2012 economic and housing market outlook

8/2/2019 2012 Economic and Housing Market Outlook

1/38

Economic and Housing Market

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS

Presentation at 2012 Resort and Second-Home SymposiumKiawah Island, SC

March 19, 2012

OUTLOOK


2/38

Monthly Existing Home Sales Recovering

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

2

008-Jan

2008-Mar

20

08-May

2008-Jul

2

008-Sep

2008-Nov

2

009-Jan

2009-Mar

20

09-May

2009-Jul

2

009-Sep

2009-Nov

2

010-Jan

2010-Mar

20

10-May

2010-Jul

2

010-Sep

2010-Nov

2

011-Jan

2011-Mar

20

11-May

2011-Jul

2

011-Sep

2011-Nov

2

012-Jan

Tax Credit Impact

Old Data

New Data


3/38

Annual U.S. Existing Home Sales

Flat Line for 4 tough years

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011


4/38

Second Home Sales

0

500

1000

1500

2000

2500

3000

3500

4000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Investment

Vacation

In thousands


5/38

Case-Shiller Price Index

Stability from 2009

0

20

40

60

80

100

120

140

160

180

200


6/38

Median Price of Transacted Homes:Vacation Home Suffered More

Primary (Blue) vs Vacation (Red)

100000

120000

140000

160000

180000

200000

220000

2007 2008 2009 2010 2011

Source: NAR


7/38

Columbia and Myrtle Beach(Home Price Index: 1995 = 100)

100

120

140

160

180

200

220

240

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

2008 -

Q1

2009 -

Q1

2010 -

Q1

2011 -

Q1

Source: Federal Housing Finance Agency


8/38

Bend and Portland, Oregon(Home Price Index: 1995 = 100)

100

150

200

250

300

350

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

2008 -

Q1

2009 -

Q1

2010 -

Q1

2011 -

Q1



9/38

Santa Fe and Albuquerque(Home Price Index: 1995 = 100)

100

120

140

160

180

200

220

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

2008 -

Q1

2009 -

Q1

2010 -

Q1

2011 -

Q1



10/38

Las Vegas and Miami vsKansas City and Milwaukee

(Home Price Index: 1995 = 100)

100

150

200

250

300

350

400

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

2008 -

Q1

2009 -

Q1

2010 -

Q1

2011 -

Q1



11/38

U.S. Housing StartsLowest since the Second World War in the past three years

0

500

1000

1500

2000

2500

3000

1959-Jan

1961-Jan

1963-Jan

1965-Jan

1967-Jan

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

2003-Jan

2005-Jan

2007-Jan

2009-Jan

2011-Jan

Long-term Average;

Long-term RequirementHousing Starts in thousands


12/38

New Home Inventory 50 year low

0

100

200

300

400

500

600

700

1963-Jan

1965-Jan

1967-Jan

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

2003-Jan

2005-Jan

2007-Jan

2009-Jan

2011-Jan


13/38

Visible Existing Home Inventory(6-year lows)

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

2000

- Jan

2001

- Jan

2002

- Jan

2003

- Jan

2004

- Jan

2005

- Jan

2006

- Jan

2007

- Jan

2008

- Jan

2009

- Jan

2010

- Jan

2011

- Jan

2012

- Jan


14/38

Serious Delinquent Mortgages Mostly those who took out loans in bubble years

(90+ days late or in foreclosure process)

0.0

2.0

4.06.0

8.0

10.0

12.0

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

2011-Q3

U.S.

U.S.


15/38

Fannie and Freddie PerformanceMortgage Default after 18 months

Fannie Mae

Vintage

Cumulative

Default Rate

after 18 months

2002 3.1%

2003 2.5%

2004 4.6%

2005 4.8%

2006 11.6%

2007 28.7%2008 12.6%

2009 1.2%

Freddie Mac

Vintage

Cumulative

Default Rate

after 18 months

2002 2.7%

2003 1.2%

2004 2.0%

2005 1.8%

2006 6.0%

2007 22.3%2008 13.7%

2009 1.1%



16/38

Foreclosure Starts(% of all mortgage outstanding; about 1/3 of homes are free and

clear)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

2008 -

Q1

2009 -

Q1

2010 -

Q1

2011 -

Q1

New Jersey Arizona


17/38

Foreclosure Inventory(% of all mortgage outstanding; about 1/3 of homes are free and

clear)

0.0

1.0

2.0

3.0

4.05.0

6.0

7.0

8.0

9.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

2008 -

Q1

2009 -

Q1

2010 -

Q1

2011 -

Q1

New Jersey Arizona


18/38

Economic Expansion(GDP growth after recession should be

sustained 4% to 5% not 1.7% as occurred in 2011)

