kw vision speech feb202010

1.Home Sales

2.Home Prices

3.Inventory

4.Mortgage Rates

5.Affordability

Sales increased 5% in 2009, the first annual sales gain since 2005 and the tenth highest annual activity level

on record.

5.2

7.1

5.0 4.9

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: National Association of REALTORS®


CA

AZ

NV

FL

WAMT

ORID

NM

ND

SD

NE IA

MO

LA

GA

KY

IL

WIMI

OH

WV

PA

NY

VT ME

MA

AK

HI

Sales Increased

Sales Decreased

Home Sales Direction

(Year-Over-Year Change)

WY

UTCO

KS

OK

TX

AR

MS AL

TNNC

SC

VAIN

MN


Sales Increased

Sales Decreased

Home Sales Direction

(Year-Over-Year Change)

HI

AK

CA

NV

AZ

MN

VA

FL

The median home price declined by 12% in 2009.

Historical appreciation rate = 4%

$198K$222K

$165K

0

50

100

150

200

250

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

$174K

$203K

If home prices actually grew by 4% every year from 1989

the median home price would be $203,105, which is approximately 17% above where we are

today

Historical appreciation rate = 4%

Stronger sales activity in the second half of the year helped draw down inventory of existing homes to 8.8

months in 2009


4.3

10.5

8.8

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mortgage rates averaged 5.04% in 2009, an all-time low since Freddie Mac started tracking in 1971.

Mortgage rate ranged from 4.81% to 5.59% in 2009. At the end of December, rates stood at 4.93%.

Source: Freddie Mac

5%

10%

6%

4%

8%

12%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

And you still wouldn’t get a mortgage as cheap as you could in And you still wouldn’t get a mortgage as cheap as you could in 2009.2009.

Mortgage Rate in 1971: 7.48%Mortgage Rate in 1971: 7.48%

In 1971: In 1971: Gasoline 40 cents a gallon

Stamp 8 centsTurkey 43 cents a

poundDatsun Sports Coupe $1,866Monthly Rent $150Average New Home Price

$25,250

Dow Jones Average 890


2009 affordability = 2009 affordability = most favorable most favorable on recordon record

18.5%15%

40yr 40yr Average = Average =

21.9%21.9%

1.Home Sales

2.Home Prices

3.Inventory

4.Mortgage Rates

5.AffordabilityPage

14

Sales increased 7.7% in 2009 – 4th highest annual activity level on

record

Source: Conference Board/CREA

465K

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009Page

16

The national average home price up 5% in 2009 to a record $320,333.

20-year historical appreciation rate = 4%

$304K$320K


Northwest Territories

Saskatchewan

Manitoba

Newfoundland & Labrador

Nova Scotia

New Brunswick

Prince Edward Island

Prices Increased

Prices Decreased

Home Price (Year-Over-Year Change)

Northwest

Territories

Yukon

British Columbia

Alberta

Ontario

Quebec

Nunavut

20-year historical appreciation rate = 4%


Canada experienced a balanced market for Canada experienced a balanced market for most of 2009, but ended the year in a most of 2009, but ended the year in a

seller’s marketseller’s market

Source: Bank of Canada

8.35%6.93%

13.35%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Mortgage rates hit record low, remaining under 6% in 2009.

In December, rates stood at 5.49%

5.63%

• Canadians have been feeling the impact of high ownership costs as they experienced deteriorating affordability over the past few years.

• Having improved by an average of 5.03% in the third quarter of 2009, homes continue to be much more affordable than a year ago.

• Similar to trends seen in the U.S., the steepest market correction is occurring in provinces that were hardest hit during the downturn.

Property TypeQ3

2008

Q3

2009Change

Detached bungalow

45.7% 40.2% -5.5%

Standard two-storey

52.0% 45.8% -6.2%

Standard townhouse

36.9% 32.3% -4.6%

Standard condo

31.4% 27.6% -3.8%

Average Change -5.03%

Source: Bank of Canada

1.Gross Domestic Product

2.Inflation

3.Unemployment

The economy grew by 5.7% in the fourth quarter of 2009, the quickest pace since the third quarter of 2003, fueled by stronger than expected replenishment of inventory.

