Economic Issues & Residential Real Estate Business Trends Forum

Economic Issues & Residential Real Estate Business Trends

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Patrick BissettChair

Residential Real Estate Forum


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Dean AsherFlorida State Association

President-Elect


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Mayor Buddy Dyer


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U.S. Economic Outlook

Mark Vitner, Managing Director & Senior EconomistNovember 9, 2012

Economic Outlook 10

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008 2010 2012 2014

U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change

GDP - CAGR: Q3 @ 2.0%

GDP - Yr/Yr Percent Change: Q3 @ 2.3%

Forecast

Economic Growth

We are more than three years into the economic

recovery and there is still a considerable amount of uncertainty regarding

sovereign debt issues in Europe, the federal budget deficit and the willingness

of businesses and households to commit to major capital purchases.

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Economic Outlook 11

0%

3%

6%

9%

12%

15%

18%

21%

0%

3%

6%

9%

12%

15%

18%

21%

1971 1976 1981 1986 1991 1996 2002 2007 2012

10-Year Treasury & Fed Funds TargetYield

10-Year Treasury Yield: Oct @ 1.75%

Fed Funds Target: Oct @ 0.25%

Financial Crises Are Becoming More Frequent

Treasury yields are currently near record low

levels. We believe uncertainty is the primary

driver of ultra-low interest rates.

Source: IHS Global Insight and Wells Fargo Securities, LLC

Economic Outlook 1212

The Timing of The First Fed Rate Hike

The timing for the Fed’s first tightening move has been pushed even further out. Long-term growth estimates have also been scaled back.

Source: Federal Reserve Board and Wells Fargo Securities, LLC

Individual FOMC Member ForecastsConsensus Fed Funds Rate Hike

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

2012 2013 2014 2015 2016

Appropriate Timing of Policy FirmingNumber of Participants

J une Release

September Release

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Appropriate Pace of Policy FirmingTarget Federal Funds Rate at Year-End

J une Projection

September Projection

2012 2013 2014 2015 Longer Run

Economic Outlook 13

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

2007 2008 2009 2010 2011 2012

Federal Reserve Balance Sheet Trillions

Other: Oct @ $206.0BForeign Swaps: Oct @ $12.6BPDCF & TAFCommercial Paper & Money MarketRepos & Dis. Window: Oct @ $0.1BAgencies & MBS: Oct @ $918.4BTreasuries: Oct @ $1,648.5B

Federal Reserve Balance Sheet

The massive expansion of the Fed’s balance sheet has lifted asset prices and has also given the economy a

boost. But all magic comes with a price!

Source: Federal Reserve Board and Wells Fargo Securities, LLC

Economic Outlook 14

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1994 1997 2000 2003 2006 2009 2012

Unemployment Rate - SA vs. NSAPercent

12-Month Rolling Average (NSA): Oct @ 8.2%

Unemployment Rate (SA): Oct @ 7.9%

Labor Market

Unemployment is gradually trending down, although much of the improvement

has come from unusual forces.

Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Economic Outlook 15

-8%

-4%

0%

4%

8%

12%

16%

20%

-8%

-4%

0%

4%

8%

12%

16%

20%

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84

Employment CyclesPercent Change from Cycle Peak

1948-1949 Cycle

1981-1982 Cycle

1989-1991 Cycle

2001 Cycle

2007-To-Date

Forecast

Labor Market

Job losses exceeded every post-World War II downturn, and the modest recovery to

date has been extremely disappointing.

Source: U.S. Department of Labor and Wells Fargo Securities, LLC


Consumer Related

This year’s improved stock market has helped bolster consumer spending at a time when real incomes are barely growing, and consumer confidence remains

historically low.

