dr. yun's presentation in charlotte (november 2011)
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Charlotte, NC November 1, 2011 Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at Charlotte Regional REALTOR® Association 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 0 3,500,000 4,000,000 4,500,000 5,000,000 5,500,000 6,000,000 6,500,000 7,000,000 1 2 3 4 5 7 8 9 6 0 2 4 6 8 ‐10 ‐8 ‐6 ‐4 ‐2TRANSCRIPT
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
U.S. Annual Existing Home Sales …Ready to Breakout?
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,0001981
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
Monthly Existing Home Sales … Flat Line outside of Tax Credit
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000
7,000,000
2008
‐Jan
2008
‐Mar
2008
‐May
2008
‐Jul
2008
‐Sep
2008
‐Nov
2009
‐Jan
2009
‐Mar
2009
‐May
2009
‐Jul
2009
‐Sep
2009
‐Nov
2010
‐Jan
2010
‐Mar
2010
‐May
2010
‐Jul
2010
‐Sep
2010
‐Nov
2011
‐Jan
2011
‐Mar
2011
‐May
2011
‐Jul
2011
‐Sep
Tax Credit Impact
… Despite Record Low Rates
0123456789
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
30‐year Mortgage Fed Funds
Economy Losing Momentum(GDP growth after recession should be sustained 4% to 5% …
not 1% as in 1st half in 2011)
‐10
‐8
‐6
‐4
‐2
0
2
4
6
8
10
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
Desired Pace
Consumer Confidence in the Tanks
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
NC Home Sales ‐ Annual
0
50
100
150
200
250
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Case‐Shiller Index: Charlotte and Miami
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
2011
‐Jan
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
U.S. Housing Starts… Very Low and much below Long‐term Average
0
500
1000
1500
2000
2500
2000 ‐ Jan
2001 ‐ Jan
2002 ‐ Jan
2003 ‐ Jan
2004 ‐ Jan
2005 ‐ Jan
2006 ‐ Jan
2007 ‐ Jan
2008 ‐ Jan
2009 ‐ Jan
2010 ‐ Jan
2011 ‐ Jan
Long‐term Average;Long‐term Requirement
Housing Starts in thousands
Newly Built Home Inventory(40 year lows)
0
100
200
300
400
500
600
7002000
‐Feb
2000
‐Au
g2001
‐Feb
2001
‐Au
g2002
‐Feb
2002
‐Au
g2003
‐Feb
2003
‐Au
g2004
‐Feb
2004
‐Au
g2005
‐Feb
2005
‐Au
g2006
‐Feb
2006
‐Au
g2007
‐Feb
2007
‐Au
g2008
‐Feb
2008
‐Au
g2009
‐Feb
2009
‐Au
g2010
‐Feb
2010
‐Au
g2011
‐Feb
2011
‐Au
g
In thousands
Charlotte Housing Permits
0
5000
10000
15000
20000
25000
30000
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
Total U.S. Payroll Jobs – Modest Recovery(1.3 million in the past 12 months)
124000126000128000130000132000134000136000138000140000
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
In thousands 6.5 million below prior peakIn thousands
North Dakota Jobs ‐ Booming
300310320330340350360370380390400
2000
‐…2000
‐…2001
‐…2001
‐…2002
‐…2002
‐…2003
‐…2003
‐…2004
‐…2004
‐…2005
‐…2005
‐…2006
‐…2006
‐…2007
‐…2007
‐…2008
‐…2008
‐…2009
‐…2009
‐…2010
‐…2010
‐…2011
‐…
In thousands
In thousands
Texas Payroll Jobs – Fully Recovered
8500
9000
9500
10000
10500
11000
2000
‐…2000
‐…2001
‐…2001
‐…2002
‐…2002
‐…2003
‐…2003
‐…2004
‐…2004
‐…2005
‐…2005
‐…2006
‐…2006
‐…2007
‐…2007
‐…2008
‐…2008
‐…2009
‐…2009
‐…2010
‐…2010
‐…2011
‐…
In thousands
In thousands
Michigan Payroll Jobs –Ongoing Structural Changes
3500
3700
3900
4100
4300
4500
4700
49002000
‐…2000
‐…2001
‐…2001
‐…2002
‐…2002
‐…2003
‐…2003
‐…2004
‐…2004
‐…2005
‐…2005
‐…2006
‐…2006
‐…2007
‐…2007
‐…2008
‐…2008
‐…2009
‐…2009
‐…2010
‐…2010
‐…2011
‐…
In thousands
In thousands
NC Jobs – Recovery Starting
3500
3600
3700
3800
3900
4000
4100
4200
4300
2000
‐…2000
‐…2001
‐…2001
‐…2002
‐…2002
‐…2003
‐…2003
‐…2004
‐…2004
‐…2005
‐…2005
‐…2006
‐…2006
‐…2007
‐…2007
‐…2008
‐…2008
‐…2009
‐…2009
‐…2010
‐…2010
‐…2011
‐…2011
‐…
In thousandsIn thousands
Charlotte Long‐Term Job Growth
400450500550600650700750800850900
1990
‐…1991
‐…1992
‐…1993
‐…1994
‐…1995
‐…1996
‐…1997
‐…1998
‐…1999
‐…2000
‐…2001
‐…2002
‐…2003
‐…2004
‐…2005
‐…2006
‐…2007
‐…2008
‐…2009
‐…2010
‐…2011
‐…
In thousands
In thousands
Weekly Fresh Unemployment Claims …Not Going under 400,000
0
100
200
300
400
500
600
700
2000
‐…2000
‐…2001
‐…2001
‐…2002
‐…2002
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‐…2011
‐…2011
‐…
In thousandsIn thousands
Financial Asset at $45 trillion … Good Recovery from 2008
30000
35000
40000
45000
50000
55000
2000 ‐Q1
2001 ‐Q1
2002 ‐Q1
2003 ‐Q1
2004 ‐Q1
2005 ‐Q1
2006 ‐Q1
2007 ‐Q1
2008 ‐Q1
2009 ‐Q1
2010 ‐Q1
2011 ‐Q1 est.
