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Real Estate and Economic
         Outlook
               Lawrence Yun, Ph.D.
                  Chief Economist
        NATIONAL ASSOCIATION OF REALTORS®

  Presentation to CID, NOMAR, CCIM Louisiana Chapter

                 at Loyola University
                New Orleans, Louisiana


                   October 16, 2012
Existing Home Sales Recovery:
 Best in 5 years, but only up 8% year-to-date
8
  In million units
7    7.08
6            6.52

5
                     5.02
4                                                       4.62
                            4.12   4.34   4.18   4.26
3
2
1
0
    2005 2006 2007 2008 2009 2010 2011 2012
                                        est.
One Reason for Slower Recovery, aside from credit
   bubble hangover, is the falling mobility rate
               From 18% to 12%
              Fraction of Population Who Moved in the Last 12 Months
                                              (Any Distance)
      .2


     .18


     .16


     .14


     .12


      .1
            1965     1970     1975     1980     1985      1990     1995     2000   2005   2010
                                                    Year

  Source: Raven Molloy, Federal Reserve Economist, Current Population Survey.
Investors in the Market;
            and Homebuyers Frustrated
       Investor Sales In thousands
2500
2000
1500
1000
500
   0
          2005    2006    2007       2008    2009    2010     2011 2012 est.
        Owner-occupant Sales In thousands
6000
5000
4000
3000
2000
1000
   0
          2005     2006    2007       2008    2009     2010     2011   2012 est
New Orleans Housing Statistics

• Units Sold … up 14% year-to-date from one
  year ago

• Median Price to $203,100 … up 2%

• Days on Market at 95 days (from 102 days one
  year ago)
 Source: NVAR
Everyone Seeing Low Home Prices
            Warren Buffet: Buy Low (not Buy High)

350


300
                                                   Phoenix
250


200
                                                           New Orleans
150


100
      1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
      - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1


  Source: FHFA
0
                 1
                     2
                         3
                             4
                                 5




     -1
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
                                     % change from one year ago




2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
                                                                                                                             Investors seeing Rising Rent




2010 - Jul
                                                                       because some of it will be passed on to renters)




2011 - Jan
2011 - Jul
                                                                  (Not deterred by 3.8% Health Care Tax on Rental Income …




2012 - Jan
25,000
            29,000
            31,000
            33,000
            35,000
            39,000
            41,000




            27,000
            37,000
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
1998 - Q1
                     Rental Households




1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
2005 - Q3
2007 - Q1
2008 - Q3
2010 - Q1
2011 - Q3
                                         Investors also seeing rising # of renters
50,000
                     55,000
                                       65,000
                                                70,000
                                                         75,000
                                                                  80,000




                              60,000
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
                                                                           Homeowners




1998 - Q1
1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
                                                                                        Homeowners not Rising




2005 - Q3
2007 - Q1
2008 - Q3
2010 - Q1
2011 - Q3
59
            60
            61
            62
            64
            65
            66
            67
            69
            70




            63
            68
             %
1965 - Q1
1967 - Q1
1969 - Q1
1971 - Q1
1973 - Q1
1975 - Q1
1977 - Q1
1979 - Q1
1981 - Q1
1983 - Q1
1985 - Q1
1987 - Q1
1989 - Q1
1991 - Q1
                 (Lowest in 15 years)




1993 - Q1
1995 - Q1
1997 - Q1
1999 - Q1
2001 - Q1
2003 - Q1
2005 - Q1
                                        Homeownership Rate at 65.4%




2007 - Q1
2009 - Q1
2011 - Q1
Visible Housing Inventory
(Existing inv. At 8-year low; New inv. at 50-year low)
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 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
            - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
                                      Existing    New
0.0
                        0.5
                                     1.0
                                            1.5
                                                        2.0
                                                                 2.5
                                                                           3.0
                                                                                  3.5
                                                                                                4.5
                                                                                                          5.0


                                                                                          4.0
2000 - Q1
2000 - Q3
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
                                                                                                                                         million units




2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
                                                                                                                                                                                 Shadow Inventory … Falling




      2014 … 8%
                                                                                                                (Seriously delinquent mortgage + homes in foreclosure process)




                        2013 … 15%
                                           2012 … 25%
                                                              2011 … 33%
                                                                             2010 … 33%
                                                                                            Market Share
                                                                                            Distressed Sales
0%
                  10%
                        20%
                              30%
                                    40%
                                          50%
                                                60%
2008 - Oct
2008 - Dec
2009 - Feb
2009 - Apr
2009 - Jun
2009 - Aug
2009 - Oct
2009 - Dec
2010 - Feb
2010 - Apr
                                                      REO




2010 - Jun
2010 - Aug
2010 - Oct
2010 - Dec
                                                      Short-Sale




2011 - Feb
2011 - Apr
2011 - Jun
2011 - Aug
2011 - Oct
2011 - Dec
                                                                   Distressed Property Sales




