vision speech 2013 gary keller

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WILLIAMS@ REALT'l'

The Numbers ThatDrive U.S. Real Estate

2

AffordabilityHome Sales

Home Price

MortgageInventory

Home sales are up 9.2% to 4.65 million in 2012 from 4.26 million in 2011. Annual sales levels are now close to 2007 levels.

Source: NAR

Home Sales

3

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

4.74.34.34.64.4

4.9

5.76.26.0

5.45.04.74.64.74.5

4.03.83.53.53.43.22.92.93.0

Total Annual Single Family Home Sales (in Millions)

The year ended on a strong note with a 12.8% increase in the monthly annual pace of sales from December 2011 to 2012.

Source: NAR

Home Sales MONTHLY ANNUAL PACE OF SALES (Seasonally Adj.)

4

Dec '11 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '12

4.38

4.63 4.60

4.47

4.62 4.62

4.374.47

4.83

4.694.76

4.994.94

12.8% Increase Total Annual Home Sales (in Millions)

Median home prices are up 6.3% to $176,600. If prices followed a 4% appreciation rate each year, the median price would be $231,683. This implies prices may still be 23.8% undervalued, based on the trend line.

Source: NAR

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

Home Price

5

$231$222

$177$166

$179$198

$95

Long-Term Average = 4% Annual Median Home Price (in Thousands)

Sources: Census, * NAR

Annual Appreciation

6

1940 1950 1960 1970 1980 1990* 2000* 2010*

6.0%5.4% 5.5%

6.0%

4.4%

3.0%

1.9%$2,938 $7,354 $11,900 $17,000

$47,200

$96,400

$143,600

$172,900

Compounded Growth Rate from Given Year to 2010 Median Home Price

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

6.3%

-2.7%

0.6%

-12.5%-9.8%

-1.8%

1.3%

12.2%

8.3%7.5%7.0%6.3%4.3%3.8%

5.4%5.2%4.8%3.1%4.0%3.4%2.7%

5.5%2.9%

5.9%

Home price appreciation is back in positive territory and growing strong, thanks in part to less distressed sales and tightening inventory.

Source: NAR

Annual Appreciation

7

1989-2000 3.39%

2001-2005 8.9%

2006-2011 - 4.6%

Annual Median Home Price Appreciation

In December, the median home price was up 11.5% compared to the same month a year earlier. Prices reached a high of $188,800 during June, the highest monthly level since September 2008. The last time there were 10 consecutive monthly increases was August 2005-May 2006.

Source: NAR

Home Price MONTHLY

8


$162.2

$154.6 $155.6

$164.8

$173.7$180.3

$188.8 $187.8 $184.9$178.3 $176.9 $179.4 $180.8

11.5% Increase Monthly Median Home Price (in Thousands)

‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

4.8 4.5 4.6 4.7 4.7 4.3 4.5

6.5

8.910.4

8.8 9.48.3

5.9

Annual average inventory declined 28% and is back to balanced levels for the whole of 2012. While local markets may vary considerably, year-end monthly numbers show the United States is clearly in a seller’s market.

Source: NAR

Months Supply of Inventory

9

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Balanced = 6 months

Balanced = 6 months Annual Months of Inventory

31% Decline Months Supply of Inventory Balanced = 6 months

When looking at the monthly inventory levels, December 2011 to December 2012 months supply of inventory is down 31%. The last quarter of the year illustrates a clear move into a seller’s market.

Source: NAR

Months Supply of Inventory MONTHLY

10


6.4 6.0 6.3 6.2 6.5 6.4 6.5 6.4 6.0 5.6 5.3 4.8 4.4

Buye

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ktSe

ller’s

Mkt

Source: BrokerMetrics

Most markets are back to a seller’s market. Pennsylvania is one of the few buyer’s markets left.

Inventory MONTHLY Select Local MLS

11

0

5

10

15

20

Dec-11 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12

Buye

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ktSe

ller’s

Mkt

Mon

ths

Supp

ly

Balanced (6 months)Central PA Eastern PA Houston TX Miami FL Mid FL Austin TX San Diego CALos Angeles CA

After a sharp decline, new home building is picking back up as inventory falls.

Source: BEA

Residential Building Permits

12

Mar 2009All-time low

513

Sep 2005Hit a high of 2,263

Sep 1972All-time high of

2,419

Sep 1975Fell to 719

Steeper decline than 2005-2009higher interest rates and oil prices

Existing home inventoryResidential

building permitsin thousands

Jan 19601,092 Nov 2012

900

Jan 1991786

Residential Building Permits (in Thousands) Months Supply (in Months)

1972 1975 1980 1985 1990 1995 2000 2005 2010 2012

3.74.54.75.0

6.06.36.45.95.85.8

6.57.0

8.17.4

6.97.67.87.9

8.47.3

8.49.3

10.110.310.310.210.2

12.4

13.913.2

16.016.6

13.7

11.2

9.68.98.99.19.2

8.07.4

Mortgage rates hit a record low for the year of 2012 at 3.66%. The Federal Reserve has kept Treasury rates low and the spread, or difference, between the two has tightened since 2008.

