Professional Documents
Culture Documents
2011 Residential Real Estate Economic Forum
2011 Residential Real Estate Economic Forum
2011 Residential Real Estate Economic Forum
How to Use
Agents share with buyers/seller clients Brokers use to direct agents Focused on the big picture at local level
Not geared toward pricing
Sections
Metro prices and State Sales volume Demand: Employment and unemployment Supply: Construction, Foreclosures, and Delinquencies Affordability measures Mortgage Market Special Topics
Headline Trends
Long and short time horizon Level and Growth Rates
Zooming In.
Demand
Employment Unemployment Industry Strengths Local Economic Index
Supply
Construction is traditionally a driver of housing supply
Supply
Foreclosures and delinquencies are now a large part of the housing inventory
Affordability
Monthly payment/Income as well as price/income
Mortgage Market
Special Topics.
This section changes topic each quarter to address timely information
WWW.Realtor.org/Researc h
OUTLOOK
Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS
Presentation at Residential Real Estate Forum NAR Annual Convention Anaheim, CA
Strange World
Great!
Best Affordability Conditions National home prices have stabilized for 2 years Lowest newly constructed inventory Huge Cash Reserves at Banks Record High Profits in Financial Industry in 2010 and just as good in 2011 Federal Reserve Monetary Stimulus to encourage more lending Consumers work hard to demonstrate financial responsibility
Strangeness Continued
Great! What the Heck?
Less risk of a further price decline after 33 More risk-based lending and added fees percent price drop to protect against price declines Fannie and Freddie are making internal self-sustaining profits on new mortgages Investors are seeking bargains Fannie and Freddie are still reporting net losses because legacy assets Not enough foreclosed properties on average taking more than a year to reach the market Very Low Consumer Confidence 1-year Treasury borrowing rate is 0.2% (Save money to get essentially nothing)
Monthly Existing Home Sales Flat Line outside of Tax Credit No Pick Up Despite Best Affordability
Tax Credit Impact
Prices Up
Bismarck Boston Buffalo San Diego San Francisco Washington, DC
Prices Down
Atlanta Chicago Las Vegas Miami Phoenix Portland, OR
Rental Households
Rents expected to rise 7% to 10% in the next two years Home prices should therefore rise in the next two years
Household Formation leads to increase ownership and renters; Could begin to return to normal of at least 1 million from 2012.
Price is NAR Single-family median price and Construction Cost is Census Construction Cost Weighted Price Index
Consumer price index Rent index Food price index Gasoline price index College tuition index Medical care index Monthly mortgage payment on a median priced home
Price Index in 2011 226.3 254.3 229.6 308.4 601.3 401.4 $698
(4% mortgage rate)
% Change
Fannie/Freddie Future
Disastrous Outcome as government-backed Private Corporation
Perverse incentive to gamble with taxpayers money
Need to pursue counter-cyclical policy less fees in downturn and more fees during boom/bubble Never trust government to produce innovative products
Hedge against future inflation alternative to expensive gold Not enough foreclosed homes for sale?
Will Investors shift money to alternative inflation hedge instrument to real estate?
New downwardly revised figures to come out soon Re-benchmarking process to assure better accuracy Overtime, MLS figures get inflated due to double-counting issues, flippings, and fewer FSBOs
Source: BLS
Economic Expansion
(GDP growth after recession should be sustained 4% to 5% not 1% as in 1st half in 2011)
Desired Pace
Social Security COLA forecast to rise 3.5% in 2012 Workers Wage to rise by 1.7% in 2011
10-Year Treasury yield at 2.2%; CPI Inflation at 3.9% If Inflation does not turn down then expect rising interest rate environment.
Forecast
2012 GDP Growth Net New Jobs CPI Inflation Rent Growth Home price Growth Home Sales Mortgage Rate 2.0% to 2.5% 1.7 to 2.2 million 3.0 to 3.5% 3.0% 2.0% 4.0% 4.5% 2013 2.3% to 2.8% 2.0 to 2.5 million 3.0 to 3.5% 3.5% 3.0% 6.0% 4.8% 2014 3.0% to 3.5% 2.5 to 3.0 million 2.5 to 3.0% 3.5% 4.0% 6.0% 5.5%
Tea Party Leave us alone tyranny of the government Occupy Wall Street Someone screwed us tyranny of corporations James Madison
Road to reality runs through politics. Property owners are best defenders against tyranny.
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Disclaimer The views I am about to express are my own and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.
63
Overview
Nearly two and one half years since the official end of the Great Recession, the economy continues to operate well below its potential. Growth strengthened somewhat in 2011Q3 as temporary restraining factors began to fade. Nonetheless, the economy continues to face significant structural impediments to growth. The legacy of the housing boom and bust. Fiscal contraction at the federal and state and local levels. Inflation rose more than expected over 2011H1, but fundamentals suggest a return to subdued inflation.