2012 - Feb
2012 - Apr
2012 - Jun
2012 - Aug
0
             2
             4
             6
             8
            10
            12
            14
             %
2005 - Q1
2005 - Q2
2005 - Q3
2005 - Q4
2006 - Q1
2006 - Q2
2006 - Q3
2006 - Q4
2007 - Q1
2007 - Q2
2007 - Q3
2007 - Q4
                 AZ




2008 - Q1
2008 - Q2
2008 - Q3
                 MI




2008 - Q4
2009 - Q1
2009 - Q2
                 CA




2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
                                                                                  in Non-Judicial States




2010 - Q3
2010 - Q4
2011 - Q1
                                                                               Foreclosures Rapidly Falling




2011 - Q2
2011 - Q3
                      Example: Seriously Delinquent Mortgages in AZ, CA , MI




2011 - Q4
2012 - Q1
2012 - Q2
0
                                                                                 2
                                                                                 4
                                                                                 6
                                                                                 8
                                                                                10
                                                                                12
                                                                                 %
                                                                    2005 - Q1
                                                                    2005 - Q2
                                                                    2005 - Q3
                                                                    2005 - Q4
                                                                    2006 - Q1
                                                                    2006 - Q2
                                                                    2006 - Q3
                                                                    2006 - Q4
                                                                    2007 - Q1




   • Vacant property
                                                                    2007 - Q2
                                                                    2007 - Q3
                                                                    2007 - Q4
                                                                    2008 - Q1
                                                                    2008 - Q2
                                                                                     CT




                                                                    2008 - Q3
                                                                    2008 - Q4
                                                                                     IL




                                                                    2009 - Q1
                                                                    2009 - Q2
                                                                    2009 - Q3
                                                                    2009 - Q4
                                                                    2010 - Q1
                                                                    2010 - Q2
   • Missed Mortgages for 6 months or longer

                                                                    2010 - Q3
                                                                    2010 - Q4
                                                                    2011 - Q1
                                                                    2011 - Q2
                                                                    2011 - Q3
                                                                                          Example Seriously Delinquent Mortgages in CT and IL




                                                                    2011 - Q4
                                                                    2012 - Q1
                                                                                                                                                Foreclosures Clogged in Judicial States




                                                                    2012 - Q2
Should a trigger be set up to foreclose without a court approval?
0
                2
                    4
                        6
                            8
                                10
                                     12
                                          14
                                          %
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 - Q4
2010 - Q1
2010 - Q2
                                               Seriously Delinquent Mortgages
                                                                                Shadow in Louisiana




2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
500
                                             1000
                                                    1500
                                                                         2000
                                                                                2500




                                   0
                      2000 - Jan
                      2000 - Jul
                      2001 - Jan
                      2001 - Jul
                      2002 - Jan




Source: Census, HUD
                      2002 - Jul
                      2003 - Jan
                      2003 - Jul
                                                                                  Thousand units (annualized)




                      2004 - Jan
                      2004 - Jul
                      2005 - Jan
                                                                                                          multifamily




                      2005 - Jul
                      2006 - Jan
                      2006 - Jul
                      2007 - Jan
                      2007 - Jul
                                                                                                   single-family
                                                                                                                                                                                Housing Starts




                      2008 - Jan
                      2008 - Jul
                      2009 - Jan
                      2009 - Jul
                      2010 - Jan
                      2010 - Jul
                      2011 - Jan
                                                                                                                        (Well Below 50-year average of 1.5 million each year)




                      2011 - Jul
                      2012 - Jan
                                                     Long-term Average
0
                                       10000
                                               12000
                                                       14000




           2000
                  4000
                         6000
                                8000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
                                                                Housing Permits




2002
                                                               New Orleans Metro




2004
2006
2008
2010
2012
Falling Inventory of Homes for Sale
                          2010 July      2011 July      2012 July


Existing Homes for Sale   3.41 million   3.15 million   2.40 million


Newly Constructed         210,000        165,000        142,000
Homes for Sale

“Shadow” Estimate         4.2 million    3.5 million    3.2 million
(Seriously Delinquent
Mortgages and Homes in
Foreclosure Process)
Homeowners waiting        ???            ???            Inconsequential Impact
• for higher home                                       since most will list
  prices                                                homes, but with intent
• To be freed from Tax                                  also on buying
  Credit Lock Period
Wealth Distribution … Who will get
             Future Wealth?
                 (Federal Reserve data on median net worth)
 $300,000

 $250,000

 $200,000                                                     1998
                                                              2001
 $150,000                                                     2004
                                                              2007
 $100,000
                                                              2010
  $50,000                                                     2014


       $0
                       Renter                    Owner

2014 Forecast by NAR
Improving Factors for Sales in 2012 and Beyond:

  1.  High Affordability and Job Creation
  2.  Solid stock market recovery from 2008
  3.  Rising rents and a larger pool of qualified renters
  4.  Pent-up release of Household Formation
     • Rising demand for ownership and rentals as
         young-adults move out of parent’s basement
  5. Smart money chasing real estate (i.e., investors)
  6. Consumer confidence in buying an appreciating
      asset
50
            70
                 90
                      110
                            130
                                  150
                                        170
                                              190
                                                    210
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
                                                          Best Affordability Conditions




