real estate market 1209 nar

8/14/2019 Real Estate Market 1209 NAR

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Real Estate MarketTrends & Outlook

Lawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION

OF REALTORS

Presentationat MarquetteUniversity

December 10, 2009


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Housing Stimulus Impact

Tax Credit and Higher Loan Limit

Raised Sales by 350,000 to 400,000 among First-time buyersin 2009

In 2010

Existing Home Sales gets 15% boost

Home Price gets 3% to 5% boost

Preservation of Middle-Class Wealth


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Recent Pending Home Sales

6 6

6 6

6 6

6 6

6 6 6

6 6 6

111

Recovery pre-dominantly in lower-end and taking

longer to close in recent months

Source: NAR


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Bifurcated Recovery

$ thousand

Homes priced under $100K

Homes priced above $500K

% change from one year ago

Source: NAR


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Aggregate Months Supply

6

6

6

6 6

Source: NAR

In thousand units


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National Existing Home Sales

6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 1111 6 6 6 6 1111 6 6 6 6 1111

Pre-boom sales


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Wisconsin Existing Home Sales

In thousand units


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Wisconsin Home Sales -Quarterly

% Change from one year ago


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First-Time Buyers Used Up orPent-Up Demand ?

In year 2000 (pre-boom)

11 million renters with qualifying income to buy a medianpriced home

In 2009

16 million renters with qualifying income to buy a medianpriced home

Most renters are not qualified and should not be homeowners


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First-Time Buyers Used Up orPent-Up Demand ?

2000

(pre-boom)

2009

(3 months prior to taxcredit)

2009

(recent 3 months with tax credit)

Existing Home Sales 5.2 m 4.6 m 5.3 m

New Home Sales 880 K 364 K 418 K

Payroll Jobs 131.8 m 135.0 m 131.4 m

Household Jobs 136.9 m 143.2 m 140.0 m

Median Home Price $143,600 $173,600 $177,900

Mortgage Rates 8.1% 5.5% 5.2%

Underwriting Standard + FHA % Normal (not loose)FHA about 10%

About NormalFHA 24%

About NormalFHA 15% to 20% with higher credit score

Household Income $41,990 $50,303 $50,303

# renters that could buy a median

priced home (assume no tax credit)

11.5 million 16.2 million 16.1 million

Change in Pool of Potential 1st TimeBuyers (without tax credit)

N/A 4.7 million 4.6 million

Change in Pool of Potential 1st TimeBuyers (with tax credit)

N/A/ 4.7 million 5.4 million

Fear Factor Impact (Waiting to buylater at a lower price)

N/A Hard to Measure Hard to Measure


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Household FormationHousehold Formation(2-year moving average)


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Preservation of Middle Class Wealth

$8000 Price Drop or $8000 Tax Credit ? No difference from buyers perspective

Major differences on market impact $8,000 or 4% decline value means $730 billion inhousing wealth destruction

Consumer wealth effects

Consumers rational postponement of purchase


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Financial Wealth RisingFinancial Wealth Rising

$ billion

Source: Federal ReserveSource: Federal Reserve, NAR estimate


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Housing Wealth to RiseHousing Wealth to Rise($4 trillion wealth loss in housing from peak)

If additional $8,000 price decline $700 billion further loss

$ billion

Source: Federal ReserveSource: Federal Reserve, NAR estimate


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Bubble Wealth All Removed

$ thousand Sarasota

Milwaukee

Source: NAR


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National Existing Home Price

0

50000

100000

150000

200000

250000

1970 1975 1980 1985 1990 1995 2000 2005

First-time buyers attracted to deeply discounted distressed sale properties.


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Overcorrection Needs to be Halted(Home Price to Income Ratio)

2 . 0

2 . 2

2 . 4

2 . 6

2 . 8

3 . 0

3 . 2

3 . 4

3 . 6

Stay within Budget and all will be OK !

Source: NAR


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Mortgage Payment to Income(by middle income person buying a median priced home)

2 . 0

7 . 0

1 2 .0

1 7 .0

2 2 .0

2 7 .0

3 2 .0

3 7 .0

4 2 .0

Stay within Budget and all will be OK !

