presentation: housing market and economic outlook

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Residential Economic Issues & Trends Forum

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This presentation was given by Lawrence Yun, Ph.D., NAR Chief Economist, to the Residential Real Estate Forum at the 2014 REALTORS® Party Convention & Trade Expo in Washington, DC on May 15, 2014.

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Page 1: Presentation: Housing Market and Economic Outlook

Residential Economic Issues & Trends Forum

Page 2: Presentation: Housing Market and Economic Outlook

Housing  Market  and    Economic  Outlook  

Lawrence  Yun,  Ph.D.  Chief  Economist  

NATIONAL  ASSOCIATION    OF  REALTORS®    

PresentaAon  in  Washington,  D.C.        

May  15,  2014          

Page 3: Presentation: Housing Market and Economic Outlook

U.S.  Popula:on  

0  

50  

100  

150  

200  

250  

300  

350  

1968   1973   1978   1983   1988   1993   1998   2003   2008   2013  

In  millions  

Page 4: Presentation: Housing Market and Economic Outlook

Jobs  in  America  –  Less  Smooth  

0  20000  40000  60000  80000  

100000  120000  140000  160000  

1968  -­‐  Jan  

1969  -­‐  De

c  1971  -­‐  Nov  

1973  -­‐  Oct  

1975  -­‐  Sep  

1977  -­‐  Au

g  1979  -­‐  Jul  

1981  -­‐  Jun  

1983  -­‐  May  

1985  -­‐  Ap

r  1987  -­‐  Mar  

1989  -­‐  Feb  

1991  -­‐  Jan  

1992  -­‐  De

c  1994  -­‐  Nov  

1996  -­‐  Oct  

1998  -­‐  Sep  

2000  -­‐  Au

g  2002  -­‐  Jul  

2004  -­‐  Jun  

2006  -­‐  May  

2008  -­‐  Ap

r  2010  -­‐  Mar  

2012  -­‐  Feb  

2014  -­‐  Jan  

Page 5: Presentation: Housing Market and Economic Outlook

Jobs  to  Popula:on  Ra:o  (16  years  and  over)  

50  52  54  56  58  60  62  64  66  

1968  -­‐  Jan  

1969  -­‐  Oct  

1971  -­‐  Jul  

1973  -­‐  Ap

r  1975  -­‐  Jan  

1976  -­‐  Oct  

1978  -­‐  Jul  

1980  -­‐  Ap

r  1982  -­‐  Jan  

1983  -­‐  Oct  

1985  -­‐  Jul  

1987  -­‐  Ap

r  1989  -­‐  Jan  

1990  -­‐  Oct  

1992  -­‐  Jul  

1994  -­‐  Ap

r  1996  -­‐  Jan  

1997  -­‐  Oct  

1999  -­‐  Jul  

2001  -­‐  Ap

r  2003  -­‐  Jan  

2004  -­‐  Oct  

2006  -­‐  Jul  

2008  -­‐  Ap

r  2010  -­‐  Jan  

2011  -­‐  Oct  

2013  -­‐  Jul  

Page 6: Presentation: Housing Market and Economic Outlook

Sluggish  Growth  +  Gap  aXer  Great  Recession      ($1.5  trillion  gap  …  $4,700  per  person)  

