Mel Watt Federal Housing Finance Agency (FHFA)Director
Real Estate Trends and Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION of REALTORS®
Presentation at NAR Annual Residential Forum
New Orleans, LA
November 7, 2014
Expectations of Firm Profitability(over the next 12-months)
Residential Firm Commercial Firm0
10
20
30
40
50
60
70
80
DecreaseAbout SameIncrease
Consumer and REALTOR® Confidence
2000 - Jan 2002 - Jul 2005 - Jan 2007 - Jul 2010 - Jan 2012 - Jul0
20
40
60
80
100
120
140
160
ConsumerREALTOR
Zoom-inConsumer and REALTOR® Confidence
2013 - Sep
2013 - Oct
2013 - Nov
2013 - Dec
2014 - Jan
2014 - Feb
2014 - Mar
2014 - Apr
2014 - May
2014 - Jun
2014 - Jul
2014 - Aug
2014 - Sep
2014 - Oct
50556065707580859095
100
ConsumerREALTOR
Monthly Pending Sales Index … Making Upward U-Turn
(Seasonally Adjusted)
2011 - Jan
2011 - Mar
2011 - May
2011 - July
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
2014 - May
2014 - Jul
2014 - Sep
70.075.080.085.090.095.0
100.0105.0110.0115.0
Source: NAR
Existing + New Home Sales
20002001
20022003
20042005
20062007
20082009
20102011
20122013
2014 Like
ly0
1,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000
Homebuilder Confidence(NAHB Market Index)
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0
10
20
30
40
50
60
70
80
Single Family Housing Starts … ½ the Normal
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0
200
400
600
800
1000
1200
1400
1600
1800
2000Thousand units
Multifamily Housing Starts … Back to Normal
2000 - Jan 2001 - Dec2003 - Nov2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun0
100
200
300
400
500
600Thousand units
Nationwide Home Price Recovery(Almost Doubled over 20 years)
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
2011 - Q1
2012 - Q1
2013 - Q1
2014 - Q1
100
120
140
160
180
200
220
FHFA Home Price Index
Home Price Growth from 1995San Francisco, Miami, Dallas
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
2011 - Q1
2012 - Q1
2013 - Q1
2014 - Q1
100
150
200
250
300
350
400
San Francisco
Miami
Dallas
Household Net Worth($5,500 vs. $195,500)
Renter Homeowner$0
$50,000
$100,000
$150,000
$200,000
$250,000
1998 2001 2004 2007 2010 2013
x31 x46x36 x34x46
Homeowner net worth ranges from 31 to 46 times that of renters x36
Source: Federal Reserve Survey of Consumer Finances
From 2010 to Today
• Homeowners– Recovering Wealth for those who bought
during the bubble years– Accumulating Wealth for those who bought
since 2010
• Renters– No progress
Homeowner Households from 2010 (Decreased by 1 million)
1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q450,000
55,000
60,000
65,000
70,000
75,000
80,000In thousands
Renter Households from 2010(Increased by 4 million)
1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q425,000
27,000
29,000
31,000
33,000
35,000
37,000
39,000
41,000In thousands
Homeownership Rate
1990 - Q1
1991 - Q2
1992 - Q3
1993 - Q4
1995 - Q1
1996 - Q2
1997 - Q3
1998 - Q4
2000 - Q1
2001 - Q2
2002 - Q3
2003 - Q4
2005 - Q1
2006 - Q2
2007 - Q3
2008 - Q4
2010 - Q1
2011 - Q2
2012 - Q3
2013 - Q4
6061626364656667686970
Homeownership Rate by Age Group
1995 - Q1
1996 - Q2
1997 - Q3
1998 - Q4
2000 - Q1
2001 - Q2
2002 - Q3
2003 - Q4
2005 - Q1
2006 - Q2
2007 - Q3
2008 - Q4
2010 - Q1
2011 - Q2
2012 - Q3
2013 - Q4
30
40
50
60
70
80
90
65 and over55-6445-5435-44Under 35
Harvard Elderly Housing Study
• One in Five Americans will be 65 or over by 2030
• Homeowners who have paid off mortgages before retirement have lower housing costs and have equity cushion health care expenses
• Renters face high housing costs and force millions of low-income older adults to sacrifice spending other necessities, including food and health care
Annual Income by Age
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
50-64 65-79 80 +
Do Elderly have Mortgage?
