Becoming the Local Real Estate Economist of Choice

MAPS Agent MastermindsNovember 5, 2007

Austin, Texas

Keller Williams Realty International

The New Mindset: I am a knowledgeable, research-based real

estate consultant. I understand the big picture and I know

which numbers really matter. I constantly research the local market

conditions and trends that will impact your plans and decisions.

I am the local real estate economist

of choice.

Macro– Economic Growth– Inflation– Interest Rates

Metro– Population– Employment– Household Income

Micro– Neighborhood

Dynamics– Property Conditions– Home Prices

What Impacts Affordability and Availability

Local

City

National

Truth # 1: Real Estate Markets are Always

Shifting.

What goes up must come down.

What comes down won’t stay there.

10.2

4.4

0

2

4

6

8

10

12

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

1

2

3

4

5

6

7

Source: NAR

Months Million

Housing Inventory (left axis)

Existing Home Sales – Single Family Homes (right axis)

Buyers Market

Sellers Market

19 Years of National Market Shifts

Truth # 2: The Economy is Consistently Growing.

Since 1970, the Gross Domestic Product (GDP) has increased an average of 7.2% per year.

GDP growth remains consistent over the past ten years.

Gross Domestic Product 1970-2007

$13.9

$0

$2

$4

$6

$8

$10

$12

$14

$16

1970q1

1971q3

1973q1

1974q3

1976q1

1977q3

1979q1

1980q3

1982q1

1983q3

1985q1

1986q3

1988q1

1989q3

1991q1

1992q3

1994q1

1995q3

1997q1

1998q3

2000q1

2001q3

2003q1

2004q3

2006q1

2007q3

Trillion

Source: Bureau of Economic Analysis

Gross Domestic ProductYear to Year Change

1971-2007

5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1971q1

1972q3

1974q1

1975q3

1977q1

1978q3

1980q1

1981q3

1983q1

1984q3

1986q1

1987q3

1989q1

1990q3

1992q1

1993q3

1995q1

1996q3

1998q1

1999q3

2001q1

2002q3

2004q1

2005q3

2007q1

Source: Bureau of Economic Analysis

Gross Domestic Product 1998-2007

$13.9

$0

$2

$4

$6

$8

$10

$12

$14

$16

1998q1

1999q3

2001q1

2002q3

2004q1

2005q3

2007q1

Trillion

Source: Bureau of Economic Analysis

5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1998q1

1999q3

2001q1

2002q3

2004q1

2005q3

2007q1

Source: Bureau of Economic Analysis

Gross Domestic ProductYear to Year Change

1998-2007

Truth #3: Inflation is consistent and steady – the

sign of a healthy economy.

During the past 37 years (1970-2007) the Consumer Price Index (CPI) has increased at an average annual rate of 4.6%.

For the past 10 years it has averaged only 2.4% per year.

Consumer Price Index 1970-2007

202

0

50

100

150

200

250

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: Bureau of Labor Statistics

Consumer Price IndexYear to Year Change

1971-2006

3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1971

1976

1981

1986

1991

1996

2001

2006

Source: Bureau of Labor Statistics

Consumer Price Index 1998-2007

208

0

50

100

150

200

250

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: Bureau of Labor Statistics

Consumer Price IndexYear to Year Change

1998-2006

3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: Bureau of Labor Statistics

Truth #4: Mortgage interest rates are low and stable.

Interest rates are near the lowest point they have ever been since 1970.

During the past 10 years the rates have been at or under 8%.

For the past 5 years they have stayed at or near 6% and show no signs of rising.

Mortgage RatesFixed Rate - 30 Year

1971-2007

6.4%

0%

4%

8%

12%

16%

20%

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Source: Freddie Mac

Mortgage RatesFixed Rate - 30 Year

1998-2007

6.4%

0%

4%

8%

12%

16%

20%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: Freddie Mac

Truth #5: The workforce is increasing and

unemployment is low.

Since 1982, unemployment has been on a steady downward trend.

During the past 5 years unemployment has decreased from 6% to under 5%.

Only Michigan has unemployment of over 7%.

Unemployment Rates 1970-2007

4.7%

0%

2%

4%

6%

8%

10%

12%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: Bureau of Labor Statistics

Unemployment Rates 1998-2007

4.7%

0%

2%

4%

6%

8%

10%

12%

1998

1998

1999

1999

2000

2000

2001

2001

2002

2002

2003

2003

2004

2004

2005

2005

20062006

2007

2007

Source: Bureau of Labor Statistics

TX

UT

MT

CA

AZ

ID

NV

OR

IA

COKS

WY

NM

MO

MN

NE

OK

SD

WA

AR

ND

LA

IL OH

FL

GAAL

WI

VA

IN

MI

MS

KY

TN

PA

NC

SC

WV

NJ

ME

NY

VT

MD

NH

CT

DE

MARI

0 -

2.9% 3

- 3.9%

4 -

4.9% 5

- 5.9%

6 -

6.9% 7

- 10%

Unemployment Rates(September, 2007)

US = 4.7%

Source: Bureau of Labor Statistics

Data: September, 2007

Truth #6: Homeownership remains a fundamental part of

the “American Dream.”