0  5,000  10,000  15,000  20,000  

1968  

1970  

1972  

1974  

1976  

1978  

1980  

1982  

1984  

1986  

1988  

1990  

1992  

1994  

1996  

1998  

2000  

2002  

2004  

2006  

2008  

2010  

2012  

2014  

GDP  in  2009  Dollars  

Real  GDP   Real  GDP  W/O  Recession  

3%  Growth  Line  

2.2%  Growth  Line  

Page 7: Presentation: Housing Market and Economic Outlook

Recent  Year  Ac:vity  GDP  Contrac:on  in  2014  Q1  

-­‐10  

-­‐5  

0  

5  

10  

2007  -­‐  Q1  

2007  -­‐  Q3  

2008  -­‐  Q1  

2008  -­‐  Q3  

2009  -­‐  Q1  

2009  -­‐  Q3  

2010  -­‐  Q1  

2010  -­‐  Q3  

2011  -­‐  Q1  

2011  -­‐  Q3  

2012  -­‐  Q1  

2012  -­‐  Q3  

2013  -­‐  Q1  

2013  -­‐  Q3  

2014  -­‐  Q1  

GDP  Annualized  Growth  Rate  

Page 8: Presentation: Housing Market and Economic Outlook

But  No  Fresh  Recession  in  Sight  

-­‐6  

-­‐4  

-­‐2  

0  

2  

4  

GDP  Growth  Rate  from  one  year  ago  

Page 9: Presentation: Housing Market and Economic Outlook

Cyclical  Housing  Sector:  Single-­‐Family  Exis:ng  Home  Sales  Only    

(Best  Es:ma:on  –  could  be  off  by  several  %  points)  

0  1,000,000  2,000,000  3,000,000  4,000,000  5,000,000  6,000,000  7,000,000  

1968  

1970  

1972  

1974  

1976  

1978  

1980  

1982  

1984  

1986  

1988  

1990  

1992  

1994  

1996  

1998  

2000  

2002  

2004  

2006  

2008  

2010  

2012  

2014  Q1  

Page 10: Presentation: Housing Market and Economic Outlook

Single-­‐Family  Sales  to  Popula:on  Ra:o  (Average  =  1.36%)  

0.0  0.5  1.0  1.5  2.0  2.5  

1968  

1970  

1972  

1974  

1976  

1978  

1980  

1982  

1984  

1986  

1988  

1990  

1992  

1994  

1996  

1998  

2000  

2002  

2004  

2006  

2008  

2010  

2012  

2014  Q1  

%  

Page 11: Presentation: Housing Market and Economic Outlook

#  of  People  per  Housing  Unit  

0.00  0.50  1.00  1.50  2.00  2.50  3.00  3.50  

1968  

1970  

1972  

1974  

1976  

1978  

1980  

1982  

1984  

1986  

1988  

1990  

1992  

1994  

1996  

1998  

2000  

2002  

2004  

2006  

2008  

2010  

2012  

Page 12: Presentation: Housing Market and Economic Outlook

Single-­‐Family  Sales  to  Household  Ra:o  (Average  =  3.66%)  

2.00  2.50  3.00  3.50  4.00  4.50  5.00  5.50  6.00  

1968   1973   1978   1983   1988   1993   1998   2003   2008   2013  

Page 13: Presentation: Housing Market and Economic Outlook

Monthly  Pending  Sales  Index  (Seasonally  Adjusted)  

70.0  75.0  80.0  85.0  90.0  95.0  100.0  105.0  110.0  115.0  

Source:  NAR  

Page 14: Presentation: Housing Market and Economic Outlook

Exis:ng  Home  Sales  -­‐  Closings  

3,000,000  

3,500,000  

4,000,000  

4,500,000  

5,000,000  

5,500,000  

2011  -­‐  Jan  

2011  -­‐  Mar  

2011  -­‐  May  

2011  -­‐  Jul  

2011  -­‐  Sep  

2011  -­‐  Nov  

2012  -­‐  Jan  

2012  -­‐  Mar  

2012  -­‐  May  

2012  -­‐  Jul  

2012  -­‐  Sep  

2012  -­‐  Nov  

2013  -­‐  Jan  

2013  -­‐  Mar  

2013  -­‐  May  

2013  -­‐  Jul  

2013  -­‐  Sep  

2013  -­‐  Nov  

2014  -­‐  Jan  

2014  -­‐  Mar  

Page 15: Presentation: Housing Market and Economic Outlook

Causes  of  Recent  Sales  Slowdown  •  Bad  winter  

–  Only  delayed  sales  not  cancella:on  •  Lack  of  inventory  

–  Steadily  more  inventory  coming  to  market  •  Home  prices  rose  too  fast  

–  Showing  signs  of  slowing  •  Mortgage  credit  difficul:es  

–  New  Qualified  Mortgage  Rules  –  Surely  cannot  get  worse!    