Strong growth reported in the last two quarters of the year suggests that the U.S. economy is out of the recession but not necessarily in the clear.

Source: Bureau of Economic Analysis

Overall in 2009, economy contracted by 2.4%

The hit really came in Q1 2009 Stronger-than-expected growth in Q3

& Q4

-2.4%

0.4%1.1%

-0.2%

-4%

-2%

0%

2%

4%

6%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009


Inflation averaged around -0.4% in 2009.

Source: Bureau of Labor Statistics

-0.4%

3.8%

-2%

0%

2%

4%

6%

1998 2000 2002 2004 2006 2008

The U.S. was in the midst of a deflationary recession for The U.S. was in the midst of a deflationary recession for most of 2009.most of 2009.

Toward the end of the year, inflation returned to a more Toward the end of the year, inflation returned to a more typical level of 2.7% in December.typical level of 2.7% in December.

1.8%-2.1%

2.7%

-4%

0%

4%

8%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec


Unemployment increased to an average of 9.3% in 2009 from 5.8% Unemployment increased to an average of 9.3% in 2009 from 5.8% in 2008.in 2008.

Unemployment rose to 10% in the final month of the year.Unemployment rose to 10% in the final month of the year.

9.3%

-2%

2%

6%

10%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009


Traction in Canada’s Economy:

•Policy support •Increased consumer confidence •Improving credit conditions •Improved terms of trade

Metrics %

1. Real GDP (2009 estimate)

-2.5%

2. Inflation Rate (Dec) 1.3%3. Unemployment Rate (Dec)

8.5%

1.Foreclosures and short sales continued to skew home prices downward

2.Banks continued to tighten their lending standards

3.Stimulus aid continued to gain traction

4.The available sides per agent ticked back upPage

32

• 1 in 45 housing units received at least one foreclosure filing in 2009.

– Total number of filings: 4 million

• So far, foreclosure prevention programs have had limited impact on slowing foreclosure rates.Source: National Association of Realtors

Source: RealtyTrac

AKHI

Less than 1%

1–5%

Above 5%

Number 1: Nevada - 7% (1 in 14 houses)

Source: RealtyTrac

AKHI

Number 1: Nevada - 10% (1 in 10 houses)

Less than 1%

1–5%

Above 5%

49%

22%

26%

17%

64%

46%

30%

29%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Q4

Q3

Q2

Q1Nontraditional

Nontraditional

Nontraditional

Nontraditional

Prime

Prime

Prime

Prime

Fewer banks tightened their

lending standards in the last quarter

Source: Federal Reserve

Historically low interest rates and unprecedented home prices continually contributed to positive affordability conditions.

The market share of first-time home buyers rose to 47% in 2009.

42% 40% 40% 40% 36% 39% 41% 47%

2001 2003 2004 2005 2006 2007 2008 2009

Source: National Association of Realtors

Percent of First-time Home Buyers

As NAR membership contracted by 7% in 2009, those who remained gained a larger share of the market.

Number of transactions available per agent jumped 13% from 2008, the first increase in a decade.


9.313.8 13.6 13.5 13.3 12.9 12.6 12.3 11.2 9.5 8.28.4

1998 2000 2002 2004 2006 2008

2009 recorded the largest increase in the measure since 1983.


4

8

12

16

1976 1980 1984 1988 1992 1996 2000 2004 2008

0

2

Annual Sales per Agent NAR Membership (in Millions)

2009

NAR Members: 1.1 Million

Annual Sales per Agent: 9.3


9.31.1 Million

1.1.Canada’s stimulus package continued to Canada’s stimulus package continued to gain tractiongain traction

2.2.Commodity prices remained low in 2009 Commodity prices remained low in 2009 while Canadian currency has strengthened while Canadian currency has strengthened

3.3.The available sides per agent increasedThe available sides per agent increased

• The Bank of Canada lowered the overnight interest rates to 0.25% in April, the lowest rate on record in response to highly uncertain global market outlook and deteriorating credit conditions.