Source: Federal Reserve
Housing Equity (source of funds for small business owners) … Down
50006000700080009000
1000011000120001300014000
2000
‐Q1
2000
‐Q3
2001
‐Q1
2001
‐Q3
2002
‐Q1
2002
‐Q3
2003
‐Q1
2003
‐Q3
2004
‐Q1
2004
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2005
‐Q1
2005
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2006
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2006
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2007
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2008
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2008
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2009
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2009
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2010
‐Q1
2010
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2011
‐Q1
Source: Federal Reserve
CPI Apartment Rent(3‐month moving avg., annualized rate)
‐1
0
1
2
3
4
5
6
2000
‐Jan
2000
‐Jul
2001
‐Jan
2001
‐Jul
2002
‐Jan
2002
‐Jul
2003
‐Jan
2003
‐Jul
2004
‐Jan
2004
‐Jul
2005
‐Jan
2005
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2006
‐Jan
2006
‐Jul
2007
‐Jan
2007
‐Jul
2008
‐Jan
2008
‐Jul
2009
‐Jan
2009
‐Jul
2010
‐Jan
2010
‐Jul
2011
‐Jan
2011
‐Jul
%
Home Price vs Rent(index = 100 in 1980)
0.050.0
100.0150.0200.0250.0300.0350.0400.0450.0
1980 ‐Jan
1984 ‐Jan
1988 ‐Jan
1992 ‐Jan
1996 ‐Jan
2000 ‐Jan
2004 ‐Jan
2008 ‐Jan
rent price
Serious Delinquent Mortgages … Mostly those who took out loans in bubble years
(90+ days late or in foreclosure process)
0.0
2.0
4.0
6.0
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
U.S. NC
In millions
In 2010, there were 1.5 million distressed sales … need to wait 2.7 years
Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years
20%
25%
30%
35%
40%
45%
50%
55%
2008 ‐Oct
2009 ‐Jan
2009 ‐Apr
2009 ‐Jul
2009 ‐Oct
2010 ‐Jan
2010 ‐Apr
2010 ‐Jul
2010 ‐Oct
2011 ‐Jan
2011 ‐Apr
Very Low Default among Recent HomebuyersFannie and Freddie Backed Mortgage Loan Performance
Fannie MaeVintage
CumulativeDefault 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 MacVintage
CumulativeDefault 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%
Source: Federal Housing Finance Agency
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?
Real Estate as Inflation Hedge?(single‐family home price in blue vs CPI in red)
‐20
‐15
‐10
‐5
0
5
10
15
20
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
Good inflation hedge in the past before the housing bubble/bust
CPI Inflation Rising(% change from one year ago)
‐2‐10123456
2000
‐Jan
2000
‐Jul
2001
‐Jan
2001
‐Jul
2002
‐Jan
2002
‐Jul
2003
‐Jan
2003
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2004
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2005
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2005
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2006
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2007
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2007
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2008
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2008
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2009
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2009
‐Jul
2010
‐Jan
2010
‐Jul
2011
‐Jan
2011
‐Jul
• Social Security COLA forecast to rise 3.5% in 2012• Workers Wage to rise by 1.7% in 2011
Broad Inflationary PressureIndicator % 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
Upside Potential Surprise
Average Credit Score for Loan Origination
Normal 2009 2010 If
Fannie 720 761 762 720
Freddie 720 757 758 720
FHA 650 682 698 660
15% to 20% Higher Sales
Downside Potential Surprise
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?
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
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
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."
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