64
Ratio
1.12
1969 Cycle
1.08 1.08
1981 Cycle
1.04
1.04
1.00
1.00
1990 Cycle
0.96
1953 Cycle
0.96
0.92
0.92
Current Cycle
0.88 -4 -2 0 2 4 6 8 10 12 14 16 0.88
65
65
65
63
63
61
61
59
59
57
57
55 1980
66
Source: Bureau of Labor Statistics
70
20
68
Corporate Profits (Right Axis) Q3 Est. (15.0%)
17
66
14 64
Employee Compensation (Left Axis)
11 62 8
60
58 1951
67
Source: Bureau of Economic Analysis
120
Current Conditions
120
100
100
80
80
60
60
40 2001
40 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
68
Source: University of Michigan
10
60 50
40 30 20 10
0 -10
-20 -30
69
Source: Bureau of Labor Statistics
70
Source: Bureau of Economic Analysis
16 14 12 10 8 6 4 2 0 400
2009Q2 2010Q2 2011Q3 Estimate (486.8 , 4.1) 2006-2007 2011Q2 2008Q2
16 14 12 10 8 6 4 2 0 650
450
500
550
600
Households Net Worth as a Percent of Disposable Income Source: Bureau of Economic Analysis and Federal Reserve Board Note: Fitted line is from 1983Q1 to 2005Q4.
12 10 8 6 4 2 0 -2 -4 -6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Real State & Local Government Consumption & Gross Investment (Right Axis) Real Federal Government Consumption & Gross Investment (Left Axis)
12 10 8 6 4 2 0 -2 -4 -6
72
Source: Bureau of Economic Analysis
1003
Change in Full Employment Primary Balance as a Percent of Potential GDP Percent Percent
6 4 2 0
6 4 2 0
-2 -4 -6
Change in Full Employment Primary Balance (Percent of Potential GDP) (Left Axis)
-2 -4 -6
73
1988 1991 1994 1997 2000 2003 2006 2009 2012 Source: Bureau of Economic Analysis, Congressional Budget Office
1.25
2001 Cycle
1.25
1990 Cycle
1.00 1.00
1973 Cycle
0.75 0.75
Current Cycle
0.50 -2 0 2 4 6 8 10 12 14 16
0.50
74
Source: Bureau of Labor Statistics
230
200
NAR Months Supply of Single Family Homes on the Market (Right Axis)
13 12 11
170
10
140
Buyers Market
8 7 6 5
110
80
50 4 20 1984
Sellers Market
1987 1990 1993 1996 1999 2002 2005 2008 2011
75
Source: CoreLogic, National Association of REALTORS
35
30
25
0.75
20 0.5 15
10
0.25
0 1985
0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
76
Source: S&P, BLS, and CoreLogic
Months 11 10 9 8 7 6 5 4 3 2 1
May-04
Average Duration by Performance Status For first mortgage loans originated on or after 2004
Months Foreclosure 11 9 REO 7 5 90+ days delinquent 3 1
May-05 May-06 May-07 May-08 May-09 May-10 May-11
77
78
79
1990 Cycle
1.00 0.90
80
1.10
1981 Cycle
1.10
1.00
1990 Cycle
1.00
1973 Cycle
0.90
2001 Cycle
0.90
0.80
Current Cycle
0.80
0.70 -2 0 2 4 6 8 10 12 14 16
0.70
81
Ratio
1.5
1.4
1.4
1.3
1.3
1.2
1990-91 Cycle
1.2
1.1
1973-75 Cycle
1.1
1.0
1.0
1981-82 Cycle
0.9 0.9
2001 Cycle
0.8 -2 0 2 4 6
Current Cycle
0.8 8 10 12 14 16 18 20
82
100
Tightening Standards for Residential Mortgages
100
75
50
75
50
25
25
-25 1991
-25 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
83
Source: Federal Reserve Board
% Change 13-week AR
40
30
30
20
20
10
10
-10
-10
-20
-20
-30 2001
84
Source: Federal Reserve Board
% Change 8-Quarter AR
5.0
2.5
2.5
0.0
0.0
-2.5 1995
85
Source: Bureau of Labor Statistics
1
4-5 Years
November 2: 2.12
0
2-3 Years November 2: 2.09
-1 2006
86
Source: Federal Reserve Board Note: Carry-adjusted.
