yun-lawrence_feb 27 09[1]

8/14/2019 Yun-Lawrence_Feb 27 09[1]

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We are all in this together.

February 27th, 2009


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Presentation to SeattleKing County Association of REALTORSBellevue, WA

February 27, 2009

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS

Housing Market Outlook

Through Economic Recession


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Consumers Tapped Out

Personal Consumption annualized growth rate

Source: BEA


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Consumer Sentiment

Source: University of Michigan


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Housing Valuation($2 trillion loss in wealth from peak)

$ billion

Source: Federal Reserve, NAR estimate


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Job Changes in U.S.

Source: BLS

One-month payroll job changes in thousands


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Job Changes in Seattle Area

Source: BLS

One-year payroll job changes in thousands


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Recession Impact on Housing Market

Mid-1970s RecessionMid-1970s Recession Little Change in Home SalesLittle Change in Home Sales

Early 1980s RecessionEarly 1980s Recession

Deep Cuts in Home SalesDeep Cuts in Home Sales


Moderate Cuts in Home SalesModerate Cuts in Home Sales


Rise in Home SalesRise in Home Sales


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Recession Impact on Home Sales

Source: NAR

Existing Single-family Home Sales


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Housing Affordability Index(Higher numbers mean more people can afford to buy a home)

Source: NAR; 2009 projection based on 5.2% mortgage rate


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Things Out of Whack at theHeight of the Boom

(National Data) Home Price 1998 to 2006Home Price 1998 to 2006

Case-Shiller IndexCase-Shiller Index up 108%up 108%

OFHEO IndexOFHEO Index up 75%up 75%

NAR medianNAR median up 64%up 64%

Income 1998 to 2006Income 1998 to 2006

HouseholdHousehold up 24%up 24%

Per CapitaPer Capita up 31%up 31% Hourly WageHourly Wage up 29%up 29%

Cost of ConstructionCost of Construction up 46%up 46%

Renters RentRenters Rent up 31%up 31%

The period covers from 1998 Q3 to 2006 Q3 if quarterly data is available, otherwise annual data.


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How Much More Correction is Needed?

Home Price 1998 to 2008Home Price 1998 to 2008 Case-Shiller IndexCase-Shiller Index up 67%up 67%

OFHEO IndexOFHEO Index up 67%up 67%

NAR medianNAR median up 45%up 45%

Income 1998 to 2008Income 1998 to 2008

HouseholdHousehold up 34%up 34%

Per CapitaPer Capita up 39%up 39%

Hourly WageHourly Wage up 39%up 39%

Cost of ConstructionCost of Construction up 39%up 39%

Renters RentRenters Rent up 41%up 41%The period covers from 1998 Q3 to 2008 Q3 if quarterly data is available, otherwise annual data.


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But Lower Rates Today

30-year fixed Mortgage Rates30-year fixed Mortgage Rates 19981998 Around 7% with 1% feeAround 7% with 1% fee

20082008 Around 6% with 0.5% feeAround 6% with 0.5% fee

Similar underwriting standards now with 1998?Similar underwriting standards now with 1998?

Monthly Mortgage Payment for a median incomeMonthly Mortgage Payment for a median incomehousehold buying a median priced-homehousehold buying a median priced-home

19981998 19%19%

20082008 19%19% Consider only rates and not feesConsider only rates and not fees


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Seattle vs Orange CountyHome Price

Source: Census

$ thousand


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Washington StateExisting Home Sales

Source: Census

In thousand units


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California Existing Home Sales -Rising

Source: Census

In thousand units


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Foreclosure Starts in WA and CA

% of all mortgages each quarter

Source: Mortgage Bankers Association


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U.S. Single-Family Housing Startsand New Home Sales

Source: Census

In thousand units


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Seattle Area Single-FamilyHousing Starts

Source: Census

In thousand units


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NAR Policy Advocacy on Getting theBuyers Back to Soak Up Inventory

Homebuyer Tax CreditHomebuyer Tax Credit

Without repayment featureWithout repayment feature

Interest Rate Buy-downInterest Rate Buy-down Fixed low rates for homebuyers usingFixed low rates for homebuyers using

TARP and TALFTARP and TALF

Low subsidized rates to refinance at-Low subsidized rates to refinance at-risk homeownersrisk homeowners

Permanently higher Loan LimitPermanently higher Loan Limit

Up to 125% of median priceUp to 125% of median price


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Overshooting and Collateral Damage

Consumer Spending Contraction fromConsumer Spending Contraction fromNegative Wealth EffectNegative Wealth Effect

Primary Foreclosure Determinant HomePrimary Foreclosure Determinant Home

PricesPrices Mortgage Credit Loss Multiplier Effect onMortgage Credit Loss Multiplier Effect onCredit ContractionCredit Contraction

Self-reinforcing pessimismSelf-reinforcing pessimism

Buyers sit on fence, Inventory builds,Buyers sit on fence, Inventory builds,

Prices fall, Foreclosures rise, Buyers sit onPrices fall, Foreclosures rise, Buyers sit on

fencefence


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Federal Budget Deficit

$ million


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Economic Outlook

20082008 20092009 20102010

GDPGDP 1.1%1.1% -1.9%-1.9% 1.8%1.8%

CPI InflationCPI Inflation 3.9%3.9% -0.3%-0.3% 1.9%1.9%

Unemployment RateUnemployment Rate 5.7%5.7% 8.1%8.1% 8.4%8.4%


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Housing Forecast

Stimulus and falling inventory will helpStimulus and falling inventory will helpstabilize pricesstabilize prices

Existing Home Sales bump of 10% toExisting Home Sales bump of 10% to

20%20% CA now seeing 80% jump in home salesCA now seeing 80% jump in home sales

from year before WA follow CAfrom year before WA follow CA

trends?trends? Builders may not see a recovery tillBuilders may not see a recovery till20102010

yun-lawrence_feb 27 09[1]

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