dr. james p. gaines research economist real estate center at texas a&m university
TRANSCRIPT
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
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
US Economy in 1996
US Economy in 2008
US Economy in 2012
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
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
Debt Driven Recession
8
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
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
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
“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
Recovery May Take a While
13
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
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
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
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.)
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%
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
At Last, a Cell Phone for Seniors!
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%
The Housing Market Needs to Mend to
Help a General Economic Recovery
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
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
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
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
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
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
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
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
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%
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)
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)
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.
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
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
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
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
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)
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
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
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
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
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
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
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
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
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
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
“If we knew what we were doing, it
wouldn't be called research, would it?”
Albert Einstein
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