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51
Economic and Real Estate Outlook Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University 2012 MID-YEAR MEETING Austin, Texas April 13, 2012

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Page 1: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Economic and Real Estate Outlook

Dr. James P. GainesResearch Economist

Real Estate Center at Texas A&M University

2012 MID-YEAR MEETINGAustin, TexasApril 13, 2012

Page 2: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

2

Bentley's First Law of Economics: “The only thing more dangerous than an economist is

an amateur economist!”

Bentley's Second Law of Economics : "The only thing more dangerous than an amateur

economist is a professional economist."

Remember:Amateurs built the Ark

Professionals built the Titanic

Page 3: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

US Economy in 1996

Page 4: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

US Economy in 2008

Page 5: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

US Economy in 2012

Page 6: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Economy is Trying to Recover, but Slow Going

• Employment • Retail Sales and Consumption• GDP• Unsustainable Government deficits• Corporate Earnings• Housing

Projections for the next couple of years indicate substantive growth doesn’t occur until 2013-14

6

Page 7: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Percent Growth in Real GDP

1Q20

002Q

2000

3Q20

004Q

2000

1Q20

012Q

2001

3Q20

014Q

2001

1Q20

022Q

2002

3Q20

024Q

2002

1Q20

032Q

2003

3Q20

034Q

2003

1Q20

042Q

2004

3Q20

044Q

2004

1Q20

052Q

2005

3Q20

054Q

2005

1Q20

062Q

2006

3Q20

064Q

2006

1Q20

072Q

2007

3Q20

074Q

2007

1Q20

082Q

2008

3Q20

084Q

2008

1Q20

092Q

2009

3Q20

094Q

2009

1Q20

102Q

2010

3Q20

104Q

2010

1Q20

112Q

2011

3Q20

114Q

2011

1Q20

12

-10.0-9.0-8.0-7.0-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.08.09.0

1.1

8.0

0.3

2.4

-1.3

2.7

-1.1

1.4

3.5

2.1 2.0

0.1

1.7

3.4

6.7

3.7

2.7 2.63.0

3.3

4.2

1.8

3.2

2.1

5.1

1.6

0.1

2.7

0.5

3.63.0

1.7

-1.8

1.3

-3.7

-8.9

-6.7

-0.7

1.7

3.8 3.9 3.8

2.5 2.3

0.4

1.31.8

3.0

7Source: Bureau of Economic Analysis

The average rate of growth is 3.3% per quarter since 1947

Page 8: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Debt Driven Recession

8

Page 9: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Total National Debt Since 1929

Amount and Percent of GDP

1929

1931

1933

1935

1937

1939

1941

1943

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

$0

$2,000,000,000,000

$4,000,000,000,000

$6,000,000,000,000

$8,000,000,000,000

$10,000,000,000,000

$12,000,000,000,000

$14,000,000,000,000

$16,000,000,000,000

0%

20%

40%

60%

80%

100%

120%

140%

160%

9

National Debt as a Percentage of Annual GDP (right scale)

Total National Debt (left scale)

Ended WWII $270BHit $1T in 1981 @ 32% GDPBeginning FY2012 $14.8T @ 97% GDP and 55 times 1946 debt

Source: U.S. Treasury

Page 10: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Household Debt

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Total HH Debt Home Mortgage Consumer Credit

Bill

ion

s $

10Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University

Page 11: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Households Continue Way Over-Levered

Total HH Debt as Percentage of GDP

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

110.0%

194513.7%

2007; 98.2%

3Q201187.0%

11

Average 1945-2010 = 52.5%

Average 1945-1984 = 39%

Average 1985-1999 = 63%

Average 2000-2010 = 88%

Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University

Page 12: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

“Until we see a sustained period of

stronger job creation, we cannot consider the recovery to be truly

established.”

