Economic and Housing Outlook

By Lawrence Yun, Ph.D.Chief Economist, National Association of REALTORS®

Presentation at NAR Annual Meetings

San Diego, CA November 13, 2015

Lifetime Wealth at All-Time High

1990 - Q11993 - Q31997 - Q12000 - Q32004 - Q12007 - Q32011 - Q12014 - Q30

10000

20000

30000

40000

50000

60000

70000

80000

90000

Dow Jones Industrial Average(Doubling since 2009)

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

2014 - Jan

2014 - May

2014 - Sep

2015 - Jan

2015 - May

2015 - Sep

02000400060008000

100001200014000160001800020000

Median Household Income(Inflation Adjusted)

200020012002200320042005200620072008200920102011201220132014$50,000

$51,000

$52,000

$53,000

$54,000

$55,000

$56,000

$57,000

$58,000

$59,000

GDP GrowthInconsistent with 2.2% average since 2014

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

2014 - Q3

2015 - Q1

2015 - Q3

-10

-8

-6

-4

-2

0

2

4

6

Annualized Growth Rate

Sluggish Growth + Gap after Recession

($1.7 trillion gap … $5,000 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 Component on Residential Construction and

SalesMore consistent with 6.6% average since 2014

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

2014 - Q3

2015 - Q1

2015 - Q3

-40

-30

-20

-10

0

10

20

30

40

Homeownership Rate(seasonally adjusted … 50-year low)

1995 - Q1

1995 - Q4

1996 - Q3

1997 - Q2

1998 - Q1

1998 - Q4

1999 - Q3

2000 - Q2

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

2013 - Q4

2014 - Q3

2015 - Q2

63

64

65

66

67

68

69

70

Young People: Under 35 years oldHistoric Low Homeownership Rate

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

2015 - Q1

33

35

37

39

41

43

45

First-time collapse … why?Lowest in nearly 30 years … since 1987

%

10%

20%

30%

40%

50%

60%

30%

50%

33% 32%

Difficulty Facing First-time Buyers –

• Student loan debt, even among successful first-time home buyers: – 41% have student loan debt and typical amount is

$25,000

• No affordable inventory: – 51% hardest task is finding the right property

• Competition from vacation buyers and investors– Buying similar priced/size homes and paying all cash

Student Loan(in $billion)

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

2014 - Q1

2014 - Q3

2015 - Q1

2015 - Q3

0

200

400

600

800

1000

1200

1400

Sales Change by Price Points(% change from one year ago in September)

up to $100K $100K to $250K $250K to $500K $500K to $750 $750K to $1 M Over $1 M

-10

-5

0

5

10

15

20

25

30

H.O.M.E. Survey (Housing Opportunity and Market

Experience)• Desire to own remains strong and

is strengthening:– 87 percent of Americans believe

homeownership is part of their personal American Dream

– HIGHER for 18-24 year olds at 91 percent

H.O.M.E. Survey(Housing Opportunity and Market

Experience)

• Psychological reasons, but also financial• Americans want to own for a place to

raise a family and own a place of their own, but also a nest egg for retirement

• Recent buyers bought for to start a family but also because owning is cheaper than renting

H.O.M.E. Survey(Housing Opportunity and Market

Experience)

83 percent of Americans believe buying is a good

financial decision

Younger Buyers Have Optimism—View Home as Good Financial Investment

2015 Profile of Generational Trends

34 and younger

35 to 49 50 to 59 60 to 68 69 to 890

102030405060708090

42 39 40 39 38

30 30 26 26 20

12 13 12 1215

Better than stocks About as good as stocks

84% 82% 77% 77% 72%

Homeownership Rate Fall Further … why?Net New Renters

In thousands

Net New HomeownersIn thousands

Homeownership Rate only among the New

People

2008 482 -67 0%

2009 713 -90 0%

2010 771 -194 0%

2011 974 -421 0%

2012 1120 -193 0%

2013 599 55.5 9%

2014 1112 -89 0%

2015 forecast 800 200 30%

2016 forecast 600 600 50%

2017 forecast 500 700 58%

Even with Falling ownership rate, Home Sales to Rise Further

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

NewExisting

Housing Forecast made in November 20142015

Forecast(made one year ago)

2015 Likely

Housing Starts 1.3 millionWas Too high

1.1 million

New Home Sales 620,000Was Little high

570,000

Existing Home Sales 5.3 millionWas Right On

5.3 million

Median Price Growth + 4%Was Too Low

+ 6%

Housing Forecast Good for 20162013 2014 2015

Likely2016

Forecast

Housing Starts 925,000 1 million 1.1 million 1.4 million

New Home Sales

430,000 437,000 570,000 720,000

Existing Home Sales

5.1 million 4.9 million 5.3 million 5.4 to 5.5 million

Median Price Growth

+ 11.5% + 5.7% + 6% +5%

30-year Rate 4.0% 4.2% 3.8% 4.5%

Monthly Pending Sales IndexLosing Momentum

(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

2014 - Jul

2014 - Sep

2014 - Nov

2015 - Jan

2015 - Mar

2015 - May

2015 - Jul

2015 - Sep

70.075.080.085.090.095.0

100.0105.0110.0115.0

Source: NAR

Momentum in Pending Contract(% change from one year ago)