2004
2006
2008
2010
2012
1,000
                                        1,500
                                                2,000
                                                        2,500
                                                                3,000
                                                                        3,500




                   500
               0
 2005 - Jan
 2005 - Jun
2005 - Nov
 2006 - Apr
 2006 - Sep
 2007 - Feb
  2007 - Jul
2007 - Dec
2008 - May
 2008 - Oct
2009 - Mar
2009 - Aug
 2010 - Jan
 2010 - Jun
2010 - Nov
 2011 - Apr
 2011 - Sep
                                                                                   S&P 500 (Almost 100% from low point)




 2012 - Feb
                                                                                NASDAQ (More than 100% increase from low point)




                                  S&P 500
                         NASDAQ
Annual Household Formation…
      Future Rent Pressure?
                  (3 separate Census data)
   In millions




Household Formation leads to increase ownership and renters;
Could begin to return to normal of at least 1 million from 2012.
Home Prices
Metric         % change from one year ago   Comment

NAR            + 9.5%                       Mix of homes impact price …
                                            fewer distressed sales recently …

                                            Leading Data

Case-Shiller   +0.5%                        30% annualized gains for two
                                            straight months




FHFA           + 3.6%                       Monthly gains in 7 of recent 8
                                            months
75
                             85
                             95
                            105
                            110
                            115




                             70
                             80
                             90
                            100
              2007 - Jan
              2007 - Apr




Source: NAR
               2007 - Jul
              2007 - Oct
              2008 - Jan
              2008 - Apr
               2008 - Jul
              2008 - Oct
                              Homebuyer Tax Credit




              2009 - Jan
              2009 - Apr
               2009 - Jul
              2009 - Oct
              2010 - Jan
              2010 - Apr
                                                     (Seasonally Adjusted)




               2010 - Jul
              2010 - Oct
              2011 - Jan
              2011 - Apr
              2011 - July
              2011 - Oct
              2012 - Jan
               2012-Apr
               2012 - Jul
                                                                             Monthly Pending Home Sales Index
0.0
             10.0
             30.0
             40.0
             50.0
             60.0
             70.0




             20.0
2008 - Jan
2008 - Apr
2008 - Jul
2008 - Oct
2009 - Jan
2009 - Apr
2009 - Jul
2009 - Oct
                    Buyer




2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
                    Seller
                             Foot Traffic




2011 - Jan
2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
Banks/Regulators
                   Restricting Credit
          (Average Credit Scores of Approved Loans)


            Normal     2009        2010       If Normal

Fannie      720        761         762        720

Freddie     720        757         758        720

FHA         650        682         698        660



                                    15% to 20% Higher Sales
-200
       -100
               0
                   100
                         200
                               300
                                     400
                                                 500
   2001 - Q1

                                           $ billion
   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
                                                       (excluding Federal Reserve)




   2008 - Q3
   2009 - Q1
   2009 - Q3
                                                                                     Financial Industry Profits




   2010 - Q1
   2010 - Q3
   2011 - Q1
   2011 - Q3
   2012 - Q1
Economy Growing, though Slowly
(No Fresh Recession because of Housing Recovery)
                     Real GDP Growth Rate
4
     %
3

2

1

0
     2005   2006   2007   2008   2009   2010   2011     2012     2013
-1
                                                      forecast forecast
-2

-3

-4
Payroll Jobs Changes
                            (December to December)
3
     In millions
2

1

0
       2005        2006   2007   2008   2009   2010   2011     2012     2013
-1
                                                             forecast forecast
-2

-3

-4

-5

-6
61
                       63
                            64
                                 65
                                      66
                                           67
                                                68




                  62
                                                 %
1990 - Jan
1991 - Jan
1992 - Jan
1993 - Jan
1994 - Jan
1995 - Jan
1996 - Jan
1997 - Jan
1998 - Jan
1999 - Jan
2000 - Jan
2001 - Jan
2002 - Jan
2003 - Jan
2004 - Jan
2005 - Jan
2006 - Jan
2007 - Jan
2008 - Jan
2009 - Jan
2010 - Jan
                                                     Labor Force Participation Rate




2011 - Jan
2012 - Jan
Louisiana Jobs
          In thousands
2000
1950
1900
1850
1800
1750
1700
1650
       2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
       - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
1000
                                          1500
                                                 2000
                                                        2500




      0
          500
1939 -…
1942 -…
1945 -…
                                                         In thousands


1948 -…
1951 -…
1954 -…
1957 -…
1960 -…
1963 -…
1966 -…
1969 -…
1972 -…
1975 -…
1978 -…
1981 -…
1984 -…
1987 -…
1990 -…
                   Nonfarm Payroll Jobs




1993 -…
1996 -…
1999 -…
2002 -…
                                                                        Louisiana Jobs from 1940




