This document summarizes a presentation by Lawrence Yun, Chief Economist of the National Association of Realtors, on the housing market and economic outlook. It includes charts and data on existing home sales, mortgage rates, housing starts, home prices, jobs, unemployment and other economic indicators. The presentation analyzes improving and worsening factors for the housing market and concludes that while the economic recovery is continuing, growth is slower than desired.
1. Housing Market and
Economic Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at Charlotte Regional REALTOR® Association
Charlotte, NC
November 1, 2011
6. Consumer Confidence in the Tanks
160
140
120
100
80
60
40
20
0
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 -
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
8. 0
50
100
150
200
250
300
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
Case-Shiller Index: Charlotte and Miami
2011 - Jan
9. Charlotte Region Activity
• September 2011 YTD … up 1.1%
• September 2010 YTD … up 4.0% (with tax credit)
• Inventory … down 20%
• Closed average price … down 6.5%
• Listed average price … up 5%
• Case-Shiller price index … bottomed ??? … up 2 out of the
past 3 months
Source: CRRA 10K reports
10. U.S. Housing Starts… Very Low and
much below Long-term Average
2500
Housing Starts in thousands
2000
Long-term Average;
1500 Long-term Requirement
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
11. 0
100
200
300
400
500
600
700
2000 - Feb
2000 - Aug
2001 - Feb
2001 - Aug
In thousands
2002 - Feb
2002 - Aug
2003 - Feb
2003 - Aug
2004 - Feb
2004 - Aug
2005 - Feb
2005 - Aug
2006 - Feb
2006 - Aug
(40 year lows)
2007 - Feb
2007 - Aug
2008 - Feb
2008 - Aug
2009 - Feb
2009 - Aug
Newly Built Home Inventory
2010 - Feb
2010 - Aug
2011 - Feb
2011 - Aug
13. Improving Factors for Higher Home Sales
• Improving Factors
– Job Creation (though slowly)
– Stock market recovery from 2008
– Rising rents and larger pool of qualified renters
– Buyers want distressed properties … at deep discounts
– International buyers cashing in on the weakened dollar
– Smart money chasing real estate
• Potential Huge Positive … Lending opens up
• Potential Huge Negative … Washington policy change
14. 124000
126000
128000
130000
132000
134000
136000
138000
140000
2000 - Jan
2000 - Jul
2001 - Jan In thousands
2001 - Jul
In thousands
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
(1.3 million in the past 12 months)
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
6.5 million
Total U.S. Payroll Jobs – Modest Recovery
2011 - Jul
below prior peak
15. 300
310
320
330
340
350
360
370
380
390
400
2000 - Jan
2000 - Jul
2001 - Jan In thousands
2001 - Jul
In thousands
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
North Dakota Jobs - Booming
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
16. 8500
9000
9500
10000
10500
11000
2000 - Jan
2000 - Jul
2001 - Jan In thousands
2001 - Jul
In thousands
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
2009 - Jul
2010 - Jan
2010 - Jul
Texas Payroll Jobs – Fully Recovered
2011 - Jan
17. 3500
3700
3900
4100
4300
4500
4700
4900
2000 - Jan
2000 - Jul
In thousands
2001 - Jan
In thousands
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
Michigan Payroll Jobs –
2009 - Jan
Ongoing Structural Changes
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
18. 3500
3600
3700
3800
3900
4000
4100
4200
4300
2000 - Jan
2000 - Jul
2001 - Jan
thousands
2001 - Jul
InInthousands
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
2009 - Jul
2010 - Jan
NC Jobs – Recovery Starting
2010 - Jul
2011 - Jan
2011 - Jul
19. 400
450
500
550
600
650
700
750
800
850
900
1990 - Jan
1991 - Jan
1992 - Jan In thousands
1993 - Jan
In thousands
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
Charlotte Long-Term Job Growth
2011 - Jan
20. 0
100
200
300
400
500
600
700
2000 - Jan
2000 - Jul
2001 - Jan In thousands
2001 - Jul
In thousands
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
Not Going under 400,000
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
Weekly Fresh Unemployment Claims …
2011 - Jan
2011 - Jul
23. 0
1
2
3
4
5
-1
6 %
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
(3-month moving avg., annualized rate)
CPI Apartment Rent
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
24. Home Price vs Rent
(index = 100 in 1980)
rent price
450.0
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
1980 - 1984 - 1988 - 1992 - 1996 - 2000 - 2004 - 2008 -
Jan Jan Jan Jan Jan Jan Jan Jan
25. Serious Delinquent Mortgages …
Mostly those who took out loans in bubble years
(90+ days late or in foreclosure process)