2011 - Jan

2011 - Apr

2011 - Jul

2011 - Oct

2012 - Jan

2012 - Apr

2012 - Jul

2012 - Oct

2013 - Jan

2013 - Apr

2013 - Jul

2013 - Oct

2014 - Jan

2014 - Apr

2014 - Jul

2014 - Oct

2015 - Jan

2015 - Apr

2015 - Jul

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Trigger? Jump in Mortgage Rate

2011 - Jan

2011 - Apr

2011 - Jul

2011 - Oct

2012 - Jan

2012 - Apr

2012 - Jul

2012 - Oct

2013 - Jan

2013 - Apr

2013 - Jul

2013 - Oct

2014 - Jan

2014 - Apr

2014 - Jul

2014 - Oct

2015 - Jan

2015 - Apr

2015 - Jul

2015 - Oct

3.00

3.50

4.00

4.50

5.00

5.50

Fed Rate Hike in December?

Fed Rate Hike in December

then again in March

Fed Rate Hike in December

then again in March

then again in August

then again in …

Fed Policy and Mortgage Rate

2000 - Jan2002 - Jan2004 - Jan2006 - Jan2008 - Jan2010 - Jan2012 - Jan2014 - Jan0

1

2

3

4

5

6

7

8

9Mortgage Rate Fed Funds Rate

What Determines Bond Yields?

• Federal Reserve’s short-term rate changes• Inflation and erosion of purchasing power• Foreign capital flow and demand for dollar• Savings rate• U.S. budget deficit• Printing of money• …

Federal Deficit - Shrinking( $ million, 12 month total)

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

-1600000

-1400000

-1200000

-1000000

-800000

-600000

-400000

-200000

0

200000

400000

Federal Debt … Cumulative ( $ million; debt held by public excluding intra-governmental holdings)

2001 - Jan 2002 - Dec 2004 - Nov 2006 - Oct 2008 - Sep 2010 - Aug 2012 - Jul 2014 - Jun0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

No CPI Inflation – Yet

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan

-3

-2

-1

0

1

2

3

4

5

6

Rents Rising at 7-year high

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan

-1

0

1

2

3

4

5

Renters' Rent

Rental Vacancy Rate(30-year low)

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

2013 - Q3

2014 - Q2

2015 - Q1

5

6

7

8

9

10

11

12

Credit Box Opens?• FICO New Method• Fannie/Freddie

– Lower down payment products

• FHA premiums … lowered • Portfolio Lending … historic low

mortgage default rates on recent vintages (2010-2014)

Fannie/Freddie G-fees for Highways?

Rising Home Price is becoming Obstacle

(Median National Existing Home Price)

2000 - Jan 2002 - Apr 2004 - Jul 2006 - Oct 2009 - Jan 2011 - Apr 2013 - Jul100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

New Home Price … Even Higher

2000 - Jan 2002 - Jun 2004 - Nov 2007 - Apr 2009 - Sep 2012 - Feb 2014 - Jul$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

NewExisting

Condos Underperforming(% change from 12 months ago in September)

Price Growth

Sales

0 2 4 6 8 10 12

Single-familyCondominium

Affordability Solution …Tiny Home Movement?

Tiny Home Movement?

Less than 1% of all homes sold … perhaps much less than 1%

Real Solution to Affordability … More Supply

• More Supply– Existing Homeowners List Homes– Shadow Inventory of Distressed

Homes– Newly Constructed Homes– More Rental Housing … Can be

converted to Condominiums Later

Pent-Up Home Sellers

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

2

4

6

8

10

12

Median Years of Tenure Before Moving

Shadow Inventory(% of mortgages in foreclosure or late payment)

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

2015 - Q1

0

2

4

6

8

10

12

14

NJAZ

10%

2%

National Shadow Inventory (% of mortgages in foreclosure or late payment)

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

2013 - Q3

2014 - Q2

2015 - Q1

0

2

4

6

8

10

12

4%

Housing Starts

2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul 2015 - Jan0

200

400

600

MultifamilyThousand units

2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul 2015 - Jan0

500100015002000 Single-family

Massive Housing Shortage(from 2012 to 2015)

Metro Job Creation New Home Construction

Ratio

San Francisco-Oakland

234,000 30,000 7.8

Grand Rapids 46,000 6,000 7.8

San Jose 118,000 23,000 5.1

San Diego 101,000 21,000 4.9

Miami-Ft. Lauderdale

191,000 48,000 3.9

Salt Lake City 57,000 15,000 3.9

New York City 400,000 114,000 3.5

Why Would Home Sales Rise?• Rising Mortgage Rates – Not Good• Too Fast Rising Prices – Not Good

• Housing Equity for Pent-up Sellers – Good

• Return Boomerang Buyers - Good• Steadily increased supply - Good• Job creation – Super Good

Trade-Up Opportunitiesfrom Housing Equity

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

2013 - Q3

2014 - Q2

2015 - Q1

0

5000

10000

15000

20000

25000

Real Estate Value Mortgage Debt

$ billion

Return Buyers

Time to Sell a New Spec Home(in months)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan0

2

4

6

8

10

12

14

16