Real Estate Update:Have we reached bottom?

Midwest Relocation ConferenceChicago, Illinois

April 4, 2011

Moderator:

Carol Mescal, CRP | VP Client Relations, TheMIGroup

Speakers:

Jed Smith, Ph.D | Director, Quantitative Research, National Association of Realtors

Deborah Benavides, CRP | Director, Relocation and Corporate Services, Shorewest Realtors

Barbara Springer, CRP,GMS, CMS | Executive Vice President, Relocations and Referral Services @Properties

Tim Rohlman, CRP | President, Relocation Real Estate Services, Inc.

National Association of Realtors

Jed Smith Director, Quantitative Research, National Association of Realtors

The Economy – How We Got Here!Excessive Spending & Leverage, Speculation, Job & Credit Problems,

Weak Balance Sheets & Income, Consumer Confidence Problems

         

         

May2008

Jun 2008

July 2008

Sep 2008

2009Aug 2008

Current State of the EconomyGDP and Jobs – Slow Recovery

All Employees: Total NonfarmSA, Thous

Gross Domestic ProductSAAR, Bil.$

100500959085Sources: BLS, BEA 03/11/11

140000

130000

120000

110000

100000

90000

80000

15000

12500

10000

7500

5000

2500

Current State of the Economy – Consumer ConfidenceToo Much Gossip Around the Cyber Cracker Barrel

Conference Board: Consumer Confidence

SA, 1985=100

10050095908580Source: The Conference Board 03/10/11

150

125

100

75

50

25

150

125

100

75

50

25

Current State of the EconomyUnemployment Rate

Civilian Unemployment Rate: 16 yr +

SA, %

100500959085807570656055Source: Bureau of Labor Statistics 03/10/11

12

10

8

6

4

2

12

10

8

6

4

2

Current State of the Housing MarketLonger Unemployment: Slow to Find a Job

Civilians Unemployed for 27 Weeks and Over

SA, Thous.

100500959085807570656055Source: Bureau of Labor Statistics 03/10/11

8000

6000

4000

2000

0

8000

6000

4000

2000

0

Current State of the Economy – More Jobs Needed!Projected Time for Recovery: Four Years?

125000

135000

145000

Source: BLS

Forecasting the Outlook: Black SwansUnknown Unknowns / Unanticipated Risks

Uncertainties and UnknownsImpact on the Economy

• Federal and State Government Budgets

• Oil: Prices and Availability

• European Credit Markets

• GSE and Financial Reform

• Credit Availability/Inflation/Uncertainties

• Consumer Confidence

• Structural Changes?

• Federal Policies—Key Impacts

• GDP into Jobs—When Will it Happen?

The Economy – Economic OutlookGovernment Actions / Policies – Can Impact Outcome

  2007 2008 2009 2010 2011 2012

Annual Growth Rate      

Real GDP 2.0 0.4 -2.6 2.9 2.7 3.0

Non-farm Payroll Employment

1.1 -0.4 -4.4 -0.7 1.4 2.2

Consumer Prices 2.9 3.8 -0.3 1.6 2.4 3.3

Real Disposable Income

2.8 0.5 0.6 1.4 1.4 2.0

Consumer Confidence 103 58 45 54 65 70

Unemployment Pct. 4.6 5.8 9.3 9.6 9.2 8.4

Housing Indicators—000      

Existing Home Sales* 5,652 4,913 5,156 4,907 5,305 5,579

New Single-Family Sales

776 485 376 317 334 520

Housing Starts 1,355 904 554 586 628 948

Existing Home Prices $--000

219.0 198.1 172.5 172.9 172.2 177.7

New Home Prices 247.9 232.1 216.7 221.9 226.0 233.8

Current State of the Housing MarketWhat Buyers and Sellers Face

• Price—Major Declines

• Volume—Has Declined, relatively flat for 3 years

• Homeowners With Mortgages—25 percent negative equity, 25 percent minimal equity

• Credit Markets—Good interest rates, but higher standards for qualification

• Consumer Confidence—Substantially less

• Mortgage Delinquencies

• Distressed Sales—Major part of Market

• Substantial Difference between Buyer and Seller Expectations

Current State of the Housing MarketDistressed Property: Will Probably Continue for Several Years