Source: Freddie Mac

Mortgage Rates 30-Year Fixed

13

Annual Mortgage Rate (%)

The year ended on a record-breaking low. In November 2012, monthly interest rates hit an all-time low of 3.35% and stayed through the end of the year. Rates are down 2.8 percentage points and have declined 45% since January 2006.

Source: Freddie Mac

Mortgage Rates MONTHLY 2006-2012

14

Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Dec '12

Monthly Mortgage Rate

6.15%

3.35%

4.81%

6.76%

It takes a smaller slice of the typical family’s income to pay the mortgage on a median-priced home.

Source: NAR

Affordability

15

PERCENTAGE OF THE MEDIAN FAMILY INCOME REQUIRED FOR MEDIAN PRICE HOME PAYMENT

87.1%

12.9%

Everything ElsePrincipal and Interest Payment

78.4%

21.6%

Historically: 2012:

‘70 ‘75 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10 ‘12

It has never been more affordable to own a home—the United States breaks another record.

Source: NAR

Affordability

16

PERCENTAGE OF THE MEDIAN FAMILY INCOME REQUIRED FOR MEDIAN PRICE HOME PAYMENT

Long-Term Average = 21.6%

12.9%

23.2%

36.3%

17%

The Good Old Days

17

McDonald’s only had one arch and

hamburgers were 15 cents

Postage stamps were 3 cents

Gas was 20 cents per gallon

A night in the hospital was15 dollars

Source: BEA

Affordability in Perspective

18

1989

New Car: $15,350

Gas: $0.97

Bread: $0.67

2012

New Car: $30,000

Gas: $3.54

Bread: $1.99

Sources: NAR, Freddie Mac

Affordability in Perspective

19

1989Median Home Price: $94,000Mortgage Rate: 10%Monthly P&I Payment: $825

2012Median Home Price: $176,600Mortgage Rate: 3.4%Monthly P&I Payment: $626

The Numbers ThatDrive Canadian Real Estate

20

AffordabilityHome Sales

Home Price

MortgageInventory

Source: CREA

Home sales were stable in 2012 and are expected to be the same in 2013. New mortgage regulations are working as intended by spurring a tightening of the market.

Home Sales

21

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

453457447465432

521483484

460434419

382334335315331324

261298298

321295

246

317

Annual Home Sales (in Thousands)

‘80 ‘81 ‘82 ‘83 ‘84 ‘85 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

67 76 72 77 76 80 94 110 130 147 142 149 150 153 158 151 151 155 152 158 165 172 189 208 227 249 277 307 305 320 339 363 364

Source: CREA

Home prices were stable in 2012, rising by only 0.3% after a period of strong growth. Prices are above the 4.4% trend line, implying that prices may be overvalued in Canada. The government has taken measures to help cool the market, which is a positive indicator for long-term stability.

Home Price

22

Average Home Price (in Thousands $) ‘80-’00 Compounded Growth Rate (CAGR) = 4.4% ‘80-’12 CAGR = 5.4%

1981-851.5%

1986-8916.3%

2002-127.1%

1990-011.4%

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

47%

33%40%

44% 42% 42% 39%

48% 50% 50%56% 56%

63%

71%66% 64% 64% 61% 62%

47%

59%52% 53% 52%

Source: CREA

Inventory remains firmly balanced in Canada. Local markets may vary.

Inventory

23

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Selle

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lanc

ed

Source: CREA

Inventory Local Markets

24

0%

25%

50%

75%

100%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Winnipeg Calgary Kitchener-Waterloo Vancouver Island 40% 60%

Buye

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Mkt

Bala

nced

Source: Bank of Canada

Mortgage rates continue to be at all-time lows.

Mortgage Rates 5-Year Fixed

25

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

5.24%5.4%5.6%5.6%

7.1%7.1%6.7%6%6.2%6.4%

7%7.4%8.4%

7.6%6.9%7.1%

7.9%9.2%9.5%

8.8%9.5%

11.1%

13.4%12.1%

Source: RBC

Homeownership costs remained fairly stable over the last two years. Lower mortgage rates helped lessen the costs of owning a home in Canada. - Two storey homes have led the charge in deteriorating affordability, compared to the historic average. - Bungalows and condos remain fairly close to the norms.

Affordability

26

Property TypeQ3

2011Q3

2012Q3/Q3 Change

Avg. Since 1985

Q3 2012 Vs. Avg

Detached bungalow 42.7% 42.0% -0.7% 39.4% +2.6%

Standard two-storey 48.8% 47.8% -1.0% 43.8% +4%

Standard condo 29.0% 28.0% -1.0% 27.1% +0.9%

PERCENTAGE OF MEDIAN PRE-TAX HOUSEHOLD INCOME REQUIRED TO SERVICE THE COST OF MORTGAGE PAYMENTS (PRINCIPAL, INTEREST, PROPERTY TAXES, AND UTILITIES)

An increase in cost (%) represents deteriorated affordability ( )A decrease in cost (%) represents improved affordability ( )

The United States Economy

27

Gross Domestic Product Unemployment Inflation

2012 marks the third year in a row of positive growth.