2005 -…
2008 -…
2011 -…
Consumer Price Inflation
        (Slightly Above Fed’s preferred 2% core inflation rate)
                              All Items   Core
   %
5.00

4.00

3.00

2.00

1.00

0.00
         2005   2006   2007   2008    2009   2010   2011     2012     2013
-1.00                                                      forecast forecast
Monetary Policy by Federal Reserve
              (no change to 2014)
                           Fed Funds          30-year Mortgage
    %
7
6
5
4
3
2
1
0
    2005    2006    2007     2008      2009     2010   2011     2012 2013 2014
                                                              forecast forecast forecast


    Modestly higher rates could help home sales as banks re-staff mortgage
    work for home purchase applications and less refinance applications.
Huge Federal Budget Deficit …
         Will Push Up Borrowing Cost
                               (% of GDP)
 4

 2

 0
   1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
 -2
    - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
 -4

 -6

 -8

-10

-12
10
                                      12
                                           14
                                                16




             0
                 2
                     4
                         6
                             8
1982 - Aug
1983 - Oct
1984 - Dec
1986 - Feb
1987 - Apr
1988 - Jun
1989 - Aug
1990 - Oct
1991 - Dec
1993 - Feb
1994 - Apr
1995 - Jun
                                                 10-year




1996 - Aug
1997 - Oct
1998 - Dec
2000 - Feb
2001 - Apr
2002 - Jun
                                                 3-month




2003 - Aug
2004 - Oct
2005 - Dec
2007 - Feb
2008 - Apr
2009 - Jun
2010 - Aug
                                                           But … Falling Treasury Borrowing Rate




2011 - Oct
Impact to Deficit
• Mortgage Interest Deduction … $90 billion
  – Not the source of the current budget deficit since
    MID was present for nearly 100 years


• Interest Rates Revert back to historical
  average … $300 billion in extra interest
  expense
Housing Forecast Summary
                      2011           2012           2013
                      History        Forecast       Forecast
Existing Home Sales 4.26 million     4.6 million    5.0 million

New Home Sales        301,000        385,000        608,000

Housing Starts        611,000        775,000        1,150,000

Existing Home Price   $166,100       $173,900       $182,700

GDP Growth            +1.8%          +2.2%          +2.6%

Payroll Job Gains     +1.7 million   +1.5 million   +2.3 million

Fed Funds Rate        0.1%           0.1%           0.1%

30-yr Mortgage        4.7%           3.8%           4.1%
Risks to Forecast
• Washington Policy
   – QRM 20% down payment requirement?
   – Basel 3 … capital rule that punishes private mortgage with
     low down payment and commercial loans
   – Trim mortgage interest deduction?
   – Capital gains tax on home sale?

   – Fiscal Cliff on January 1, 2013 … if no new compromised
     budget, then:
      • Automatic deep cuts to military and domestic spending
      • Automatic higher taxes
      • 3% shaved off GDP … Fresh Economic Recession
Commercial Real Estate
Big Transactions Coming Back
                                                $2.5 million property and above




     Source: Real Capital Analytics, 4Q 2011.

13
REALTOR® Business Deals
   (Majority are less than $1 million)
Method of Finance
Underwriting Standards?
Multifamily Fundamentals
                       Completions   Net Absorption   Vacancy
250,000                                                                              9.0
                                                                                     8.0
200,000
                                                                                     7.0
150,000                                                                              6.0
                                                                                     5.0
100,000
                                                                                     4.0
 50,000                                                                              3.0
                                                                                     2.0
     0
          2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013           1.0
-50,000                                                           Source: NAR/REIS   0.0
Apartment Deals and Pricing




     Source: RCA, 4Q 2011.

19
Office Fundamentals
                                Completions   Net Absorption   Vacancy
           150                                                                                20.0
Millions




                                                                                              18.0
           100
                                                                                              16.0
                                                                                              14.0
            50
                                                                                              12.0
             0                                                                                10.0
                  2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013            8.0
            -50
                                                                                              6.0
                                                                                              4.0
           -100
                                                                                              2.0
           -150                                                            Source: NAR/REIS   0.0
Office Deals and Pricing




     •   Source: RCA, 4Q 2011.




     •   Source: RCA, 4Q 2011.
15
800
                  1300
                         1800
                                2300
                                       2800
                                                3300
2000 - Q1

                                              $ billion
2000 - Q3
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
                                                          (International Trade always fall during recessions)




2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
                                                                                                                Imports and Exports … Expanding Briskly




2012 - Q1
Industrial Fundamentals
                                Completions   Net Absorption   Vacancy
           150                                                                                14.0
Millions




                                                                                              12.0
           100
                                                                                              10.0
            50                                                                                8.0

             0                                                                                6.0
                  2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
                                                                                              4.0
            -50
                                                                                              2.0

           -100                                                            Source: NAR/REIS   0.0
Industrial Deals and Pricing




     Source: RCA, 4Q 2011.
17
Retail Fundamentals
                                Completions   Net Absorption   Vacancy
           40                                                                               14.0
Millions




           30                                                                               12.0

           20                                                                               10.0

           10                                                                               8.0

            0                                                                               6.0
                 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
           -10                                                                              4.0

           -20                                                                              2.0

           -30                                                           Source: NAR/REIS   0.0
Retail Deals and Pricing




     Source: RCA, 4Q 2011.