1992 1998 2004 2007 20100
10
20
30
40
50
60
70
80
50-64 65 and Over
First-time Buyer Share (Less than 30% of All Buyers for 18 months)
2008 - Oct
2009 - Jan
2009 - Apr
2009 - Jul
2009 - Oct
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan
2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
0
10
20
30
40
50
60
Among only primary owner-occupants (excluding investors) = 33% in 2014 … Lowest since 1987
30-year Mortgage Rates
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0
1
2
3
4
5
6
7
8
9
Where Are Young People Hiding?
• 57 million Americans or 18.1% of the population live in a multi-generational family household in 2012, – double the number who lived in
such households in 1980
• Of those who are 25-34: – 20% of the unemployed live with
parents– 12% of employed live with parents
Pew Research, Federal Reserve Bank of New York
Student Loan(in $billion)
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
2014 - Q1
0
200
400
600
800
1000
1200
1400
Student Loans and Homeownership
Desire of Gen Y to Buy a Home?
• 75% believe home ownership is an important long-term goal
• 73% believe ownership is an excellent investment
• 59% of young renters (18 to 39) believe owning a home makes more sense, but 73% of young renters also believe it would be difficult to get a mortgage today
• REALTOR® Education Opportunity– Many young people think 20 percent down payment is
needed !
Fannie Mae, 2013 Demand Institute Housing and Community Survey
Opening the Credit Box• FICO New Method• Thank You Director Mel Watt
– But, please clarify put-back risk so that lenders can be confident
• Not Yet a Thank You Secretary Julian Castro– FHA premiums need to come down
commensurate with falling default rate
• Historic low mortgage default rates on recent vintages (2010-2014)
10 best cities for millennials to buy a homeBy MarketWatchPublished: Aug 3, 2014 8:14 a.m. ET
Millennial Housing Demand Returns
• Austin• Dallas-Ft. Worth• Denver• Des Moines• Grand Rapids• Minneapolis• New Orleans• Ogden• Salt Lake City• Seattle-Tacoma
The Economist – July 19, 2014
Annual GDP Growth(9 straight years of subpar growth)
19501953
19561959
19621965
19681971
19741977
19801983
19861989
19921995
19982001
20042007
20102013
-4
-2
0
2
4
6
8
10
Jobs(8 million lost … 10 million gained)
2000 - Jan 2002 - Apr 2004 - Jul 2006 - Oct 2009 - Jan 2011 - Apr 2013 - May124000
126000
128000
130000
132000
134000
136000
138000
140000
142000In thousands
Percent Change in Non-farm Employment(Sept 2014/Sept 2013)
REALTORS® Confidence Index*: Outlook in Next Six Months for Single-Family Homes
Based on July 2014-September 2014 RCI Surveys
*An index above 50 means there are more respondents having “moderate” or “strong” outlook than respondents with “weak” outlook.
Unemployment Rate
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0
2
4
6
8
10
12
Weekly New Unemployment Insurance Claims
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan250
300
350
400
450
500
550
600In thousands
Employment Rate
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan54
56
58
60
62
64
66
“Take This Job and Shove It … I ain’t working here no more”
2002 - Jan 2003 - Oct 2005 - Jul 2007 - Apr 2009 - Jan 2010 - Oct 2012 - Jul 2014 - Apr0
500
1,000
1,500
2,000
2,500
3,000
3,500
Quit Rate in thousands
Monetary Policy by Federal Reserve (zero rate policy for 6 years!)