Ben BernankeJune 7, 2011, International Monetary Conference, Atlanta,

Georgia

12

Page 13: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Recovery May Take a While

13

Page 14: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

US Unemployment Rates

Jan-9

5

Jul-9

5

Jan-9

6

Jul-9

6

Jan-9

7

Jul-9

7

Jan-9

8

Jul-9

8

Jan-9

9

Jul-9

9

Jan-0

0

Jul-0

0

Jan-0

1

Jul-0

1

Jan-0

2

Jul-0

2

Jan-0

3

Jul-0

3

Jan-0

4

Jul-0

4

Jan-0

5

Jul-0

5

Jan-0

6

Jul-0

6

Jan-0

7

Jul-0

7

Jan-0

8

Jul-0

8

Jan-0

9

Jul-0

9

Jan-1

0

Jul-1

0

Jan-1

1

Jul-1

1

Jan-1

23.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

US US U-6

14Source: BLS, Texas Workforce Commission; Real Estate Center at Texas A&M

Page 15: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

2012+ Economic Outlook

Most indicators positive – not robust

Major business, investment and political

decisions postponed

Sluggish growth into the first quarter of 2013

Interest rates stay low through 2014Housing cannot be counted on to help in 2012Over-leverage & credit dependency remainLimited government resources and spending International economy highly uncertainGeneral UNCERTAINTY & Lack of CONFIDENCE

Page 16: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Source: The Conference Board (1985=100)

Consumer Confidence Index

Ja

n-0

1

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Ju

l-1

1

Ja

n-1

2

10

20

30

40

50

60

70

80

90

100

110

120

130

Jul-07; 111.9

Feb-09; 25.3

Expansion

Recession

7 cycles since 1967:Avg. during recession = 72Avg. during an expansion = 102

Page 17: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

U.S. Household Formation

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,0001,883

637

1,391

1,510

1,346

831

1,244 1,249

669

1,367

1,725

1,082

455

286

522582

Thou

sand

s

Source: Current Population Survey, Census Bureau, Department of Commerce (The source of annual data is the Current Population Survey March Supplement. The quarterly data source is the monthly Current Population Survey/Housing Vacancy Survey.)

Page 18: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

U.S. Population Groups 2011

1909-1945 1946-1964 1965-1976 1977-1995 1996-20110

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

38,350,373.0

76,138,435.0

49,725,811.0

81,937,610.0

67,079,815.0

Mill

ion

s

Source: U.S. Census Bureau; 2009 National Population Projections (Supplemental)

Sile

nt/G

reat

est

Bab

y B

oom

Bab

y B

ust

(G

en X

)

Ech

o B

oom

(G

en Y

)

millions

Mil

len

nia

ls (

Gen

I)

66+ 47-65 35-46 0-1516-34Age

24.3%

12.2%

15.9%

26.1%

21.4%

Page 19: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Boomers Own - Gen Y Rents

9%27%

51%

12%

Gen Y

Own Outright

Mortgage

Rent

Other

19

9%

64%

26%

2%

Gen X

Own Outright

Mortgage

Rent

Other

28%

51%

18%

3%

Boomers

Own OutrightMortgageRentOther

63%

22%

14%

1%

Silent/Greatest

Own Outright

Mortgage

Rent

Other

Source: FNMA National Housing Survey, 4Q2010

Page 20: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

At Last, a Cell Phone for Seniors!

Page 21: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Changing Face of Housing:Future Homebuyers and Sellers

21

2025

Racial and Ethnic Composition of Texas 2010 and 2030

During the next two decades, minorities will account for approximately two-thirds of household growth … and half of all first-time homebuyers

Source: Social Science Data Analysis Network; NAR Forecast

Hispanic 50.9%

Anglo 30.9%

Black

10.5%

Asian7.7%

Anglo 45.1%

Hispanic 38.8%

Asian4.6%Black

11.5%

Page 22: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

The Housing Market Needs to Mend to

Help a General Economic Recovery

Page 23: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

How Bad Has the Housing Collapse Been?

Home prices down ~33% since 2006 peak

Around $7 trillion, >50% lost equity in housing

~20% households, 12 million, upside-down on mortgage – some states >50%

Defaults, delinquencies and foreclosures at historic levels

2011 new home starts lowest in the past 60 years

New household formations about 25% of historical rate

Federal government programs have done little to help overall housing

Page 24: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

24

2Q19

71

2Q19

72

2Q19

73

2Q19

74

2Q19

75

2Q19

76

2Q19

77

2Q19

78

2Q19

79

2Q19

80

2Q19

81

2Q19

82

2Q19

83

2Q19

84

2Q19

85

2Q19

86

2Q19

87

2Q19

88

2Q19

89

2Q19

90

2Q19

91

2Q19

92

2Q19

93

2Q19

94

2Q19

95

2Q19

96

2Q19

97

2Q19

98

2Q19

99

2Q20

00

2Q20

01

2Q20

02

2Q20

03

2Q20

04

2Q20

05

2Q20

06

2Q20

07

2Q20

08

2Q20

09

2Q20

10

2Q20

11

2Q20

12

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

US Homeownership Rate

Source: U.S. Census Bureau

1970sBaby Boomers enter market;

homeownership grows

1995-2005Low interest rates and new mortgage

products; Homeownership explodes from

64.1% to 69.1%

(Percent)

