real estate market 1209 nar
TRANSCRIPT
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Real Estate MarketTrends & Outlook
Lawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION
OF REALTORS
Presentationat MarquetteUniversity
December 10, 2009
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Housing Stimulus Impact
Tax Credit and Higher Loan Limit
Raised Sales by 350,000 to 400,000 among First-time buyersin 2009
In 2010
Existing Home Sales gets 15% boost
Home Price gets 3% to 5% boost
Preservation of Middle-Class Wealth
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Recent Pending Home Sales
6 6
6 6
6 6
6 6
6 6 6
6 6 6
111
Recovery pre-dominantly in lower-end and taking
longer to close in recent months
Source: NAR
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Bifurcated Recovery
$ thousand
Homes priced under $100K
Homes priced above $500K
% change from one year ago
Source: NAR
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Aggregate Months Supply
6
6
6
6 6
Source: NAR
In thousand units
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National Existing Home Sales
6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 6 6 6
6 6 6 6 1111 6 6 6 6 1111 6 6 6 6 1111
Pre-boom sales
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Wisconsin Existing Home Sales
In thousand units
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Wisconsin Home Sales -Quarterly
% Change from one year ago
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First-Time Buyers Used Up orPent-Up Demand ?
In year 2000 (pre-boom)
11 million renters with qualifying income to buy a medianpriced home
In 2009
16 million renters with qualifying income to buy a medianpriced home
Most renters are not qualified and should not be homeowners
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First-Time Buyers Used Up orPent-Up Demand ?
2000
(pre-boom)
2009
(3 months prior to taxcredit)
2009
(recent 3 months with tax credit)
Existing Home Sales 5.2 m 4.6 m 5.3 m
New Home Sales 880 K 364 K 418 K
Payroll Jobs 131.8 m 135.0 m 131.4 m
Household Jobs 136.9 m 143.2 m 140.0 m
Median Home Price $143,600 $173,600 $177,900
Mortgage Rates 8.1% 5.5% 5.2%
Underwriting Standard + FHA % Normal (not loose)FHA about 10%
About NormalFHA 24%
About NormalFHA 15% to 20% with higher credit score
Household Income $41,990 $50,303 $50,303
# renters that could buy a median
priced home (assume no tax credit)
11.5 million 16.2 million 16.1 million
Change in Pool of Potential 1st TimeBuyers (without tax credit)
N/A 4.7 million 4.6 million
Change in Pool of Potential 1st TimeBuyers (with tax credit)
N/A/ 4.7 million 5.4 million
Fear Factor Impact (Waiting to buylater at a lower price)
N/A Hard to Measure Hard to Measure
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Household FormationHousehold Formation(2-year moving average)
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Preservation of Middle Class Wealth
$8000 Price Drop or $8000 Tax Credit ? No difference from buyers perspective
Major differences on market impact $8,000 or 4% decline value means $730 billion inhousing wealth destruction
Consumer wealth effects
Consumers rational postponement of purchase
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Financial Wealth RisingFinancial Wealth Rising
$ billion
Source: Federal ReserveSource: Federal Reserve, NAR estimate
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Housing Wealth to RiseHousing Wealth to Rise($4 trillion wealth loss in housing from peak)
If additional $8,000 price decline $700 billion further loss
$ billion
Source: Federal ReserveSource: Federal Reserve, NAR estimate
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Bubble Wealth All Removed
$ thousand Sarasota
Milwaukee
Source: NAR
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National Existing Home Price
0
50000
100000
150000
200000
250000
1970 1975 1980 1985 1990 1995 2000 2005
First-time buyers attracted to deeply discounted distressed sale properties.
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Overcorrection Needs to be Halted(Home Price to Income Ratio)
2 . 0
2 . 2
2 . 4
2 . 6
2 . 8
3 . 0
3 . 2
3 . 4
3 . 6
Stay within Budget and all will be OK !
Source: NAR
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Mortgage Payment to Income(by middle income person buying a median priced home)
2 . 0
7 . 0
1 2 .0
1 7 .0
2 2 .0
2 7 .0
3 2 .0
3 7 .0
4 2 .0
Stay within Budget and all will be OK !