•  Mortgage  rates  jumped  –  Trouble  !  

Page 16: Presentation: Housing Market and Economic Outlook

Inventory  of  Homes  for  Sale  

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  

2007  -­‐  Jan  

2007  -­‐  May  

2007  -­‐  Sep  

2008  -­‐  Jan  

2008  -­‐  May  

2008  -­‐  Sep  

2009  -­‐  Jan  

2009  -­‐  May  

2009  -­‐  Sep  

2010  -­‐  Jan  

2010  -­‐  May  

2010  -­‐  Sep  

2011  -­‐  Jan  

2011  -­‐  May  

2011  -­‐  Sep  

2012  -­‐  Jan  

2012  -­‐  May  

2012  -­‐  Sep  

2013  -­‐  Jan  

2013  -­‐  May  

2013  -­‐  Sep  

2014  -­‐  Jan  

Page 17: Presentation: Housing Market and Economic Outlook

Change  in  Inventory  (%  change  from  one  year  ago)  

-­‐30  -­‐25  -­‐20  -­‐15  -­‐10  -­‐5  0  5  

10  15  20  

2007  -­‐  Jan  

2007  -­‐  May  

2007  -­‐  Sep  

2008  -­‐  Jan  

2008  -­‐  May  

2008  -­‐  Sep  

2009  -­‐  Jan  

2009  -­‐  May  

2009  -­‐  Sep  

2010  -­‐  Jan  

2010  -­‐  May  

2010  -­‐  Sep  

2011  -­‐  Jan  

2011  -­‐  May  

2011  -­‐  Sep  

2012  -­‐  Jan  

2012  -­‐  May  

2012  -­‐  Sep  

2013  -­‐  Jan  

2013  -­‐  May  

2013  -­‐  Sep  

2014  -­‐  Jan  

Page 18: Presentation: Housing Market and Economic Outlook

Home  Price  Index  in  Phoenix  and  St.  Louis  Repeat-­‐Transac:on  Home  Price  Index  

80  

130  

180  

230  

280  

330  

1995  -­‐  Q1  

1995  -­‐  Q4  

1996  -­‐  Q3  

1997  -­‐  Q2  

1998  -­‐  Q1  

1998  -­‐  Q4  

1999  -­‐  Q3  

2000  -­‐  Q2  

2001  -­‐  Q1  

2001  -­‐  Q4  

2002  -­‐  Q3  

2003  -­‐  Q2  

2004  -­‐  Q1  

2004  -­‐  Q4  

2005  -­‐  Q3  

2006  -­‐  Q2  

2007  -­‐  Q1  

2007  -­‐  Q4  

2008  -­‐  Q3  

2009  -­‐  Q2  

2010  -­‐  Q1  

2010  -­‐  Q4  

2011  -­‐  Q3  

2012  -­‐  Q2  

2013  -­‐  Q1  

Page 19: Presentation: Housing Market and Economic Outlook

Change  in  Home  Price  (%  change  from  one  year  ago)  

-­‐10  

-­‐5  

0  

5  

10  

15  

2011  -­‐  Jan  

2011  -­‐  Mar  

2011  -­‐  May  

2011  -­‐  Jul  

2011  -­‐  Sep  

2011  -­‐  Nov  

2012  -­‐  Jan  

2012  -­‐  Mar  

2012  -­‐  May  

2012  -­‐  Jul  

2012  -­‐  Sep  

2012  -­‐  Nov  

2013  -­‐  Jan  

2013  -­‐  Mar  

2013  -­‐  May  

2013  -­‐  Jul  

2013  -­‐  Sep  

2013  -­‐  Nov  

2014  -­‐  Jan  

2014  -­‐  Mar  

NAR   Case-­‐Shiller   CoreLogic  

Page 20: Presentation: Housing Market and Economic Outlook

Median  Home  Price  –  Rising  ($40,000  Equity  Gain  in  3  years)  