Current State of the Housing MarketDistressed Property Sells at a Discount to Market

Current State of the Housing Market HousingMonths Supply – Existing Home Sales

NAR Months' Supply of Total Existing Homes, United States

Months

100908070605040302010099Source: National Association of Realtors 03/10/11

12.5

10.0

7.5

5.0

2.5

12.5

10.0

7.5

5.0

2.5

Current State of the Housing Market HousingDemand for New Space Above Supply

Approximations: Second Home—100K; Replacements—400K; New HH—1000KDemand: 1 to 1.5 million New Units Per Year

Supply: Currently Less than 900K Per Year

Current State of the Housing MarketPrices Relative to Median Income Have Declined Significantly

Current State of the Housing MarketSignificant Loss of Wealth During Great Recession

Households & Nonprofit Organizations: Net Worth

NSA, Bil.$

100908070605040302010099Source: Federal Reserve Board 03/10/11

67500

60000

52500

45000

37500

30000

67500

60000

52500

45000

37500

30000

Current State of the Housing MarketHousehold Debt Still Relatively High

Current State of the Housing MarketDistressed Property -- Issues

• Shadow Inventory

– Delinquencies—Toxic Loans, Job Losses, Upside Down Mortgages

• HAMP—Qualification, Recidivism

• Regional Concentrations

• March 2010 Estimate: 2.5 million homes in Shadow Inventory

• Past Due—8.22% of mortgages

• In Foreclosure—4.63% of mortgages

• Bifurcated Market

Where are we now?Recent Real Estate Market Experience

• Financial System: Cleaning Up From The Tsunami

– Weakened Balance Sheets, Increased Risk Aversion

– Financial Institutions: Credit less available

• Impacting Housing Markets: Debris from Tsunami

– Major Loss of Wealth, Low Consumer Confidence, Lost Jobs

– Distressed Property: Foreclosures and Short Sales

– Negative Equity

• Current Housing Markets: Concern Over Outlook

– Residential Sales: Recovering, Price, Foreclosures, Supply Consumer Mood/Debt/Wealth are Issues

– The Numbers Don’t Indicate A Price or Sales Surge: Slow Recovery

– KEY ISSUE: Jobs

Current State of the Housing MarketInterest Rates: Near Historic Lows

3.0

3.54.0

4.55.0

5.5

6.06.5

7.0

2007

- Ja

n

2007

- Apr

2007

- Ju

l

2007

- O

ct

2008

- Ja

n

2008

-Apr

2008

-July

2008

-Oct

2009

-Jan

2009

-Apr

2009

-July

2009

-Oct

2010

-Jan

2010

-Apr

2010

-July

2010

--Oct

2011

-Jan

1 Yr. Arm 30 Yr Fixed

3.0

3.54.0

4.55.0

5.5

6.06.5

7.0

2007

- Ja

n

2007

- Apr

2007

- Ju

l

2007

- O

ct

2008

- Ja

n

2008

-Apr

2008

-July

2008

-Oct

2009

-Jan

2009

-Apr

2009

-July

2009

-Oct

2010

-Jan

2010

-Apr

2010

-July

2010

--Oct

2011

-Jan

1 Yr. Arm 30 Yr Fixed

Source: Freddie Mac

Current State of the Housing Market Housing

Affordability: Median Mortgage Payment (Principle & Interest) as Percent of Income

10

15

20

25

30

1990

- Ja

n

1991

- Ja

n

1992

- Ja

n

1993

- Ja

n

1994

- Ja

n

1995

- Ja

n

1996

- Ja

n

1997

- Ja

n

1998

- Ja

n

1999

- Ja

n

2000

- Ja

n

2001

- Ja

n

2002

- Ja

n

2003

- Ja

n

2004

- Ja

n

2005

- Ja

n

2006

- Ja

n

2007

- Ja

n

2008

-Jan

2009

-Jan

2010

-Jan

2011

-Jan

Current Average

Source: NCR

Current State of the Housing Market HomePrice Trends – Leveling Out

Radar Logic 28-Day House Price, 25 MSA Composite ($/Sqft)S&P/Case-Shiller Home Price Index: Composite 20 (SA, Jan-00=100)

FHFA House Price Index: Purchase Only, United States (SA, Q1-91=100)Freddie Mac House Price Index, United States (Dec 2000=100)