• The central bank also made a conditional commitment to keep rates low until the end of the second quarter in 2010.

• Canada’s economic leaders are now worried that low interest rates are luring consumers into taking on huge amount of debt that they may not be able to pay back when interest rates rise from their historic low levels.

• Commodity prices have recovered, but remain low.

• The loonie is rising on the back of world markets losing faith in the US dollar, usually considered a safe reserve, and looking for havens elsewhere.

• A high Canadian dollar hurts manufacturing and export industries because it makes Canadian goods more expensive on world markets, especially in the US, which is Canada's largest trading partner.

2008:

C$1 0.83 USD

2009:

C$1 0.95 USD

Exchange rates (Dec. 31)

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In 2009, home sales increased 7.7% and CREA membership expanded further by 1%. Available sides per agent increased to 9.5 transactions.


9.2 10.1 10.5 12.2 12.6 12.2 12.0 11.7 10.9 11.1 8.9 9.5

1998 2000 2002 2004 2006 2008

9.5

98K

4

8

12

16

1980 1984 1988 1992 1996 2000 2004 2008

0

60

120


2009 CREA Members: 98K Annual Sales per Agent: 9.5

Annual Sales per Agent CREA Membership (In Thousands)

1.Extended First-Time Home Buyer Tax Credit

2.Extended Higher Loan Limits

3.Continued Federal Reserve MBS Purchases

4.Implemented Foreclosure Prevention Program

5.Tightened Requirements for FHA

6.Lifted FHA 90-Day Seasoning Requirement Lifted

7.Addressed Home Valuation Code of Conduct (HVCC)

• Extended through April 30, 2010

• Includes first-time buyers and qualifying existing homeowners

• The original first-time buyer tax credit stimulated lower price points, this could stimulate mid-to-upper price points.

• Higher loan limits in the 2009 Stimulus bill were extended through December 31, 2010.

• The limit is 125% of local median home price, up to an overall cap of $729,750.

• Federal Reserve committed to purchasing $500 billion in mortgage backed securities (MBS) in late 2008

• An additional $750 billion was added to that in March 2008.

• This has helped keep mortgage rates low this year.

• Program set to expire in March 2010.

• Has helped 67,000 homeowners get into permanent loan modifications.

• Key Changes:–Second mortgages were added. –Those up to 125% underwater can refinance.–The program was extended to include FHA. –Short Sale provisions were added. –Streamlined paperwork requirements.

• FHA has grown from less than 2% of loans three years ago to 30% of new purchases and 20% of refinances in 2009.

• FHA’s market share has skyrocketed to 17% in the third quarter of 2009, a nearly six-fold increase in the last two years.

• It will:–Raise insurance fees –Cap seller contribution to buyer’s closing costs–Require higher down payments for those

with poor credit.

• With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days.

• This temporary change in policy will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties, as a result, stabilizing home values and revitalizing communities where foreclosure activity is high.

• The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner and will come with strict conditions and guidelines to prohibit predatory practices by sellers.

• Effective: May 2009

• Intended to promote fair appraisals but caused trouble when first implemented.

• Changes have been made since, prohibiting inexperienced appraisers.

• Agents can now speak directly with appraiser and provide supportive materials, like “comps”.

1.1.The stimulus bill known as the “Economic The stimulus bill known as the “Economic Action Plan”Action Plan”

2.2.Competition Bureau versus CREACompetition Bureau versus CREA

• In 2009 the stimulus, known officially as the Economic Action Plan, was incorporated into the 2009 budget last February.

• The plan totals $40 billion dollars in new spending and tax cuts during 2009 and 2010.

• Approximately three-quarters of this stimulus was allocated towards new spending on infrastructure investments, communities, skills, and work-transition strategies.

• 95% of the funds have been committed.