$166,100  $176,800  

$197,100  $208,200  

$150,000  $160,000  $170,000  $180,000  $190,000  $200,000  $210,000  $220,000  

2011   2012   2013   2014  forecast  

Page 21: Presentation: Housing Market and Economic Outlook

Inevitable  Rise  in  Mortgage  Rates  will  further  hurt  Affordability  

1/3rd  of  homeowners  have  no  mortgage  1/3rd  have  4.3%  rate  or  lower  

1/3rd  have  higher  rate  

3  4  5  6  7  8  9  

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  

2012  -­‐  Jan  

2012  -­‐  Jul  

2013  -­‐  Jan  

2013  -­‐  Jul  

2014  -­‐  Jan  

%  

Page 22: Presentation: Housing Market and Economic Outlook

Locked-­‐in  Effect  of  Low  Rates?  •  Housing  cannot  get  back  to  normal  in  a  hurry  •  People  move  even  in  high  interest  rate  environment  

– Marriage,  divorce,  new  baby,  school  district,  new  job,  fed-­‐up  with  local  government,  …  

•  Many  unplanned  landlords  –  Take  advantage  of  rising  rents  while  rates  are  low  and  fixed  

•  Poten:al  future  lock  from  longer  holding  period  for  capital  gains  tax  exclusion  

Page 23: Presentation: Housing Market and Economic Outlook

Rising  Renters’  and  Homeowners’  Rent  Growth    (On  the  Way  to  3%)  

-­‐1  0  1  2  3  4  5  

2003  -­‐  Jan  

2003  -­‐  Jun  

2003  -­‐  Nov  

2004  -­‐  Ap

r  2004  -­‐  Sep  

2005  -­‐  Feb  

2005  -­‐  Jul  

2005  -­‐  De

c  2006  -­‐  May  

2006  -­‐  Oct  

2007  -­‐  Mar  

2007  -­‐  Au

g  2008  -­‐  Jan  

2008  -­‐  Jun  

2008  -­‐  Nov  

2009  -­‐  Ap

r  2009  -­‐  Sep  

2010  -­‐  Feb  

2010  -­‐  Jul  

2010  -­‐  De

c  2011  -­‐  May  

2011  -­‐  Oct  

2012  -­‐  Mar  

2012  -­‐  Au

g  2013  -­‐  Jan  

2013  -­‐  Jun  

2013  -­‐  Nov  

Owners'  Equivalent  Rent   Renters'  Rent  

Page 24: Presentation: Housing Market and Economic Outlook

REALTOR®  Rent  Survey  –    Shows  Rent  Pressure  

0  10  20  30  40  50  60  

Falling   Rising  

Page 25: Presentation: Housing Market and Economic Outlook

If  there  is  persistent  housing  shortage  …  then  the  basle  begins  

 Landlord  from  Hell  

 versus  Rent  Control  

 

Page 26: Presentation: Housing Market and Economic Outlook

Housing  Starts  Rising  …  More  Inventory  But  Needs  to  Reach  1.5  1.7  million  

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  

2012  -­‐  Jan  

2013  -­‐  Jan  

2014  -­‐  Jan  

mul:family   single-­‐family  

Thousand units (annualized)

Long-term Average

Page 27: Presentation: Housing Market and Economic Outlook

New  Home  Sales  

0  200  400  600  800  1000  1200  1400  1600  

2000  -­‐  Jan  

2001  -­‐  Jan  

2002  -­‐  Jan  

2003  -­‐  Jan  

2004  -­‐  Jan  

2005  -­‐  Jan  

2006  -­‐  Jan  

2007  -­‐  Jan  

2008  -­‐  Jan  

2009  -­‐  Jan  

2010  -­‐  Jan  

2011  -­‐  Jan  

2012  -­‐  Jan  

2013  -­‐  Jan  

2014  -­‐  Jan  

In  thousand  units  

Page 28: Presentation: Housing Market and Economic Outlook

Sluggish  Recovery  in  Housing  Starts  •  Cost  of  Construc:on  Rising  Faster  than  CPI  

•  Labor  Shortage  for  construc:on  work  

•  Construc:on  loan  difficulty  for  small  local  homebuilders  …  Dodd-­‐Frank  financial  regula:ons?  