Source: BEA

Gross Domestic Product ANNUALLY

28

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

2.2%1.7%

3%

-3.5%

-0.3%

1.9%2.7%3.1%3.5%

2.5%1.8%

1.1%

4.1%4.8%4.4%4.5%

3.7%

2.5%

4.1%

2.9%3.4%

-0.2%

1.9%

3.6%

Real GDP Year-over-Year Change

After six quarters of strong growth, Q4 GDP disappoints with a slight contraction—the first since Q2 2009.

Source: BEA

Gross Domestic Product QUARTERLY

Q1 ‘07 Q3 ‘07 Q1 ‘08 Q3 ‘08 Q1 ‘09 Q3 ‘09 Q1 ‘10 Q3 ‘10 Q1 ‘11 Q3 ‘11 Q1 ‘12 Q3 ‘12

-0.1%

3.1%

1.3%2.0%

4.1%

1.3%2.5%

0.1%

2.4%2.6%2.2%2.3%

4.0%

1.4%

-0.3%

-5.3%

-8.9%

-3.7%

1.3%

-1.8%

1.7%3.0%3.6%

0.5%

29Real GDP Growth Rate, Quarterly, Seasonally Adjusted

Although the annual level of unemployment spiked in a recession spurred on by the Fed in the early 80s, monthly unemployment hit 10% in October 2009, the highest since World War II.

Source: BLS

Unemployment ANNUALLY

30

1947 1950 1960 1970 1980 1990 2000 2012

9.7%1982

8.1% 2012

Historical standard = 5.6%

New Normal? = 6.5%

3.9%1947 2.9%

1953

9.6%2010

4.6%2006-7

Annual Unemployment

Source: BLS

Unemployment MONTHLY

31

0%

2.5%

5.0%

7.5%

10.0%

Jan08 May08 Sep08 Jan09 May09 Sep09 Jan10 May10 Sep10 Jan11 May11 Sep11 Jan12 May12 Sep12 Jan13

Sharp Jump

From 5% in Jan

2008 to 10% Oct 2

009

Steady Gradual DeclineSince hitting 10% in October 2009, now at 7.9%

7.9%

5.0%

10.0%

Inflation remains close to the 2% target rate.

Source: BEA

Inflation

32

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

4.5%

5.0%

1.4%

5.4%

1.0%1.7%

CIP (includes energy) Core CIP (excludes energy) Target = 2%

The Canadian Economy

33

Gross Domestic Product Unemployment Inflation

Source: Statistics Canada

After rebounding sharply in 2010, economic growth has slowed but remains positive.

Gross Domestic Product

34

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

1.9%2.4%

3.4%

-3.0%

0.9%

2.3%2.8%3.0%3.1%

2.1%2.7%

1.4%

5.3%5.6%

3.9%

Real GDP Year-over-Year Change


Unemployment continues a downward trend, improving the conditions for employees and job seekers.

‘76 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10

7.18.1 8.4

7.5 7.5 7.6

11.112.0

11.410.5

9.68.8

7.8 7.58.2

10.311.211.4

10.49.5 9.6

9.18.3

7.66.8

7.3 7.7 7.6 7.2 6.86.3 6.1 6.2

8.3 8.07.5 7.1

Unemployment

35

Long-Term Average = 8.5% Unemployment


Since the early ‘90s, core inflation, which excludes energy, has been fairly stable.

Inflation Consumer Price Index

36

‘85 ‘90 ‘95 ‘00 ‘05 ‘10 ‘12

4.5%

1.3%

2.4%

1.7%

CIP (includes energy) Core CIP (excludes energy) Target = 2%

Events That Drive the Numbers in the United States

37

Industry Worldwide Government

‘76 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10 ‘12

13.8 14.0

12.7

11.1

8.57.6

7.0

9.4 9.19.6 9.9

9.3 9.5

8.0 7.9 8.29.2

10.3 10.7 10.711.6

12.2

13.8 13.6 13.5 13.312.9 12.6 12.3

11.2

9.5

7.56.9

7.8 7.98.4

10.1

Source: NAR

As the number of agents continues to decline and the number of sales increases, the number of available sales is up to a 7-year high.

Sides Per Agent The average transactions available per agent

38

Sides Per Agent Agents (in Thousands) Available Sides (in Millions)

1,000

10.1

1,35814.2

6.44.4

6.7

8.7 823

486

718

9.9

Source: NAR

2012 is up 57% from the all-time low in 2008 and just 20% down from the 20-year high in 1998.

