Economic and Housing Market OutlookBy Lawrence Yun, Ph.D.

Chief EconomistNational Association of REALTORS®

May 14, 2015Washington, D.C.

How’s the Market?

Annual Home Sales

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20140

100000020000003000000400000050000006000000700000080000009000000

NewExisting

Monthly Pending Sales Index(Seasonally Adjusted)

90.0

95.0

100.0

105.0

110.0

115.0 Up 1% from 1 month agoUp 11% from 1 year ago

Source: NAR

Median Home Price Appreciation(% change from one year ago)

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

-4-202468

10121416

Hitting Affordability

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20142015

20160

50

100

150

200

250

Too fast price gain could cut affordability in 2016

Inventory of Homes For Sale

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

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

Inventory remains low becausehomebuilders are not activelybuilding.

Regional Variation Pending Sales Change from One Year Ago

2014 - Jan

2014 - Feb

2014 - Mar

2014 - Apr

2014 - May

2014 - Jun

2014 - Jul

2014 - Aug

2014 - Sep

2014 - Oct

2014 - Nov

2014 - Dec

2015 - Jan

2015 - Feb

2015 - Mar

-20-15-10

-505

10152025

Northeast Midwest South West

Regional Variation Median Price Change from One Year Ago

2014 - Jan

2014 - Feb

2014 - Mar

2014 - Apr

2014 - May

2014 - Jun

2014 - Jul

2014 - Aug

2014 - Sep

2014 - Oct

2014 - Nov

2014 - Dec

2015 - Jan

2015 - Feb

2015 - Mar

-5

0

5

10

15

20

Northeast Midwest South West

Future Housing Demand?

Huge Pent Up DemandUnderperforming Home Sales in Relation to Population

2000 2014

Existing Home Sales 5.2 m 4.9 m

New Home Sales 880 K 440 K

Mortgage Rates 8.0% 4.2%

Payroll Jobs 132 m 139 m

Population 282 m 319 m

37 million more people living in the country

Jobs(8 million lost … 12 million gained)

2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr2014 - Jan120,000

125,000

130,000

135,000

140,000

145,000In thousands

Fresh Unemployment Insurance Claims

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan250

300

350

400

450

500

550

600In thousands

Top and Bottom States for Jobs

The Best % Gain in 12 months

Utah 4.0%

Florida 3.8%

Oregon 3.4%

Washington 3.4%

California 3.2%

Georgia 3.2%

North Dakota 3.2%

Nevada 3.0%

Idaho 2.9%

The Worst % Gain in 12 months

West Virginia -0.7%

Mississippi 0.5%

Maine 0.5%

Montana 0.6%

Alaska 0.6%

Jobs in Denver Metro

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan100010501100115012001250130013501400 In thousands

Denver market is hot becauseof strong job market.

Future Housing Supply?

Housing Starts Rising … Too Slowly

1970 - Jan 1975 - Jul 1981 - Jan 1986 - Jul 1992 - Jan 1997 - Jul 2003 - Jan 2008 - Jul 2014 - Jan0

500

1000

1500

2000

2500

3000Thousand units

Homebuilding is well belowHistorical normal rate of 1.5 million per year.

Denver Metro Housing Permits (year-to-date)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

500010000150002000025000300003500040000

Even the super hot Denver is not getting big gains in newhome construction.

Shadow Inventory in the U.S.

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

02468

1012

% of mortgages in foreclosure process or seriously delinquent

There will be continual decline indistressed sales because the shadowis thinning out.

Distressed Property Sales(% of total sales)

2008 - Oct

2009 - Jan

2009 - Apr

2009 - Jul

2009 - Oct

2010 - Jan

2010 - Apr

2010 - Jul

2010 - Oct

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

0

10

20

30

40

50

60

Shadow Inventory in AZ and NJ

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

02468

101214

% of mortgages in foreclosure process or seriously delinquent

Homeowner Staying Put Longer

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

2

4

6

8

10

12

Median Years of Tenure Before Moving

Duke BasketballTicket Price?

Those who do not get the tickets after camping out is willing to pay about $140 to get the ticket. Those who won thethe ticket are willing to sell for about $1500.

That is, a greater value placed and unwillingness to let go of what one has in possession.

Do homeowners like their low mortgage rates and unwilling toGive it up and hence staying longer than usual to make the move?

Vehicle Sales – Pent Up Demand Release after having older cars

(millions annualized rate)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan8

10

12

14

16

18

20

22

But car sales are rebounding strongly after a longerholding period because car loans are less subject to new regulation?

Mortgage Rates Rise: How Much and How Soon?

Monetary Policy by Federal Reserve

(zero rate policy … 7th and final year)

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

1

2

3

4

5

6

Fed Funds %

30-year Mortgage Rates

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan0123456789

No CPI Inflation – Yet

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

-3-2-10123456

Oil Price

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

20406080

100120140160

Supply and Demand: Oil in U.S.