Page 29: Presentation: Housing Market and Economic Outlook

Exis:ng  vs.  New  Home  Price  

$0  $50,000  

$100,000  $150,000  $200,000  $250,000  $300,000  $350,000  

2000  -­‐  Jan  

2002  -­‐  Jan  

2004  -­‐  Jan  

2006  -­‐  Jan  

2008  -­‐  Jan  

2010  -­‐  Jan  

2012  -­‐  Jan  

2014  -­‐  Jan  

Exis:ng   New  

Page 30: Presentation: Housing Market and Economic Outlook

Economic  Outlook  

Page 31: Presentation: Housing Market and Economic Outlook

Monetary  Policy  •  Tapering  Ends  by  the  year  end  2014  •  Fed  Funds  Rate  …  hike  in  2015  Q1  •  Earlier  Move  to  Tighten  because  of  Infla:on  Pressure  

•  Long-­‐term  Steady  State  Rate  (2016  onwards)  ..  10  year  Treasury  at  5.0%    …  250  basis  points  higher  than  current    

Page 32: Presentation: Housing Market and Economic Outlook

Core  Price  InflaAon:    Less  than  2%;    but  rose  at  2.5%  annualized  rate  

(%  change  from  one  year  ago)  

0.00  0.50  1.00  1.50  2.00  2.50  3.00  3.50  

1999  -­‐  Jan  

1999  -­‐  Jul  

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  

2012  -­‐  Jan  

2012  -­‐  Jul  

2013  -­‐  Jan  

2013  -­‐  Jul  

2014  -­‐  Jan  

All  items  exlcuding  fuel  and  energy  

Page 33: Presentation: Housing Market and Economic Outlook

GDP  Growth  =  Job  Crea:ons  (8  million  lost  …  8  million  gained)  

124000  126000  128000  130000  132000  134000  136000  138000  140000  

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  

2012  -­‐  Jan  

2012  -­‐  Jul  

2013  -­‐  Jan  

2013  -­‐  May  

2013  -­‐  Nov  

In thousands

Page 34: Presentation: Housing Market and Economic Outlook

Local  Market  Job  Comparisons  Fast  Growing  States   1-­‐year  Growth  Rate  

Nevada   3.8%  

North  Dakota   3.7%  

Colorado   3.0%  

Florida   3.0%  

Oregon   2.7%  

Texas   2.7%  

Utah   2.6%  

Delaware   2.4%  

California   2.3%  

Arizona   1.9%  

Slow  Moving  States   1-­‐year  Growth  Rate  

New  Mexico   -­‐0.2%  

Kentucky   -­‐0.2%  

New  Jersey   0.0%  

Virginia   0.1%  

Alaska   0.2%  

West  Virginia   0.3%  

Pennsylvania   0.3%  

Maryland   0.3%  

D.C.   0.4%  

Mississippi   0.5%  

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Business  Spending  in  rela:on  to  Corporate  Profits  …  Huge  Poten:al  for  Business  Spending  Increase  

0  500  1000  1500  2000  2500  

1980  -­‐  Q1  

1981  -­‐  Q3  

1983  -­‐  Q1  

1984  -­‐  Q3  

1986  -­‐  Q1  

1987  -­‐  Q3  

1989  -­‐  Q1  

1990  -­‐  Q3  

1992  -­‐  Q1  

1993  -­‐  Q3  

1995  -­‐  Q1  

1996  -­‐  Q3  

1998  -­‐  Q1  

1999  -­‐  Q3  

2001  -­‐  Q1  

2002  -­‐  Q3  

2004  -­‐  Q1  

2005  -­‐  Q3  

2007  -­‐  Q1  

2008  -­‐  Q3  

2010  -­‐  Q1  

2011  -­‐  Q3  

2013  -­‐  Q1  

Profits   Business  Spending  

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Economic  Forecast  2013   2014  

forecast  2015  

forecast  GDP  Growth   1.9%   2.2%   2.9%  

Job  Growth   1.7%   1.6%   1.9%  

CPI  Infla:on   1.4%   2.5%   3.5%  

Consumer  Confidence   73   82   86  

10-­‐year  Treasury   2.5%   3.0%   3.8%  

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Housing  Market  Outlook  

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Pent  Up  Demand  2000   2013  