1. Home buyer tax relief

2. Increase in withdrawal limits from retirement savings plan

3. Home renovation tax credit

4. ecoENERGY Retrofit program

5. Social housing investments

• On Feb 8, 2010, the Competition Bureau filed a case against CREA in the Competition Tribunal, alleging that CREA had restricted access to MLS in ways that were anti-competitive.

• The legal challenge to strike down some of CREA’s rules relating to the MLS System in Canada came after discussions aimed at a negotiated settlement failed.

– In October 2009, The Competition Bureau announced that it wanted key sections of CREA’s access rules removed based on findings of its three-year investigation into CREA’s access rules which started in 2007.

• No date has yet been set for the Competition Tribunal hearing.

USA• Bad Case of the Flu• Paying for our “Excesses”• 2 years behind Residential Shift• In Denial Stage moving towards Acceptance

CANADA• A Bad Cold• Impacted by Global Recession• Soft Recovery

Overall -70%Hotel -88%

Office -66%

Retail -76%

Industrial -50%

Multi-Family -61%

Health -42%

USA – Inv. Sales CANADA• Investment Sales Activity is

down 55%. • Office Vacancy Rate jumped

from 6.3% to 9%.• Industrial Vacancy Rate

increased from 5% to 6.3%.

Page 61

Commercial Sales/Leasing Activity 2008 vs. Commercial Sales/Leasing Activity 2008 vs. 20092009

Just 14% of the Level vs.

2007

Source: MBA Source: Avison Young

USA• Disconnect in Values –

“Negative Equity”• Extend and Pretend –

“Kicking the default can further down the road…”

• Sam Zell – “Grave Dancer”

CANADA• Foreign Investment Infusion • Valuations down 20%• Canadian Government’s $200

Billion program to support lending to businesses

CRE ValuationsCRE Valuations

• CRE is Cyclical – 10 year boom 1998-2008

• Lack of Job Growth:

Unemployment (2007 to Present)

USA: 4.5% to 10%

CANADA: 6% to 8.3%

• Easy Credit Lax Lending Standards – CMBS Markets Excess in Valuations – 3-4% Cap Rates

USA• $1.4 Trillion Commercial Debt coming due over the Next 3 Years…• 6,500 Banks effected – Local, Regional & National• Residential Shift – 10 major Banks/Institutions• 1980’s RTC - $153 billion

CANADA• Banks Held and Serviced their Loans• World’s Soundest Financial System

CRE LendingCRE Lending

• Markets of the Moment Distressed Assets Venture Equity Property Management Tenant Representation Owner Occupied Transactions - SBA

• Focus on Business Development Networking Foot on the accelerator

• Get Lean – Cut Expenses – JOIN KW COMMERCIAL Page

65

SHIFT Your CRE Practice!SHIFT Your CRE Practice!

42%40% 40% 40%

36%39%

41%

47%

2001 2003 2004 2005 2006 2007 2008 2009

All Buyers First-time Buyers

Repeat Buyers

Desire to own a home 35% 62% 11%

Job-related relocation or move 9 2 16

Desire for larger home 9 2 16

Change in family situation 9 8 10

Affordability of homes 8 10 6

Desire for a home in a better area 4 1 7

Desire to be closer to family/friends/relatives

4 1 7

Desire to be closer to job/school/transit

3 1 5

First-time home buyer tax credit 3 6 1

Desire for smaller home 3 * 5

Retirement 3 1 4

Establish household 2 2 1

1 year or less 4%2 to 3 years 184 to 5 years 216 to 7 years 128 to 10 years 1511 to 15 years 1216 to 20 years 821 years or more

11

Median 7

1 year or less 1%2 to 3 years 34 to 5 years 126 to 7 years 38 to 10 years 1411 to 15 years 516 to 20 years 22Don’t Know 39