-10

-8

-6

-4

-2

0

2

4

6

8

10

2000-Q

1

2000-Q

3

2001-Q

1

2001-Q

3

2002-Q

1

2002-Q

3

2003-Q

1

2003-Q

3

2004-Q

1

2004-Q

3

2005-Q

1

2005-Q

3

2006-Q

1

2006-Q

3

2007-Q

1

2007-Q

3

2008-Q

1

2008-Q

3

2009-Q

1

2009-Q

3

2010-Q

1

2010-Q

3

2011-Q

1

2011-Q

3

Desired Pace


19/38

Total U.S. Payroll Jobs Recovering(3.4 million job creation from low point in 2010)

124000

126000

128000

130000

132000

134000

136000

138000

140000

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

2009-Jan

2009-Jul

2010-Jan

2010-Jul

2011-Jan

2011-Jul

2012-Jan

In thousands


20/38

Labor Force Participation Rate

61

62

63

64

65

66

67

68

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

2011-Jan

2012-Jan

%


21/38

Financial Industry Corporate Profits

-100

0

100

200

300

400

500

600

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

$ billions; seasonally adjusted annualized


22/38

Federal ReserveLoose Monetary Policy

0

1

2

3

4

56

7

8

9

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

2009-Jan

2009-Jul

2010-Jan

2010-Jul

2011-Jan

2011-Jul

2012-Jan

30-year Mortgage Fed Funds


23/38

Banks/RegulatorsRestricting 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


24/38

CPI Rent is RisingBiggest Weight to CPI(% change from 12 month ago)

-1

0

1

2

3

4

5

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

2009-Jan

2009-Jul

2010-Jan

2010-Jul

2011-Jan

2011-Jul

%


25/38

Home Value Undervaluation(Recent analysis by The Economist magazine)

Metric Magnitude of Over or

Undervaluation

U.S. Home Prices Home Price vs. Rent 8% undervaluation

U.S. Home Prices Home Price vs. Income 22% undervaluation

U.K. Home Prices Home Price vs. Rent 28% overvaluation

U.K. Home Prices Home Price vs. Income 20% overvaluation

Ireland Home Prices Home Price vs. Rent 10% overvaluation

Ireland Home Prices Home Price vs. Income Proper valuation

(neither over nor under)


26/38

Improving Factors for Higher Home Sales

Improving Factors Job Creation Solid stock market recovery from 2008 Rising rents and larger pool of qualified renters

Pent-up Release of Household Formation Smart money chasing real estate (instead of gold?) Consumer confidence OK (no longer dire) Great affordability conditions

Favorable demographics for second home buyers

Potential Huge Positive Lending opens up Potential Huge Negative Washington policy


27/38

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.


28/38


29/38

Consumer Confidence

0

20

40

60

80

100

120

140

160

2000

- Jan

2001

- Jan

2002

- Jan

2003

- Jan

2004

- Jan

2005

- Jan

2006

- Jan

2007

- Jan

2008

- Jan

2009

- Jan

2010

- Jan

2011

- Jan

2012

- Jan


30/38

Best Affordability Conditions


31/38

Monthly Pending Home Sales Index(Seasonally Adjusted)

70

75

80

85

90

95

100

105

110

115

2007 -

Jan

2007 -

Jul

2008 -

Jan

2008 -

Jul

2009 -

Jan

2009 -

Jul

2010 -

Jan

2010 -

Jul

2011 -

Jan

2011 -

July

2012 -

Jan

Homebuyer Tax Credit


32/38

Median Age and Income of Homebuyers

Primary 37 years old with $69,600

Investment 45 years old with $87,600

Vacation 49 years old with $99,500


33/38

U.S. Population Aged 55-to-64

0

5000

10000

15000

20000

25000

30000

35000

40000


34/38

Forecast Population Aged 55-to-64

30000

32000

34000

36000

38000

4000042000

44000

46000

48000

50000

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050


35/38

Rising World Population

0

1

2

3

4

56

7

8

9

10

1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100

In billion


36/38

Washington Policy Obstacles

QRM 20% downpayment rules

Mortgage Interest Deduction Limitation onsecond homes

Capital gains tax increase

Lower loan limit for conforming mortgages

More consumers face jumbo mortgages

Rising mortgages rates (market forces ofhigher inflation and high budget deficit)


37/38

Forecast

2011 2012 2013

Existing Home Sales 4.26 million 4.55 million 4.70 million

New Home Sales 305,000 370,000 510,000

Housing Starts 599,000 710,000 980,000

Existing Home Price $166,100 $168,000 $172,000

GDP Growth +1.8% +2.3% +3.1%

Payroll Job Gains +1.7 million +2.3 million +2.6 million

30-yr Mortgage 4.7% 4.4% 5.4%

Second Home and Resort Markets suffered more Therefore,

Ripe for a stronger recovery for both sales and prices


38/38

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2012 economic and housing market outlook

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