Exis:ng  Home  Sales   5.2  m   5.1  m  

New  Home  Sales   880  K   430  K  

Mortgage  Rates   8.0%   4.0%  

Payroll  Jobs   132.0  m   136.4  m  

Popula:on   282  m   316  m  

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Vaca:on  Home  Sales  

 -­‐          200      400      600      800    

 1,000      1,200    

2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013  

In  thousands  

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Household  Net  Worth    

40000  45000  50000  55000  60000  65000  70000  75000  

2000  -­‐  Q1  

2000  -­‐  Q4  

2001  -­‐  Q3  

2002  -­‐  Q2  

2003  -­‐  Q1  

2003  -­‐  Q4  

2004  -­‐  Q3  

2005  -­‐  Q2  

2006  -­‐  Q1  

2006  -­‐  Q4  

2007  -­‐  Q3  

2008  -­‐  Q2  

2009  -­‐  Q1  

2009  -­‐  Q4  

2010  -­‐  Q3  

2011  -­‐  Q2  

2012  -­‐  Q1  

2012  -­‐  Q4  

$  billion  

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Home  Countries  for  Interna:onal  Buyers  Preliminary  Analysis,  Subject  to  Change    

*  Includes  People’s  Republic  of  China,  Taiwan,  and  Hong  Kong  

Brazil   Canada   China*   Germany   India   Japan   Mexico   Russia   United  Kingdom  

2011   3%   23%   9%   4%   7%   2%   7%   1%   7%  2012   3%   24%   12%   3%   6%   1%   8%   2%   6%  2013   2%   23%   12%   3%   5%   1%   8%   2%   5%  2014P   2%   18%   18%   3%   4%   2%   9%   1%   6%  

0%  

5%  

10%  

15%  

20%  

25%  

30%  

Distribu:on  of  Interna:onal  Sales  by  Country  of  Origin    

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Will  China  overtake  the  U.S.  in  GDP?  Had  An:cipated  around  2010  

0  

5000  

10000  

15000  

20000  

25000  

1929  

1933  

1937  

1941  

1945  

1949  

1953  

1957  

1961  

1965  

1969  

1973  

1977  

1981  

1985  

1989  

1993  

1997  

2001  

2005  

2009  

2013  

2017  

2021  

2025  

U.S.  (growing  3%)   China  (growing  8%)  

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Chinese  Yuan  vs.  U.S.  Dollar    (Yuan  per  $)  

5.00  5.50  6.00  6.50  7.00  7.50  8.00  8.50  

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  

2012  -­‐  Jan  

2012  -­‐  Jul  

2013  -­‐  Jan  

2013  -­‐  Jul  

2014  -­‐  Jan  

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Global  Pent-­‐Up  Demand  from  Rising  World  Popula:on  

0  

2  

4  

6  

8  

10  

1000   1100   1200   1300   1400   1500   1600   1700   1800   1900   2000   2100  

In  billions  

World-­‐Class  Ci:es  will  Benefit  !  •  Boston,  Chicago,  Dallas,  Miami,  New  York,  San  Diego,    

San  Francisco,  Washington  D.C.,  etc.  

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Housing  Forecast  2013   2014  

forecast  2015  

forecast  Housing  Starts   925,000   1.07  million   1.4  million  

New  Home  Sales   430,000   510,000   710,000  

Exis:ng  Home  Sales   5.1  million   4.9  million   5.2  million  

Median  Price   $197,000   $209,000   $219,000  

30-­‐year  Rate   4.0%   4.7%   5.5%  

Dollar  Volume  Es:mate   +21%   +3%   +11%  

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Housing  Market    and    

Economic  Outlook  Lawrence  Yun,  Ph.D.  Chief  Economist  

NATIONAL  ASSOCIATION    OF  REALTORS®    

PresentaAon  in  Washington,  D.C.        

