NAR Convention 5-14-09
NAR Convention 5-14-09 Lawrence Yun, NAR Chief Economist
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NAR Single Family Mid-Year Forecast Lawrence Yun, NAR Chief Economist
Housing Market Trends & Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation at NAR Residential Forum Washington, D.C. May 14, 2009
Existing Home Sales 8000000 6000000 4000000 2000000 0 1981 1986 1991 1996 2001 2006
Pending Home Sales Index 110 Taking a bit longer to close in recent months 98 85 73 60 2007 - Jan 2007 - Mar 2007 - May 2007 - Jul 2007 - Sep 2007 - Nov 2008 - Jan 2008 - Mar 2008 - May 2008 - Jul 2008 - Sep 2008 - Nov 2009 - Jan 2009 - Mar
National Existing Home Price (of transacted homes and not listed homes) First-time buyers attracted to deeply discounted distressed sale properties. 300000 225000 150000 75000 0 1970 1975 1980 1985 1990 1995 2000 2005
Months Supply of Single-Family Homes First-time buyers attracted to deeply discounted distressed sale properties. 13.0 9.8 6.5 3.3 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Dayton vs. Orange County Home Price $ thousand 800 600 400 200 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: Census
Prices based on Transaction Only About half of all recent transactions have been distressed sales 15% to 20% short sales 30% to 35% foreclosures Market price is based on transaction What about non-transacted homes that is not on market? Can we extrapolate market price to other nonlisted homes? Estimates of 20% or 25% of all homeowners are UNDERWATER True?
Housing Affordability Index (Higher numbers mean more people can afford to buy a home) ALL-TIME HIGH on conforming loans if people need to stay within budget 160.00 120.00 80.00 40.00 0 1970 1975 1980 1985 1990 1995 2000 2005
Lowest Rate since President Eisenhower Days, but not on Jumbo Mortgages (#!!!"#$%$&#'()#$&*''+%$)&,%-$&.''/012$)%.'3,456' &#'$!"#$%$&#'()#$ %#$! "#"$! "!!!)*)+,- "!!!)*)+.- "!!!)*)/01 "!!2)*)345 "!!2)*)674 "!!")*)879 "!!")*)+.: "!!")*);7< "!!=)*)>,? "!!=)*)@<A "!!%)*)>,5 "!!%)*)3.B "!!$)*)+,- "!!$)*)+.- "!!$)*)/01 "!!&)*)345 "!!&)*)674 "!!')*)879 "!!')*)+.: "!!')*);7< "!!C)*)>,? "!!C)*)@<A "!!()*)>,5 =!)D5)/0-)+.E90 2!)D7,5)F57,G.5? +.E90
High-end Existing Home Sales (Homes priced above $750,000) &H!!!H!!! %H$!!H!!! 4.4% 3.7% 2.3% =H!!!H!!! 2H$!!H!!! Source: NAR! "!!' "!!C "!!( F0A,:)6,:7G 2009 figures are annualized from January and February sales. +.E90)G,:7G
Months Supply of Inventory (Homes priced above $750,000) $! =C "$ 2=! Source: NAR "!!' "!!C "!!( 2009 figures are annualized from January and February data
Months Supply of All Existing Homes %$ =% "= 22! Source: NAR "!!' "!!C "!!( 2009 figures are annualized from January and February data
High-Income Families contribute heavily in taxes, yet getting punished on mortgage rates Total income tax (millions of dollars) $394,066 $597,863 Source: IRS
Tax Cut (or no increase) for 95% of Families What about the 5%? Mortgage Interest Deduction tweaks for 5%, but will impact nearly all homeowners in terms of housing equity destruction Will 5% become acutely cognizant of state income taxes paid? Will people migrate to FL, NV, AK, SD, WA, WY, TX? (States with No income tax)
In thousand units California Existing Home Sales Tipping Point 700 525 350 175 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: CAR
Home Price Bid Up in West 4 February $ thousand price from January according FHFA Home Price Index Measure price change only of those homes with Fannie-Freddie mortgage using repeat transaction methodology 3 2 1 0-1 -2 U.S. Pacific New England West South Central West North Central Middle Atlantic Mountain East South Central South Atlantic East North Central
Economy Falls but Recovers with Stimulus Package GDP annualized growth rate 9.0 6.0 3.0 Latest Data Forecast 0-3.0-6.0 2005 - Q1 2005 - Q2 2005 - Q3 2005 - Q4 2006 - Q1 2006 - Q2 2006 - Q3 2006 - Q4 2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4 2009 - Q1 2009 - Q2 2009 - Q3 2009 Q3 2009 Q4 Source: BEA
