market outlook with lawrence yun

Economic and Housing Market OutlookLawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION OF REALTORS®

Presentation at NAR’s Midyear Economic Issues and Residential Forum Washington, D.C.

May 13, 2010

Recent Pending Home Sales

60708090

100110120

Source: NAR

Recent National Pending Home Sales(year-over-year % change)

-30

-20

-10

0

10

20

30

40

Source: NAR

Tax Credit Help to SalesDespite 3.7 million job losses

42%40% 40% 40%

36%39%

41%

47%

20%

25%

30%

35%

40%

45%

50%

2001 2003 2004 2005 2006 2007 2008 2009

Share of First-Time Buyers

Distressed Home Sales

05

101520253035

Source: NAR

Foreclosed

Short-Sale

Latest Home Price Trend - Stabilizing

-25

-20

-15

-10

-5

0

5% change from one year ago

Loan Performance in Yellow

FHFA in Red

Case-Shiller in Green

NAR in Blue

Pre-tax credit Tax credit

Sample Markets with Price Increases

0

2

4

6

8

10

12

14

16

San Diego Orange Cty Boston Houston Buffalo Washington Columbia

Source: NAR

% change from one year ago

Tax Credit was Not-Impactful

• 4.4 million homebuyers to get tax credit– 2/3 to 1st-time buyers– 1/3 to repeat buyers

• 1.0 million buyers would not have entered without tax credit (stimulative impact)

• 3.4 million getting bonus money

• $30 billion tax credit wasted on people who would have bought anyway

Tax Credit was Huge Success

• 1 million additional buyers• 1 million fewer inventory• Reduced months supply by 2 to 2.5 months• Correspond to price impact of 5% to 8% points

• Preserved Housing Wealth (mostly middle-class) by nearly $1 trillion

• Consumer spending impact• Banks’ capital pushed above ‘stress levels’• Builds home buying confidence … with no further big

price worries• Limit future foreclosures

After the Tax Credit• Need Job Creation

• Need Household Formation

• Need Mobility

• Improved Consumer Confidence

• Low Mortgage Rates

• Lending for Jumbo and Second Home Mortgages

-1000

-800

-600

-400

-200

0

200

400

600

Source: BLS

In thousands

NET Job Changes in U.S.(Monthly Payroll Job Change)

2 million job creation each year … will take 4 years to recover all the job losses …will take 6 years to fully absorb new workers and get back to 6% unemployment rate

3500

4000

4500

5000

5500

6000

Source: BLS

In thousands

Job Turnover in U.S.(Total job gains and total job losses)

Fewer firings but people seeking for unemployment insurance because of lack of hirings

0500

10001500200025003000350040004500

1980

1981

1982

1983

1984

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1989

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1991

1992

1993

1994

1995

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1997

1998

1999

2000

2001

2002

2003

2004

2005

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2007

2008

2009

Weak Growth

Thousands

Household Formation(2-year moving average)

10121416182022

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

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1991

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2006

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2008

2009

est

.

S C

People Mobility(How many move each year?)

Intra-state mobility modestly down

Inter-state mobility significantly down

%

1030507090

110130

2000

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Consumer Confidence

Chart about future expectations according to Conference Board

But no true measure for home buying confidence

30-year Rate on Conforming and FHA

(Not Jumbo or 2nd Home)

4.04.55.05.56.06.57.0

Source: Freddie Mac

30yr Mortgage and 10yr Treasury Spread

0

0.5

1

1.5

2

2.5

3

3.5

2004

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2004

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Future mortgage rates driven by 10-year Treasury borrowing cost

% pointsFinancial Crisis

Swings in Primary and Second Home Sales

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2003 2004 2005 2006 2007 2008 2009

Index

Source: NAR

Primary Home Sales

2nd Home Sales

Non-Government Backed Mortgages

• Jumbo Mortgages• Second Home Mortgages• Commercial Real Estate Loans• Construction Loans• Many Small Business Loans

• Showing nascent recovery signs because banks are making profits and easily above ‘stress-test levels’

Risk to Recovery

• Future Housing Shortage– Too fast price growth means fewer buyers

qualifying for mortgages – Past lax lending should not and will not

return

• Lingering Past Lending Mistakes and Continuing High Foreclosures

• Greece

High Existing Home Inventory

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

In thousand units

High Homeowner Vacancy Rate

0.00.51.01.52.02.53.03.5

In thousand units%

About 700,000 extra vacant homes above normal

Depressed Housing Starts

0

500

1,000

1,500

2,000

2,500In thousand unitsIn thousands

Low New Home Inventory

200250300350400450500550600

In thousand unitsIn thousands

Future Housing Shortage?

Year Housing Starts Historical Normal Cumulative

Surplus/Deficit

2003 1.85 million 1.6 million + 0.25 million




2007 1.34 million 1.6 million +1.02 million


2009 0.55 million 1.6 million - 0.73 million

2010 forecast 0.68 million 1.6 million -1.65 million

2011 forecast 0.95 million 1.6 million - 2.30 million

Serious Delinquency Rate(90+ days late or foreclosure)

0.0

5.0

10.0

15.0

20.0

25.0

30.0%

Subprime

•FHA Reserve Fund depleting … Bailout ???•Fannie-Freddie … future reform without private profit and taxpayer loss

•Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!

VA (purple)

FHA

Prime (green)

Number of Distressed Loans

Presenter

Presentation Notes

This graph shows the number of distressed loans by category. The bottom category is the foreclosure inventory, which as you can has been steadily rising but the increase over the last 2 quarters of 2009 tempered off some. The green group are foreclosures started which have also decreased in the last quarter of 2009. this is, as I will talk about it more later on, due to pressure on mortgage companies to modify distressed loans and minimize the numbers going into foreclosure. Many states have also put moratorium on foreclosures towards the end of the year. The pink group are mortgages 90+ days past due which have also leveled out at the end of 2009. finally is the orange group, which are newly delinquent loans and that is the most positive news, showing that loans entering delinquent status are decreasing and possibly indicating that the foreclosure crisis in 2010 might not be as bad as was in 2009.

Greece

• One of the Highest Homeownership Rate with few mortgage defaults

– Bridal families often buy a home all-cash• But Greece Government potential default

– Too high deficit and too high debt– Default … European banks’ capital reserve take

hit … less lending to Portugal and Spain– Debt default contagion spreads– Less capital available for jumbo and 2nd homes

U.S. Budget Deficit

-2,000,000

-1,500,000

-1,000,000

-500,000

0

500,000

19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate

U.S. to be Greece in 25 years?

Economic Outlook

2008 20092010

forecast

GDP 0.4% -2.5% 3.1%

CPI Inflation 3.8% -0.2% 2.0%

Unemployment Rate 5.8% 9.3% 9.7%

10-year Treasury 3.7% 3.3% 3.9%

Housing Outlook

2008 20092010

forecast

Existing Home Sales 4.9 m 5.2 m 5.4 m

New Home Sales 485 k 375 k 400 k

Home Price Growth -10% -13% 2% to 3%

Mortgage Rate 6.1% 5.1% 5.3%

Consumer confidence about home buying Down Down Up

Right Tools Right Now

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•Referrals and Repeat Clients are Important

– Daily Forecast Update– Connect to Facebook

• www.realtors.org– Then click Research

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