Median 10

All Buyers First-time Buyers

Repeat Buyers

Looked online for properties for sale 36% 31% 40%

Contacted a real estate agent 18 14 21

Looked online for information about the home buying process

11 16 7

Contacted a bank or mortgage lender

8 11 6

Drove-by homes/neighborhoods 8 6 10

Talked with a friend or relative about home buying process

7 11 3

Visited open houses 4 2 5

Looked in newspapers, magazines, or home buying guides

3 2 3

Contacted builder/visited builder models

2 1 2

Attended a home buying seminar 1 3 *

2001 7

2003 8

2004 8

2005 8

2006 8

2007 8

2008 10

2009 12

Internet 90%

Real estate agent 87

Yard sign 59

Open house 46

Print newspaper advertisement

40

Home book or magazine 26

Home builder 18

Relocation company 4

Television 8

Billboard 6

2001 2003 2004

2005

2006

2007

2008

2009

Real estate agent 48% 41% 38% 36% 36% 34% 34% 36%

Internet 8 11 15 24 24 29 32 36

Yard sign/open house sign 15 16 16 15 15 14 15 12

Friend, relative or neighbor 8 7 7 7 8 8 7 6

Home builder or their agent 3 7 7 7 8 8 7 5

Print newspaper advertisement 7 7 5 5 5 3 3 2

Directly from sellers/Knew the sellers

4 4 5 3 3 3 2 2

Home book or magazine 2 1 2 1 1 1 1 *

Other 3 6 4 * * * * *

Very Useful

Somewhat Useful

Not Useful

Did not use/Not

Avail

Photos 84% 13% 1% 2%

Detailed information about properties for sale

82 15 1 2

Virtual tours 63 26 4 7

Real estate agent contact information 46 33 10 11

Interactive maps 43 32 10 14

Neighborhood information 40 42 9 9

Pending sales/contract status 30 35 16 19

Detailed information about recently sold properties

28 38 16 18

Information about upcoming open houses 20 33 21 26

Multiple Listing Service (MLS) website 60%

Real estate company website 46

REALTOR.com 46

Real estate agent website 45

Other website with real estate listings 30

For-sale-by-owner website 17

Newspaper website 9

Real estate magazine website 4

Social networking websites (e.g. Facebook, Myspace, etc.)

1

Video hosting websites (e.g. YouTube, etc.) *

2001 2003 2004

2005

2006

2007

2008

2009

Through a real estate agent or broker

69% 75% 77% 77% 77% 79% 81% 77%

Directly from builder or builder’s agent

15 14 12 12 13 12 10 8

Directly from the previous owner

15 9 9 9 9 7 6 5

Through a foreclosure or trustee sale

1 1 1 * 1 1 3 10

Yes, a written arrangement

43%

Yes, an oral arrangement 19No 28Don’t Know 11

Help with the price negotiations

13%

Help buyer negotiate the terms of sale

16%

Help with paperwork

9%

Determine what comparable homes

were selling for8%

Help determining how much home buyer can afford

4%

Help find and arrange

financing2%

Other2%

Referred by (or is) a friend, neighbor or relative 44%

Used agent previously to buy or sell a home 10

Internet website 10

Saw contact information on For Sale/Open House sign

7

Visited an open house and met agent 6

Referred by another real estate agent or broker 5

Referred through employer or relocation company

4

Walked into or called office and agent was on duty

4

Personal contact by agent (telephone, email, etc.)

3

Newspaper, Yellow Pages or home book ad 1

Direct mail (newsletter, flyer, postcard, etc.) *

Advertising specialty (calendar, magnet, etc.) *

Other 6

One 66%

Two 19

Three 10

Four or more 6

Reputation of agent23%

Agent is friend or family member

16%

Agent’s knowledge of the

neighborhood11%

Agent has caring personality/good

listener10%

Agent’s association with a particular firm

3%

Professional designations held by real estate agent

1%

Other4%

Good financial investment 87% Better than stocks 54 About as good as stocks 26 Not as good as stocks 7

Not a good financial investment

3

Don’t know 10

66%

22%

6% 5% 2%

Definitely Probably Probably Not Definitely Not Don't Know

Referred by (or is) a friend, neighbor or relative 40%

Used agent previously to buy or sell a home 24

Referred through employer or relocation company

5

Visited an open house and met agent 5

Personal contact by agent (telephone, email, etc.)