May  15,  2014          

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Housing Demand

Eric Belsky May 2014

Washington, DC

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Federal Surveys Providing a Murky Picture on Extent of Recent Household Growth

0

500

1,000

1,500

2011 2012 2013

Change in Households (Thousands)

Housing Vacancy Survey Current Population Survey American Community Survey

Note: Data for 2013 American Community Survey is not yet available and is not presented on this slide. Household growth for Housing Vacancy Survey uses revised 2010/12 vintage weights, and the Current Population Survey uses 2010 vintage weights

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Hard to Know What’s Happening With Household Growth But . . . Long-Run Housing Production Is

WAY Below Narrow Normal Range

0 500

1,000 1,500 2,000

Lagging Ten-Year Annual Average Housing Completions and Manufactured Home Placements (Thousands)

Median Source: US Census Bureau

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WAITING FOR STRONGER DEMAND REBOUND

50

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Even CPS Suggests Cumulative Household Growth Is Now 1.5 Million Below Even Modest 1.14M ’95 -’00 Trend

-4,000

-3,000

-2,000

-1,000

0

1,000

2006 2007 2008 2009 2010 2011 2012

Change in Number of Households (Thousands)

CPS vs 1995-2000 Rate CPS vs. 2000-2005 Rate

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Nearly 3 Million More Adults in Their 20s and Early 30s Lived with their Parents In 2012 Than 2007

0

500

1,000

1,500

2,000

20-24 25-29 30-34 Age

Change from 2007-2012 in Number of Adult Children Living with Parents (Thousands)

Source: JCHS tabulations of US Census Bureau, Current Population Survey

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Real Median Incomes for All Young Adult Households Have Declined Since Great Recession

-15

-10

-5

0

20-24 25-29 30-34 35-39 Age

2007-2012 Change in Real Median Household Incomes (Percent)

Note: Percent change based on dollar values that have adjusted for inflation using the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, Current Population Survey.

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A Significant But Lower Fraction of Adult Children Living with Parents Were Employed Full Time in ‘12 than ‘07

0

50

100

20-24 25-29 30-34 35-39 Age

Share of Adult Children Living with Parents Who Have Full-Time Employment (Percent)

2007 2012

Source: JCHS tabulations of US Census Bureau, Current Population Survey

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Student Default Rates Have Soared, Hindering Ability to Qualify for a Mortgage

0 2 4 6 8

10 12 14

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

2012

: Q1

2012

: Q3

2013

: Q1

2013

: Q3

Share of Seriously Delinquent Student Loans (Percent)

Note: Seriously delinquent student loans are defined as 90-plus days delinquent. Source: Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit.

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0 10 20 30 40 50 60 70 80 90

100

2004 2010

Payments are 15 percent or greater of monthly income

Payments are 10 to 14.9 percent of monthly income

Payments are 5 to 9.9 percent of monthly income 0

10 20 30 40 50 60 70 80 90

100

2004 2010

Share of Households with Head Aged 20 to 29 (Percent), By Tenure and Year

Student Debt Payments May Pose a Significant Barrier to Mortgage Borrowing For As Many 1 in 10 Renters in Their 20s

Renters Owners Source: JCHS tabulations of Federal Reserve Board, Survey of Consumer Finances

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0 10 20 30 40 50 60 70 80 90

100

2004 2010 0

10 20 30 40 50 60 70 80 90

100

2004 2010

Payments are 15 percent or greater of monthly income Payments are 10 to 14.9 percent of monthly income Payments are 5 to 9.9 percent of monthly income Payments are less than 5 percent of monthly income Has student loan debt but not making payments on it

Has no student loan debt

And Even Smaller Share of Renters in Their 30s Are Spending 5 Percent+ of Income on Student Debt