Current rate is same as 3Q1998

Page 25: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Lost Wealth: Households’ Equity in Real Estate

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000$13,174

$6,123

Billi

ons $

Source: Federal Reserve, Flow of Funds, B-100

$7 trillion or 53% in lost real estate equity

Page 26: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Long-Term Real Home Price Index: 1890-20101

89

01

89

31

89

61

89

91

90

21

90

51

90

81

91

11

91

41

91

71

92

01

92

31

92

61

92

91

93

21

93

51

93

81

94

11

94

41

94

71

95

01

95

31

95

61

95

91

96

21

96

51

96

81

97

11

97

41

97

71

98

01

98

31

98

61

98

91

99

21

99

51

99

82

00

12

00

42

00

72

01

0

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220

Source: Robert J. Shiller, Irrational Exuberance, 2nd. Edition, Princeton University Press,2005, 2009, Broadway Books 2006, also Subprime Solution, 2008, as updated by author: http://www.econ.yale.edu/~shiller/data.htm

WWIGreat

Depression WWII70’sBoom

80’sBoom

2000’s Boom

1890 to 1914 averaged 100.16

1915 to 1945 averaged 75.74

1946 to 1999 averaged 111.25

2000 to 2010 averaged 156.01

Page 27: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Monthly Foreclosure Filings

Ju

n-0

5A

ug

-05

Oc

t-0

5D

ec

-05

Fe

b-0

6A

pr-

06

Ju

n-0

6A

ug

-06

Oc

t-0

6D

ec

-06

Fe

b-0

7A

pr-

07

Ju

n-0

7A

ug

-07

Oc

t-0

7D

ec

-07

Fe

b-0

8A

pr-

08

Ju

n-0

8A

ug

-08

Oc

t-0

8D

ec

-08

Fe

b-0

9A

pr-

09

Ju

n-0

9A

ug

-09

Oc

t-0

9D

ec

-09

Fe

b-1

0A

pr-

10

Ju

n-1

0A

ug

-10

Oc

t-1

0D

ec

-10

Fe

b-1

1A

pr-

11

Ju

n-1

1A

ug

-11

Oc

t-1

1D

ec

-11

Fe

b-1

2

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000110,000120,000130,000140,000150,000160,000170,000

US

Texas

Source: RealtyTrac, Inc. Data include Notices of Trustee Sales plus Notices of Foreclosure Sale

27

Page 28: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Percent of Distressed Home SalesO

ct-

08

No

v-0

8D

ec

-08

Ja

n-0

9F

eb

-09

Ma

r-0

9A

pr-

09

Ma

y-0

9J

un

-09

Ju

l-0

9A

ug

-09

Se

p-0

9O

ct-

09

No

v-0

9D

ec

-09

Ja

n-1

0F

eb

-10

Ma

r-1

0A

pr-

10

Ma

y-1

0J

un

-10

Ju

l-1

0A

ug

-10

Se

p-1

0O

ct-

10

No

v-1

0D

ec

-10

Ja

n-1

1F

eb

-11

Ma

r-1

1A

pr-

11

Ma

y-1

1J

un

-11

Ju

l-1

1A

ug

-11

Se

p-1

1O

ct-

11

No

v-1

1D

ec

-11

Ja

n-1

2F

eb

-12

20

24

28

32

36

40

44

48

52

Per

cen

t o

f T

ota

l Sal

es

Source: NAR

Page 29: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Percent of Loans in Foreclosure

End of 4Q 2011F

lori

da

Illin

ois

Mai

ne

Co

nn

ecti

cut

Oh

io

So

uth

Car

olin

a

Del

awar

e

Mar

ylan

d

Ver

mo

nt

Ore

go

n

Lo

uis

ian

a

Wis

con

sin

Pen

nsy

lvan

ia

Mic

hig

an

No

rth

Car

olin

a

Mas

sach

use

tts

Iow

a

Ten

nes

see

Uta

h

Was

hin

gto

n

Mis

sou

ri

Ark

ansa

s

Vir

gin

ia

Mo

nta

na

Neb

rask

a

No

rth

Dak

ota

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

4.38

29Source: Mortgage Bankers Association, National Delinquency Survey

Judicial Foreclosure StatesNon-Judicial Foreclosure States

US

Page 30: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

6 states > 30%13 states > 20%21 states > 15%

14 states < 10%

Source: CoreLogic® , Negative Equity Report, 3Q2011

High Negative Equity Concentrated in a Small Number of States

Page 31: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Seriously Delinquent Mortgages by Origination

