2018 State of the Real Estate Market

Where We Are…Where We Are GoingLongleaf Pine REALTORS®, Inc.

U.S. REAL ESTATE

MARKET UPDATE

Paul C. Bishop, PhD, CBEVice President, Research

NATIONAL ASSOCIATION OF REALTORS®

January 16, 2018

U.S. Real Estate Market Update

✓ Economic Contribution of Real Estate:

Individual and Community Impact

✓ The Economy:

Steady Gains

✓ Market Conditions:

Rising Prices and Too Few Homes for Sale

✓ What’s Next:

Challenges and Opportunities

Economic

Contribution of

Real Estate:

Individual and

Community Impact

Home Equity Increase Accounts for about 20% of

Rise in Household Net Worth Since 2009

$0

$20

$40

$60

$80

$100

$120

2005 2007 2009 2011 2013 2015 2017

U.S. Household Net Worth

$0

$2

$4

$6

$8

$10

$12

$14

$16

2005 2007 2009 2011 2013 2015 2017

U.S. Home Equity

trillionstrillions

Source: Federal Reserve Flow of Funds

Home Ownership is Key to Wealth Building – Wide

Gap in Wealth Between Renters and Owners

$5,200

$231,400

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Renters Homeowners

Median Household Wealth

2004 2007 2010 2013 2016

Source: Federal Reserve Survey of Consumer Finances

The Economic Impact of a Home Sale is Significant

Average Impact of a Home Sale in North Carolina

Income from real

estate-related industries: $15,700

Furniture, appliances

and remodeling: $4,600

“Multiplier” effect: $9,700

“Induced” effect: $21,800

TOTAL (per home sale) $51,800

Real estate (residential and commercial) account for 18.3% of all economic activity

Source: National Association of REALTORS®

While Ownership Helps Build Wealth,

Homeownership Rate is at 50-Year Low…

59%

60%

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Homeownership Rate

Source: Census Bureau

Above Median Income: 78.4%

Below Median Income: 49.5%

…and Younger Households Less Likely to

Own a Home Today

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

U.S. 34 and younger 35-44 years 45-54 years 55-64 years 65 and older

Homeownership Rate

2004 (Peak) 2017Q3

Source: Census Bureau

The Economy:

Steady Gains

Since 2011, 16 Million Jobs Added in U.S.

And Unemployment Rate Has Declined Quickly

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2005 2007 2009 2011 2013 2015 2017

Unemployment RateU.S. North Carolina

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2011 2012 2013 2014 2015 2016 2017

U.S. Job Gains

millions

Source: Bureau of Labor Statistics

More Unfilled Job Openings Suggesting Future

Increase in Wages

0

1

2

3

4

5

6

7

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Number of Unfilled Job Openings and People

Voluntarily Quitting Their JobJob Openings Quit Levels

millions

Source Bureau of Labor Statistics

Income Growing Slower in

North Carolina than in U.S.

85

90

95

100

105

110

115

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Per Capita Income(adjusted for inflation)

U.S. North Carolina

Index: 2009 = 100

Source: Bureau of Economic Analysis

There’s No Inflation to be Seem – Except in Rents

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Core Consumer Price Inflation

Rent Other than Shelter

percent change from one year ago

Source: Bureau of Labor Statistics

Borrowing Costs Likely to Increase in 2018 As Fed

Steps up Rate Hikes

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Federal Funds Rate 10-year Treasury

Source: Federal Reserve

Mortgage Rates Have Nowhere to Go but Up

0%

1%

2%

3%

4%

5%

6%

7%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mortgage Rates

15-year FRM 30-year FRM

Source: Freddie Mac

Market Conditions:

Rising Prices and Too

Few Homes for Sale

The American Dream Includes

Homeownership

Don’t Know2%

No13%

Strongly Agree84%

Moderately Agree16%

Yes85%

Is Homeownership Part of your American Dream?

Source: National Association of REALTORS® HOME Survey 2017Q4

Consumers Believe Buying a Home is a Good

Financial Decision

76%

78%

80%

82%

84%

86%

88%

90%

92%

Agree that Buying a Home is a Good Financial Decision

Source: National Association of REALTORS® HOME Survey 2017Q4

Less than 6 Months Supply of Existing Homes

Since Late 2012

3.4

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U.S. Months Supply

months

Source: National Association of REALTORS®

Days on Market Reflect Challenges for Buyers

0

20

40

60

80

100

120

2012 2013 2014 2015 2016 2017

U.S. Median Days on Market

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016 2017

Distribution of Days on Market

Less than 1 month 6 months or more

Source: National Association of REALTORS®

Pending Sales Remain at Plateau Due

to Inventory Constraints

75

80

85

90

95

100

105

110

115

120

2010 2011 2012 2013 2014 2015 2016 2017

U.S. Pending Home Sales

Index: 2001=100

Source: National Association of REALTORS®

Despite a Good Economy Homes Sales

Rising Very Slowly

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

7,000,000

7,500,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U.S. Existing Home Sales

Source: National Association of REALTORS®

SAAR

Nationally, Still not Building Enough Homes…

U.S. Single Family Starts

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000Avg Annual Starts

1997-2006

U.S. Multi-family Starts

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000Avg Annual Starts

1997-2006

Source: Census Bureau

Home Prices Growing at a

Consistent Single-digit Pace

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U.S. Existing Home Sale Price Growth

Source: National Association of REALTORS®

percent change from one year ago

Several Large Metros Are Experiencing

Rapid Home Price Growth

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Median Metro Home Price Growth (2016Q3-2017Q3)

U.S.