5

Referred by another real estate agent or broker 4

Saw contact information on For Sale/Open House sign

3

Direct mail (newsletter, flyer, postcard, etc.) 3

Internet website 3

Walked into or called office and agent was on duty

3

Newspaper, Yellow Pages, or home book ad 2

Advertising specialty (calendar, magnet, etc.) 1

Other 5

64%

20%

10%3% 3%

One Two Three Four Five or more

Help price home competitively 22%

Help find a buyer for home 21

Help seller market home to potential buyers 19

Help sell the home within specific timeframe 19

Help seller find ways to fix up home to sell it for more

10

Help with negotiations and dealing with buyers 5

Help with paperwork/inspections/preparing for settlement

3

Help seller see homes available to purchase 1

Other 1

Reputation of agent 36%

Agent is honest and trustworthy 21

Agent is friend or family member 16

Agent’s knowledge of the neighborhood

13

Agent has caring personality/good listener

6

Agent’s association with a particular firm

4

Professional designations held by agent

1

Agent’s commission *

Other 3

Real estate agent initiated discussion of compensation

44%

Client brought up the topic and the real estate agent was willing to negotiate their commission or fee

25

Client brought up the topic and the real estate agent was not willing to negotiate their commission or fee

9

Client did know commissions and fees could be negotiated but did not bring up the topic

10

Client did not know commissions and fees could be negotiated

13

59%

22%

10% 7%2%

Definitely Probably Probably Not Definitely Not Don't Know

2001 2003 2004

2005

2006

2007

2008

2009

Sold home using an agent or broker

79% 83% 82% 85% 84% 85% 84% 85%

For-sale-by-owner (FSBO) 13 14 14 13 12 12 13 11

Sold to home buying company

1 1 1 1 1 1 1 1

Other 7 3 3 2 3 2 2 3

Less than 90% 23%90% to 94% 2195% to 99% 35100% 15101% to 110% 3More than 110% 2

Median Sales-to-Listing Price

95%

None 58%Home warranty policies 21%Assistance with closing costs 18%Credit toward remodeling or repairs 6%Other incentives, such as a car, flat screen TV, etc.

3%

Assistance with condo association fees 1%Other 5%

22% Less

21% Less

34% Less 27%

Less 11% Less

Source: KWRI Internal MLS Studies

1% Mor

e

11% Mor

e

14% Mor

e

11% Mor

e

16% Mor

e


5% Slower

2% Faster

5% Faster 13%

Faster

5% Faster


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7% Increas

e34%

Decrease

18% Decreas

e4%

Decrease


5.33%

5.59%

5.09%5.10%5.12%5.20%5.21%5.19%

2002 2003 2004 2005 2006 2007 2008 2009

Commission rates rose by more than a quarter of a percentage point in 2009.

Source: KWRI Internal Commission Studies

2.50%2.59%

2.40%2.40%2.40%2.43%2.44%

2.42%

2002 2003 2004 2005 2006 2007 2008 2009

Seller side commission rates increased slightly by a tenth of a point.


3.00%

2.83%

2.68%2.70%2.71%2.78%2.77%2.77%

2002 2003 2004 2005 2006 2007 2008 2009

Buyer side commission rates increased more than a tenth of a point to 3% in 2009.


Median commission amount on the seller side decreased by 24% due to a 21.7% drop in home prices.


$3,575$3,872

$4,200

$4,650 $4,756 $4,780$4,550

$3,450

2002 2003 2004 2005 2006 2007 2008 2009

On the buyer side, commission amounts declined by approximately 10% due to a 9.3% decline in home prices.


$4,128

$4,410

$4,730

$5,155$5,325 $5,350

$5,145

$4,650

2002 2003 2004 2005 2006 2007 2008 2009

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“Persistence and determination alone are omnipotent. The slogan ‘Press On’ has solved and always will solve the problems of the human race.”Page

115

- Calvin Coolidge

PRESS ON!

kw vision speech feb202010

Real Estate

economic action

real estate

mortgage rates

rates stood

home sales

agent increased

home prices

agent previously