Source: U.S. Department of Commerce, Conference Board and Wells Fargo Securities, LLC

Consumer ConfidenceHousehold Wealth

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

Household AssetsTrillions of Dollars

Financial Assets: Q2 @ $51.9 Trillion

Household Real Estate Holdings: Q2 @ $16.9 Trillion

Other Tangible Assets: Q2 @ $7.3 Trillion

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

0

30

60

90

120

150

180

210

93 95 97 99 01 03 05 07 09 11

Confidence vs. Retail Sales and IncomeConference Board Consumer Confidence, Yr/Yr % Chg. 3-MMA

Confidence Yr/Yr % Chg: Oct @ 76.7%

Confidence: Oct @ 72.2 (Left Axis)

Retail Sales Ex-Auto: Sep @ 3.9% (Right Axis)

Real Disposible Per Cap Inc.: Sep @ 1.1% (Right Axis)


Consumer Confidence

Economic growth is unlikely to accelerate in a meaningful way until consumers feel better about current economic conditions than they do about future economic

prospects.

Source: Conference Board and Wells Fargo Securities, LLC

Confidence GapConsumer Confidence

0

50

100

150

200

250

0

50

100

150

200

250

87 89 91 93 95 97 99 01 03 05 07 09 11

Conference Board Consumer ConfidencePresent Situation and Expectations Index

Present Situation Yr/Yr % Chg: Oct @ 107.1%

Expectations Yr/Yr % Chg: Oct @ 65.8%

Present Situation: Oct @ 56.2

Expectations: Oct @ 82.9

-100

-75

-50

-25

0

25

50

75

100

-100

-75

-50

-25

0

25

50

75

100

87 89 91 93 95 97 99 01 03 05 07 09 11

Confidence Gap Present Situation Minus Expectations

Confidence Gap: Oct @ -26.8

Economic Outlook 18

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

96 98 00 02 04 06 08 10 12

Retail Sales Ex. Auto & Gas Stations vs. Income3-Month Moving Average

Disposable Personal Income, Yr/Yr % Change: Aug @ 3.2%Retail Sales, ex. Autos & Gas, 3-Month Annual Rate: Sep @ 4.6%

Stock Market Bubble Tax Cut 1

Tax Cut 2 Housing Refi Boom Tax

Rebates

Retail Sales

Retail sales have risen sharply in recent months, while disposable income

growth has begun to stagnate.


Economic Outlook 19

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

93 95 97 99 01 03 05 07 09 11

Furniture Stores Sales3-Month Moving Average

Year-over-Year Percent Change: Sep @ 8.9%

3-Month Annual Rate: Sep @ 7.6%

Retail Sales

Furniture store sales continue to rise, but the

pace is decelerating.


Economic Outlook 20

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2000 2002 2004 2006 2008 2010 2012 2014

Real Residential InvestmentBars = CAGR Line = Yr/Yr Percent Change

Res. Investment - CAGR: Q3 @ 14.4%Res. Construction - Yr/Yr Percent Change: Q3 @ 13.8%

Forecast

Residential Investment

Our forecast calls for continued strengthening in

residential investment.


Economic Outlook 21

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Th

ousa

nds

Housing StartsMillions of Units

Multifamily Starts

Multifamily Forecast

Single-family Starts

Single-family Forecast

Forecast

Homebuilding

We believe housing starts have bottomed and will

increase modestly over the next few years.


Economic Outlook 22

0

10

20

30

40

50

0

10

20

30

40

50

Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12

NAHB Housing Market Index & U.S. Distressed Sales

Total Distressed: Sep @ 24.0%

NAHB Housing Market Index: Oct @ 41.0

Housing Market

The share of distressed sales has come down

concurrently with the rise of the the NAHB Housing

Market Index.

Source: NAHB, NAR and Wells Fargo Securities, LLC


Housing Starts

Apartment construction accounts for much of the recent improvement in homebuilding.

We believe multifamily housing will account for a larger proportion of future starts.


Multifamily Housing StartsSingle & Multifamily Housing Starts

0

60

120

180

240

300

360

420

480

540

600

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

87 89 91 93 95 97 99 01 03 05 07 09 11

Single & Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

Single-family Housing Starts: Sep @ 551K (Left Axis)

Multifamily Housing Starts: Sep @ 235K (Right Axis)

0

40

80

120

160

200

0

100

200

300

400

500

87 89 91 93 95 97 99 01 03 05 07 09 11

Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

5+ Units: Sep @ 226.3 (Left Axis)

2-4 Units: Sep @ 9.0 (Right Axis)


New Home Sales

New home sales have begun to creep back up but are still near the lows of the Great Recession. Inventories of new homes have come down, and month’s supply has dropped to 4.5 months in September, which may lead to improvement in the

housing market.


