dr. lawrence yun economic update

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Presentation at NAR Leadership Summit Chicago, IL August 21, 2008 Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ®

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Page 1: Dr. Lawrence Yun Economic Update

Presentation at NAR Leadership Summit

Chicago, IL

August 21, 2008

Lawrence Yun, Ph.D.

Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Page 2: Dr. Lawrence Yun Economic Update

Home Sales Starting to Recover

from Improving Affordability Conditions

0

10

20

30

40

50

60

Source: NAR

% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)

Page 3: Dr. Lawrence Yun Economic Update

Home Price Trend

Source: NAR

Page 4: Dr. Lawrence Yun Economic Update

Sales Still Struggling

-35

-30

-25

-20

-15

-10

-5

0

Source: NAR

% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)

Page 5: Dr. Lawrence Yun Economic Update

National Total Existing-Home Sales(Up markets + Down markets = Stable total)

4,000,000

5,000,000

6,000,000

7,000,000

8,000,0002

00

6 -

Ja

n

20

06

-M

ay

20

06

-S

ep

20

07

-J

an

20

07

-M

ay

20

07

-S

ep

20

08

-J

an

20

08

-M

ay

Stable

Page 6: Dr. Lawrence Yun Economic Update

Housing Stimulus Package

• First-time Homebuyer Tax Credit

– Up to $7,500 (but with repayment requirement)

– Helps unleash chain reaction for trade-up buyers

• Permanently higher Loan Limit

– Up to $625,000 … covers most jumbo loans

– Will lower “conforming jumbo” mortgage rates by 1% point (from say 7.5% to 6.5%)

– Saving $4,000 in interest cost per year

Page 7: Dr. Lawrence Yun Economic Update

FHA Market Share for Home Purchase

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 est.

2008 proj.

2009 proj.

Source: HMDA, NAR Estimate

Page 8: Dr. Lawrence Yun Economic Update

Annual Existing-Home Sales

at 1998 levels

3,000

4,000

5,000

6,000

7,000

8,000In thousand units

Page 9: Dr. Lawrence Yun Economic Update

1998 vs 2008

• Existing Home Sales stable but trending at 10 year ago levels

From 1998 to 2008

•25 million more people

•13 million more jobs

•Comparable affordability conditions

• Is it credit tightening?

• Is it excessive pessimism?

Page 10: Dr. Lawrence Yun Economic Update

Location, Location, Location:

Makes a Big Difference!

• All Real Estate is Very Local

• Local Affordability and Local Job Market Conditions?

• Steepest price declines are concentrated in neighborhoods with high subprime loans

• Steep price declines attracting buyers

Page 11: Dr. Lawrence Yun Economic Update

Delinquency Rates

Subprime vs. Prime

Data: Mortgage Bankers Association

Page 12: Dr. Lawrence Yun Economic Update

Stresses are in Neighborhoods with

Subprime Loans

-50%

-40%

-30%

-20%

-10%

0%

Detroit Miami Las Vegas

Yellow – Mostly Prime Conforming Loans Only (OFHEO)

Orange – All Loans including subprime and jumbo loans (Case-Shiller)

Red – Subprime Loans (NAR estimate based on weighted average)

Price change from a year ago

Page 13: Dr. Lawrence Yun Economic Update

One For Every 100 Households

• 100 households

• 32 renters and 68 homeowners

22 have no mortgage 46 have mortgage

3 are delinquent 43 are current

1 gets foreclosed 2 work it out

Historically only ½ gets foreclosed

Page 14: Dr. Lawrence Yun Economic Update

Homeowners in Denial ?• 62% of homeowners say no price decline

• Most U.S. Markets are experiencing price decline

• Price info gleamed from transacted homes and not all homes

– More than usual number of transactions from REO-foreclosed, short-sales

– 90% of homes are not on the market

• Only 9% of homeowners have subprime loans

• Homeowners have long-term view

• Rural areas (land prices up 9%)

Page 15: Dr. Lawrence Yun Economic Update

Strong Job Growth States (Yet, Falling Sales because of mortgage

tightening and buyer hesitancy)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Source: NAR

% change in job growth from one year ago

Page 16: Dr. Lawrence Yun Economic Update

Interest Rates(Long and Short)

Page 17: Dr. Lawrence Yun Economic Update

U.S. Single-Family

Housing Starts

Source: Census

In thousand units

Page 18: Dr. Lawrence Yun Economic Update

Inventory of New Homes Fell

Even as Sales Fell(Inventory will fall very fast if sales pick up)

Source: Census

Page 19: Dr. Lawrence Yun Economic Update

Home Price Forecast• Falling inventory will help stabilize prices

• Ben Bernanke’s view … ?

• Alan Greenspan’s view … early 2009

• 800 Economists view … 2009

• My view …

– Watch out for Denver and Houston on fundamentals

– Watch out for CA, NV, AZ, and FL on multi-bids

– Watch out for Pitt, Indy, Cincy once jobs come around

Page 20: Dr. Lawrence Yun Economic Update

Economic Forecast

• Consumers are angry

• Businesses are OK

• Exports booming

• Net: Improving economy in the second half of 2008

• 2009 will depend on persistent or dissipating consumer anger

Page 21: Dr. Lawrence Yun Economic Update

GDP Growth

% annualized growth rate

Source: BEA

Page 22: Dr. Lawrence Yun Economic Update

U.S. Job Changes

7 straight months of job cuts

Source: BLS

12-month payroll job changes in thousands

Page 23: Dr. Lawrence Yun Economic Update

Consumer Price Inflation

Source: BLS

Page 24: Dr. Lawrence Yun Economic Update

Consumer Sentiment

50

60

70

80

90

100

110

120 Sentiment

Source: University of Michigan

Page 25: Dr. Lawrence Yun Economic Update

Corporate Profits –

Near Record High

Source: BEA

$ billion

Page 26: Dr. Lawrence Yun Economic Update

Exports Growing

$ billion (2000-chain $)

Page 27: Dr. Lawrence Yun Economic Update

Commercial Real Estate

Construction Spending$ billion (2000-chain $)

Page 28: Dr. Lawrence Yun Economic Update

Commercial Fundamentals

• Vacancy Rates rising modestly … all across

• Rent Growth slowing still positive in most markets and most property types

• Multifamily holding up better

• …Retail less so

Page 29: Dr. Lawrence Yun Economic Update

Euro vs Dollar

Page 30: Dr. Lawrence Yun Economic Update

Dollar Strength and Oil Price

Page 31: Dr. Lawrence Yun Economic Update

Economic Outlook

2007 2008 2009

GDP 2.0% 1.7% 1.5%

CPI Inflation 2.9% 4.1% 2.6%

Job Growth 1.1% 0.1% 0.2%

Unemployment Rate 4.6% 5.5% 6.0%

Page 32: Dr. Lawrence Yun Economic Update

What will Happen to

Fannie and Freddie?• Survive

– Able to raise capital

– Default rate slows

• Do not Survive … become Bear Stearns

• Treasury and Fed helps through the crisis

– Repay the government after crisis

– Chrysler model

• Nationalization

– Temporary government takeover

– Re-privatize but with tighter regulation

Page 33: Dr. Lawrence Yun Economic Update

Sharp or Modest Rebound?• Depends on all of us in informing and educating

consumers

– Get the neighborhood information from local professionals

– If ready financially, buy a home and get that special tax break

– Mortgage rates off rock-bottom points but still historically favorable

– Though no guarantee, buying a home has been a path to long-term wealth accumulation in vast number of cases

– U.S. homes are on a big-time sale, own a piece of America