21
Commercial Market Forecast
OFFICE                                          2011      2012      2013
                             Vacancy Rate      16.6%     16.3%     15.9%
               Net Absorption ('000 sq. ft.)   20,178    31,700    53,000
                 Completions ('000 sq. ft.)    11,659    25,474    37,847
                             Rent Growth        1.4%      1.7%      2.4%

INDUSTRIAL                                      2011      2012      2013
                             Vacancy Rate      12.4%     11.9%     11.1%
               Net Absorption ('000 sq. ft.)   61,957    41,249    59,855
                 Completions ('000 sq. ft.)    20,462    26,947    54,881
                             Rent Growth       -0.5%      1.8%      2.3%

RETAIL                                          2011      2012      2013
                             Vacancy Rate      12.9%     12.2%     11.0%
               Net Absorption ('000 sq. ft.)    1,238    13,547    23,330
                 Completions ('000 sq. ft.)     4,207    12,677    19,878
                             Rent Growth       -0.2%      0.7%      1.4%

MULTI-FAMILY                                    2011      2012      2013
                            Vacancy Rate        5.4%      4.6%      4.5%
                    Net Absorption (Units)     238,398   126,621   102,687
                      Completions (Units)      38,014    88,839    93,706
                             Rent Growth
For Daily Update and Analysis


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Real Estate and Economic Outlook, by Dr. Lawrence Yun