Inventory of New HomesNew Home Sales

100

300

500

700

900

1,100

1,300

1,500

100

300

500

700

900

1,100

1,300

1,500

89 91 93 95 97 99 01 03 05 07 09 11

New Home SalesSeasonally Adjusted Annual Rate, In Thousands

New Home Sales: Sep @ 389,000

3-Month Moving Average: Sep @ 376,6670

150

300

450

600

0

150

300

450

600

89 91 93 95 97 99 01 03 05 07 09 11

Inventory of New Homes for SaleNon-Seasonally Adjusted, In Thousands

Inventory: Sep @ 146,000

Completed New Homes: Sep @ 38,000


Existing Home Sales

Existing home sales have recovered much faster than new home sales.

Source: NAR, U.S. Department of Commerce and Wells Fargo Securities, LLC

Inventory of New HomesNew Home Sales

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

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

Existing Home Resales Seasonally Adjusted Annual Rate - In Millions

Existing Home Sales: Sep @ 4.75 Million

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

94 96 98 00 02 04 06 08 10 12

Existing & New Single-Family Home SalesIn Millions, Seasonally Adjusted Annual Rate

New Home Sales: Sep @ 389 Thousand (Left Axis)

Existing Home Sales: Sep @ 4.2 Million (Right Axis)

Economic Outlook 26

-32%

-24%

-16%

-8%

0%

8%

16%

24%

-32%

-24%

-16%

-8%

0%

8%

16%

24%

96 98 00 02 04 06 08 10 12

Home PricesYear-over-Year Percentage Change

Median Sale Price: Sep @ $184,300Median Sales Price 3-M Mov. Avg.: Sep @ 9.9%FHFA (OFHEO) Purchase Only Index: Aug @ 4.7%S&P Case-Shiller Composite 10: Aug @ 1.3%

Home Prices

Home prices have firmed recently as foreclosures have become a smaller portion of overall sales.

Prices will likely fluctuate along a low trajectory until

more foreclosures clear through the pipeline.

Source: Federal Housing Finance Agency, National Association of Realtors, S&P Corp. and Wells Fargo Securities, LLC

Economic Outlook 27

0

10

20

30

40

50

60

70

80

90

0

10

20

30

40

50

60

70

80

90

87 89 91 93 95 97 99 01 03 05 07 09 11

NAHB/Wells Fargo Housing Market IndexDiffusion Index

NAHB Housing Market Index: Oct @ 41.0

NAHB/Wells Fargo Housing Market Index

Homebuilder sentiment has risen significantly over the past year, but it is still at a

relatively low level.

Source: National Association of Home Builders and Wells Fargo Securities, LLC

Economic Outlook 28

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Conventional 30-Year Mortgage RatePercent, FHLMC Fixed-Rate Mortgage

Conventional 30-Year Fixed Mortg. Rate: Oct @ 3.4%

U.S. Mortgage Rates

Mortgage rates are at historic lows and are likely

to remain low for some time.

Source: FHLMC and Wells Fargo Securities, LLC

Economic Outlook 29

International Forecast

The European financial crisis is dragging global

economic growth lower, but we believe growth should

pick up by 2014.

Source: Congressional International Monetary Fund and Wells Fargo Securities, LLC

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Real Global GDP Growth (Wells Fargo)Year-over-Year Percent Change, PPP Weights

Period Average

Economic Outlook 30

China Economic Slowdown

Fiscal CliffUncertainty

Credit Availability & Financial Reform

European Debt Crisis

Deleveraging

Fiscal & Monetary Policy

GeopoliticalTensions

Energy/Commodity Price Swings

Issues to Watch

Economic Outlook 31

Our Forecast

Wells Fargo U.S. Economic Forecast

2010 2011 2012 2013

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Real Gross Domestic Product 1 2.0 1.3 2.0 1.4 1.0 2.1 2.2 2.2 2.4 1.8 2.1 1.6