Sides Per Agent The average transactions available per agent

39

‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

10.1

8.47.97.8

6.97.5

9.5

11.212.312.612.913.313.513.613.8

12.211.6

10.710.710.3 Up 57%

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: Federal Reserve

Lending has been up since Q2 2011 but fell in Q4, likely due to uncertainty around the fiscal cliff.

Credit Conditions

40

17.1%

-8.7%

2.4%

Annual Growth Rate in All Bank Credit 0%

8.8%

0%

Oct '08 Feb ’09 Jun '09 Oct ‘09 Feb ’10 Jun '10 Oct ‘10 Feb ‘11 Jun ‘11 Oct ‘11 Feb ‘12 Jun ‘12 Oct ‘12

Source: NAR

Distressed property sales stabilized in mid-2012, which is an important key to a healthy overall market. 24% of the market is distressed—split evenly between short sales and foreclosures.

Foreclosures

41

Foreclosures Short Sales

49%

29%

38%34%

31%

40%

29%

35%

24%22%

Sources: The Wall Street Journal, European Central Bank, Goldman Sachs

The outlook for Europe is bleak.

GDP for the Eurozone contracted by 0.5%. Contraction has taken root in many countries, with Germany, the strongest Eurozone economy, contracting in Q4 2012. This is the first year the currency area has not posted positive growth in any quarter dating back to 1995.

Unemployment averaged 11.8% in November 2012 but is much worse in struggling countries (Spain, Italy, Greece) and among the youth who have an average 24.4% unemployment. - Spain’s overall unemployment is 25% and 57% for their youth.

European Debt Crisis

42

Sources: The Wall Street Journal, European Central Bank

The fiscal cliff referred to a list of across-the-board tax increases and automatic spending cuts that would have taken place in 2013 without legislative action.

It was averted in part by the American Taxpayer Relief Act of 2013 passed January 2 this year.- Bush-era tax rates were extended, payroll tax was not- The automatic spending cuts were pushed to March.

A new deadline for part II of this conversation—averting automaticspending cuts—is March 1.

Fiscal Policies: Cliffs, Sequesters, and Debt Ceiling

43

Source: The Wall Street Journal

In January 2013, an $8.5 billion deal was agreed upon between ten big mortgage lenders and regulators to increase efficiency and end the loan-by-loan review of foreclosures.

This was to address the Independent Foreclosure Review that was intended to review loans foreclosed from 2009-2010. This review was said to be poorly designed and executed.

The $8.5 billion includes cash contributions, changes in loan terms, and mortgage forgiveness. It pays up to $125,000 to homeowners who were victims of improper foreclosure proceedings.

There are concerns that this may “allow banks to skirt what they owe and sweep past abuses under the rug ...”

Mortgage Settlement

44

Events That Drive the Numbers in Canada

45

Industry GovernmentCredit

Source: CREA

Available sides per agent is down 3.5% from last year but remains relatively steady since 2008.

Sides Per Agent

46

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

8.58.88.89.5

8.9

11.110.911.712.012.212.612.2

10.510.19.2


Canadians continue to benefit from record-low interest rates thanks to continuing supportive monetary policy.

Monetary Policy

47

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12

12.113.4

11.19.5

8.89.5 9.2

7.97.1 6.9 7.6

8.47.4 7.0 6.4 6.2 6.0 6.7 7.1 7.1

5.6 5.6 5.4 5.2

Long-Term Average = 9.8%

Source: Bank of Canada Review; Winter 2011-2012 Crawford, Faruqui

A major concern in Canada is the steadily rising household debt, which surpassed that of the United States in 2012.

Rising Household Debt

48

170%

160%

140%

120%

100%

80%

60%1980 1984 1988 1992 1996 2000 2004 2008 2011

Canada

U.S.

Europe

U.K.


Persistent strength of the Canadian dollar will continue to hinder Canada’s competitiveness in the global market, restraining its exports and widening the trade deficit. However, it is a signal of the strength of the Canadian economy.

Strong Currency

49

2011 1 CAD = .97 USD

2012 1 CAD = 1.02 USD

Source: RBC

Decrease the maximum (insured by the Housing Corporation) amortization length to 25 years.- The difference between a 25-year and 30-year amortization can be $200-300 per month. Many prospective home buyers jumped on before the rule took effect.- Shortening the repayment period decreases the amount of mortgage a family can qualify for. A household income of $75,000 may now qualify for $50,000 less in their mortgage. - This may discourage homeownership, encourage families to purchase smaller homes, or push back the first-time home buyer age across the country.

Home equity loans can have a maximum LTV of 80%, down from 85%. Mortgages must be insured if the down payment is less than 20%.

The limits are now back to where they were in 2006 before the government modifiedthe rules so more households could qualify.

This new regulation went into effect July 9.

Mortgage Regulations Tighten

50

LuxuryReal Estate

51

The Wealthy Inventory Days on Market

List-to-Sell Opportunity

Sources: Merrill Lynch Global Wealth Management and Capgemini

The world’s population of high net worth individuals (HNWI) remained fairly consistent with the previous year’s numbers and are up from 2006.