2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
1
2
3
4
5
6
Fed Funds %
Non-worrisome CPI Inflation – YetCOLA of 1.7% in 2015
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan
-3
-2
-1
0
1
2
3
4
5
6
Rising Renters’ and Homeowners’ Rent Growth
(Above 3%)
2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul-1
0
1
2
3
4
5
Owners' Equivalent Rent Renters' Rent
Monetary Policy
• Quantitative Easing … Finished
• Fed Funds Rate … hike in 2015 Q1/Q2
• Earlier Move to Tighten because of Inflation Pressure
• Long-term Steady State Rate (2016 onwards) .. 10 year Treasury at 5.0%
• Mortgage Rates reaching 6% by 2016
Inventory of Homes for Sale
2007 - Jan
2007 - Jun
2007 - Nov
2008 - Apr
2008 - Sep
2009 - Feb
2009 - Jul
2009 - Dec
2010 - May
2010 - Oct
2011 - Mar
2011 - Aug
2012 - Jan
2012 - Jun
2012 - Nov
2013 - Apr
2013 - Sep
2014 - Feb
2014 - Jul
0500,000
1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,000
Shrinking Shadow Inventory(but not in CT, NY, NJ)
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
2013 - Q3
2014 - Q2
0
2
4
6
8
10
12
% of mortgages in foreclosure process or seriously delinquent
Distressed Property Sales(% of total sales)
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
2011 - Sep
2012 - Feb
2012 - Jul
2012 - Dec
2013 - May
2013 - Oct
2014 - Mar
2014 - Aug
0
10
20
30
40
50
60
ForeclosureShort Sale
Household Net Worth at All-Time High
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
2013 - Q3
40000
45000
50000
55000
60000
65000
70000
75000
80000
85000$ billion
Vacation Home Sales
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -
200
400
600
800
1,000
1,200
In thousands
Falling Birth Rate in the U.S.
1909 1916 1923 1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 20070
5
10
15
20
25
30
35
Per 1000 Residents
U.S. Legal Immigration
1901190919171925193319411949195719651973198119891997200520130
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Next China? … Mexico + Latin America!
Sales to International Buyers IncreasedBoth in Terms of Transactions and Price
2011 2012 2013 2014
$ 66.4
$ 82.5
$68.2
$92.2
Estimated Sales Dollar Volume of U.S. Residential Property to International Buyers ( in Billion Dollars)*
Estimate is for 12 month period April 2013 - March 2014.
Canada Leads in Number of Transactions
China Leads in Dollar Volume
Brazil Canada China* France Germany India Japan Mexico Russia United Kingdom
2010 0.01 0.23 0.09 0.03 0.04 0.05 0.01 0.1 0.03 0.09
2011 0.03 0.23 0.09 0.04 0.04 0.07 0.02 0.07 0.01 0.07
2012 0.03 0.24 0.12 0.03 0.03 0.06 0.01 0.08 0.02 0.06
2013 0.0197044334975
369
0.2282430213464
7
0.1198686371100
16
0.0197044334975
369
0.0311986863711
002
0.0541871921182
266
0.0082101806239
7373
0.0821018062397
373
0.0164203612479
475
0.049
2014 0.021 0.188 0.1649016641452
35
0.021 0.032 0.054 0.02 0.086 0.012 0.05
3%
13%
23%
International Transactions by Country of Origin
Florida—First Choice for International Buyers
Economic Forecast
2013 2014Likely
2015Forecast
2016 Forecast
GDP Growth 2.2% 2.2% 2.7% 2.9%
Job Growth +2.3 million +2.5 million +2.5 million +2.6 million
CPI Inflation 1.5% 1.6% 2.7% 3.3%
Consumer Confidence
73 87 95 98
10-year Treasury
2.5% 2.6% 3.2% 4.3%
Housing Forecast
2013 2014Likely
2015Forecast
2016 Forecast
Housing Starts 925,000 1.0 million 1.3 million 1.4 million
New Home Sales
430,000 440,000 620,000 700,000
Existing Home Sales
5.1 million 4.9 million 5.3 million 5.4 million
Median Price Growth
+ 11.5% + 5.3% + 4% + 4%
30-year Rate 4.0% 4.2% 4.9% 6.0%
Underwriting Standards
Strict Strict Transition Normal
Median Expected Price Change of REALTORS® in Next 12 Months, By StateBased on July 2014-September 2014 RCI Surveys
July 2014-September 2014 RCI Surveys
Let’s Spin the Bottle !
How Young Are REALTORS® ?
Under 30 In 30s In 40s In 50s In 60s0
10
20
30
40
50
60
70
RetireeWorking Age
Spin the Globe … Find the Source of Improving Standard of Living
When, How, What, Why?
• British Glorious Revolution of 1688 – William and Mary arrive to say …– Power not with King but with people via Parliament– No Taxation with Representation– Life, Liberty, and (Acquire) Property
• American Revolution of 1776 – Power resides not with King but with people – No Taxation with Representation– Life, Liberty, and the Pursuit of Happiness
Participants in Democracy to Protect Property Rights!