Personal Consumption 2.4 1.5 2.0 2.4 0.6 1.2 1.4 1.3 1.8 2.5 1.9 1.4

Inflation Indicators 2

PCE Deflator 2.4 1.6 1.5 1.8 1.5 1.7 1.6 1.5 1.9 2.4 1.8 1.6

Consumer Price Index 2.8 1.9 1.7 2.3 2.2 2.7 2.7 2.3 1.6 3.1 2.2 2.5

Industrial Production 1 5.9 2.6 - 0.4 0.5 0.7 3.5 4.1 4.1 5.4 4.1 3.6 1.8

Corporate Profits Before Taxes 2 10.3 6.7 5.7 5.3 4.8 5.2 5.7 6.3 26.8 7.3 6.9 5.5

Trade Weighted Dollar Index 3 72.7 74.5 72.7 73.0 74.0 75.0 76.0 77.0 75.4 70.9 73.2 75.5

Unemployment Rate 8.3 8.2 8.1 7.8 7.7 7.8 7.9 7.9 9.6 9.0 8.1 7.8

Housing Starts 4 0.71 0.74 0.79 0.84 0.90 0.96 1.02 1.08 0.59 0.61 0.77 0.99

Quarter- End Interest Rates 5

Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25Conventional Mortgage Rate 3.95 3.68 3.50 3.40 3.40 3.40 3.45 3.50 4.69 4.46 3.63 3.4410 Year Note 2.23 1.67 1.65 1.70 1.70 1.80 1.85 1.90 3.22 2.78 1.81 1.81

Forecast as of: November 8, 20121 Compound Annual Growth Rate Quarter-over-Quarter2 Year-over-Year Percentage Change3 Federal Reserve Major Currency I ndex, 1973=100 - Quarter End4 Millions of Units5 Annual Numbers Represent Averages

Actual Forecast

2013

Actual

2012

Forecast

Appendix

Economic Outlook 33

Recent Special Commentary

Wells Fargo Economics Group Publications

To view any of our past research please visit:

http://www.wellsfargo.com/economics

To join any of our research distribution lists please

visit:http://www.wellsfargo.com/

economicsemail

Date Title Authors

November- 01 North Carolina Economic Outlook Vitner, Brown & Watt

October- 29 Housing Data Wrap- Up: October 2012 Vitner & KhanOctober- 24 2012 Holiday Sales Outlook Aleman, Iqubal & BrownOctober- 18 U.S. Fiscal Primer II I: Federal Revenues Silvia, Bryson & BrownOctober- 18 Retirement in America: Extending the Finish Line Bryson, Iqbal & WattOctober- 12 The Great Unemplyoment Rate Debate Silvia, Watt & SwankoskiOctober- 08 The Unemployment Rate: Seasonality and Sampling Silvia, Iqbal & WattOctober- 02 Housing Chartbook: September 2012 Vitner, Khan & Silverman

September- 25 Local Budgets Under Pressure: A Fiscal Outlook Silvia & BrownSeptember- 17 Global Chartbook: September 2012 Bryson, Aleman & QuinlanSeptember- 10 U.S. Fiscal Primer II: Federal Government Spending Silvia, Bryson & BrownSeptember- 06 Commercial Real Estate Chartbook: Quarter 2 Vitner & KhanSeptember- 05 Brazilian Economy Slows Down; Better Times Ahead Aleman

August- 22 Mexico: Thanks to Auto Demand AlemanAugust- 15 California's Economy: Gaining Momentum Vitner & WattAugust- 14 Real GDP in Eurozone Slumped in Q2 BrysonAugust- 09 Rocky Mountain Summit: J uly 2012 SilviaAugust- 06 Orders and Production: No Time for Complacency Silvia, Quinlan & WattAugust- 01 U.S. Fiscal Primer I: The Deficit and Debt Silvia, Bryson & Brown

J uly- 19 U.S. States Grapple with Europe's Woes Vitner & BrownJ uly- 13 The Lowdown on Consumer Spending Vitner & QuinlanJ uly- 11 Employment: Beyond the Sound Bites—Reading the Signals IX Silvia & WattJ uly- 10 Employment: Beyond the Sound Bites—Reading the Signals VIII Silvia & WattJ uly- 09 Employment: Beyond the Sound Bites—Reading the Signals VII Silvia & WattJ uly- 05 Housing Data Wrap- Up: J une 2012 Vitner & KhanJ uly- 02 Do Too Many Dollars Make Us an Inflation Nation? Bullard & Quinlan