The World’s Wealthy

52

YearHNWI in US

(in Thousands)

HNWI in Canada

(in Thousands)

Global HNWI (in Millions)

Wealth of Global HNWIs (in US$ Trillions)

2005 2,669 232 8.8 $33.42006 2,920 248 9.5 $37.22007 3,019 281 10.1 $40.72008 2,460 231 8.6 $32.82009 2,866 251 10.0 $39.02010 3,104 282 10.9 $42.72011 3,068 280 11 $42.0

2006 - 2011 5.1% increase

12.9% increase

15.8% increase

12.9%increase

Real estate continues to make up a sizable portion of HNWIs’ investment portfolio.

Allocation of Financial Assets

53

YearReal

EstateCash/

DepositsFixed

Income EquitiesAlternative Investments

2004 16% 13% 24% 28% 19%

2005 16% 13% 21% 30% 20%

2006 24% 14% 21% 31% 10%

2007 14% 17% 27% 33% 9%

2008 18% 21% 29% 25% 7%

2009 18% 17% 31% 29% 6%

2010 19% 14% 29% 33% 5%

2012* 15% 11% 29% 38% 8%

Sources: Merrill Lynch Global Wealth Management and Capgemini * No data for 2011, 2012 is a projection.

Sample of MLS data from 10 cities

Months supply of inventory dropped at the beginning of 2012 and has remained fairly stable throughout the year. Luxury ended with 10.9 months supply, down 72% from December 2008.

Months Supply of Inventory

54

Mon

ths

Supp

ly

Luxury = Buyer’s Market Move Up = Balanced Market Starter = Seller’s Market

Dec '08 Dec '09 Dec '10 Dec '11 Dec '12

39.4

10.9

22.9

6.3

12.9

3.9

14.5

8.4

5.6

11.68.2

6.7

19.2

11.3

7.86

Luxury Move Up Starter Balanced (6 months)


Days on market continues to be more volatile as the price point increases.

Days on Market

55


181

128

126

109

90

92101

121

160

107

82 808293

123

Luxury Move Up Starter Balanced (6 months)


List-to-sell ratios hit a 4-year high during 2012. There continues to be more opportunity to negotiate a bargain in luxury price points. The gap between luxury and move up tightened in mid-2012 and has loosened since.

List-to-Sell

56


86%

88%89% 91%

94%

95%

LuxuryMove Up Starter

Move-up buyers who can sell in a balanced market and buy in a buyer’s market.

International buyers who are cash rich and with a strong appetite for U.S. luxury properties.

Investors who stand ready to take advantage of undervalued properties—most are focused on the starter price points but there are bigger discounts at the luxury level.

Opportunities

57

CommercialReal Estate

58

Economic Industry Government

Source: REIS

After falling dramatically from 2008-2009, job growth has followed a fairly normal positive trend from 2010 onward.

Job Growth Monthly

-900

-675

-450

-225

0

225

450

675

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

59

Net

Jobs

Add

ed, i

n T

hous

ands

262

507

196

-302 -331

-803

516

Source: REIS

Vacancy Rates

Office Retail Industrial Apt

60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

7.3%

17%

10.8%

6.9%

17.6%

11.7%

6.4%

8.3%

7.9%

3.2%

17%

10.7%

10.1%

4.5%

7.9%

9.1%

7.1%

3.8%

8% 11%

Source: CBRE

Vacancy Rates By Commercial Real Estate Sector

Sector

CANADACANADACANADA

Sector 2010 2011 2012

Office 9.4% 8.4% 8.3%

Industrial 7.4% 6.3% 6.3%

Retail 4.2% 3.9% 4.9%

Multi-Family 2.6% 2.2% 2.2%

61

Jan ‘91 Jan ‘93 Jan ‘95 Jan ‘97 Jan ‘99 Jan ‘01 Jan ‘03 Jan ‘05 Jan ‘07 Jan ‘09 Jan ‘11 Jul ‘12

Source: REIS

After a period of low delinquency rates from 1997-2008, rates spiked in 2011 but have been steadily decreasing since.

Loan Delinquency Rate Quarterly, 1991-2012

62

Com

mer

cial

Rea

l Est

ate

Loan

Del

inqu

ency

Rat

e

12.06

1.06

12.0612.0612.0612.0612.06

8.78

4.56

Source: REIS

Commercial Property Price Index

63

Com

mer

cial

Pro

pert

y Pr

ice

Inde

x, 2

000=

100

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

187186

165

169

146

102

From November 2011-2012, prices for apartments grew by 10.6%, offices in a central business district grew by 18.1%, industrial grew 3.4%, while retail fell by 4.9% and offices in suburban areas fell by 7.4%.

Apartment Commercial Price Index 2000=100All Properties

Core CommercialAll Properties Excluding Apartments

How Do We Recover?

64

Four Steps to Recovery

Four Steps to Housing Recovery

65

What Can NAR Tell Us?