Since 1994, the percentage of Americans owning their own home has increased from 64% to over 68%.

The Government continues to institute policies and funding programs that encourage homeownership.

Homeownership 1970-2007

68%

60%

62%

64%

66%

68%

70%

1970q1

1971q3

1973q1

1974q3

1976q1

1977q3

1979q1

1980q3

1982q1

1983q3

1985q1

1986q3

1988q1

1989q3

1991q1

1992q3

1994q1

1995q3

1997q1

1998q3

2000q1

2001q3

2003q1

2004q3

2006q1

Source: Census Bureau

Homeownership 1998-2007

68%

64%

65%

66%

67%

68%

69%

70%

1998q1

1999q3

2001q1

2002q3

2004q1

2005q3

2007q1

Source: Census Bureau

Truth # 7: Household incomes and median home prices both

increase in a parallel manner.

Since 1981, household incomes have increased at an average annual rate of 3.9%.

During the same time period, median home prices have increased at 4.9% per year.

Median Home Price & Family Income

1970-2007

$0

$50,000

$100,000

$150,000

$200,000

$250,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

$0

$50,000

$100,000

$150,000

$200,000

Income (right axis)

Home Price (left axis)

Source: NAR

Annual Growth Rates Income and Price set to Index of 100

1970-2007

Home Price

Income

0%

2%

4%

6%

8%

10%

12%

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

Source: NAR

Comparison of Income to Home Price

Income and Price set to Index of 100 in 1970

1970-2007

Home Price

Income

0

200

400

600

800

1000

1200

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

Source: NAR

Comparison of Income to Home Price

Income and Price set to Index of 100 in 1990

1990-2007Home Price

Income

0

50

100

150

200

250

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: NAR

Truth #8: Affordability is, and always will be, the primary real

estate issue. When interest rates go up, affordability

comes down. When home prices rise, affordability

drops. When affordability drops too low or too

fast, the number of home sales decrease and selling prices will ultimately drop.

The more dramatic the run-up in home appreciation, the steeper the decline in sales and prices.

Housing Affordability & Home Price

1970-2007

$0

$50,000

$100,000

$150,000

$200,000

$250,000

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

0

20

40

60

80

100

120

140

160

180

Affordability (right axis)

Median Home Price (left axis)

Source: NAR

Housing Affordability & Home Price

1998-2007

$0

$50,000

$100,000

$150,000

$200,000

$250,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

20

40

60

80

100

120

140

160

Affordability (right axis)

Median Home Price (left axis)

Source: NAR

Home Price IndexYear to Year Change

1976-2007

3%

0%

4%

8%

12%

16%

1976 Q1

1978 Q3

1981 Q1

1983 Q3

1986 Q1

1988 Q3

1991 Q1

1993 Q3

1996 Q1

1998 Q3

2001 Q1

2003 Q3

2006 Q1

Source: OFHEO

Home Price IndexYear to Year Change

1998-2007

3%

0%

4%

8%

12%

16%

1998 Q1

1998 Q4

1999 Q3

2000 Q2

2001 Q1

2001 Q4

2002 Q3

2003 Q2

2004 Q1

2004 Q4

2005 Q3

2006 Q2

2007 Q1

Source: OFHEO

$50

$100

$150

$200

$250

$300

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2004

2005

2006

2007

20

30

40

50

60

70

80

Housing Opportunity Index (right axis)

Median Home Price (left axis)

Thousand

Source: NAHB/Wells Fargo

National Housing Affordability1991-2007

Truth #9: Real estate is a local business. Affordability is always

felt locally. When the market shifts locally it

usually shifts in a dramatic and rapid manner.

Local areas that have the greatest and fastest appreciation will deal with the most dramatic down shifts.

Affordability must be tracked in each metro and micro market – that is where sellers and buyers have to deal with the issues.