Forward guidance
December of 2008for some time March of 2009---for an extended period August of 2011---until mid 2013
6 5 4 3 2 1 0 -1 -2 2001
Real Federal Funds Rate Effective Federal Funds Rate
6 5 4 3 2 1 0 -1 -2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Real Federal Funds Rate = Nominal Federal Funds Rate 12 Month % Change of the Core CPI
88
2.8
2.8
2.4
2.4
1.6
1.6
1.2
Secondary/Risk Free Rate Spread Nov. 25, 2008: Announcement of MBS Program
1.2
0.8
Primary/Secondary Spread
0.8
0.4
0.4
0 2007
28
Source: Federal Reserve Board /Federal Home Loan Mortgage Corporation
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 2005 2006 2008 2009 2011
Nov. 2: 2.09
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0
0.5 0.0
2011
2012
1600 1500 1400 1300 1200 1100 1000 900 800 700 2005 2006 2007 2008 2009 2010 2011
Nov. 2: 1238
1600 1500 1400 1300 1200 1100 1000 900 800 700 2012
115 110 105 100 95 90 2005 2006 2007 2008 2009 2010
Oct. 28: 96.88
2011
Note: Trade-Weighed.
90
Reference Slides
91
2012 Expiration of 2 percentage point reduction of employee's share of OASDI payroll tax. Expiration of full expensing of qualified investment put in place.
Reverts to 50% bonus depreciation in 2012 and then reverts to old depreciation schedules in 2013.
Significant reduction of AMT exemption amount. Expiration of EUC and EB unemployment benefits. Provision of Budget Control Act. Caps on discretionary spending (-$27 billion, 0.2% of GDP) Join Select Committee provisions (unknown, but likely in the $20 to $30 billion) Steep reduction of Medicare reimbursements to physicians. 2013 Provision of Budget Control Act. Caps on discretionary spending (-$49 billion, 0.3% of GDP) Join Select Committee provisions (unknown, but likely $50 to $60 billion) New taxes on high income ($200,000 single/$250,000 joint) taxpayers included in health reform legislation. (about $22 billion in 2013) Individuals share of HI (Medicare Part A) payroll tax rises from 1.45% to 2.35% of earned income. 3.8% surtax on lesser of investment income or other income above threshold. 2001/2003 tax cuts expire
Total 2012-2021
Discretionary Spending Establishment of Caps Program Integrity Subtotal Mandatory Spending Program Integrity Pell Grants Other education Subtotal Debt Service Joint Select Committee on Deficit Reduction* Total Effect on Deficit* Percent of GDP Source: CBO *Author's allocation of 10 year total.
-25 1 -25
-47 1 -46
-59 1 -58
-67 1 -66
-74 2 -72
-81 2 -79
-89 2 -87
-97 2 -95
-104 2 -102
-112 2 -110
-756 15 -741
0 4 -1 3 0 -25
0 8 -2 6 -1 -50
-1 5 -2 2 -3 -75
-1 0 -2 -3 -6 -100
-1 0 -2 -3 -10 -125
-2 0 -2 -4 -15 -160
-2 0 -2 -4 -20 -195
-2 0 -2 -4 -26 -230
-3 0 -2 -5 -33 -255
-3 0 -3 -6 -40 -285
-47 -0.3
-92 -0.6
-135 -0.8
-176 -1.0
-211 -1.1
-258 -1.3
-306 -1.5
-355 -1.6
-395 -1.7
-441 -1.9
-2416
93
% of GDP
4
-4
-2
-4
-6
-6
-8
-8
-10
% of GDP 110
Under Current Policy With Budget Control Act Caps on Discretionary Spending
100 90 80 70 60 50 40 30
% of GDP
6
Defense Outlays
Dotted Line = With Budget Control Act Caps on Discretionary Spending
5
2
96
ISM Indices
Level
65
Level
65
Nonmanufacturing Index
60 60
55
55
50
50
45
45
Manufacturing Index
40 40
35
35
30 2000
97
Source: Institute of Supply Management Note: Above 50 = Increasing
11 million property owners are underwater by an average amount of $65,000 Another 2.4 million are near negative equity, meaning 95 < CLTV <100.
98
Source: CoreLogic
Baa-Aaa Spread
Difference Difference
3 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0 2005 2006 2007 2008 2009 2010 2011
October: 2.4
3 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0 2012
4 3.5 3 2.5 2 1.5 1 0.5 0 2005 2006 2007 2008 2009 2010
Nov. 1: 1.31
4 4 3 3 2 2 1 1 0 2012
2011
1600 1500 1400 1300 1200 1100 1000 900 800 700 2005 2006 2007 2008 2009 2010 2011
Nov. 2: 1238
1600 1500 1400 1300 1200 1100 1000 900 800 700 2012
115 110 105 100 95 90 2005 2006 2007 2008 2009 2010
Oct. 28: 96.88
2011
Note: Trade-Weighed.
99
2010
3.1 1.2 9.6
2011
1.7 3.1 9.1
2012
2.0 2.2 9.0
31