Year

1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q20110.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Prior to 2005 2005-2007 2008-2009 2010 or Later31

Source: Mortgage Bankers Association, 4Q2011 National Delinquency Survey

9.5% 9.1% 8.7% 8.6% 8.1% 7.9% 7.9% 7.7%

19%

72%

9%

0%0%

0% 0%0%

2%1%1%

14%14%12%12%

11%11%11%

65%65%68%

69%70%71%71%

19%20%19%19%19%19%18%

Page 32: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

32

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

200

400

600

800

1,000

1,200

1,400

1,600

Sources: US Census Bureau , NAR, SAAR

New SF sales are down 78% from 2005 peak

New and Existing SF Home Sales U.S.

Annual Average Total Sales1980-1989 3.55 million1990-1999 4.7 million2000-2007 7.1 million2008-2010 5.5 million

Existing Sales(left axis)

New Sales(right axis)

(New000s)

(Existing000s)

Page 33: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

123,000

126,000

129,000

132,000

135,000

138,000

141,000

144,000

147,000

150,000

Sources: BLS. US Census Bureau , NAR, SAAR

(Home Sales000s)

Rise in Employment Beginning to Show in Sales Volume

Total Existing Home Sales(left axis)

(Employed000s)

Employment(right axis)

Page 34: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

People Who Plan to Buy a Home

in the Next Six MonthsJu

n-1

977

Feb

-197

8O

ct-1

978

Jun

-197

9F

eb-1

980

Oct

-198

0Ju

n-1

981

Feb

-198

2O

ct-1

982

Jun

-198

3F

eb-1

984

Oct

-198

4Ju

n-1

985

Feb

-198

6O

ct-1

986

Jun

-198

7F

eb-1

988

Oct

-198

8Ju

n-1

989

Feb

-199

0O

ct-1

990

Jun

-199

1F

eb-1

992

Oct

-199

2Ju

n-1

993

Feb

-199

4O

ct-1

994

Jun

-199

5F

eb-1

996

Oct

-199

6Ju

n-1

997

Feb

-199

8O

ct-1

998

Jun

-199

9F

eb-2

000

Oct

-200

0Ju

n-2

001

Feb

-200

2O

ct-2

002

Jun

-200

3F

eb-2

004

Oct

-200

4Ju

n-2

005

Feb

-200

6O

ct-2

006

Jun

-200

7F

eb-2

008

Oct

-200

8Ju

n-2

009

Feb

-201

0O

ct-2

010

Jul-

2011

0.0

1.0

2.0

3.0

4.0

5.0

6.0

% o

r R

esp

on

den

ts

Source: The Conference Board, Original Data

Average value 1977-2011 = 3.3%

US pop 2010 = 309 million; at average, 10.2 million people or 4.2 million households plan to buy a house in the next 6 months. At current rate, 5.7 million people or 2.3 million households plan to buy a house in the next 6 months.

Page 35: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

FHFA US Monthly Home Price Index

Ja

n-9

1

Ja

n-9

2

Ja

n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

100

120

140

160

180

200

220

240 Apr-07226.41

Source: FHFA, SA

Currently equal to ~Feb 2004

Page 36: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Vacant Housing Units1

96

51

96

61

96

71

96

81

96

91

97

01

97

11

97

21

97

31

97

41

97

51

97

61

97

71

97

81

97

91

98

01

98

11

98

21

98

31

98

41

98

51

98

61

98

71

98

81

98

91

99

01

99

11

99

21

99

31

99

41

99

51

99

61

99

71

99

81

99

92

00

02

00

12

00

22

00

32

00

42

00

52

00

62

00

72

00

82

00

92

01

02

01

1

0

2,000

4,000

6,000

8,000

10,000

12,000

Vac-Off Mkt 'Other" For Sale For Rent

Source: US Census Bureau

Vacant For Sale

Vacant For Rent

Vacant & Off the Market: Other

Page 37: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

U.S. Home Price Indexes(Y/Y Percent Change in Index)

