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