Renters Owners Source: JCHS tabulations of Federal Reserve Board, Survey of Consumer Finances

Share of Households with Head Aged 30 to 39 (Percent), By Tenure and Year

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Household Growth Is Expected to Rival or Top 1995-2000 Annual Average Pace

500 600 700 800 900

1,000 1,100 1,200 1,300

1995-2000

CPS HVS

Source: JCHS Household Projections (for Projected Annual Average Household Growth)

500 600 700 800 900

1,000 1,100 1,200 1,300

2000-2010

Decennial Census

500 600 700 800 900

1,000 1,100 1,200 1,300

JCHS Projections 15-25 Low Projection Middle Projection High Projection

Average Annual Household Growth (Thousands)

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Minority Households Will Account for 76 Percent of Household Growth Over the Next Decade

0 20 40 60 80

100

Household Composition in 2012 ACS

Projected Composition of Household Growth,

2015-2025

Percent Share of Households, by Race and Ethnicity

Asian/other Hispanic Black, non-Hispanic White, non-Hispanic

Source: JCHS tabulations of US Census Bureau, 2012 American Community Survey; JCHS Household Projections, Middle Series

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The Greatest Increase in Households Will Be Among Households 65 and Older

0 2 4 6 8

10 12 14

<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 2015 2025

Projected Households (Millions)

60

Source: JCHS households projections.

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WILL V. WAY

61

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Nearly All People Under Age 45 Expect to Buy in the Future . . .

0

20

40

60

80

100

Under 25 25 to 34 35 to 44 45 to 54 55 to 64

% Who Expect to Buy a Home at Some Point in the Future

Source: Drew and Herbert, 2012. Based on Fannie Mae National Housing Survey 2010-2012.

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But Underwriting Has Tightened Dramatically

0

20

40

60

80

100

2006 2007 2008 2009 2010 2011 2012

Share of FHA-Insured Mortgages by Dollar Volume (Percent)

Below 640 640-679 680-850

0

20

40

60

80

100

2001 2011

Share of Freddie Mac and Fannie Mae Originations (Percent)

Higher Risk Medium Risk Lower Risk

Notes: Higher (lower) risk loans are to borrowers with credits scores under 690 (above 750) and have loan-to-value ratios above 85% (below 75%). FHA data exclude records with no credit score information. Sources: Amherst Securities; US Department of Housing and Urban Development.

Credit Score

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Demanding More Down or Capping Credit Scores Disproportionately Impacts Minorities

12

38

11

29

60

27 18

49

18 5

23

6 0

10 20 30 40 50 60 70

3% Downpayment 10% Downpayment FICO 660

Perc

ent o

f Per

form

ing

Loan

s Ex

clud

ed

Non-Hispanic White African American Latino Asian

64

Percent of performing loans excluded from mortgage market 2004-2008 originations (1st lien, owner occupied, full doc only--excludes IO, neg. am and < 5 year hybrid ARMs)

Source: Roberto Quercia, Lei Ding, and Carolina Reid (2012). Balancing Risk and Access: Underwriting Standards for Qualified Residential Mortgages, Center for Community Capital Research Report, January 2012.

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. . . And those with Lower Incomes

25

49

25 22

49

18 13

42

12 7

32

8

0 10 20 30 40 50 60

3% Downpayment 10% Downpayment FICO 660

Perc

ent o

f Per

form

ing

Loan

s Ex

clud

ed

Low-Income Moderate-Income Middle-Income Upper-Income

65

Percent of performing loans excluded from mortgage market 2004-2008 originations (1st lien, owner occupied, full doc only--excludes IO, neg. am and < 5 year hybrid ARMs)

Note: Income categories are defined as follows: low—less than 50% of MSA median income; moderate—50-79%; middle—80-119%; and upper—120%+ of MSA median income. Source: Roberto Quercia, Lei Ding, and Carolina Reid (2012). Balancing Risk and Access: Underwriting Standards for Qualified Residential Mortgages, Center for Community Capital Research Report, January 2012.