19

21

5

9

Rents Rising at 7-year high

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan-1012345

Renters' Rent

Rental Vacancy Rate(Census Measurement)

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

56789

101112

Rents will continue to rise because of historic low vacancy rate.

Monetary Policy• Quantitative Easing … Finished

• Fed Funds Rate hike … September 2015

• Mortgage Rates reaching 6% by 2017

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)

American Inequality?

Homeownership Ratefrom 1990

1990 - Q1 1992 - Q4 1995 - Q3 1998 - Q2 2001 - Q1 2003 - Q4 2006 - Q3 2009 - Q2 2012 - Q1 2014 - Q463

64

65

66

67

68

69

70

Lowest in 25 years

Renters(8 million more households)

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

2014 - Q1

2014 - Q3

2015 - Q1

3032343638404244

Homeowners (2.5 million fewer households)

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

2014 - Q1

2014 - Q3

2015 - Q1

74.0

74.5

75.0

75.5

76.0

76.5

77.0

Home Price IndexDallas and Phoenix

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

100

150

200

250

300

350

Home prices and housing wealth is rising in many places, but we have fewerhomeowners.

All-Cash Sales(% of total sales)

2008 - Oct

2009 - Feb

2009 - Jun

2009 - Oct

2010 - Feb

2010 - Jun

2010 - Oct

2011 - Feb

2011 - Jun

2011 - Oct

2012 - Feb

2012 - Jun

2012 - Oct

2013 - Feb

2013 - Jun

2013 - Oct

2014 - Feb

2014 - Jun

2014 - Oct

2015 - Feb

05

10152025303540

Real Estate Asset and Mortgage

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

0

5000

10000

15000

20000

25000$ billion

Household Net Worth($5,500 vs. $195,500)

Renter Homeowner$0

$50,000

$100,000

$150,000

$200,000

$250,0001998 2001 2004 2007 2010 2013

x31 x46x36 x34x46

Homeowner net worth ranges from 31 to 46 times that of renters

x36

Source: Federal Reserve Survey of Consumer Finances

Stock MarketS&P 500 Index

2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan700900

1100130015001700190021002300

Household Net Worth at All-Time High

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

40000450005000055000600006500070000750008000085000

$ billion

Vacation Home Sales

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

200

400

600

800

1,000

1,200 In thousands

Metro Market Examples Metro Change in

OwnershipChange in Housing Wealth Inequality

Change in Income Equality

Bakersfield -5.6% $18,400 - 1.4%

Orlando -4.3% $31,500 -0.4%

Cincinnati -3.5% $13,000 -3.0%

New Orleans -3.2% $11,900 -4.2%

Atlanta -3.2% $29,700 -3.3%

Honolulu -2.9% $80,100 -0.8%

Austin +0.8% $37,700 +0.2%

Social Benefits of Homeownership

• Higher Student Test Scores• Higher Graduation Rate and Higher

Earnings• Less TV time• Lower Teen Delinquencies

Likely Further Fall in Homeownership … But Rising

Homeowners• Likely to Decline to 62% by 2016 …

before rising• Homeowners will no longer fall, but rise• Renters will also rise• 50-50 split in new households • But much faster household formation

Household Growth Ready to Pop?

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.00.20.40.60.81.01.21.41.61.82.0

Household Population

% growth from one year ago

From 2001 to 2006: Mix of Renters and OwnersFrom 2007: Growth only from Renters

Baltimore and Forecast

Baltimore Metro – City and Suburbs(Total Jobs in thousands)

1980 - Jan 1984 - Jul 1989 - Jan 1993 - Jul 1998 - Jan 2002 - Jul 2007 - Jan 2011 - Jul900950

100010501100115012001250130013501400

Baltimore City(Total Jobs in thousands)

1980 - Jan 1984 - Jul 1989 - Jan 1993 - Jul 1998 - Jan 2002 - Jul 2007 - Jan 2011 - Jul300320340360380400420440460480500

New Cool Kids?Roland Fryer

2015 John Bates Clark AwardKids with fewer friends in the African-American community was shown tocorrelate with success. Ben Carson and Michelle Obama had few friends growing up? It’s cool not to have so many friends?

Method to Find Agent?Adults Friends are Important!

Past Clients22%

Referral from Friend or Relative

47%

Personal Contact Meeting/Open House/

Mailer14%

Internet4% Other

13%

Economic Forecast2013 2014 2015

Forecast2016

ForecastGDP Growth 2.2% 2.6% 2.3% 3.0%

Job Growth +2.3 million +3.0 million +2.4 million +2.7 million

CPI Inflation 1.5% 1.6% 0.3% 3.2%

Consumer Confidence

73 87 99 101

10-year Treasury 2.5% 2.6% 2.2% 3.3%

Housing Forecast2013 2014 2015

Forecast2016

ForecastHousing Starts 925,000 1,001,000 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 5.5 million

Median Price Growth

+ 11.5% + 5.7% + 6% + 4%

30-year Rate 4.0% 4.2% 4.0% 5.2%

Underwriting Standards

Strict Strict Transition Normal