66

SellersBuyers

Source: NAR Profile of Home Buyers and Sellers

First-Time Home Buyers

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

39%37%

50%47%

41%39%36%

40%40%40%42%

67


Primary Reason for Purchasing

All BuyersAll BuyersAll Buyers2005 2011 2012

Desire to own a home 39% 27% 30%Desire for larger home 20 10 11Job-related relocation or move 11 10 9Change in family situation * 8 8Affordability of homes * 8 7Desire for a home in a better area * 5 6Desire to be closer to family/friends 8 7 6Desire to be closer to job/school/transit * 4 4Desire for smaller home 6 4 4Retirement 3 5 4Establish household * 2 2Home buyer tax credit * -- --

68


Tenure in Previous Home

2011 20121 year or less 4% 3%

2 to 3 years 8 7

4 to 5 years 13 12

6 to 7 years 16 15

8 to 10 years 17 18

11 to 15 years 18 19

16 to 20 years 9 9

21 years or more 15 16

Median 9 9

69Only 10% buy again in less than 4 years.


Buyer’s Expected Tenure

2011 20121 year or less 1% 1%

2 to 3 years 2 2

4 to 5 years 8 7

6 to 7 years 2 2

8 to 10 years 14 13

11 to 15 years 5 6

16 to 20 years 27 26

Don’t know 41 43

Median 15 15

70

Buyers expect to stay almost twice as long as they actually do. Stay in touch so that even if your client’s move is unexpected, you are top of mind.


First Step in Buying ProcessAll BuyersAll Buyers

2011 2012Looked online for properties for sale 35% 41%

Contacted a real estate agent 21 18

Looked online for information about the buying process 10 11

Drove by homes/neighborhoods 8 8

Contacted a bank or mortgage lender 7 6

Talked with a friend or relative about buying process 7 6

Visited open houses 4 3

Looked in newspapers, magazines, or home-buying guides 2 1

Attended a home-buying seminar 2 1

Contacted builder/visited builder models 2 1

71


Weeks in Home Search

72

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1212121210888887

The home search length is usually lower during a seller’s market when buyers need to move quickly.

Sources: NAR Profile of Home Buyers and Sellers, The Digital House Hunt

Info Sources Buyers Use2011 2012

Internet 88% 90%

Real estate agent 87 87

Yard sign 55 53

Open house 45 45

Print newspaper advertisement 30 27

Home book or magazine 19 18

Home builder 16 17

Television 4 5

Billboard 4 5

Relocation company 4 4

73

Real estate-related Google searches have grown 253% in the past four years.


Where Buyers Found the Home They Purchased

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Internet 8% 11% 15% 24% 24% 29% 32% 36% 37% 40% 47%

Real estate agent 48 41 38 36 36 34 34 36 38 35 33

Yard sign/Open house sign 15 16 16 15 15 14 15 12 11 11 9

Friend, relative, or neighbor 8 7 7 7 8 8 7 6 6 6 5

Home builder or their agent 3 7 7 7 8 8 7 5 4 5 4Directly from sellers/knew the sellers

4 4 5 3 3 3 2 2 2 2 1

Print newspaper advertisement 7 7 5 5 5 3 3 2 2 2 1

Home book or magazine 2 1 2 1 1 1 1 * * * *

Other 3 6 4 -- -- -- -- -- -- -- --

74

Sources: NAR 2012 Profile of Home Buyers and Sellers, Google

Where Buyers Search

75

69%

31%

At Work

28%

72%

Waiting in Line

77%

23%

At Home

YesNo36% of new home shoppers used their mobile device to research while watching TV.

Yes

YesNo

NoNo

Yes


Value of Website Features

Very Useful

Somewhat Useful

Not Useful

Did Not Use / Not Avail

Photos 84% 14% 1% 1%

Detailed information about properties for sale 79 19 * 1

Virtual tours 45 33 10 12

Real estate agent contact info 44 34 13 10

Interactive maps 41 34 11 15

Neighborhood information 34 44 12 9

Detailed information about recently sold properties 33 41 15 11

Pending sales/Contract status 30 35 19 17

Information about upcoming open houses 20 31 25 24

76

69% of home shoppers who take action on a real estate website begin their search with a local term.


Expect buyers to have done some research online before contacting you. 40% will have researched up to three months first. 1 in 4 will take action the same day they begin researching online.

Length of Search Process

77

Buyers who used agent

First-time buyers

Repeat buyers 7

9

9

3

3

3

Weeks Searched without Agent Weeks Searched with Agent

This 3 week window is the time to reach buyers online. 78% of new home buyers visit 3+ sites before taking action.