100908070605040302010099Sources: RL, S&P, FHFA, FHLMC 03/10/11

280

240

200

160

120

225

200

175

150

125

100

75

Forecast: Changing Home SalesPercent Change - Actual and Projected

-14

-11

-8

-5

-2

1

4

7

10

13

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

Source: NCR

Forecast: Changes in Median Home PricesActual and Projected

-14

-11

-8

-5

-2

1

4

7

10

13

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

Source: NCR

Concluding CommentsIn a Recovery Mode

• Issues and Good News– Probably Near the Bottom—Some Markets Doing Well

– Major Issues: Uncertainties, Black Swans, Distressed property

– Fannie Mae Survey: 75%--increasing prices

– Gen Y—Larger than Boomers—Live in Apartments—Want Houses

– Jobs the major market influence

• Increased Understanding of Home Ownership Dream– A HOME is for your family—for living

– Long term lifestyle decision

– Investment aspects secondary

• Good time to buy a house IF:– Financially Qualified and Prudent

– Understand Market Trends, The News, Uncertainties

Headlines Sell PapersMuch Less Drama Than Suggested by the News

• Back to Normal

– Home—A Major Decision

– Avoiding Flipping, Speculation, Excesses Home Ownership Dream

• Working Out of the Mess

– Continuing Impacts on Buyer Psychology/Moods

– Changed Markets

– New Requirements/Ways of Doing Business

• Implications for Mobility

– Transfers in Today’s Economy and Housing Markets

– Possible Changing Buyer Demands

– Implications for Services Expected

Southeastern Wisconsin

Real Estate Market

Deborah Benavides, CRP Director, Relocation and Corporate Services, Shorewest Realtors

Wisconsin Regional Reports

Source: WRA

Region Median Price % Change Sales % Change 2010 2009 2010 2009

Southeast 156,500 157,000 -0.3% 17,682 19,871 -11%

South Central 162,500 164,900 -1.5% 10,236 11,257 -9.1%

West 133,500 131,000 +1.9% 5,793 6,205 -6.6%

Northeast 125,000 122,000 +2.5% 8,914 9,550 -6.7%

Central 110,000 114,900 -4.3% 3,355 3,445 -2.6%

North 120,000 115,500 +3.9% 4,888 4,675 +4.6%

STATEWIDE 141,000 142,500 -1.1% 50,945 55,089 -7.5%

Source: GMAR

Southeastern (4 County) Wisconsin - Solds

Source: GMAR

Southeastern Wisconsin - Listings

Source: GMAR

Annual Ratio (Listings: Sales)

Source: GMAR

Southeastern WisconsinMonths of Inventory

Wisconsin’s Guidelines

2004 – 3-5% down on conventional loans

2010 – 15-20% down

Source: WSJ 02/16/2011 Pg. A2

. . . median existing home ownership costs are now below median new apartment rental rates . . .

Sources: U.S. Census and Marquette University. Existing home housing payment assumes a 90% loan-to-value, prevailing 30-year mortgage interest rates, and a 1.2% real estate tax rate.

Source: MMAC

Employment Outlook

Source: MMAC

Unemployment vs Home Values vs Absorption

2008 6% -5% 9 month

2009 8% -9% 11 month

2010 8% -12% 12 month

Currently 7.4% ?? 13 month

Condo Conditions – SE WI

• Depressed, oversupply; lagging behind in sales

• Issues: condo associations have little or no reserve => banks unwilling to make loans unless 20% down (no PMI coverage)

• Converted from condos to apartment

• 3-5 year recovery – longer to reach 2005 peak

Unique Challenges in Region

• State Budget - moved focus away from jobs to• Income / benefits

• Creating a lot of unknowns and uncertainty• Paralyzing people => decrease in sales

Positive News

• Increase in web traffic• Median house prices ’09-10 remain stable• Sales expected to pick up 2nd half 2011

Have We Reached Bottom?

1. Pent-up potential from new household formation

Have We Reached Bottom?