5 Year Annual Rate of Home Price Growth (2006 Q4)

TX

UT

MT

CA

AZ

ID

NV

OR

IA

COKS

WY

NM

MO

MN

NE

OK

SD

WA

AR

ND

LA

IL OH

FL

GAAL

WI

VA

IN

MI

MS

KY

TN

PA

NC

SC

WV

NJ

ME

NY

VT

MD

NH

CT

DE

MARI

Source: OFHEO – House Price Index

Growth as of 4th quarter of 2006

0-4.99%

5-9.99%

10-14.99%

5-year growth at an annual rate

US = 7.6%

TX

UT

MT

CA

AZ

ID

NV

OR

IA

COKS

WY

NM

MO

MN

NE

OK

SD

WA

AR

ND

LA

IL OH

FL

GAAL

WI

VA

IN

MI

MS

KY

TN

PA

NC

SC

WV

NJ

ME

NY

VT

MD

NH

CT

DE

MARI

Source: OFHEO

Growth as of 4th quarter of 2005

Negative Appreciation

0-4.99%

5-9.99%

10-14.99%

Above 15%

US = 13%

1 Year Home Price Growth(2004-2005 Q4)

1 Year Home Price Growth (2005-2006 Q4)

TX

UT

MT

CA

AZ

ID

NV

OR

IA

COKS

WY

NM

MO

MN

NE

OK

SD

WA

AR

ND

LA

IL OH

FL

GAAL

WI

VA

IN

MI

MS

KY

TN

PA

NC

SC

WV

NJ

ME

NY

VT

MD

NH

CT

DE

MARI

Source: OFHEO

Growth as of 4th quarter of 2006

Negative Appreciation

0-4.99%

5-9.99%

10-14.99%

Above 15%

US = 6.1%

TX

UT

MT

CA

AZ

ID

NV

OR

IA

COKS

WY

NM

MO

MN

NE

OK

SD

WA

AR

ND

LA

IL OH

FL

GAAL

WI

VA

IN

MI

MS

KY

TN

PA

NC

SC

WV

NJ

ME

NY

VT

MD

NH

CT

DE

MA

US: 3.2%

RI

Negative Appreciation

0-4.99%

5-9.99%

10-14.99%

Above 15%

Source: OFHEO

YOY Growth as of 2nd quarter of 2007

1 Year Home Price Growth (2006-2007 Q2)

Truth #10: The Law of Supply and Demand has not been

repealed – this is a great time to buy!

As affordability drops, the number of qualified buyers declines.

The decline in buyers mean a reduction in demand.

With the reduction in demand, the supply of homes for sale (inventory) will increase.

As the inventory grows and prices drop, some buyers become more reluctant to buy.

The smart buyers know this is the time to buy. That’s why they call it “a buyer’s market” !!!

10.2

4.4

0

2

4

6

8

10

12

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

1

2

3

4

5

6

7

Housing Inventory (left axis) Existing Home Sales (right axis)

19 Years of Supply & Demand Shifts

Source: NAR

Buyers Market

Sellers Market

Months Million

So, what’s going to happen during this

period of affordability

recovery?

$0

$50,000

$100,000

$150,000

$200,000

$250,000

1970

1975

1980

1985

1990

1995

2000

2005

2010A Pessimistic Look at Affordability

Recovery:US Median Home Prices

A Realistic Look at the Recovery:

Median Sales Price - 1970 to 2020 - at 6.4% Appreciation

$0

$100,000

$200,000

$300,000

$400,000

$500,000

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected at 6.4% Recovery

A More Conservative Look at Recovery:

Median Sales Price 1980 to 2020 at 4.3% Appreciation

$0

$100,000

$200,000

$300,000

$400,000

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Trend at 4.3% Recovery

While the biggest issue for sellers is the sales price they will be able

to get . . .

. . . the biggest issue for real estate agents is the number of sales and

the amount of available commissions.

$0

$50

$100

$150

$200

$250

$300

$350

0

10

20

30

40

50

60

70

80

90

Housing Opportunity Index (right axis)

Median Home Price (left axis)

19

91 19

92 1

99

3 19

94 1

99

5 19

96 1

99

7 19

98 19

99 20

00 2

00

1 20

02 2

00

3 20

04 2

00

5 20

06 2

00

7Thousand

Source: NAHB/Wells Fargo

Some markets have been hit hard.

Las Vegas Housing Affordability

$60

$160

$260

$360

$460

$560

0

20

40

60

80

100

Housing Opportunity Index (right axis)

Median Home Price (left axis)

19

91 19

92 1

99

3 19

94 1

99

5 19

96 1

99

7 19

98 1

99

9 20

00 2

00

1 20

02 2

00

3 20

04 2

00

5 20

06 20

07

Thousand

Source: NAHB/Wells Fargo

Like really hard!San Diego Housing Affordability

$0

$100

$200

$300

$400

$500

$600

0

10

20

30

40

50

60

70

Housing Opportunity Index (right axis)

Median Home Price (left axis)

Thousand

Source: NAHB/Wells Fargo

19

91 19

92 1

99

3 19

94 1

99

5 19

96 1

99

7 19

98 1

99

9 20

00 2

00

1 20

02 2

00

3 20

04 2

00

5 20

06 20

07

Really, Really Hard!!!NY Metro Housing Affordability

Annual Existing Home Sales Single Family Homes (In Millions)

1970-2007

2007: 4.4M

2005: 6.2M

0

1

2

3

4

5

6

7

1970

1975

1980

1985

1990

1995

2000

2005

Source: NAR. 2007 numbers are projected based on September numbers

Million

Annual Existing Home SalesSingle Family Homes (In Millions)

1998-2007

4.5M 4.4M

0

1

2

3

4

5

6

7

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Million

Source: NAR

The Law of Equilibrium is Real

NAR Members vs Annual Sales

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

NAR Members Annual Sales

As thousands of agents leave the profession, the number of sales available to you is about to increase - IMMEDIATLY!

NAR Members vs Annual Sales

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

NAR Members Annual Sales