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OUTLOOK. Economic and Housing Market. Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at 2012 Resort and Second-Home Symposium Kiawah Island, SC March 19, 2012. Monthly Existing Home Sales … Recovering. Tax Credit Impact. Old Data. New Data. - PowerPoint PPT Presentation
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Economic and Housing Market
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at 2012 Resort and Second-Home SymposiumKiawah Island, SC
March 19, 2012
OUTLOOK
Monthly Existing Home Sales … Recovering
Tax Credit Impact
Old Data
New Data
Annual U.S. Existing Home Sales … Flat Line for 4 tough years
01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Second Home Sales
In thousands
Case-Shiller Price Index…Stability from 2009
Median Price of Transacted Homes: Vacation Home Suffered More
Primary (Blue) vs Vacation (Red)
Source: NAR
Columbia and Myrtle Beach(Home Price Index: 1995 = 100)
Source: Federal Housing Finance Agency
Bend and Portland, Oregon(Home Price Index: 1995 = 100)
Source: Federal Housing Finance Agency
Santa Fe and Albuquerque(Home Price Index: 1995 = 100)
Source: Federal Housing Finance Agency
Las Vegas and Miami vs Kansas City and Milwaukee
(Home Price Index: 1995 = 100)
Source: Federal Housing Finance Agency
U.S. Housing Starts Lowest since the Second World War… in the past three years
Housing Starts in thousands
New Home Inventory – 50 year low
Visible Existing Home Inventory(6-year lows)
Serious Delinquent Mortgages … Mostly those who took out loans in bubble years
(90+ days late or in foreclosure process)
Fannie and Freddie PerformanceMortgage Default after 18 months
Fannie MaeVintage
Cumulative Default Rate after 18 months
2002 3.1%
2003 2.5%
2004 4.6%
2005 4.8%
2006 11.6%
2007 28.7%
2008 12.6%
2009 1.2%
Freddie MacVintage
Cumulative Default Rate after 18 months
2002 2.7%
2003 1.2%
2004 2.0%
2005 1.8%
2006 6.0%
2007 22.3%
2008 13.7%
2009 1.1%
Source: Federal Housing Finance Agency
Foreclosure Starts(% of all mortgage outstanding; about 1/3 of homes are free and
clear)
Foreclosure Inventory(% of all mortgage outstanding; about 1/3 of homes are free and
clear)
Economic Expansion(GDP growth after recession should be
sustained 4% to 5% … not 1.7% as occurred in 2011)
-10
-8
-6
-4
-2
0
2
4
6
8
10
2000
- Q
120
00 -
Q3
2001
- Q
120
01 -
Q3
2002
- Q
120
02 -
Q3
2003
- Q
120
03 -
Q3
2004
- Q
120
04 -
Q3
2005
- Q
120
05 -
Q3
2006
- Q
120
06 -
Q3
2007
- Q
120
07 -
Q3
2008
- Q
120
08 -
Q3
2009
- Q
120
09 -
Q3
2010
- Q
120
10 -
Q3
2011
- Q
120
11 -
Q3
Desired Pace
Total U.S. Payroll Jobs … Recovering(3.4 million job creation from low point in 2010)
In thousands
Labor Force Participation Rate%
Financial Industry Corporate Profits
Federal Reserve Loose Monetary Policy
Banks/Regulators Restricting Credit
(Average Credit Scores of Approved Loans)
Normal 2009 2010 If Normal
Fannie 720 761 762 720
Freddie 720 757 758 720
FHA 650 682 698 660
15% to 20% Higher Sales
CPI Rent is Rising…Biggest Weight to CPI(% change from 12 month ago)
Home Value Undervaluation(Recent analysis by The Economist magazine)
Metric Magnitude of Over or Undervaluation
U.S. Home Prices Home Price vs. Rent 8% undervaluation
U.S. Home Prices Home Price vs. Income 22% undervaluation
U.K. Home Prices Home Price vs. Rent 28% overvaluation
U.K. Home Prices Home Price vs. Income 20% overvaluation
Ireland Home Prices Home Price vs. Rent 10% overvaluation
Ireland Home Prices Home Price vs. Income Proper valuation(neither over nor under)
Improving Factors for Higher Home Sales
• Improving Factors– Job Creation – Solid stock market recovery from 2008– Rising rents and larger pool of qualified renters– Pent-up Release of Household Formation– Smart money chasing real estate (instead of gold?)– Consumer confidence OK (no longer dire)– Great affordability conditions– Favorable demographics for second home buyers
• Potential Huge Positive … Lending opens up• Potential Huge Negative … Washington policy
Annual Household Formation… Future Rent Pressure?(3 separate Census data)
In millions
Household Formation leads to increase ownership and renters; Could begin to return to normal of at least 1 million from 2012.
Expensive Gold Price(Hedge against Inflation?)
Will Investors shift money to alternative inflation hedge instrument … to real estate?
Consumer Confidence
Best Affordability Conditions
Monthly Pending Home Sales Index(Seasonally Adjusted)
Homebuyer Tax Credit
Median Age and Income of Homebuyers
• Primary 37 years old with $69,600
• Investment 45 years old with $87,600
• Vacation 49 years old with $99,500
U.S. Population Aged 55-to-64
Forecast Population Aged 55-to-64
Rising World Population
Washington Policy Obstacles
– QRM 20% downpayment rules– Mortgage Interest Deduction Limitation on
second homes– Capital gains tax increase– Lower loan limit for conforming mortgages
• More consumers face jumbo mortgages
– Rising mortgages rates (market forces of higher inflation and high budget deficit)
Forecast
2011 2012 2013
Existing Home Sales 4.26 million 4.55 million 4.70 million
New Home Sales 305,000 370,000 510,000
Housing Starts 599,000 710,000 980,000
Existing Home Price $166,100 $168,000 $172,000
GDP Growth +1.8% +2.3% +3.1%
Payroll Job Gains +1.7 million +2.3 million +2.6 million
30-yr Mortgage 4.7% 4.4% 5.4%
Second Home and Resort Markets suffered more … Therefore,Ripe for a stronger recovery for both sales and prices
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