Housing Market Watch 2014

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation in Nashville, TN

July 9, 2014

Existing Home Sales20% cumulative increase over 2 years

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Median Home Price(Near 20% gain in 2 years)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

Monthly Pending Sales Indexrecovering but still down from a year ago

(Seasonally Adjusted)

2011 - Jan

2011 - Mar

2011 - May

2011 - July

2011 - Sep

2011 - Nov

2012 - Jan

2012- Mar

2012 - May

2012 - Jul

2012 - Sep

2012 - Nov

2013 - Jan

2013 - Mar

2013 - May

2013 - Jul

2013 - Sep

2013 - Nov

2014 - Jan

2014 - Mar

2014 - May

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

115.0

Source: NAR

Local Area Housing Statistics(Outperforming vs. Nation)

• Home Sales• Up 2% in 2014 year-to-date

• Median Home Price• Up 6% in 2014 year-to-date

• Dollar Volume• Up 8% in 2014 year-to-date

• Inventory is loosening but still tight• Down 5% in May 2014 vs May 2013

Two and Out?Or Multi-year Expansion?

(Single-Family Existing Home Sales Only)

19681971

19741977

19801983

19861989

19921995

19982001

20042007

20102013

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Causes of Recent Sales Slowdown

• Bad winter– Only delayed sales not cancellation

• Home prices rose too fast in relation to income– Showing signs of slowing

• Lack of inventory– Steadily more inventory coming to market

• Mortgage rates jumped– Trouble !

• Mortgage credit difficulties– New Qualified Mortgage Rules– Surely cannot get worse!

Mismatch Growth

2-year Growth0%2%4%6%8%

10%12%14%16%18%20% 19%

4%

Home Price Household Income

30-Year Fixed Rate Mortgage and

1-year Adjustable Rate Mortgage

2000 - Jan 2001 - Dec2003 - Nov2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun0

1

2

3

4

5

6

7

8

9

Change in Home Price(% change from one year ago)

2011 - Jan

2011 - Mar

2011 - May

2011 - Jul

2011 - Sep

2011 - Nov

2012 - Jan

2012 - Mar

2012 - May

2012 - Jul

2012 - Sep

2012 - Nov

2013 - Jan

2013 - Mar

2013 - May

2013 - Jul

2013 - Sep

2013 - Nov

2014 - Jan

2014 - Mar

-10

-5

0

5

10

15

NAR Case-Shiller CoreLogic

Nashville Repeat Price Index

1995 - Q1

1996 - Q1

1997 - Q1

1998 - Q1

1999 - Q1

2000 - Q1

2001 - Q1

2002 - Q1

2003 - Q1

2004 - Q1

2005 - Q1

2006 - Q1

2007 - Q1

2008 - Q1

2009 - Q1

2010 - Q1

2011 - Q1

2012 - Q1

2013 - Q1

2014 - Q1

020406080

100120140160180200

Inventory of Homes for Sale

2007 - Jan

2007 - Jun

2007 - Nov

2008 - Apr

2008 - Sep

2009 - Feb

2009 - Jul

2009 - Dec

2010 - May

2010 - Oct

2011 - Mar

2011 - Aug

2012 - Jan

2012 - Jun

2012 - Nov

2013 - Apr

2013 - Sep

2014 - Feb

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

Change in Inventory(% change from one year ago)

2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun

-30

-20

-10

0

10

20

30

40

50

Forecast #1:Higher Inflation … Higher Interest Rates

• Federal Reserve “Quantitative Easing” finishes by the year end 2014

• Fed Funds Rate … hike in 2015 Q1• Earlier Move to Tighten because of Inflation

Pressure• Long-term Steady State Rate (2016 onwards) ..

10 year Treasury at 5.0%

Rising Renters’ and Homeowners’ Rent Growth (On the Way to 3%)

2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul

-1

0

1

2

3

4

5

Owners' Equivalent Rent Renters' Rent

REALTOR® Rent Survey – Shows Rent Pressure

2010 - Dec

2011 - Feb

2011 - Apr

2011 - Jun

2011 - Aug

2011 - Oct

2011 - Dec

2012 - Feb

2012 - Apr

2012 - Jun

2012 - Aug

2012 - Oct

2012 - Dec

2013 - Feb

2013 - Apr

2013 - Jun

2013 - Aug

2013 - Oct

2013 - Dec

0

10

20

30

40

50

60

Falling Rising

Economic Forecast2013 2014

forecast2015

forecastGDP Growth 1.9% 1.9% 2.7%

Job Growth 1.7% 1.7% 1.8%

CPI Inflation 1.4% 2.5% 3.5%

Consumer Confidence

73 82 86

10-year Treasury 2.5% 2.8% 3.6%

Forecast #2Multi-year Housing Expansion – Broadly Speaking

• Pent-Up Demand– Population Growth– Job Growth

• Some underperformance, however, from lock-in effect

• Inevitable Growth in housing starts add inventory

• Vacation home sales growth

U.S. Population

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20120

50

100

150

200

250

300

350In millions

Pent Up Demand2000 2013

Existing Home Sales 5.2 m 5.1 m

New Home Sales 880 K 430 K

Mortgage Rates 8.0% 4.0%

Payroll Jobs 132.0 m 136.4 m

Population 282 m 316 m

GDP Contraction in 2014 Q1

2007 - Q1

2007 - Q3

2008 - Q1

2008 - Q3

2009 - Q1

2009 - Q3

2010 - Q1

2010 - Q3

2011 - Q1

2011 - Q3

2012 - Q1

2012 - Q3

2013 - Q1

2013 - Q3

2014 - Q1

-10

-8

-6

-4

-2

0

2

4

6

GDP Annualized Growth Rate

Sluggish Growth + Gap after Great Recession

($1.5 trillion gap … $4,700 per person)