  • 1. Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation to CID, NOMAR, CCIM Louisiana Chapter at Loyola University New Orleans, Louisiana October 16, 2012
  • 2. Existing Home Sales Recovery: Best in 5 years, but only up 8% year-to-date 8 In million units 7 7.08 6 6.52 5 5.02 4 4.62 4.12 4.34 4.18 4.26 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 est.
  • 3. One Reason for Slower Recovery, aside from credit bubble hangover, is the falling mobility rate From 18% to 12% Fraction of Population Who Moved in the Last 12 Months (Any Distance) .2 .18 .16 .14 .12 .1 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year Source: Raven Molloy, Federal Reserve Economist, Current Population Survey.
  • 4. Investors in the Market; and Homebuyers Frustrated Investor Sales In thousands 2500 2000 1500 1000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 est. Owner-occupant Sales In thousands 6000 5000 4000 3000 2000 1000 0 2005 2006 2007 2008 2009 2010 2011 2012 est
  • 5. New Orleans Housing Statistics • Units Sold … up 14% year-to-date from one year ago • Median Price to $203,100 … up 2% • Days on Market at 95 days (from 102 days one year ago) Source: NVAR
  • 6. Everyone Seeing Low Home Prices Warren Buffet: Buy Low (not Buy High) 350 300 Phoenix 250 200 New Orleans 150 100 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 Source: FHFA
  • 7. 0 1 2 3 4 5 -1 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 % change from one year ago 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan Investors seeing Rising Rent 2010 - Jul because some of it will be passed on to renters) 2011 - Jan 2011 - Jul (Not deterred by 3.8% Health Care Tax on Rental Income … 2012 - Jan
  • 8. 25,000 29,000 31,000 33,000 35,000 39,000 41,000 27,000 37,000 1980 - Q1 1981 - Q3 1983 - Q1 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1993 - Q3 1995 - Q1 1996 - Q3 1998 - Q1 Rental Households 1999 - Q3 2001 - Q1 2002 - Q3 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 2010 - Q1 2011 - Q3 Investors also seeing rising # of renters
  • 9. 50,000 55,000 65,000 70,000 75,000 80,000 60,000 1980 - Q1 1981 - Q3 1983 - Q1 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1993 - Q3 1995 - Q1 1996 - Q3 Homeowners 1998 - Q1 1999 - Q3 2001 - Q1 2002 - Q3 2004 - Q1 Homeowners not Rising 2005 - Q3 2007 - Q1 2008 - Q3 2010 - Q1 2011 - Q3
  • 10. 59 60 61 62 64 65 66 67 69 70 63 68 % 1965 - Q1 1967 - Q1 1969 - Q1 1971 - Q1 1973 - Q1 1975 - Q1 1977 - Q1 1979 - Q1 1981 - Q1 1983 - Q1 1985 - Q1 1987 - Q1 1989 - Q1 1991 - Q1 (Lowest in 15 years) 1993 - Q1 1995 - Q1 1997 - Q1 1999 - Q1 2001 - Q1 2003 - Q1 2005 - Q1 Homeownership Rate at 65.4% 2007 - Q1 2009 - Q1 2011 - Q1
  • 11. Visible Housing Inventory (Existing inv. At 8-year low; New inv. at 50-year low) 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 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan Existing New
  • 12. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.5 5.0 4.0 2000 - Q1 2000 - Q3 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 million units 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1 Shadow Inventory … Falling 2014 … 8% (Seriously delinquent mortgage + homes in foreclosure process) 2013 … 15% 2012 … 25% 2011 … 33% 2010 … 33% Market Share Distressed Sales
  • 13. 0% 10% 20% 30% 40% 50% 60% 2008 - Oct 2008 - Dec 2009 - Feb 2009 - Apr 2009 - Jun 2009 - Aug 2009 - Oct 2009 - Dec 2010 - Feb 2010 - Apr REO 2010 - Jun 2010 - Aug 2010 - Oct 2010 - Dec Short-Sale 2011 - Feb 2011 - Apr 2011 - Jun 2011 - Aug 2011 - Oct 2011 - Dec Distressed Property Sales 2012 - Feb 2012 - Apr 2012 - Jun 2012 - Aug
  • 14. 0 2 4 6 8 10 12 14 % 2005 - Q1 2005 - Q2 2005 - Q3 2005 - Q4 2006 - Q1 2006 - Q2 2006 - Q3 2006 - Q4 2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 AZ 2008 - Q1 2008 - Q2 2008 - Q3 MI 2008 - Q4 2009 - Q1 2009 - Q2 CA 2009 - Q3 2009 - Q4 2010 - Q1 2010 - Q2 in Non-Judicial States 2010 - Q3 2010 - Q4 2011 - Q1 Foreclosures Rapidly Falling 2011 - Q2 2011 - Q3 Example: Seriously Delinquent Mortgages in AZ, CA , MI 2011 - Q4 2012 - Q1 2012 - Q2
  • 15. 0 2 4 6 8 10 12 % 2005 - Q1 2005 - Q2 2005 - Q3 2005 - Q4 2006 - Q1 2006 - Q2 2006 - Q3 2006 - Q4 2007 - Q1 • Vacant property 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 CT 2008 - Q3 2008 - Q4 IL 2009 - Q1 2009 - Q2 2009 - Q3 2009 - Q4 2010 - Q1 2010 - Q2 • Missed Mortgages for 6 months or longer 2010 - Q3 2010 - Q4 2011 - Q1 2011 - Q2 2011 - Q3 Example Seriously Delinquent Mortgages in CT and IL 2011 - Q4 2012 - Q1 Foreclosures Clogged in Judicial States 2012 - Q2 Should a trigger be set up to foreclose without a court approval?
  • 16. 0 2 4 6 8 10 12 14 % 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 - Q4 2010 - Q1 2010 - Q2 Seriously Delinquent Mortgages Shadow in Louisiana 2010 - Q3 2010 - Q4 2011 - Q1 2011 - Q2 2011 - Q3 2011 - Q4 2012 - Q1 2012 - Q2
  • 17. 500 1000 1500 2000 2500 0 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan Source: Census, HUD 2002 - Jul 2003 - Jan 2003 - Jul Thousand units (annualized) 2004 - Jan 2004 - Jul 2005 - Jan multifamily 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul single-family Housing Starts 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan (Well Below 50-year average of 1.5 million each year) 2011 - Jul 2012 - Jan Long-term Average