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Sources: NAR, FHFA, S&P Case-Shiller, FHLMC

FHFA Repeat Sales Index

NAR Median Price

Case-Shiller Comp 20 SA

FHLMC HPI

Page 38: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

19

63

19

64

19

65

19

66

19

67

19

68

19

69

19

70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

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

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

560565575

461488490

449486

657

718

633

519550

647

820 818

709

545

436413

622639

688

748

672675650

535507

608

666670665

758

805

885881877909

972

1,088

1,203

1,283

1,051

776

485

374

322302

Annual New Home Sales

Source: US Census Bureau, NAHB, Real Estate Center

(000, SAAR)

-50% 1977 Peak to Trough

-28% 1986 Peak to Trough

-77% 2005 Peak to Current

-28% 1972 Peak to Trough

2011 less than half of “normal” level needed

Page 39: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

19

63

19

64

19

65

19

66

19

67

19

68

19

69

19

70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

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

p

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,012971964

779

844

899

811813

1,151

1,309

1,132

888892

1,162

1,4511,433

1,194

852

705663

1,0681,0841,072

1,1791,146

1,081

1,003

895

840

1,030

1,126

1,198

1,076

1,1611,134

1,2711,302

1,2311,273

1,359

1,499

1,611

1,716

1,465

1,046

622

445471

429

500

New SF Home Starts

Source: US Census Bureau, Real Estate Center at Texas A&M University

(000s SAAR)

2011 down 75% from 2005 peak and 628,000 fewer units than 1960-2002 average per year (1.06 million)

Page 40: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Price Index of New Single-Family Houses Sold

Including Value of Lot[2005 = 100 Index based on kinds of houses sold in 2005]

1Q

20

00

2Q

20

00

3Q

20

00

4Q

20

00

1Q

20

01

2Q

20

01

3Q

20

01

4Q

20

01

1Q

20

02

2Q

20

02

3Q

20

02

4Q

20

02

1Q

20

03

2Q

20

03

3Q

20

03

4Q

20

03

1Q

20

04

2Q

20

04

3Q

20

04

4Q

20

04

1Q

20

05

2Q

20

05

3Q

20

05

4Q

20

05

1Q

20

06

2Q

20

06

3Q

20

06

4Q

20

06

1Q

20

07

2Q

20

07

3Q

20

07

4Q

20

07

1Q

20

08

2Q

20

08

3Q

20

08

4Q

20

08

1Q

20

09

2Q

20

09

3Q

20

09

4Q

20

09

1Q

20

10

2Q

20

10

3Q

20

10

4Q

20

10

1Q

20

11

2Q

20

11

3Q

20

11

70

75

80

85

90

95

100

105

110

Source: US Census Bureau

Page 41: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Median Price of Existing SF Homes

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$221,900

$166,200

Source: NAR

Major declines in 2008 & 2009

2011 median down 25% from 2006 peak

Page 42: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Median Existing SF Home Price

Jan-6

8

Jan-7

0

Jan-7

2

Jan-7

4

Jan-7

6

Jan-7

8

Jan-8

0

Jan-8

2

Jan-8

4

Jan-8

6

Jan-8

8

Jan-9

0

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4

Jan-0

6

Jan-0

8

Jan-1

0

Jan-1

2$10,000

$30,000

$50,000

$70,000

$90,000

$110,000

$130,000

$150,000

$170,000

$190,000

$210,000

$230,000

$250,000

$10,000

$30,000

$50,000

$70,000

$90,000

$110,000

$130,000

$150,000

$170,000

$190,000

$210,000

$230,000

$250,000

Source: NAR, Real Estate Center at Texas A&M University

1968-1999 Trend Line

Page 43: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

National Housing Affordability Index

90

100

110

120

130

140

150

160

170

180

190

200

210

220

Feb-99; 146.9

Jul-00; 122.8

Apr-03; 145.4

Jul-06; 99.6

Jan-12; 206.1

Source: NAR Composite Index

Average 1994-2003 = 132.4

Drop of 31.5% from April 2003 to July 2006

Increase of 107% from July 2006 to Oct. 2011

Page 44: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Median Home Prices as a Multiple of Median Household