Source: NAR
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Latest Monthly Home Price TrendCase-Shiller, Govt (FHFA), NAR Seasonally Adjusted Data
$ thousand
NAR
FHFA
Case-Shiller
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Housing Starts: Too Much to Too Little
0
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
New Units Needed
3 million more people each year 1 to 1.4 million household formation need to account for 300,000 demolitions . need 1.3 to 1.7 new units
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Wisconsin Housing Permits
Source: Census
In thousand units
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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 may need funds to implement a countercyclical policyFannie-Freddie will need funds future reform of the secondary mortgage marketVeterans Affairs backed mortgages slight rise even though a zero-down product stay within budget and all will be OK!
VA (purple)
FHA
Prime (green)
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-6.0
-3.0
0.0
3.0
6.0
9.0
2005
-
Q1
2005
-
Q3
2006
-
Q1
2006
-
Q3
2007
-
Q1
2007
-
Q3
2008
-
Q1
2008
-
Q3
2009
-
Q1
2009
-
Q3
2009Q4
Economy Recovering
GDP annualized growth rate
Source: BEA
Forecast
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Total Payroll Jobs in U.S.
124000
126000
128000130000
132000
134000
136000
138000
140000
Source: BLS
In thousands
Total Jobs in U.S.Total Jobs in U.S.
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2 7 0 0
2 8 0 0
2 9 0 0
Source: BLS
In thousands
Total Payroll Jobs in WisconsinTotal Payroll Jobs in Wisconsin
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3 5 0 0
4 0 0 0
4 5 0 0
5 0 0 0
Source: BLS
In thousands
Total Payroll Jobs in MichiganTotal Payroll Jobs in Michigan
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2 0 0 0
2 2 0 0
2 4 0 0
2 6 0 0
Source: BLS; (12-month moving average)
In thousands
Total Payroll Jobs in Washington D.C.Total Payroll Jobs in Washington D.C.
MetroMetro
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Federal Budget Deficit
-1,600,000
-1,400,000
-1,200,000
-1,000,000
-800,000
-600,000
-400,000-200,000
0
200,000
400,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate
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Federal Housing Policy
Tax Favoritism Mortgage interest deduction
Capital gains tax exclusion
Property tax deduction
But who pays taxes?
Ownership and Positive Externalities
Student test scores, teen pregnancy, juvenile delinquency
What is the proper homeownership rate?
Any Ownership vs Successful Ownership
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Economic Outlook
2008 2009 2010forecast
GDP 0.4% -2.5% 2.6%
CPI Inflation 3.8% -0.4% 1.6%
Unemployment Rate 5.8% 9.3% 10.0%
10-year Treasury 3.7% 3.2% 3.6%
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Housing Outlook
2008 2009 2010forecast
Existing Home Sales 4.9 m 5.1 m 5.7 m
New Home Sales 485 k 394 k 560 k
Home Price Growth -10% -13% 4%
Mortgage Rate 6.1% 5.1% 5.5%
Price Fear Factor ? ? None
C i l d R id ti lCommercial and Residential
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0
50
100
150
200
250
300
Index = 100 in 1990
Case-Shiller
MIT
2009 data is for Q2
Commercial and ResidentialCommercial and Residential
Property PricesProperty Prices
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Who Is Buying?Who Is Buying?
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Commercial Credit Freeze
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Credit Crisis 2008:Libor vs. Fed Funds Rate
Subprime acting up
Bear Stearns
Lehman Brothers
belly up
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Credit Crunch Ending?
Libor Rates improving Junk Bond yields becoming less wild
Banks making profit but are they getting too big again (75% ofassets controlled by 10 banks)
Federal Reserve lending at zero (though not to consumers)
Not Yet Need to see
Lower rate on jumbo mortgages
Lower rate on second home purchases
Lower rate on condo purchases
Lower rate on commercial real estate loans
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Office Market FundamentalsOffice Market Fundamentals
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Office Rent GrowthOffice Rent Growth
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Commercial Market OutlookCommercial Market Outlook
2008 to 2009 Net absorption turns negative
Rising Vacancy Rates and Stagnant Rent
Markedly Fewer Transactions
Property Prices Falling Distress Rising
2010 Economic recovery
Local market recovery
Commercial recovery with lag time
Modestly Positive net absorption
Rent struggles to move positive