Source: NAR


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Latest Monthly Home Price TrendCase-Shiller, Govt (FHFA), NAR Seasonally Adjusted Data

$ thousand

NAR

FHFA

Case-Shiller


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Housing Starts: Too Much to Too Little

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

New Units Needed

3 million more people each year 1 to 1.4 million household formation need to account for 300,000 demolitions . need 1.3 to 1.7 new units


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Wisconsin Housing Permits

Source: Census

In thousand units


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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 may need funds to implement a countercyclical policyFannie-Freddie will need funds future reform of the secondary mortgage marketVeterans Affairs backed mortgages slight rise even though a zero-down product stay within budget and all will be OK!

VA (purple)

FHA

Prime (green)


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-6.0

-3.0

0.0

3.0

6.0

9.0

2005

-

Q1

2005

-

Q3

2006

-

Q1

2006

-

Q3

2007

-

Q1

2007

-

Q3

2008

-

Q1

2008

-

Q3

2009

-

Q1

2009

-

Q3

2009Q4

Economy Recovering

GDP annualized growth rate

Source: BEA

Forecast


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Total Payroll Jobs in U.S.

124000

126000

128000130000

132000

134000

136000

138000

140000

Source: BLS

In thousands

Total Jobs in U.S.Total Jobs in U.S.


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2 7 0 0

2 8 0 0

2 9 0 0

Source: BLS

In thousands

Total Payroll Jobs in WisconsinTotal Payroll Jobs in Wisconsin


26/39

3 5 0 0

4 0 0 0

4 5 0 0

5 0 0 0

Source: BLS

In thousands

Total Payroll Jobs in MichiganTotal Payroll Jobs in Michigan


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2 0 0 0

2 2 0 0

2 4 0 0

2 6 0 0

Source: BLS; (12-month moving average)

In thousands

Total Payroll Jobs in Washington D.C.Total Payroll Jobs in Washington D.C.

MetroMetro


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Federal Budget Deficit

-1,600,000

-1,400,000

-1,200,000

-1,000,000

-800,000

-600,000

-400,000-200,000

0

200,000

400,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate


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Federal Housing Policy

Tax Favoritism Mortgage interest deduction

Capital gains tax exclusion

Property tax deduction

But who pays taxes?

Ownership and Positive Externalities

Student test scores, teen pregnancy, juvenile delinquency

What is the proper homeownership rate?

Any Ownership vs Successful Ownership


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Economic Outlook

2008 2009 2010forecast

GDP 0.4% -2.5% 2.6%

CPI Inflation 3.8% -0.4% 1.6%

Unemployment Rate 5.8% 9.3% 10.0%

10-year Treasury 3.7% 3.2% 3.6%


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Housing Outlook

2008 2009 2010forecast

Existing Home Sales 4.9 m 5.1 m 5.7 m

New Home Sales 485 k 394 k 560 k

Home Price Growth -10% -13% 4%

Mortgage Rate 6.1% 5.1% 5.5%

Price Fear Factor ? ? None

C i l d R id ti lCommercial and Residential


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0

50

100

150

200

250

300

Index = 100 in 1990

Case-Shiller

MIT

2009 data is for Q2

Commercial and ResidentialCommercial and Residential

Property PricesProperty Prices


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Who Is Buying?Who Is Buying?


34/39

Commercial Credit Freeze


35/39

Credit Crisis 2008:Libor vs. Fed Funds Rate

Subprime acting up

Bear Stearns

Lehman Brothers

belly up


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Credit Crunch Ending?

Libor Rates improving Junk Bond yields becoming less wild

Banks making profit but are they getting too big again (75% ofassets controlled by 10 banks)

Federal Reserve lending at zero (though not to consumers)

Not Yet Need to see

Lower rate on jumbo mortgages

Lower rate on second home purchases

Lower rate on condo purchases

Lower rate on commercial real estate loans


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Office Market FundamentalsOffice Market Fundamentals


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Office Rent GrowthOffice Rent Growth


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Commercial Market OutlookCommercial Market Outlook

2008 to 2009 Net absorption turns negative

Rising Vacancy Rates and Stagnant Rent

Markedly Fewer Transactions

Property Prices Falling Distress Rising

2010 Economic recovery

Local market recovery

Commercial recovery with lag time

Modestly Positive net absorption

Rent struggles to move positive

real estate market 1209 nar

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