24%30%

38%

54%

70%

86%

Sources: NAR The Digital House Hunt

What Buyers Use Video For

78

Find out more about a specific community

Tour inside home Obtain general information

Understand specific features

Watch testimonial Watch instructional videos


Websites Used in Home Search

2005 2011 2012Multiple Listing Service (MLS) website 50% 56% 54%

REALTOR.com 54 45 51

Real estate agent website 31 46 47

Real estate company website 38 40 39

Other website with real estate listings 11 38 27

For-sale-by-owner website * 14 13

Newspaper website 15 6 6

Real estate magazine website 6 4 4

Video hosting websites (e.g., YouTube, etc.) * 1 2

Social networking websites (e.g., Facebook, etc.) * 1 1

79

Home buyer browsers will perform an average of 11 searches prior to taking action on a real estate website.


Method of Home Purchase

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Through a real estate agent or broker 69% 75% 77% 77% 77% 79% 81% 77% 83% 89% 89%

Directly from builder or builder’s agent 15 14 12 12 13 12 10 8 6 7 6

Directly from the previous owner 15 9 9 9 9 7 6 5 5 4 5

80

Just because buyers are using the internet more doesn’t mean they’re not relying on you. In fact, the number of buyers using an agent remains at a ten year high. To keep it that way, understand your value proposition and be able to communicate it.


Buyer representation agreements are down compared to last year. These are a no-brainer risk mitigator for agents wanting to protect their time and income.

Buyer Representation Agreement

2011 2012

Yes, a written arrangement 42% 40%

Yes, an oral arrangement 18 19

No 29 28

Don’t know 11 13

81


What Buyers Want Most from Agent

82

Help finding the right home to purchase

Help with price negotiations

Help negotiate terms

Tell me price of comparable home sales

Help with paperwork

Tell me how much I can afford

Help with financing

Tell me about neighborhood or area

Other 2%

2%

3%

4%

7%

8%

12%

12%

50%

Source: NAR Profile of Home Buyers and Sellers, KWRI Surveys

How Buyers Found Their Agent2005 2011 2012

Referred by (or is) a friend, neighbor, or relative 44% 41% 40%

Internet website 7 9 11

Used agent previously to buy or sell a home 11 9 10

Visited an open house and met agent 7 7 6

Saw contact information on for sale/open house sign 6 6 6

Personal contact by agent (telephone, email, etc.) 3 3 4

Referred through employer or relocation company 4 4 4

Walked into or called office and agent was on duty 4 4 3

Newspaper, Yellow Pages, or home book ad 2 1 *

Direct mail (newsletter, flier, postcard, etc.) 1 -- *

Other 6 10 10

83

The data is clear. Staying in relationship with your database is the #1 way to get more business.


Interviews by Buyers

2002 2005 2009 2010 2011 2012

One 59% 64% 66% 64% 65% 66%

Two 22 20 19 21 20 20

Three 19 10 10 10 10 8

Four or more -- 5 6 6 6 6

84

2 out of 3 times if you are not the first one they call there is no possibility to get their business.


Most Important Factors for Buyers

85

Honest and trustworthy

Reputation

Agent is family or friend

Knowledge of neighborhood

Caring and good listener

Timely responses

Assocation with company

100% accessable (Tech)

Designations

Other 4%

2%

3%

3%

6%

9%

12%

15%

21%

24%

The most important factors for buyers when choosing an agent


Home as Financial Investment

2005 2010 2011 2012

Good financial investment 94% 85% 78% 78%

- Better than stocks * 47 45 46

- About as good as stocks * 30 24 23

- Not as good as stocks * 9 9 9

Not a good financial investment 1 4 8 6

Don’t know 5 11 14 16

86


Buyer: Repeat and Referrals?

87

Would seller work with agent again or refer them to friends?

Definitely Probably Probably not Definitely not Don’t know

2%4%5%15%

74%


Method Sellers Used to Find Agent2005 2011 2012

Referred by (or is) a friend, neighbor, or relative 43% 39% 38%Used agent previously to buy or sell a home 28 22 23Personal contact by agent (telephone, email, etc.) 5 4 5Visited an open house and met agent 4 4 4Referred by another real estate agent or broker 3 4 4Saw contact information on for sale/open house sign 4 4 4Referred through employer or relocation company 3 5 4Internet website 2 3 3Walked into or called office and agent was on duty 2 1 2Direct mail (newsletter, flier, postcard, etc.) 3 2 2Newspaper, Yellow Pages, or home book ad 2 1 1Advertising specialty (calendar, magnet, etc.) * * 1Other * 11 11

88


Seller Interviews

2002 2010 2011 2012

One 76% 66% 66% 65%

Two 16 19 16 20

Three 8 10 13 11

Four -- 3 3 3

Five or more -- 3 2 2

89

Number of agents sellers contacted before deciding who to list with.


