Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation at Inforum Outlook Conference University of Maryland College Park, MD December 12, 2013
Existing Home Sales 20% cumulative increase over 2 years 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Median Home Price $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Income Trends 2% to 4% cumulative increase over 2 years $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Household Income Family Income Disposable Income per person $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Falling Affordability to 5-year Low But still 5 th best in 40 years 250 200 150 100 50 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
9 % Inevitable Rise in Mortgage Rates will further hurt Affordability (30-yr rate have been below 6% for 5 years) 8 7 6 5 4 3 2000 2000 - Jul 2001 2001 - Jul 2002 2002 - Jul 2003 2003 - Jul 2004 2004 - Jul 2005 2005 - Jul 2006 2006 - Jul 2007 2007 - Jul 2008 2008 - Jul 2009 2009 - Jul 2010 2010 - Jul 2011 2011 - Jul 2012 2012 - Jul 2013 2013 - Jul
Refinances will Collapse in 2014 (to at least 15-year low) 12000 10000 8000 6000 4000 2000 0 Jan 14 2000 Jul 14 2000 Jan 12 2001 Jul 13 2001 Jan 11 2002 Jul 12 2002 Jan 10 2003 Jul 11 2003 Jan 9 2004 Jul 9 2004 Jan 7 2005 Jul 8 2005 Jan 6 2006 Jul 7 2006 Jan 5 2007 Jul 6 2007 Jan 4 2008 Jul 4 2008 Jan 2 2009 Jul 3 2009 Jan 1 2010 Jul 2 2010 Dec 31 2010 Jul 1 2011 Dec 30 2011 Jun 29 2012 Dec 28 2012 Jun 28 2013
All-Cash Buyers Stayed High even when mortgages were cheap 40% 35% 30% 25% 20% 15% 10% 5% 0% 2008 - Oct 2009 (Cash share as % of total home sales) 2009 - Apr 2009 - Jul 2009 - Oct 2010 2010 - Apr 2010 - Jul 2010 - Oct 2011 2011 - Apr 2011 - Jul 2011 - Oct 2012 2012 - Apr 2012 - Jul Normal Range 2012 - Oct 2013 2013 - Apr 2013 - Jul
Financial Industry Profits from Low Rates and Refis 500 400 $ billion Now What Boost Purchase Apps? 300 200 100 0-100 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 - Q1-200
No Increase in Mortgages for Home Purchases during 2-year Recovery; Will Rise in 2014? 600 500 400 300 200 100 0 Jan 7 2000 Jul 7 2000 Jan 5 2001 Jul 6 2001 Jan 4 2002 Jul 5 2002 Jan 3 2003 Jul 4 2003 Jan 2 2004 Jul 2 2004 Dec 31 2004 Jul 1 2005 Dec 30 2005 Jun 30 2006 Dec 29 2006 Jun 29 2007 Dec 28 2007 Jun 27 2008 Dec 26 2008 Jun 26 2009 Dec 25 2009 Jun 25 2010 Dec 24 2010 Jun 24 2011 Dec 23 2011 Jun 22 2012 Dec 21 2012 Jun 21 2013
Ready to Open Credit? (Average Credit Scores of Approved Loans) Normal 2009 to 2012 If Normal Fannie 720 760 to 770 720 Freddie 720 760 to 770 720 FHA 650 680 to 700 660 15% to 20% Higher Sales
But Will Washington Allow It? Washington Policies so far Too Restrictive Rising g-fees and FHA insurance premiums? Uncertainty about QRM down payment requirement? Dodd-Frank? Too many Lawsuits? Runaway DOJ? Mortgages Have Performed Outstandingly Not because of Washington policies But because of home price increases New Restriction with PATH?
What is PATH? Hensarling s Ideology (Protecting American Taxpayers and Homeowners?) For-profit Fannie and Freddie were Arrogant Today s Fannie and Freddie have had reforms under government control Remove Government Guarantee on Mortgages 30-yr Fixed Rate Mortgages Hard to get and higher rates Large Banks will do Securitization Small Banks at Risk Market becomes excessively pro-cyclical Large Banks have FDIC taxpayer risk vulnerable to nationalization and, if so, government credit allocation Global capital could decide to go elsewhere rather than the U.S.. Other countries grow faster than the U.S.
Latest Market Trends
Pending Sales (Contracts, not Closings) (Seasonally Adjusted) 130 120 110 100 90 80 70 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: NAR
80 70 60 50 40 30 20 10 0 Buyer and Seller Traffic How Much from Gov t Shutdown and Dysfunction? Buyer Seller 2008 2008 - Apr 2008 - Jul 2008 - Oct 2009 2009 - Apr 2009 - Jul 2009 - Oct 2010 2010 - Apr 2010 - Jul 2010 - Oct 2011 2011 - Apr 2011 - Jul 2011 - Oct 2012 2012 - Apr 2012 - Jul 2012 - Oct 2013 2013 - Apr 2013 - Jul
Government Shutdown Did Not Help IRS Forms Along with FHA and USDA Closures Purchase Apps Fell with Closures 20% 15% 10% 5% 0% -5% -10% -15% -20% Percent Change From Prior Week Gov't Conv Rates Rose with Treasuries 4.7% 4.6% 4.5% 4.4% 4.3% 4.2% 4.1% 4.0% 3.9% 3.8% 30-yr FRM Déjà vu in January?..February?