Income1

97

51

97

61

97

71

97

81

97

91

98

01

98

11

98

21

98

31

98

41

98

51

98

61

98

71

98

81

98

91

99

01

99

11

99

21

99

31

99

41

99

51

99

61

99

71

99

81

99

92

00

02

00

12

00

22

00

32

00

42

00

52

00

62

00

72

00

82

00

92

01

02

01

1

2.70

2.90

3.10

3.30

3.50

3.70

3.90

4.10

4.30

4.50

4.70

4.90

5.10

5.30

5.50

3.033.07

3.26

3.383.43

3.563.49

3.363.35

3.223.203.253.283.273.29

3.15

3.423.453.553.523.473.49

3.553.513.483.53

3.85

4.07

4.28

4.40

4.73

4.60

4.34

3.91

3.463.50

3.33

3.33

3.483.60

3.70

3.82

3.653.61

3.44

3.613.563.57

3.70

4.01

4.134.154.103.983.97

4.054.033.933.943.953.923.96

4.02

4.15

4.424.50

4.98

5.205.11

4.94

4.61

4.35

4.494.52

New Homes (‘75-’00 avg. = 3.82)

Existing Homes (‘75-’00 avg. = 3.36)

Source: US Census Bureau, NAR, Real Estate Center at Texas A&M University

Page 45: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Divergent US Median HH Income and Median Home

Prices1

99

0

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

75

100

125

150

175

200

225

250

Source: US Census Bureau, NAR

Median Home Price

Median HH Income

1990=100

Page 46: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

2010 Median Price/Median Household Income

HawaiiDistrict of Columbia

CaliforniaMassachusetts

New YorkWashington

OregonRhode Island

MontanaNew JerseyConnecticut

VermontColoradoDelawareArkansas

New MexicoMaine

VirginiaAlaska

MarylandNew Hampshire

LouisianaNorth Carolina

UtahMississippi

WyomingSouth DakotaWest Virginia

FloridaKentucky

South CarolinaIdaho

AlabamaWisconsin

PennsylvaniaNevada

TennesseeMinnesota

IllinoisOklahoma

MissouriGeorgia

TexasNorth Dakota

ArizonaIndiana

OhioNebraska

IowaKansas

Michigan

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

7.936.64

5.724.94

4.544.474.45

4.414.184.184.17

4.134.03

3.883.853.833.82

3.783.743.72

3.613.593.573.55

3.433.423.403.39

3.253.253.233.23

3.193.143.11

3.012.982.96

2.882.822.792.792.772.74

2.582.542.52

2.492.462.46

2.12

Source: FHFA 2Q2010 Median Prices, 2010 American Community Survey, U.S. Census Bureau

Most Affordable States

Least Affordable States

3.0

4.0

Page 47: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Price-to-Rent Ratio Monthly FHFA P-O Index to BLS Owners’

Equivalent RentJanuary 1991 = 1.0

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.03

Source: FHFA, BLS

Equilibrium

Page 48: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Why Hasn’t the Housing Market

Recovered? Employment uncertainty

Tight Mortgage Credit

Price pressure from foreclosures, distressed sales and “shadow inventory”

Appraisals and the Home Valuation Code of Conduct – questionable automated valuations

Confidence in the future

Page 49: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

2012 Housing Outlook Distressed/Investor sales: ~1/3 U.S.

market, ~10%-20% in Texas Tight lending & low appraisals 33%

cancellation rate on new and existing contracts

Confidence Crisis No feeling of “well being” Lost wealth: real estate & other assets Flat income (declining real income) Uncertain future: jobs, home values

Inventory: new wave of foreclosures to hit market in 2012

Move-up & move-over buyers can’t sell current home

Move-out still renting can’t buy Political decisions, regulations and

policies unknown & problematic

Improvement in general economy Low interest rates but little impact Pent up demand by those who’ve

postponed housing or doubled-up Markets bottomed will show

statistical improvement Investors buoy sales but not prices Affordability: prices more in line

with income Rent-Own “gap” closing Incentives on new homes

substantial Population and household growth

strong in Texas

Reasons for OptimismMarket Headwinds

Page 50: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

“If we knew what we were doing, it

wouldn't be called research, would it?”

Albert Einstein

Page 51: Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University

Economic and Real Estate Outlook

Dr. James P. GainesResearch Economist

Real Estate Center at Texas A&M University

2012 MID-YEAR MEETINGAustin, TexasApril 13, 2012