- The economic outlook remains uncertain, with the Federal Reserve chairman noting an unusually uncertain outlook and former chairman warning of potential double-dip recession if home prices fall again.
- GDP is growing but decelerating, with consumer growth expected to slow while federal spending provides temporary stimulus and state/local governments cut back. Housing recovery is underway but new construction remains low.
- Unemployment remains high at around 8% projected for 2012, though some regional markets are seeing job growth and lower unemployment. The housing market shows signs of stabilizing but inventories remain high and sales are dependent on job growth.
Economic Outlook in Uncertain Times by NAR Chief Economist Lawrence Yun
1. Economic Outlook in Uncertain Times Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Leadership Summit Chicago, IL August 6, 2010
2. Federal Reserve FOMC Ben Bernanke (Chairman): “Outlook remains unusually uncertain” Alan Greenspan (former Chairman): “If home prices start falling again, we could be facing a double-dip recession” James Bullard (St. Louis Fed): “The U.S. is closer to a Japanese-style deflationary outcome” Thomas Hoenig(Kansas City Fed): “Too rapid money creation results in eventual high inflation” To speak at NAR conference in New Orleans
4. Sources of Economic Growth Consumers … more cautious Historically 4% growth (above inflation), but expect 2% growth in upcoming years Federal Government … stimulus spending Historically 1% growth (above inflation), now strong 6%-7% growth in the past 2 years State/Local Government … cut back Historically 2% growth (above inflation), now cutting by 1%-2% in the past 2 years
5. Sources of Economic Growth Cont. Net Exports … some improvement Oil price and oil import could hold back net export gains Real Estate Residential: Recovery in existing home sales but very low new home construction Commercial: Very low new construction Businesses … huge profits but not wanting to invest Why are businesses holding on to cash ???
22. Existing Home Sales over the Long Term(single-family sales without condos) 1982: 18% Mortgage Rate, 40 million fewer workers Source: NAR
23. People Mobility(How many move each year?) % 260 million stay put 25 million move within same county 6 million move to another county in same state 5 million move to another state (very low) 1 million move abroad
25. 13 Regional Vice President Reports RVP Region 4: “stable at best … downward spiral at worst” RVP Region 7: “more expensive homes selling … but the underwriting process is difficult” REALTOR® member comments “more active in selling vacant lots this year” “phone hardly rings” “buyers pay too much for appraisals” “commercial lending needs to loosen up” “ a lot of people looking at second homes, but won’t get off the fence” “our rental market is going strong”
27. NAR Commercial Market Survey NAR Survey … members were engaged in average transaction value of $1.2 million NAR Survey shows sales down 6% NAR Survey shows average price down 16% NAR Survey shows leasing up 3% NAR Survey shows rental rate down 10%
28. Baseline Outlook Moderate GDP Expansion 2.5% in the next 2 years (historical average is 3%) 1.5 million annual job additions in the next 2 years Unemployment rate of 8% in 2012 … and normal 6% in 2015
29. Baseline Outlook Cont. Mortgage Rates rising to 5.7% in 2011 and 6.2% in 2012 and higher in later years Home values – no meaningful change in the national price in the next 2 years Housing Starts to rise 40% to 50% in 2011 to about 900,000 … from exceptionally low levels of the past two years (historical normal is 1.5 million) Home sales will struggle in the near term (after tax credit hangover) and then rise in line with job growth Commercial real estate coming off depressed levels but no improvements in vacancy until 2011 and in rent growth until 2012
30. Alternative Outlooks High inflation … people desire tangible investment like real estate, but interest rate will be higher Deflation … people hold back for better price … holds back economy Budget deficit tipping point … higher interest rate and sharp cut back in standard of living Sharp 4% to 5% GDP growth … release of pent-up housing demand (30 million more people today versus 2000 when home sales were similar) … surprisingly higher home sales and home prices