Economic and Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist, National Association of REALTORS Presentation at Charlottesville Area Association of REALTORS October 13, 2016
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Lifetime Wealth at near All-Time High 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 $ billion
Median Household Income (Inflation Adjusted) $59,000 $58,000 $57,000 $56,000 $55,000 $54,000 $53,000 $52,000 $51,000 $50,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1950 1952 1954 1956 1958 1960 1962 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 2014 2016 Annual GDP 10 Below 3% for 11 straight years GDP Annual Growth Rate 8 6 4 2 0-2 -4
2000 2000 - Q3 2001 2001 - Q3 2002 2002 - Q3 2003 2003 - Q3 2004 2004 - Q3 2005 2005 - Q3 2006 2006 - Q3 2007 2007 - Q3 2008 2008 - Q3 2009 2009 - Q3 2010 2010 - Q3 2011 2011 - Q3 2012 2012 - Q3 2013 2013 - Q3 2014 2014 - Q3 2015 2015 - Q3 20000 19000 18000 17000 16000 15000 14000 13000 12000 11000 10000 $ billion Sluggish GDP and Gap after Recession ($2.5 trillion gap $7,000 per person) 3% Growth Line Slow 2% Growth Line
Sluggish Business Spending Despite High Profit 2500 2000 1500 1000 Profits Business Spending 500 0
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 2014-2014 - Jul 2015-2015 - Jul 2016-150,000 145,000 In thousands Jobs (8 million lost 15 million gained) 140,000 135,000 130,000 125,000 120,000
Unemployment Rate vs. Employment Rate 12 10 8 6 4 2 Unemployment Rate 66 64 62 60 58 56 Employment Rate 0 2000-2002 - 2004-2006 - 2008-2010 - 2012-2014 -2016-54 2000-2002 - 2004-2006 - 2008-2010 - 2012-2014 - 2016 -
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 2014-2014 - Jul 2015-2015 - Jul 2016-2016 - Jul Jobs in Charlottesville 120 In thousands 115 110 105 100 95 90 85 80
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 2014-2014 - Jul 2015-2015 - Jul 2016-2016 - Jul Jobs in Washington, D.C. metro 3400 3300 3200 3100 3000 2900 2800 2700 2600 2500
2000-2000 - May 2000 - Sep 2001-2001 - May 2001 - Sep 2002-2002 - May 2002 - Sep 2003-2003 - May 2003 - Sep 2004-2004 - May 2004 - Sep 2005-2005 - May 2005 - Sep 2006-2006 - May 2006 - Sep 2007-2007 - May 2007 - Sep 2008-2008 - May 2008 - Sep 2009-2009 - May 2009 - Sep 2010-2010 - May 2010 - Sep 2011-2011 - May 2011 - Sep 2012-2012 - May 2012 - Sep 2013-2013 - May 2013 - Sep 2014-2014 - May 2014 - Sep 2015-2015 - May No CPI Inflation Yet 6 5 4 3 2 1 0-1 -2-3
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 2014-2014 - Jul 2015-2015 - Jul 2016-2016 - Jul Oil Price 140 120 100 80 60 40 20 0 Brent Crude
Renting Painful Rents Rising at 7-year high 5 Renters' Rent 4 3 2 1 0-1
Home Sales Rising 9000000 8000000 7000000 6000000 5000000 4000000 3000000 New Existing 2000000 1000000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CAAR Dash Board
1995 1995 - Q4 1996 - Q3 1997 - Q2 1998 1998 - Q4 1999 - Q3 2000 - Q2 2001 2001 - Q4 2002 - Q3 2003 - Q2 2004 2004 - Q4 2005 - Q3 2006 - Q2 2007 2007 - Q4 2008 - Q3 2009 - Q2 2010 2010 - Q4 2011 - Q3 2012 - Q2 2013 2013 - Q4 2014 - Q3 2015 - Q2 2016 Charlottesville Home Price Index 260 240 220 200 180 160 140 120 100
2000 2000 - Q3 2001 2001 - Q3 2002 2002 - Q3 2003 2003 - Q3 2004 2004 - Q3 2005 2005 - Q3 2006 2006 - Q3 2007 2007 - Q3 2008 2008 - Q3 2009 2009 - Q3 2010 2010 - Q3 2011 2011 - Q3 2012 2012 - Q3 2013 2013 - Q3 2014 2014 - Q3 2015 2015 - Q3 Rising Home Price and Rising Housing Wealth 25000 20000 $ billion 15000 10000 5000 Real Estate Value Mortgage Debt 0
Homeownership Rate Near 50-year low 70 69 68 67 66 65 64 63 62 61 60 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Younger Households Less Likely to Own a Home 100% Homeownership Rate 2004 (Peak) 2016Q1 80% 60% 40% 20% 0% Source: Census Bureau 34 and younger 65 and older
Wealth Gap Between Young Adults (under-35) and Retiree (65+) in 1983 and 2013 $250,000 $200,000 $150,000 $100,000 $50,000 Median net worth of households headed by $0 1983 2013