What Sellers Want Most from Agent

2005 2010 2011 2012

Help sell the home within specific time frame 27% 19% 19% 22%

Help seller market home to potential buyers * 20 24 21

Help find a buyer for home 28 21 19 19

Help price home competitively 17 23 20 18

Help seller find ways to fix up home to sell it for more 12 7 9 10

Help with negotiations and dealing with buyers 5 5 5 5

Help with paperwork/inspections/preparing for settlement 7 4 3 3

Help seller see homes available to purchase 3 1 2 1

90


Most Important Factors for Sellers

2005 2010 2011 2012

Reputation of agent 57% 35% 38% 37%

Agent is honest and trustworthy * 23 20 19

Agent is friend or family member * 16 18 13

Agent’s knowledge of the neighborhood 17 12 11 12

Agent has caring personality/good listener * 4 4 4

Agent’s association with a particular firm 6 4 5 4

Professional designations held by agent 3 1 1 1

Other 17 4 4 5

91


Compensation Negotiations2011 2012

Real estate agent initiated discussion of compensation 43% 43%

Client brought up the topic and the real estate agent was willing to negotiate their commission or fee 26 22

Client did not know commissions and fees could be negotiated 13 15

Client did know commissions and fees could be negotiated but did not bring up the topic 8 11

Client brought up the topic and the real estate agent was not willing to negotiate their commission or fee 10 9

92


Would seller work with agent again or refer them to friends?

Seller: Repeats and Referrals?

93

Definitely Probably Probably not Definitely not Don’t know

2%7%7%

18%

66%

74% of buyers would. Don’t forget to call your past buyer and seller clients to ask for referrals.


Method Used To Sell Home

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sold home using an agent or broker 79% 83% 82% 85% 84% 85% 84% 85% 88% 87% 88%

For-sale-by-owner (FSBO) 13 14 14 13 12 12 13 11 9 10 9

Sold to home-buying company 1 1 1 1 1 1 1 1 1 1 1

Other 7 3 3 2 3 2 2 3 3 2 2

94


For Sale By Owners (FSBOs)

95

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

9%10%

9%

11%

13%12%12%

13%14%14%

13%

For Sale By Owner (FSBO)

A shifting market may mean FSBOs will increase and expireds will decrease. Take note if expireds are a big part of your lead gen strategy.


Incentives Offered to Attract Buyers

2011 2012

None 59% 60%

Home warranty policies 23 22

Assistance with closing costs 20 17

Credit toward remodeling or repairs 7 7

Other incentives, such as a car, flat-screen TV, etc. 3 3

Assistance with condo association fees 1 *

Other 4 5

96

KW Research

97

The State of our Commission

MLS Study on Discounters

Source: KW Research

MLS Study: Percentage of Expired Listings

98

2005 2006 2007 2008 2009 2010 2011 2012

10%6%

10%13%

19%

27%

33%

21%

11%

6%

12%12%14%

18%

26%

17%

Full Service Limited Service

Source: KW Research

MLS Study: Average Price

99

2005 2006 2007 2008 2009 2010 2011 2012

234.4232.4230.8

185.5

292.8297.8306.1

323.4

236.6

215.4

307.0

214.9

325.0339.6340.3

327.9

Full-Service Average Price (in Thousands of Dollars) Limited-Service Average Price (in Thousands of Dollars)

Source: KW Research

MLS Study: Average Days on Market

100

2005 2006 2007 2008 2009 2010 2011 2012

58

6864

81

8791

82

64

57

7274

7776

86

80

67


Source: KW Research

MLS Study: List to Sell

101

2005 2006 2007 2008 2009 2010 2011 2012

94%94%94%95%

98%97%

98%99%

96%

94%94%95%

98%97%

98%98%


Source: KW Research

MLS Study: Market Share

102

2005 2006 2007 2008 2009 2010 2011 2012

1.3%1.43%

2.43%2.07%2.17%

2.65%

4.04%3.78%

Limited-Service Broker Market Share

Source: KW Research

Commission: Total Median Percentage

103

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

5.19% 5.21% 5.20%

5.12% 5.10% 5.09%

5.33%

5.59%

5.42%

5.50%

5.67%

Source: KW Research

Commission: Median Seller Percentage

104

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2.42%2.44% 2.43%

2.40% 2.40% 2.40%

2.50%

2.59%2.56%

2.63% 2.64%

Source: KW Research

Commission: Median Seller Amount

105

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$4,524$4,471$4,345

$3,450

$4,550$4,780$4,756$4,650

$4,200$3,872

$3,575

Source: KW Research

Commission: Median Buyer Percentage

106

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2.77% 2.77% 2.78%

2.71% 2.70% 2.68%

2.83%

3.00%

2.86% 2.87%2.83%

Source: KW Research

Commission: Median Buyer Amount

107

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$5,413$5,107$5,145

$4,650$5,145$5,350$5,325$5,155

$4,730$4,410

$4,128

What Do You Do Now?

108

Up Next

- Competition with less skilled agents

- Competition with sellers—FSBOs

- Commission pressure

Challenges in Markets Shifting Up

109

Source: The Millionaire Real Estate Agent

The Foundation Always Stays the Same

110

Leads

List

ings

Leverage

?lf!Y_ KELLER

WILLIAMS@ REALT'l'

vision speech 2013 gary keller

Documents

monthly median home

annual sales levels

total annual home sales

monthly annual pace

median price

annual average inventory

monthly inventory levels

median home price89