1998 - Q1

1998 - Q3

1999 - Q1

1999 - Q3

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

2011 - Q3

2012 - Q1

2012 - Q3

2013 - Q1

2013 - Q3

10000

11000

12000

13000

14000

15000

16000

17000

18000

GDP in 2009 Dollars

Real GDP Real GDP W/O Recession

3% Growth Line

2.2% Growth Line

GDP Growth = Job Creations(8 million lost … 8+ million gained)

2000 - Jan 2002 - Mar 2004 - May 2006 - Jul 2008 - Sep 2010 - Nov 2013 - Jan124000

126000

128000

130000

132000

134000

136000

138000

140000In thousands

Unemployment Rate

2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun0

2

4

6

8

10

12

Employment Rate

2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun54

56

58

60

62

64

66

Job Market Comparisons by StateFast Growing States 1-year Growth Rate

North Dakota 4.5

Nevada 3.7

Texas 3.4

Florida 2.9

Utah 2.9

Colorado 2.8

Oregon 2.7

Delaware 2.6

West Virginia 2.5

California 2.2

Slow Moving States 1-year Growth Rate

Michigan 0.7

Alabama 0.6

Wyoming 0.6

South Dakota 0.3

Virginia 0.3

New Jersey 0.1

Illinois 0.0

Alaska 0.0

New Mexico -0.1

Vermont -0.2

Tennessee growing at 2.1%

Jobs in Nashville Metro(New Peak and growing at 3.2%)

2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun600

650

700

750

800

850In thousands

Locked-in Effect of Low Rates?

• Housing cannot get back to normal in a hurry• People move even in high interest rate

environment– Marriage, divorce, new baby, school district, new job,

fed-up with local government, …• Many unplanned landlords

– Take advantage of rising rents while rates are low and fixed

• Potential future lock from longer holding period for capital gains tax exclusion

Household Net Worth

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

2012 - Q4

40000

45000

50000

55000

60000

65000

70000

75000$ billion

Vacation Home Sales

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -

200

400

600

800

1,000

1,200

In thousands

Housing Starts Rising … More InventoryBut Needs to Reach 1.5 million

2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul 2013 - Jun0

500

1000

1500

2000

2500multifamily single-family

Thousand units (annualized)

Long-term Average

Nashville Metro Housing Permits(year to date)

2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Sluggish Recovery in Housing Starts

• Cost of Construction Rising Faster than CPI

• Labor Shortage for construction work

• Construction loan difficulty for small local homebuilders … Dodd-Frank financial regulations?

National Housing Forecast2013 2014

forecast2015

forecast

Housing Starts 925,000 1.1 million 1.4 million

New Home Sales 430,000 Near 500,000 Near 700,000

Existing Home Sales 5.1 million 4.9 million 5.3 million

Median Price Growth

+ 11.5% + 5% to 6% + 3% to 5%

30-year Rate 4.0% 4.4% 5.4%

Nashville Housing Forecast?

Has to outperform because of faster job growth and faster housing starts recovery

Forecast #3: More Unequal Wealth Distribution

• Renters do not accumulate wealth• Renter population rising• Homeowners build wealth after buying at low

prices• Stagnant homeowner population• Tight Credit hinders ‘good’ renters from

becoming homeowners• Investors becoming increasing share of property

owners

Renter Households

1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q425,000

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000In thousands

Homeowner Households has not Grown since 2006 … but Primed to Grow

1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q450,000

55,000

60,000

65,000

70,000

75,000

80,000In thousands

Wealth Distribution (Federal Reserve data on median net worth)

Renter Owner$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

199820012004200720102014

2014 Forecast by NAR

Bubble Crash

What Homebuyers Want?

76%Single Family

Detached House

Single Family At-tached

4%

14%Condo or Apt.

80%Single Family De-

tached House

7%

5%

Condo or Apt.

8%

Slide 41

Slightly More Preference For Condo or Apartment Living Than In 2011

Housing Type Preference (2013): Housing Type Preference (2011):

Right now, if you could choose, which of the following would you prefer to live in:

6%

Single Family Attached

Slide 42

Walkability and Age-Diversity Gaining in Importance

0%

10%

20%

30%

40%

50%

46% 45%

37%

28% 28%

23% 23%

45% 44%

31%

24%

36%

15%

21%

Changes in Important Factors in Deciding Where to Live

+1 +1

+6

+4 -8

+8 +2

Very Important - 2013 Very Important - 2011

Q.47 In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important.

What Buyers Want Most From Their Agent

Help find the right home to

purchase; 53%

Help buyer negotiate the terms of sale;

12%

Help with the price negotia-

tions; 11%

Determine what compa-rable homes were selling

for; 8%

Help with paperwork;

7%Help find and arrange

financing; 3%

Where Clients Come From• From Members:

– 21 percent repeat business from past clients– 21 percent referrals from past clients– 3 percent off member website (of those with a website)

• From Buyers:– 54 percent use an agent that was referred to them or they

had worked with before– 9 percent found agent online

• From Sellers:– 64 percent use an agent that was referred to them or they

had worked with before– 4 percent found agent online

• 2/3rds of buyers/sellers only contact 1 agent

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