12.0 In millions
10.0
8.0
6.0
4.0
2.0
0.0
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
2010 - Q1
2010 - Q3
2011 - Q1
U.S. NC
In 2010, there were 1.5 million distressed sales … need to wait 2.7 years
26. Distress Sales: 30% to 40% of Transactions
Will Remain Significant for Next 2 years
55%
50%
45%
40%
35%
30%
25%
20%
2008 - 2009 - 2009 - 2009 - 2009 - 2010 - 2010 - 2010 - 2010 - 2011 - 2011 -
Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
27. Very Low Default among Recent Homebuyers
Fannie and Freddie Backed Mortgage Loan Performance
Fannie Mae Cumulative Freddie Mac Cumulative
Vintage Default Rate Vintage Default Rate
after 18 months after 18 months
2002 3.1% 2002 2.7%
2003 2.5% 2003 1.2%
2004 4.6% 2004 2.0%
2005 4.8% 2005 1.8%
2006 11.6% 2006 6.0%
2007 28.7% 2007 22.3%
2008 12.6% 2008 13.7%
2009 1.2% 2009 1.1%
Source: Federal Housing Finance Agency
28. Smart Money Buying?
• All-cash record high at 30% to 35% of all sales
– Investors want quick deals
– Investors cannot get mortgage
– Some do not want to bother with appraisals
– Financial asset recovery helping with cash
– Hedge against future inflation … alternative to
expensive gold
– Hedge against future housing shortage?
– Empty nesters downsizing and using leftover cash for
kids’ home?
29. 0
5
10
15
20
-20
-15
-10
-5
1969 - Jan
1971 - Jan
1973 - Jan
1975 - Jan
1977 - Jan
1979 - Jan
1981 - Jan
1983 - Jan
1985 - Jan
1987 - Jan
1989 - Jan
1991 - Jan
1993 - Jan
1995 - Jan
1997 - Jan
1999 - Jan
2001 - Jan
(single-family home price in blue vs CPI in red)
2003 - Jan
Real Estate as Inflation Hedge?
Good inflation hedge in the past before the housing bubble/bust
2005 - Jan
2007 - Jan
2009 - Jan
2011 - Jan
30. 0
1
2
3
4
5
6
-2
-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)
• Workers Wage to rise by 1.7% in 2011
2008 - Jul
CPI Inflation Rising
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
• Social Security COLA forecast to rise 3.5% in 2012
2011 - Jan
2011 - Jul
31. Broad Inflationary Pressure
Indicator % change from one year ago
Consumer Price Index 3.8%
Producer Price Index (Finished Product) 6.5%
Producer Price Index (Intermediate Product) 7.5%
Producer Price Index (Crude Product) 24.2%
Dow Jones Commodity Spot Price Index 28.3%
Gold Price Off Record High Price … but very
high
35. Washington Policy Change?
• QRM and 20% downpayment requirement ???
– Affordability (staying within budget) more important than down
payment
– No taxpayer bailout for FHA and VA program
• Limit mortgage interest deduction for high income and
second homes ???
– Crush the working class in resort areas (Yacht Tax Impact)
– Cascading impact to middle class homes and hurts confidence to
buy a home
• Lower conforming loan limit ???
• Fannie and Freddie model was flawed (private
profit/taxpayer loss) and need a fundamental restructuring
… not total privatization
– Jumbo interest rates on all loans?
– Non-existent loans in times of crisis?
36. National Museum of American History
• 4 million no-down-payment VA mortgages for World War II veterans
• Fueled an unprecedented growth of America’s middle class
37. Real Estate Baseline Outlook
• Moderate GDP Expansion 1.5% to 2.5% in the next 2 years
• 1.0 to 1.5 million annual job additions yearly in the next 2 years
• Mortgage Rates rising to 4.3% by year-end 2011 and 5.0% in 2012
• Not that important compared to underwriting standards
• Home sales – no reason to go lower … slight increases next 2 years
• Home values – steady and slow growth in the national price in the
next 2 years … critical source of small business start-up funds
• Commercial : net absorption rising, vacancy rates falling, cap rates
falling
38. Presidential Quotes
• Franklin Delano Roosevelt:
“A nation of homeowners is unconquerable.”
• Ronald Reagan
“We will preserve the part of the American dream
which the mortgage-interest deduction symbolizes."
39. For More Information
– Daily Data and Analysis on Latest Trends
– http://www.facebook.com/narresearchgroup
– Twitter @NAR_Research