Housing Market and

Economic Outlook

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation at NAR Annual ConferenceResidential Real Estate Forum

San Francisco, CA

November 8, 2013

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 Price18% cumulative increase over 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

Income Trends 2% to 4% cumulative increase over 2 years

20002002

20042006

20082010

2012$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Household IncomeFamily IncomeDisposable Income per person

Falling Affordability to 5-year LowBut still 5th best in 40 years

1971 - Jan 1976 - Jul 1982 - Jan 1987 - Jul 1993 - Jan 1998 - Jul 2004 - Jan 2009 - Jul0

50

100

150

200

250

Inevitable Rise in Mortgage Rates will further hurt Affordability

(30-yr rate have been below 6% for 5 years)

2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr3

4

5

6

7

8

9%

Refinances will Collapse in 2014(to at least 15-year low)

Jan 14 2000 Jan 11 2002 Jan 9 2004 Jan 6 2006 Jan 4 2008 Jan 1 2010 Dec 30 20110

2000

4000

6000

8000

10000

12000

All-Cash Buyers Stayed High … even when mortgages were cheap

(Cash share as % of total home sales)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Normal Range

Financial Industry Profits from Low Rates and RefisNow What … Boost Purchase Apps?

2001 - Q1

2001 - Q4

2002 - Q3

2003 - Q2

2004 - Q1

2004 - Q4

2005 - Q3

2006 - Q2

2007 - Q1

2007 - Q4

2008 - Q3

2009 - Q2

2010 - Q1

2010 - Q4

2011 - Q3

2012 - Q2

2013 - Q1

-200

-100

0

100

200

300

400

500$ billion

No Increase in Mortgages for Home Purchases during 2-year Recovery; Will Rise in 2014?

Jan 7 2000 Apr 12 2002 Jul 16 2004 Oct 20 2006 Jan 23 2009 Apr 29 2011 Aug 2 20130

100

200

300

400

500

600

But Will Washington Allow It?

• Washington Policies so far … Too Restrictive– Rising g-fees and FHA insurance premiums?– Uncertainty about QRM down payment

requirement? … Dodd-Frank?– Too many Lawsuits? … Runaway DOJ?

• Mortgages Have Performed Outstandingly – Not because of Washington policies– But because of home price increases

• New Restriction with PATH?

What is PATH? … Hensarling’s Ideology(Protecting American Taxpayers and Homeowners?)

• For-profit Fannie and Freddie were Arrogant • Today’s Fannie and Freddie have had reforms under government

control• Remove Government Guarantee on Mortgages• 30-yr Fixed Rate Mortgages … Hard to get and higher rates• Large Banks will do Securitization … Small Banks at Risk• Market becomes excessively pro-cyclical• Large Banks have FDIC … taxpayer risk … vulnerable to

nationalization and, if so, government credit allocation

• Global capital could decide to go elsewhere rather than the U.S. …. Other countries grow faster than the U.S.

Latest Market Trends

Pending Sales (Contracts, not Closings)(Seasonally Adjusted)

2001 - Jan 2002 - Oct 2004 - Jul 2006 - Apr 2008 - Jan 2009 - Oct 2011 - July 2013 - Apr70

80

90

100

110

120

130

Source: NAR

Buyer and Seller Traffic How Much from Gov’t Shutdown and Dysfunction?

2008 - Jan

2008 - May

2008 - Sep

2009 - Jan

2009 - May

2009 - Sep

2010 - Jan

2010 - May

2010 - Sep

2011 - Jan

2011 - May

2011 - Sep

2012 - Jan

2012 - May

2012 - Sep

2013 - Jan

2013 - May

2013 - Sep

01020304050607080

Buyer Seller

Government Shutdown Did Not HelpIRS Forms Along with FHA and USDA Closures

Purchase Apps Fell with Closures

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20% Gov'tConv

Percent Change From Prior Week

Rates Rose with Treasuries

Sep 5 2013

Sep 19 2013

Oct 3 2013

Oct 17 2013

Oct 31 20133.8%3.9%4.0%4.1%4.2%4.3%4.4%4.5%4.6%4.7%

30-yr FRM

Déjà vu in January?…..February?