  • 18. 0 10000 12000 14000 2000 4000 6000 8000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Housing Permits 2002 New Orleans Metro 2004 2006 2008 2010 2012
  • 19. Falling Inventory of Homes for Sale 2010 July 2011 July 2012 July Existing Homes for Sale 3.41 million 3.15 million 2.40 million Newly Constructed 210,000 165,000 142,000 Homes for Sale “Shadow” Estimate 4.2 million 3.5 million 3.2 million (Seriously Delinquent Mortgages and Homes in Foreclosure Process) Homeowners waiting ??? ??? Inconsequential Impact • for higher home since most will list prices homes, but with intent • To be freed from Tax also on buying Credit Lock Period
  • 20. Wealth Distribution … Who will get Future Wealth? (Federal Reserve data on median net worth) $300,000 $250,000 $200,000 1998 2001 $150,000 2004 2007 $100,000 2010 $50,000 2014 $0 Renter Owner 2014 Forecast by NAR
  • 21. Improving Factors for Sales in 2012 and Beyond: 1. High Affordability and Job Creation 2. Solid stock market recovery from 2008 3. Rising rents and a larger pool of qualified renters 4. Pent-up release of Household Formation • Rising demand for ownership and rentals as young-adults move out of parent’s basement 5. Smart money chasing real estate (i.e., investors) 6. Consumer confidence in buying an appreciating asset
  • 22. 50 70 90 110 130 150 170 190 210 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Best Affordability Conditions 2004 2006 2008 2010 2012
  • 23. 1,000 1,500 2,000 2,500 3,000 3,500 500 0 2005 - Jan 2005 - Jun 2005 - Nov 2006 - Apr 2006 - Sep 2007 - Feb 2007 - Jul 2007 - Dec 2008 - May 2008 - Oct 2009 - Mar 2009 - Aug 2010 - Jan 2010 - Jun 2010 - Nov 2011 - Apr 2011 - Sep S&P 500 (Almost 100% from low point) 2012 - Feb NASDAQ (More than 100% increase from low point) S&P 500 NASDAQ
  • 24. Annual Household Formation… Future Rent Pressure? (3 separate Census data) In millions Household Formation leads to increase ownership and renters; Could begin to return to normal of at least 1 million from 2012.
  • 25. Home Prices Metric % change from one year ago Comment NAR + 9.5% Mix of homes impact price … fewer distressed sales recently … Leading Data Case-Shiller +0.5% 30% annualized gains for two straight months FHFA + 3.6% Monthly gains in 7 of recent 8 months
  • 26. 75 85 95 105 110 115 70 80 90 100 2007 - Jan 2007 - Apr Source: NAR 2007 - Jul 2007 - Oct 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct Homebuyer Tax Credit 2009 - Jan 2009 - Apr 2009 - Jul 2009 - Oct 2010 - Jan 2010 - Apr (Seasonally Adjusted) 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - July 2011 - Oct 2012 - Jan 2012-Apr 2012 - Jul Monthly Pending Home Sales Index
  • 27. 0.0 10.0 30.0 40.0 50.0 60.0 70.0 20.0 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan 2009 - Apr 2009 - Jul 2009 - Oct Buyer 2010 - Jan 2010 - Apr 2010 - Jul 2010 - Oct Seller Foot Traffic 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct 2012 - Jan 2012 - Apr 2012 - Jul
  • 28. Banks/Regulators Restricting Credit (Average Credit Scores of Approved Loans) Normal 2009 2010 If Normal Fannie 720 761 762 720 Freddie 720 757 758 720 FHA 650 682 698 660 15% to 20% Higher Sales
  • 29. -200 -100 0 100 200 300 400 500 2001 - Q1 $ billion 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 (excluding Federal Reserve) 2008 - Q3 2009 - Q1 2009 - Q3 Financial Industry Profits 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1
  • 30. Economy Growing, though Slowly (No Fresh Recession because of Housing Recovery) Real GDP Growth Rate 4 % 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 -1 forecast forecast -2 -3 -4
  • 31. Payroll Jobs Changes (December to December) 3 In millions 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 -1 forecast forecast -2 -3 -4 -5 -6
  • 32. 61 63 64 65 66 67 68 62 % 1990 - Jan 1991 - Jan 1992 - Jan 1993 - Jan 1994 - Jan 1995 - Jan 1996 - Jan 1997 - Jan 1998 - Jan 1999 - Jan 2000 - Jan 2001 - Jan 2002 - Jan 2003 - Jan 2004 - Jan 2005 - Jan 2006 - Jan 2007 - Jan 2008 - Jan 2009 - Jan 2010 - Jan Labor Force Participation Rate 2011 - Jan 2012 - Jan
  • 33. Louisiana Jobs In thousands 2000 1950 1900 1850 1800 1750 1700 1650 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
  • 34. 1000 1500 2000 2500 0 500 1939 -… 1942 -… 1945 -… In thousands 1948 -… 1951 -… 1954 -… 1957 -… 1960 -… 1963 -… 1966 -… 1969 -… 1972 -… 1975 -… 1978 -… 1981 -… 1984 -… 1987 -… 1990 -… Nonfarm Payroll Jobs 1993 -… 1996 -… 1999 -… 2002 -… Louisiana Jobs from 1940 2005 -… 2008 -… 2011 -…
  • 35. Consumer Price Inflation (Slightly Above Fed’s preferred 2% core inflation rate) All Items Core % 5.00 4.00 3.00 2.00 1.00 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 -1.00 forecast forecast
  • 36. Monetary Policy by Federal Reserve (no change to 2014) Fed Funds 30-year Mortgage % 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 forecast forecast forecast Modestly higher rates could help home sales as banks re-staff mortgage work for home purchase applications and less refinance applications.