Job Changes in U.S. One-month payroll job changes in thousands 600 400 200 0-200 -400-600 -800 Source: BLS 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan
Homebuilders Down and Out 2,000 In thousand units 1,500 1,000 500 0 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan Source: Census
New Home Inventory for Sale 600 In thousands units 500 400 300 200 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan Source: Census
Housing Starts: Too Much to Too Little 3,000 2,250 New Units Needed 1,500 750 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3 million more people each year 1 to 1.4 million household formation need to account for 300,000 demolitions. need 1.3 to 1.7 new units
Foreclosure Inventory will Rise but will they get cleared off quickly 15.0 In thousand units 11.3 Subprime 7.5 3.8 All Mortgages 0 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 FHA Reserve Fund depleting may need funds to implement a countercyclical policy Fannie-Freddie will need funds future reform of the secondary mortgage market What is going on in Denmark?
Federal Budget Deficit $ million 500,000 0-500,000-1,000,000-1,500,000-2,000,000 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Bailouts and Too Big to Fail AIG, Bear Sterns, Lehman Brothers, TARP, and Fannie/ Freddie inter-linkages and systemic risks Chrysler Make it small and let it fail Managerial Hubris Want to run big companies Acquiring companies lose stock value Acquired companies get immediate stock boost (windfall gain) Too big to manage and diseconomies of scale Is the Government becoming too big to manage? It cannot fail and difficult to fire federal employees
Credit Crunch Ending? Libor Rates improving Junk Bond yields becoming less wild Banks making profit but are they getting too big again (75% of assets controlled by 10 banks) Federal Reserve lending at zero (though not to consumers) True Test of credit easing Lower rate on jumbo mortgages Lower rate on second home purchases Lower rate on condo purchases Lower rate on commercial real estate loans
Economic Outlook 2008 2009 2010 50 year average GDP 1.1% -2.9% 1.4% 3.3% CPI Inflation 3.8% -0.8% 1.7% 4.1% Unemployment Rate 5.8% 9.5% 10.2% 5.9% Strength of GDP recovery dependent on home price growth - Consumer spending improves from housing wealth effect - Bank balance sheet improves eases credit crunch - Foreclosure pressure lessens
Housing Forecast Stimulus and falling inventory will help stabilize prices Nationwide Existing Home Sales bump of 10% to 20% in the second half of 2009 vs. second half of 2008 CA now seeing 100% jump in home sales from trough Is CA setting trends for others? Builders may not see a recovery till 2010 Local Price Forecasts all over the map Sharp downward overshooting is susceptible to sharper price rebound
Inflation or Deflation in 2011? Inflation: Print money and there goes the inflation Deflation: Excess capacity and high unemployment rate keeps prices in check. Fed s exit strategy to reclaim printed money Which one is more dangerous? Which one will occur? Watch the energy price as the catalyst for both scenarios If Inflation winners will be property owners who locked-in low rate If deflation losers will be responsible homeowners with mortgages
The Next Baby Boomers (Recent Births matching the post-war Baby Boomer numbers) Number of Live Births Each Year Baby Bust Impact Ending? 5,000,000 Boomers Next Boomers 3,750,000 2,500,000 1,250,000 0 1950 1955 1960 1965 1970 1975 1980 1986 1991 1996 2001 2006
The Next Middle Class Global Economy is here to stay U.S. population: 300 million BRIC countries nearly 10 times the U.S. population Brazil: 190 million Russia: 140 million India: 1.1 billion China: 1.3 billion Potentially 30 million new middle class each year from just 1% upward shift How many will want a property in the U.S.?