
by Federal Reserve
Fed Funds 30-year Mortgage
%
7
6
5
4
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
forecast forecast forecast
Modestly higher rates could help home sales as banks re-staff mortgage
work for home purchase applications and less refinance applications.

32. 10
15
20
-20
-15
-10
-5
0
5
%
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
Finished
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
Diminishing
2007 - Jul
Intermediate
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
Producer Price Inflationary Pressure …
2012 - Jan

33. Consumer Price Inflation
(Above Fed’s preferred 2% core inflation rate)
Rent All Items Core
%
5
4
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
-1 forecast forecast

34. -1600000
-1400000
-1200000
-1000000
-800000
-600000
-400000
400000
-200000
200000
0
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
$ million; 12-month Total
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
U.S. Federal Budget Deficit
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr

35. World Report Card
Country 10-Year Borrowing Rate
Germany 1.3%
Singapore 1.5%
United States 1.7%
United Kingdom 1.7%
Canada 1.8%
France 2.4%
Brazil 3.4%
Italy 5.6%
Spain 6.2%
Greece 27.3%
Source: Bloomberg as of June 6, 2012

36. State Report Card
State 10-year Borrowing Rate above
Benchmark (% points)
Average Benchmark Around 3.5%
Rhode Island Benchmark + 0.5%
Michigan Benchmark + 0.7%
Nevada Benchmark + 0.7%
California Benchmark + 0.9%
Illinois Benchmark + 1.6%
Source: WSJ

37. Housing Forecast
2011 2012 2013
History Forecast Forecast
Existing Home Sales 4.26 million 4.6 to 4.7 million 4.8 to 5.0 million
New Home Sales 304,000 400,000 500,000 to 600,000
Housing Starts 610,000 770,000 1 million
Existing Home Price $166,100 $170,100 $177,300
(Growth) (-3.9%) (+2.4%) (+4.2%)
GDP Growth +1.8% +2.3% +3.1%
Payroll Job Gains +1.7 million +1.8 million +2.5 million
Fed Funds Rate 0.1% 0.1% 0.1%
30-yr Mortgage 4.7% 4.0% 4.5%

38. Risks to Forecast
• Washington Policy
– QRM 20% down payment requirement?
– Other Dodd-Frank rules? Help or Hurt?
– Trim mortgage interest deduction?
– Capital gains tax on home sale?
– Fiscal Cliff on January 1, 2013 … if no new
compromised budget, then:
• Automatic deep cuts to military and domestic spending
• Automatic higher taxes
• 3% shaved off GDP

39. Commercial Real Estate

40. Big Transactions Coming Back
$2.5 million property and above
Source: Real Capital Analytics, 4Q 2011.
13

41. REALTOR® Business Deals
(Majority are less than $1 million)

42. Method of Finance

43. Underwriting Standards?

44. Multifamily Fundamentals
Completions Net Absorption Vacancy
250,000 9.0
8.0
200,000
7.0
150,000 6.0
5.0
100,000
4.0
50,000 3.0
2.0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.0
-50,000 Source: NAR/REIS 0.0

45. Office Fundamentals
Completions Net Absorption Vacancy
150 20.0
Millions
18.0
100
16.0
14.0
50
12.0
0 10.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 8.0
-50
6.0
4.0
-100
2.0
-150 Source: NAR/REIS 0.0

46. Commercial Market Forecast
OFFICE 2011 2012 2013
Vacancy Rate 16.6% 16.3% 15.9%
Net Absorption ('000 sq. ft.) 20,178 31,700 53,000
Completions ('000 sq. ft.) 11,659 25,474 37,847
Rent Growth 1.4% 1.7% 2.4%
INDUSTRIAL 2011 2012 2013
Vacancy Rate 12.4% 11.9% 11.1%
Net Absorption ('000 sq. ft.) 61,957 41,249 59,855
Completions ('000 sq. ft.) 20,462 26,947 54,881
Rent Growth -0.5% 1.8% 2.3%
RETAIL 2011 2012 2013
Vacancy Rate 12.9% 12.2% 11.0%
Net Absorption ('000 sq. ft.) 1,238 13,547 23,330
Completions ('000 sq. ft.) 4,207 12,677 19,878
Rent Growth -0.2% 0.7% 1.4%
MULTI-FAMILY 2011 2012 2013
Vacancy Rate 5.4% 4.6% 4.5%
Net Absorption (Units) 238,398 126,621 102,687
Completions (Units) 38,014 88,839 93,706
Rent Growth

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