2015 housing outlook webinar presentation 2014 12 11 pdf

WHERE REAL ESTATE IS MOVINGWHERE REAL ESTATE IS MOVING™

2015 Housing

Market Outlook

Still on the road to recovery

December 2014

© Auction.com | Confidential & Proprietary

What We’ll Cover Today

• The Story of 2014: Housing Market in Recovery

• The Role of the Investor in the Housing Market

• The Distressed Market: Is the Crisis Finally Over?

• Trouble Ahead? Potential Headwinds

• 2015 Outlook for Housing: Groundhog Day?

• Questions & Answers


The Story of 2014:

Housing Market in

Recovery


2014 Existing Home Sales


2014 New Home Sales


New & Existing Home Sales: Another View


2014 Existing Home Inventory Still Very Low


And 2014 New Home Inventory Even Lower


Prospects for New Inventory Bleak


Low Inventory Contributes to Home Price Appreciation


The Role of the

Investor in the

Housing Market


Investors are Driving the Market Recovery

22% 23%23% 24%

25% 25%

24% 24%

23%21%

24%25%

28%

32%

0%

5%

10%

15%

20%

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30%

35%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Non-Owner Occupant Share of Single Family and Condo Purchases


Top 10 States: Investor Type by State

2-4 Units 5-10 Units 11-25 Untis 26-100 Units 100+ Units

California 173,220 15,893 3,397 966 86

Texas 165,680 17,311 3,799 879 81

Florida 110,740 9,056 1,815 456 108

Georgia 75,423 7,237 1,735 633 119

North Carolina 60,452 4,812 1,099 307 56

Ohio 55,713 5,132 1,063 241 50

Arizona 50,771 3,469 598 170 46

Indiana 48,438 3,926 907 251 41

Michigan 43,685 4,886 1,189 393 109

Illinois 44,722 3,633 899 246 72

Majority of Activity is from Small Investors


But Sales to Institutional Investors Still Higher than Usual

0.0%

0.5%

1.0%

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Investors Percent of Total U.S. Residential Sales (Owning 10+ Units)


Single Family Rentals a Growing Asset Class

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2,000

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16,000

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Total Single Family Rentals Single Family Rentals as % of Total Occupied Housing Stock


Number of Renter Households Continues to Grow…

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Millio

ns

Total Household Growth (YOY Change)

Renter Household Growth = 1,239,314 Owner Household Growth = -683,239

Source: Census Bureau; John Burns Real Estate Consulting, LLC (Data: 2014 Q3, Pub: Dec-14)


…And Conditions Point Towards the Trend Continuing

Mortgage Rates

Credit Standards

Home Prices

Rental Options

Student Loan Debt

Household Formations-to-Building Permits

Desire for to Own a Home

Personal Savings Rate

Income Growth

Distressed Sales


Flipping Has Declined from 2012 Peak…


…But is Still Profitable for Investors


The Distressed

Market: Is the Crisis

Finally Over?


2014 – The End of the Foreclosure Crisis


78% of Foreclosures from 2008 or Earlier


2014 Distressed Property Sales Falling


Short Sales Back to Pre-Crisis Levels…and Falling


REO Sales Falling, but More Slowly


Foreclosure Auctions Starting to Come Back


And Foreclosure Auction Homes Can Be the Best Deals


Trouble Ahead?

Potential

Headwinds


Unemployment Rates Not as Good as They Look


Labor Force Participation Rate Historically Low


And Millennial Employment is Lagging Behind


Home Ownership Rates Continue to Fall


1st Time Homebuyers Absent from Recovery


Mortgage Application Rates Weak – Especially for Purchase


What Can We Expect in 2015?

• Déjà vu…all over again

» Home price appreciation will moderate significantly

─ Price growth will be more in line with historical averages of 3-4%

─ Lack of distressed inventory will actually slow down price increases

─ Affordability becoming a problem in some markets

» Existing home sales between 4.9-5.1 million

─ Weak demand + low inventory = flat sales

» New home sales between 450-500 thousand

─ Housing starts/permits remain low

─ Most new inventory will be at the high end of the market

• Homeownership rates continue to decline

» Household formations increase, but with more renters

─ Financial, lifestyle and psychological reasons for delayed market entry


What Can We Expect in 2015?

• Credit may loosen, but only a little, and only over time

» Fannie/Freddie 3% down payment loans more of a PR effort than a market solution

» Less than 5% of all loans are non-QM (and that’s the highest percentage all year)

─ Virtually all of the non-QM loans are jumbo loans to high net worth individuals

» Uncertainty about regulatory environment

─ Fannie/Freddie fate far from certain

o Tasked with reducing their books of business, but control 90% of lending

─ Buy back rules need to be established

» No secondary market beyond government entities

• Interest rates are likely to go up

» Most estimates call for rates to end the year between 4.5-5.0%

─ Higher rates could impact affordability, price appreciation

• Bottom line: 2015 most likely to be another “Goldilocks” year


Thank You!

Questions? Comments?

Rick Sharga, Executive Vice President, Auction.com

(949) 951-2281

[email protected]

Connect with me on LinkedIn or follow me on Twitter (@ricksharga)