economic and housing market outlook lawrence yun, ph.d. chief economist national association of...

Economic and Housing Market Outlook

Lawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION OF REALTORS®

Presentation at NAR’s Midyear Economic

Issues and Residential Forum

Washington, D.C.

May 13, 2010

Recent Pending Home Sales

60

70

80

90

100

110

120

Source: NAR

Recent National Pending Home Sales(year-over-year % change)

-30

-20

-10

0

10

20

30

40

Source: NAR

Tax Credit Help to SalesDespite 3.7 million job losses

Keely Anderson

Economic Housing and Market Outlook

Distressed Home Sales

05

101520253035

Source: NAR

Foreclosed

Short-Sale

Latest Home Price Trend - Stabilizing

-25

-20

-15

-10

-5

0

5% change from one year ago

Loan Performance in Yellow

FHFA in Red

Case-Shiller in Green

NAR in Blue

Pre-tax credit Tax credit

Sample Markets with Price Increases

0

2

4

6

8

10

12

14

16

San Diego Orange Cty Boston Houston Buffalo Washington Columbia

Source: NAR

% change from one year ago

Tax Credit was Not-Impactful

• 4.4 million homebuyers to get tax credit– 2/3 to 1st-time buyers– 1/3 to repeat buyers

• 1.0 million buyers would not have entered without tax credit (stimulative impact)

• 3.4 million getting bonus money

• $30 billion tax credit wasted on people who would have bought anyway

Tax Credit was Huge Success• 1 million additional buyers• 1 million fewer inventory• Reduced months supply by 2 to 2.5 months• Correspond to price impact of 5% to 8% points

• Preserved Housing Wealth (mostly middle-class) by nearly $1 trillion

• Consumer spending impact• Banks’ capital pushed above ‘stress levels’• Builds home buying confidence … with no further big price

worries• Limit future foreclosures

After the Tax Credit

• Need Job Creation

• Need Household Formation

• Need Mobility

• Improved Consumer Confidence

• Low Mortgage Rates

• Lending for Jumbo and Second Home Mortgages

-1000

-800

-600

-400

-200

0

200

400

600

Source: BLS

In thousands

NET Job Changes in U.S.NET Job Changes in U.S.

(Monthly Payroll Job Change)(Monthly Payroll Job Change)

2 million job creation each year … will take 4 years to recover all the job losses …will take 6 years to fully absorb new workers and get back to 6% unemployment rate

3500

4000

4500

5000

5500

6000

Source: BLS

In thousands

Job Turnover in U.S.Job Turnover in U.S.

(Total job gains and total job losses)(Total job gains and total job losses)

Fewer firings but people seeking for unemployment insurance because of lack of hirings

Household FormationHousehold Formation

(2-year moving average)

People MobilityPeople Mobility

(How many move each year?)

Intra-state mobility modestly down

Inter-state mobility significantly down

%

1030507090

110130

2000

- J

an20

00 -

Ju

l20

01 -

Jan

2001

- J

ul

2002

- J

an20

02 -

Ju

l

2003

- J

an20

03 -

Ju

l20

04 -

Jan

2004

- J

ul

2005

- J

an20

05 -

Ju

l20

06 -

Jan

2006

- J

ul

2007

- J

an

2007

- J

ul

2008

- J

an20

08 -

Ju

l20

09 -

Jan

2009

- J

ul

2010

- J

an

Consumer ConfidenceConsumer Confidence

Chart about future expectations according to Conference Board

But no true measure for home buying confidence

30-year Rate on Conforming and FHA

(Not Jumbo or 2nd Home)

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Source: Freddie Mac

30yr Mortgage and 10yr Treasury Spread

% points

Financial Crisis

Swings in Primary and Second Home Sales

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2003 2004 2005 2006 2007 2008 2009

Index

Source: NAR

Primary Home Sales

2nd Home Sales

Non-Government Backed Mortgages

• Jumbo Mortgages• Second Home Mortgages• Commercial Real Estate Loans• Construction Loans• Many Small Business Loans

• Showing nascent recovery signs because banks are making profits and easily above ‘stress-test levels’

Risk to Recovery

• Future Housing Shortage– Too fast price growth means fewer buyers

qualifying for mortgages – Past lax lending should not and will not

return

• Lingering Past Lending Mistakes and Continuing High Foreclosures

• Greece

High Existing Home Inventory

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

In thousand units

High Homeowner Vacancy Rate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

In thousand units%

About 700,000 extra vacant homes above normal

Depressed Housing Starts

0

500

1,000

1,500

2,000

2,500

In thousand unitsIn thousands

Low New Home Inventory

200250300350400450500550600

In thousand unitsIn thousands

Future Housing Shortage?

Year Housing Starts Historical Normal Cumulative

Surplus/Deficit

2003 1.85 million 1.6 million + 0.25 million

2004 1.95 million 1.6 million + 0.60 million

2005 2.07 million 1.6 million + 1.07 million

2006 1.81 million 1.6 million + 1.28 million

2007 1.34 million 1.6 million +1.02 million

2008 0.90 million 1.6 million + 0.32 million

2009 0.55 million 1.6 million - 0.73 million

2010 forecast 0.68 million 1.6 million -1.65 million

2011 forecast 0.95 million 1.6 million - 2.30 million

Serious Delinquency Rate(90+ days late or foreclosure)

0.0

5.0

10.0

15.0

20.0

25.0

30.0%

Subprime

• FHA Reserve Fund depleting … Bailout ???• Fannie-Freddie … future reform without private profit and taxpayer loss

• Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!

VA (purple)

FHA

Prime (green)

Number of Distressed Loans

Greece

• One of the Highest Homeownership Rate with few mortgage defaults

– Bridal families often buy a home all-cash

• But Greece Government potential default– Too high deficit and too high debt

– Default … European banks’ capital reserve take hit … less lending to Portugal and Spain

– Debt default contagion spreads

– Less capital available for jumbo and 2nd homes

U.S. Budget Deficit

-2,000,000

-1,500,000

-1,000,000

-500,000

0

500,000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate

U.S. to be Greece in 25 years?

Economic Outlook

2008 20092010

forecast

GDP 0.4% -2.5% 3.1%

CPI Inflation 3.8% -0.2% 2.0%

Unemployment Rate 5.8% 9.3% 9.7%

10-year Treasury 3.7% 3.3% 3.9%

Housing Outlook

2008 20092010

forecast

Existing Home Sales 4.9 m 5.2 m 5.4 m

New Home Sales 485 k 375 k 400 k

Home Price Growth -10% -13% 2% to 3%

Mortgage Rate 6.1% 5.1% 5.3%

Consumer confidence about home buying

Down Down Up

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