Average

Source National Association of REALTORS®

What’s Next:

Challenges and

Opportunities

With Rising Rents More Renters May Choose to Own - A

Trend Worth Monitoring or a Blip in the Data?

30

32

34

36

38

40

42

44

46

2000 2002 2004 2006 2008 2010 2012 2014 2016

Renter Households

millions

68

69

70

71

72

73

74

75

76

77

2000 2002 2004 2006 2008 2010 2012 2014 2016

Owner Households

millions ?

Source: Census Bureau

?

Saving for Downpayment Increasingly Difficult

for First-time Buyers

Saving for Downpayment Difficult

0%

5%

10%

15%

20%

25%

30%

First-time Buyers Repeat Buyers

Expenses that Delayed Saving

Downpayment(among those who indicated difficulty saving)

0%

10%

20%

30%

40%

50%

60%

First-time Buyers Repeat Buyers

Student Loans Credit Card Debt

Car Loan Child Care Expenses

Healthcare Costs

Source: National Association of REALTORS®

Current Renters Point to Affordability as Main Hurdle

to Ownership – Many Think Getting a Mortgage

Would be Difficult

Do renters ever want to own a home?

Yes, 76%

No, 19%

Not sure, 5%

Why don’t renters own a home?

Can’t afford to buy 38%

Life circumstances not

suitable for owning now29%

Need flexibility of renting

vs owning13%

Don’t want responsibility

of owning10%

59% of renters think it would be

“difficult” to qualify for a mortgage

Source: National Association of REALTORS® HOME Survey 2017Q3

Although Renters Want to Own, Fewer First-time

Buyers are Able to Move to Ownership

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Percent of Existing Homes Sold to First-time Buyers

Source: National Association of REALTORS®

Long-term FTB

Share

Key Tax Provisions

Standard deduction • $12,000 for individuals

• $24,000 for married filing jointly

Personal exemptions • Eliminated

Mortgage interest deduction • Current mortgages of up to $1 million

are grandfathered

• New mortgages capped at $750,000

• Deduction for home equity debt interest

repealed thru 2025

• Interest on home equity loans remains

deductible if proceeds used to improve

home

State and local tax deduction

(property taxes + income or sales taxes)

• Capped at $10,000

Capital gains exemption on sale of primary

residence

• Current law retained

https://www.nar.realtor/tax-reform

Tax Facts for North Carolina• 2,493,000 Owner-occupied homes

– 63% with a mortgage

– 2.3% valued at $750,000 or more

• Mortgage interest deduction

– 997,900 claimed deduction (64% of owners with mrtg)

– $7,500 average deduction

• Property taxes

– 1,143,000 claimed deduction

– $3,000 average deduction

– 0.9% of owners paid $10,000 or more in property taxes

• State income taxes

– 1,165,500 claimed deduction

– $7,300 average deductionSource: National Association of REALTORS®

How to Think About the Impact of Tax Reform

Weighing on the Housing Market

• Homeownership more costly for some

• MID limitation for new purchases

• SALT deduction cap

• Limits on incentives by doubling standard deduction

Supporting the Housing Market

• Solid growth in jobs and income

• Demographics favor housing

• Desire to own still strong

Source: National Association of REALTORS®

What to Plan for in 2018…

• No significant change in economic outlook, even as we

prepare for modestly higher interest rates

• No relief for the inventory shortage – home building up, but

a big shortfall to overcome

• Prices will continue to rise due to tight inventory and solid

demand for homes

• Consumers remain optimistic about home ownership

Housing Forecast

2016 20172018

Forecast

2019

Forecast

Housing Starts 1,174,000 1,205,000 1,312,000 1,380,000

New Home Sales 561,000 616,000 700,000 750,000

Existing Home

Sales5,450,000 5,540,000 5,520,000 5,710,000

Median Existing

Home Price Growth5.1% 5.9% 2.1% 3.6%

30-year Mtg Rate 3.6% 4.0% 4.4% 4.8%

Source: National Association of REALTORS® (January 2018)

NAR Research

NAR Research Reports

https://www.nar.realtor/research-and-statistics/research-reports

Housing Statistics

https://www.nar.realtor/research-and-statistics/housing-statistics

Blog: http://economistsoutlook.blogs.realtor.org/

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Paul C. Bishop PhD, CBE

Vice President, Research

pbishop@realtors.org

202-383-1246

linkedin.com/in/pcbishop/

Download this presentation at:

http://bit.ly/FRAROutlook2018