2. Minorities will play an increasing role in all housing markets;

3. Multifamily demand will bounce back with increased occupancy rates and solid rent growth;

4. Single-family will continue to struggle with the large shadow housing market;

5. Delinquency, default, and foreclosure rates will make nice improvements throughout the year; Interest rates will remain well-behaved around current rates; and

6. Housing is the most affordable as it has been in half a century.

The Chicagoland Real Estate Market

Barbara Springer, CRP, GMS Executive Vice President, @Properties

Headlines in Illinois today

• Homeownership hits new 8-year low as residents seek refuge in Renting

• Local Illinois home prices post 13th quarterly fall

• Suburban apartment rents up 7.4% in fourth quarter

• Condo deals die in shadows of financially distressed buildings

• Developer turning former nursing home into rentals

• Jimmy Johns Checks out Florida to Flee Illinois Tax

• Caterpillar tells Governor Quinn tax hike could drive it from Illinois

Chicagoland Real Estate Market Significant Influences

• Illinois income tax increase to help address billions of dollars in state budget shortfalls. The corporate income tax rate increased from 4.8 to 7 percent and individual income tax from 3 percent to 5 percent.

• U.S. decline on a weak job market and a bloated supply of unsold homes, including properties in foreclosure or those facing a short sale, which typically are priced less than normal properties.

• a shrinking population may also explain why soft demand is pushing Chicago's prices lower. Chicago's population decreased nearly 7% to 2.7 million in 2010, compared to 2.9 million in 2000, while Cook County's population fell roughly 3.4% to 5.2 million in the same period, according to the U.S. Census.

• It could take us take a lot longer to see the gains we've seen in other markets.

Source: Realty Trac

Foreclosure Activity by Month

6 Month Trend Falling

Foreclosure Status Distribution and Estimated Market Value throughout Illinois

Source: Realty Trac

Highest Availability100-200K

Foreclosure Actions

Source: Realty Trac

In Illinois 1 in every 552 housing units received a foreclosure filing in February 2011

Geographical Comparison - Chicago, IL

Geographical ComparisonIs your area’s foreclosure rate as high as state and national averages?

Foreclosure filings in the six-county Chicago region climbed 14.1% to 79,986 last year, compared with 70,122 in 2009.

Home Loans will be harder to get

We went from the WILD lending days to almost a lock down and have suffocated the market.

Mortgage Jail

The situation is slowing any recovery of the condo market, often the housing of choice for first-time buyers. Owners in troubled buildings aren't able to refinance, and sellers who want or need to sell find thin ranks of buyers. Last year, 42.5 percent of all initial foreclosure filings in the six-county Chicago area were against condos.

Chicagoland Condo Market

The fourth quarter for the city of Chicago shows true signs of stabilization and health returning to the marketplace, and performing without the temporary Federal Homebuyer Tax Credit, which expired in April 2010.

The Chicago condo market during this period showed an increase in the average price of 4.7 percent, to $331,131, up from $316,163 during the same time in 2009.

Apartments

Apartment landlords are capturing a bigger slice of the housing pie these days as more people favor renting over buying, whether they can't qualify for a mortgage or are scared that local home prices have further to fall.

But the most important driver of apartment demand — the job market — remains stuck in low gear, meaning landlords, while thriving now, could see more gains when hiring picks up.

Housing Price ForecastsIllinois Metropolitan Statistical Areas

Source: Illinois Association of Realtors

Have we hit bottom?

In St. Louis, the Real Estate Sky Is Falling In St. Louis, the Real Estate Sky Is Falling

…. or is it?…. or is it?

Tim RohlmanPresident, Relocation Real Estate Services, Inc.

Don’t Let the Media Mislead You

Bad News Sells……

The Real Truth is in the Details

But you have to work to find it.

Zip Codes

Tell Different Stories

Location, Location, Location

Location, Location, Location

St. Charles Area

West CountyMidtown

St. Louis West County

St. Louis West County

63005 63017 63011

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Chesterfield Chesterfield Ballwin

St. Louis Midtown

St. Louis Midtown

63105 63108 63110

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Clayton Central West End St. Louis City

St. Charles Area

St. Charles Area

63385 63366 63301

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Wentzville O’Fallon St. Charles

ConclusionConclusionIn St. Louis, the Real Estate Sky Is NOT Falling In St. Louis, the Real Estate Sky Is NOT Falling

Go with the FACTS, Go with the FACTS, Not the HEADLINESNot the HEADLINES

“Depending upon your outlook, and if you do your homework,

today’s real estate market is very, very promising .”