Student Loan 1400 1200 NAR-ASA Study implies 5 year Delay (in $billion) 1000 800 600 400 200 0 2006 2006 - Q3 2007 2007 - Q3 2008 2008 - Q3 2009 2009 - Q3 2010 2010 - Q3 2011 2011 - Q3 2012 2012 - Q3 2013 2013 - Q3 2014 2014 - Q3 2015 2015 - Q3
Consumer Price Index over the Long Haul 900 800 700 600 500 400 Tuition Medical Rent CPI 300 200 100 0 1983 - Jul 1985 - Jul 1987 - Jul 1989 - Jul 1991 - Jul 1993 - Jul 1995 - Jul 1997 - Jul 1999 - Jul 2001 - Jul 2003 - Jul 2005 - Jul 2007 - Jul 2009 - Jul 2011 - Jul 2013 - Jul 2015 - Jul
Social Benefits to Homeownership Higher student test score Lower juvenile delinquency rate Better health outcome and higher self-esteem from having a sense of control in life Increased charitable donations and volunteering Local civic engagement Terrible social results if foreclosure therefore need sustainable homeownership
Barrack Real Estate Market is Getting Bubblicious
2011-2011 - Mar 2011 - May 2011 - July 2011 - Sep 2011 - Nov 2012-2012- Mar 2012 - May 2012 - Jul 2012 - Sep 2012 - Nov 2013-2013 - Mar 2013 - May 2013 - Jul 2013 - Sep 2013 - Nov 2014-2014 - Mar 2014 - May 2014 - Jul 2014 - Sep 2014 - Nov 2015-2015 - Mar 2015 - May 2015 - Jul 2015 - Sep 2015 - Nov 2016-2016 - Mar 2016 - May 2016 - Jul National Pending Sales Index (Seasonally Adjusted) 120.0 115.0 110.0 105.0 100.0 95.0 90.0 85.0 80.0 75.0 70.0 Source: NAR
Foot Traffic (Lockbox openings - below 50 Reading for 3 straight months)
Inventory of Homes per Households (currently 1.5 homes for 100 households) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 2000-2001 - 2002-2003 - 2004-2005 - 2006-2007 - 2008-2009 - 2010-2011 - 2012-2013 - 2014-2015 - 2016 -
Single-family Housing Starts Grossly Inadequate 2000 1800 Thousand units 1600 1400 1200 1000 800 600 400 200 0 2000-2001 - 2002-2003 - 2004-2005 - 2006-2007 - 2008-2009 - 2010-2011 - 2012-2013 - 2014-2015 - 2016 -
Charlottesville Housing Permits 3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2005 2005 - Q2 2005 - Q3 2005 - Q4 2006 2006 - Q2 2006 - Q3 2006 - Q4 2007 2007 - Q2 2007 - Q3 2007 - Q4 2008 2008 - Q2 2008 - Q3 2008 - Q4 2009 2009 - Q2 2009 - Q3 2009 - Q4 2010 2010 - Q2 2010 - Q3 2010 - Q4 2011 2011 - Q2 2011 - Q3 2011 - Q4 2012 2012 - Q2 2012 - Q3 2012 - Q4 2013 2013 - Q2 2013 - Q3 2013 - Q4 2014 2014 - Q2 2014 - Q3 2014 - Q4 2015 2015 - Q2 2015 - Q3 2015 - Q4 2016 2016 - Q2 12.0 10.0 Borrowers Not Defaulting (Serious Delinquency Rate) U.S. All Mortgages 8.0 6.0 4.0 2.0 0.0 Veterans Affairs Mortgages Virginia All Mortgages
2000 2000 - Q3 2001 2001 - Q3 2002 2002 - Q3 2003 2003 - Q3 2004 2004 - Q3 2005 2005 - Q3 2006 2006 - Q3 2007 2007 - Q3 2008 2008 - Q3 2009 2009 - Q3 2010 2010 - Q3 2011 2011 - Q3 2012 2012 - Q3 2013 2013 - Q3 2014 2014 - Q3 2015 2015 - Q3 2016 Commercial Property Price may be Bubblish 300 250 200 150 100 50 0 Source: Federal Reserve
Rising Cap Rates and Commercial Real Estate Prices Steady prices in mid-tier markets Price drops in trophy properties Green Street price index could fall 4% to 8% over the next two years
Fed Rate Hike in December 15 Next hike in December 16? then again in
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 2014-2014 - Jul 2015-2015 - Jul 2016 - Fed Policy and Mortgage Rate 9 8 7 6 5 4 3 2 1 0 Mortgage Rate Fed Funds Rate
Forecast
Normal vs. Now 2000 (Likely Normal) 2015 Existing Home Sales 5.2 million 5.2 million New Home Sales 900,000 500,000 Population 282 million 320 million Jobs 132 million 144 million Total U.S. Household Wealth $44 trillion $85 trillion
Economic Forecast 2014 2015 2016 Forecast 2017 Forecast GDP Growth 2.6% 2.1% 1.6% 2.2% Job Growth +3.0 million +2.6 million +2.0 million +2.2 million CPI Inflation 1.6% 0.3% 1.4% 2.7%
Housing Forecast 2014 2015 2016 Forecast 2017 Forecast New Home Sales 437,000 500,000 540,000 600,000 Existing Home Sales Median Price Growth 4.9 million 5.3 million 5.4 million 5.5 million + 5.7% + 6.8% +4.5% 3.2% 30-year Rate 4.2% 3.9% 3.7% 4.1%
Commercial Real Estate Forecast 2016-2017 Vacancy Rent Apartment From 4.7% to 5.0% 3.5% per year Office From 13% to 12% 4% per year Industrial Stable at near 9% 4% per year Retail Stable at near 11% 2% per year