New Home Inventory (Newly Constructed Homes Inventory at near 50-year low) 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2000 Existing Home Inventory (at near 13-year low) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20122013
Shadow Inventory in NY and AZ (Mortgages Late 90+ day or in foreclosure process) 14 12 10 8 6 4 2 0 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
Housing Starts Need to Reach 1.5 million soon or persistent housing shortage 2500 2000 1500 multifamily Thousand units (annualized) single-family Long-term Average 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rising Home Prices Because of Lack of Inventory (% change from one year ago) 20 15 10 5 0-5 -10-15 -20-25 Blue = NAR Median Price Red = Case-Shiller Index 2001 2001 - Jul 2002 2002 - Jul 2003 2003 - Jul 2004 2004 - Jul 2005 2005 - Jul 2006 2006 - Jul 2007 2007 - Jul 2008 2008 - Jul 2009 2009 - Jul 2010 2010 - Jul 2011 2011 - Jul 2012 2012 - Jul 2013 2013 - Jul
330 Phoenix and Houston Home Price Index 280 230 180 130 80 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
Residential Construction Contribution to GDP Growth (% point) 1.5 1 0.5 0-0.5-1 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 - Q3-1.5-2
Housing Wealth Accumulation (Over $4.5 trillion net gain from 5 year ago) 30000 25000 20000 15000 10000 5000 Homeowner Equity Real Estate Asset Value 0 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
Forecast Essentially Same as the one made last year in November 2012
Forecast #1: Inflation will be Notably Higher by 2015 No Threatening Inflation Signs for 2013 But Inflation rises to 4% to 6% in 2015 Well above Fed s preferred rate of 2% But not in double-digits as in 1970s
Rising Renters and Homeowners Rent Growth (the biggest weight to Consumer Price Index) 5 4 3 2 1 Owners' Equivalent Rent Renters' Rent 0-1 2000 2000 - Aug 2001 - Mar 2001 - Oct 2002 - May 2002 - Dec 2003 - Jul 2004 - Feb 2004 - Sep 2005 - Apr 2005 - Nov 2006 - Jun 2007 2007 - Aug 2008 - Mar 2008 - Oct 2009 - May 2009 - Dec 2010 - Jul 2011 - Feb 2011 - Sep 2012 - Apr 2012 - Nov 2013 - Jun
Forecast #2 No Rise in Home Sales Rise in Housing Starts and Home Values 2013 forecast 2014 forecast Existing Home Sales 5.1 m 5.1 m Housing Starts 0.92 m 1.13 m Home Price 11% 5% Mortgage Rate 4.0% 5.1%
Home Price Forecast by Wall Street Journal Economists Panel Year WSJ Home Price Forecast 2014 5% Robert Shiller : Homes are still affordable we do not have extravagant mindset today
Forecast #3: More Unequal Wealth Distribution Renters do not accumulate wealth Renter population rising Homeowners build wealth after buying at low prices Stagnant homeowner population Tight Credit hinders good renters from becoming homeowners Investors becoming increasing share of property owners
41,000 39,000 37,000 35,000 33,000 31,000 29,000 27,000 25,000 In thousands Renter Households 1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 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
Homeowner Households has not Grown since 2006 but Primed to Grow 80,000 75,000 70,000 65,000 60,000 55,000 50,000 In thousands 1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 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
Wealth Distribution (Federal Reserve data on median net worth) $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 Bubble Crash 1998 2001 2004 2007 2010 2014 Dodd-Frank? PATH? Lawsuits? Legacy? $0 Renter Owner 2014 Forecast by NAR
What Homebuyers Want?
Slightly More Preference For Condo or Apartment Living Than In 2011 Housing Type Preference (2013): Housing Type Preference (2011): 4% 6% Single Family Attached 14% Condo or Apt. 76% Single Family Detached House Condo 5% or Apt. Single 8% Family Attached 7% 80% Single Family Detached House Right now, if you could choose, which of the following would you prefer to live in: Slide 36
Privacy, Walkability, Schools Most Important in Deciding Where to Live Most Important Factors in Deciding Where to Live: Privacy from neighbors 46% 40% 86% Sidewalks and places to take walks 37% 43% 80% High-quality public schools 45% 29% 74% Being within an easy walk of other places and things in the community 28% 40% 69% Easy access to the highway 23% 44% 68% Living in a community with people at all stages of life adults, families with children and older people 23% 43% 66% An established neighborhood with older homes and mature trees 21% 44% 65% Being within a short commute to work 28% 37% 65% Public transportation within walking distance of your home 25% 34% 59% Living in a place that s away from it all 21% 34% 55% Very Important Somewhat Important 0% 20% 40% 60% 80% 100% In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important. Slide 37
50% 40% 30% 20% 10% +1 Walkability and Age-Diversity Gaining in Importance 46% 45% 45% 44% Changes in Important Factors in Deciding Where to Live +1 +6 37% 31% +4-8 28% 28% 24% 36% +8 +2 23% 23% 15% 21% 0% Privacy from neighbors High-quality public schools Sidewalks and places to take walks Being within an easy walk of other places and things in the community Being within a short commute to work A community with people at all stages of life adults, families with children and older people Easy access to the highway Very Important - 2013 Very Important - 2011 Q.47 In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important. Slide 38
What Buyers Want Most From Their Agent Determine what comparable homes were selling for, 8% Help with paperwork, 7% Help find and arrange financing, 3% Help with the price negotiations, 11% Help buyer negotiate the terms of sale, 12% Help find the right home to purchase, 53%