Existing Home Inventory(Bouncing at 13-year lows)

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

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

New Home Inventory(Newly Constructed Homes Inventory at near 50-year low)

1964 - Jan 1970 - Jul 1977 - Jan 1983 - Jul 1990 - Jan 1996 - Jul 2003 - Jan 2009 - Jul0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Shadow Inventory(Mortgages Late 90+ day or in foreclosure process)

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

0

2

4

6

8

10

12

US

Housing Starts … Need to Reach 1.5 million soon or persistent housing shortage

2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr0

500

1000

1500

2000

2500multifamily single-family

Thousand units (annualized)

Long-term Average

Rising Home PricesBecause of Lack of Inventory

(% change from one year ago)

2001 - Jan 2002 - Oct 2004 - Jul 2006 - Apr 2008 - Jan 2009 - Oct 2011 - Jul 2013 - Apr

-25

-20

-15

-10

-5

0

5

10

15

20

Blue = NAR Median PriceRed = Case-Shiller Index

GDP Growth … Unimpressive but no Fresh Recession

(Could be on the verge of recession if not for housing recovery)

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

-5-4-3-2-1012345

% growth from one year ago

% growth from one year ago

U.S. Total Payroll Jobs(8 million lost … 7 million gained)

2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan124000

126000

128000

130000

132000

134000

136000

138000

140000In thousands

Well Shy of Long Run Trend(6 to 8 million more jobs needed)

1970 - Jan 1975 - Jan 1980 - Jan 1985 - Jan 1990 - Jan 1995 - Jan 2000 - Jan 2005 - Jan 2010 - Jan60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000In thousands

States with Fast Job Growth State Job Growth Rate

1 North Dakota 3.2%2 Utah 2.7%3 Idaho 2.5%4 Texas 2.4%5 Colorado 2.3%6 Minnesota 2.3%7 Georgia 2.1%8 Washington 2.1%9 Arizona 2.0%

10 New Jersey 2.0%

Forecast

Essentially Same as the one made last year in November 2012

Forecast #1 (in 2012): Inflation will be Notably Higher by 2015

• No Threatening Inflation Signs for 2013

• But Inflation rises to 4% to 6% in 2015

• Well above Fed’s preferred rate of 2%

• But not in double-digits as in 1970s

Rising Renters’ and Homeowners’ Rent Growth (the biggest weight to Consumer Price Index)

2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr

-1

0

1

2

3

4

5

Owners' Equivalent Rent Renters' Rent

Forecast #2 (in 2012): Meaningfully Higher Home Prices

• Demand is Up … Supply is Down

• 4% to 5% in 2012 (Case-Shiller, FHFA) … Too Low

• 5% to 7% in 2012 (Median Home Price)… Too Low

• Home price growth could slow or accelerate … all depends on housing starts

• Probably 15% cumulative growth over 3 years

What If Scenarios on Housing StartsHousing Starts in 2013 Case-Shiller Price Growth Forecast in 2013

900,000 (15% increase) 8 %

1,000,000 (28% increase) 7%

1,130,000 (45% increase) 5% … This was forecasted one year ago

1,200,000 (54% increase) 4%

1,300,000 (67% increase) 3%

1,400,000 (80% increase) 2%

1,500,000 (92% increase) 1%

What If Scenarios on Housing StartsHousing Starts in 2013 Case-Shiller Price Growth Forecast in 2013

900,000 (15% increase) 8 % … This is closer to actual

1,000,000 (28% increase) 7%

1,130,000 (45% increase) 5%

1,200,000 (54% increase) 4%

1,300,000 (67% increase) 3%

1,400,000 (80% increase) 2%

1,500,000 (92% increase) 1%

Home Price Forecastby Wall Street Journal Economists Panel

Year WSJ Home Price Forecast

2014 5%

Robert Shiller : “Homes are still affordable … we do not have extravagant mindset today”

Forecast(Rising Mortgage Rates to 5.3% by end of 2014)

2013forecast

2014forecast

Existing Home Sales 11% 0%

Median Price 11% 6%

Dollar Volume Estimate

+22% +6%

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

• Dodd-Frank?• PATH?• Lawsuits?• Legacy?

Top 10 Turnaround Markets in 2013(Realtor.com Analysis)

• Detroit• Santa Barbara• Reno• Ft. Lauderdale• Ann Arbor

• Dallas• West Palm Beach• Boston• Boulder• Las Vegas

Top 10 Markets to Watch in 2014(Forecast)

• Salt Lake City• Naples• Tampa• Atlanta• Boise

• Houston• Charlotte• Denver• Seattle• Tucson

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

Living in a place that’s away from it all

Public transportation within walking distance of your home

Being within a short commute to work

An established neighborhood with older homes and mature trees

Living in a community with people at all stages of life adults, families with children and older people

Easy access to the highway

Being within an easy walk of other places and things in the community

High-quality public schools

Sidewalks and places to take walks

Privacy from neighbors

0% 20% 40% 60% 80% 100%

21%

25%

28%

21%

23%

23%

28%

45%

37%

46%

34%

34%

37%

44%

43%

44%

40%

29%

43%

40%

Slide 42

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.

Privacy, Walkability, Schools Most Important in Deciding Where to Live

Most Important Factors in Deciding Where to Live:

Very Important Somewhat Important

86%

80%

74%

69%

68%

66%

65%

65%

59%

55%

Slide 43

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%