  • 37. Huge Federal Budget Deficit … Will Push Up Borrowing Cost (% of GDP) 4 2 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 -2 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan -4 -6 -8 -10 -12
  • 38. 10 12 14 16 0 2 4 6 8 1982 - Aug 1983 - Oct 1984 - Dec 1986 - Feb 1987 - Apr 1988 - Jun 1989 - Aug 1990 - Oct 1991 - Dec 1993 - Feb 1994 - Apr 1995 - Jun 10-year 1996 - Aug 1997 - Oct 1998 - Dec 2000 - Feb 2001 - Apr 2002 - Jun 3-month 2003 - Aug 2004 - Oct 2005 - Dec 2007 - Feb 2008 - Apr 2009 - Jun 2010 - Aug But … Falling Treasury Borrowing Rate 2011 - Oct
  • 39. Impact to Deficit • Mortgage Interest Deduction … $90 billion – Not the source of the current budget deficit since MID was present for nearly 100 years • Interest Rates Revert back to historical average … $300 billion in extra interest expense
  • 40. Housing Forecast Summary 2011 2012 2013 History Forecast Forecast Existing Home Sales 4.26 million 4.6 million 5.0 million New Home Sales 301,000 385,000 608,000 Housing Starts 611,000 775,000 1,150,000 Existing Home Price $166,100 $173,900 $182,700 GDP Growth +1.8% +2.2% +2.6% Payroll Job Gains +1.7 million +1.5 million +2.3 million Fed Funds Rate 0.1% 0.1% 0.1% 30-yr Mortgage 4.7% 3.8% 4.1%
  • 41. Risks to Forecast • Washington Policy – QRM 20% down payment requirement? – Basel 3 … capital rule that punishes private mortgage with low down payment and commercial loans – Trim mortgage interest deduction? – Capital gains tax on home sale? – Fiscal Cliff on January 1, 2013 … if no new compromised budget, then: • Automatic deep cuts to military and domestic spending • Automatic higher taxes • 3% shaved off GDP … Fresh Economic Recession
  • 43. Big Transactions Coming Back $2.5 million property and above Source: Real Capital Analytics, 4Q 2011. 13
  • 44. REALTOR® Business Deals (Majority are less than $1 million)
  • 47. Multifamily Fundamentals Completions Net Absorption Vacancy 250,000 9.0 8.0 200,000 7.0 150,000 6.0 5.0 100,000 4.0 50,000 3.0 2.0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.0 -50,000 Source: NAR/REIS 0.0
  • 48. Apartment Deals and Pricing Source: RCA, 4Q 2011. 19
  • 49. Office Fundamentals Completions Net Absorption Vacancy 150 20.0 Millions 18.0 100 16.0 14.0 50 12.0 0 10.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 8.0 -50 6.0 4.0 -100 2.0 -150 Source: NAR/REIS 0.0
  • 50. Office Deals and Pricing • Source: RCA, 4Q 2011. • Source: RCA, 4Q 2011. 15
  • 51. 800 1300 1800 2300 2800 3300 2000 - Q1 $ billion 2000 - Q3 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 (International Trade always fall during recessions) 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 Imports and Exports … Expanding Briskly 2012 - Q1
  • 52. Industrial Fundamentals Completions Net Absorption Vacancy 150 14.0 Millions 12.0 100 10.0 50 8.0 0 6.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4.0 -50 2.0 -100 Source: NAR/REIS 0.0
  • 53. Industrial Deals and Pricing Source: RCA, 4Q 2011. 17
  • 54. Retail Fundamentals Completions Net Absorption Vacancy 40 14.0 Millions 30 12.0 20 10.0 10 8.0 0 6.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -10 4.0 -20 2.0 -30 Source: NAR/REIS 0.0
  • 55. Retail Deals and Pricing Source: RCA, 4Q 2011. 21
  • 56. Commercial Market Forecast OFFICE 2011 2012 2013 Vacancy Rate 16.6% 16.3% 15.9% Net Absorption ('000 sq. ft.) 20,178 31,700 53,000 Completions ('000 sq. ft.) 11,659 25,474 37,847 Rent Growth 1.4% 1.7% 2.4% INDUSTRIAL 2011 2012 2013 Vacancy Rate 12.4% 11.9% 11.1% Net Absorption ('000 sq. ft.) 61,957 41,249 59,855 Completions ('000 sq. ft.) 20,462 26,947 54,881 Rent Growth -0.5% 1.8% 2.3% RETAIL 2011 2012 2013 Vacancy Rate 12.9% 12.2% 11.0% Net Absorption ('000 sq. ft.) 1,238 13,547 23,330 Completions ('000 sq. ft.) 4,207 12,677 19,878 Rent Growth -0.2% 0.7% 1.4% MULTI-FAMILY 2011 2012 2013 Vacancy Rate 5.4% 4.6% 4.5% Net Absorption (Units) 238,398 126,621 102,687 Completions (Units) 38,014 88,839 93,706 Rent Growth
  • 57. For Daily Update and Analysis • Twitter @NAR_Research

Notas del editor

  1. Currently, deal flow remains significantly below the 2007 peak, but sizable transactions have been reported recently, and there has been a year-over-year improvement in transaction volume. In 2010, commercial real estate deal volume rose 124.3 percent year-over-year, to $122.7 billion, compared to $54.7 billion in 2009. Gains were higher for high-quality core assets, especially in the office segment, where sales volume rose 156.6 percent YoY to $41.1 billion in 2010, from $16.0 billion in 2009. The growth has continued so far in 2011, with CRE deal volume rising 69.5 percent YoY in 1Q11 to $30.5 billion. While this improvement is a positive development, it has yet to be sustained for a long enough to confirm 2009 as the bottom for transactions in this cycle. Transaction levels remain below peak, but private investors continue to account for the largest share of the total. The recent increase, however, has been driven by public investors (including REITs) and foreign investors, with both categories surpassing 2009 totals in 2010.