J une- 29 2012 State Budget Outlook Silvia & BrownJ une- 22 Student Loans: The Best of Intentions Silvia, Seydl & WattJ une- 20 FOMC: Keep On Twisting Until Europe's Fever Breaks VitnerJ une- 20 The Fiscal Cliff: Likelihood and Economic Impact Silvia, Brown & WattJ une- 20 Credit Quality Monitor: J une 2012 Anderson & KashmarkekJ une- 19 The Fed: Same Goal, Different Method Silvia & KhanJ une- 15 Economic Growth Appears to Be Lost in a Fog of Uncertainty VitnerJ une- 07 What Happens if Span or Italy Leaves EMU? Bryson, Quinlan & SwankoskiJ une- 07 Housing Chartbook: May 2012 Vitner, Khan & Seydl

May- 29 Implications of a Euro Exit to Greece Bryson, Quinlan & Swankoski

A Sampling of Our Recent Special, Regional & Industry Commentary

Economic Outlook

Wells Fargo Securities, LLC Economics Group

34

John Silvia … ...................... . … [email protected]

Global Head of Research and Economics

Diane Schumaker-Krieg ………………… ………[email protected] Head of Research & Economics

Chief Economist

Mark Vitner, Senior Economist……………....………. . .

[email protected]

Jay Bryson, Global Economist …………………....……….

[email protected]

Eugenio Aleman, Senior Economist …………….

[email protected]

Sam Bullard, Senior Economist ………………………….

[email protected]

Anika Khan, Senior Economist .… . [email protected]

Senior EconomistsSarah Watt, Economic Analyst …………………………… .

[email protected]

Kaylyn Swankoski, Economic Analyst [email protected]

Zachary Griffiths, Economic Analyst [email protected]

Sara Silverman, Economic Analyst [email protected]

Economists

Azhar Iqbal, Econometrician………………………………[email protected]

Tim Quinlan, Economist …………………………………[email protected]

Michael A. Brown, Economist ………………… [email protected]

Economic Analysts

Administrative Assistants

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Important Information for Non-U.S. Recipients

For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the “Materials”) are provided for general informational purposes only.

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Forum

COMMERCIAL REAL ESTATE HIGHLIGHTS

Economic Issues & Residential Real Estate Business Trends Forum

2012 REALTORS® Conference & ExpoOrange County Convention Center

November 9, 2012Orlando, FL

GEORGE RATIUManager, Quantitative & Commercial Research

National Association of REALTORS®

Discover Your Magic…


REALTORS® and Commercial

Jul 2012 Aug 2012 Sep 2012 Oct 2012

2% 2%

2%

3%

3%4%

3%4%

CRE Sales CRE Apartment Rental

Source: NAR

By The Numbers

• 79,000 Commercial REALTORS®

• 200,000 – 400,000 REALTORS® handled commercial real estate in 2012

Residential vs. Commercial

2001 - Q1

2001 - Q3

2002 - Q1

2002 - Q3

2003 - Q1

2003 - Q3

2004 - Q1

2004 - Q3

2005 - Q1

2005 - Q3

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

2013 - Q3

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2EHS (YoY % Chg) CRE Sales (YoY % Chg)

Source: NAR, Real Capital Analytics

Commercial Sales

$-

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

$160,000,000,000 Office Industrial Retail Apartment Hotel

Source: Real Capital Analytics

$181 B in 2012.ytd$570B in 2007

Commercial Prices

2000 December February April June August October 2007 December February April June90

110

130

150

170

190

210

Moody's/RCA CPPI - Composite Indices

Apartment Retail Industrial Office


Tale of Two Commercial Markets

08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3

-100%

-50%

0%

50%

100%

150%

200%

Sales Volume (YoY % Chg)

Major CRE Markets REALTOR Markets

Source: NAR, Real Capital Analytics

Deals of $2M +

Deals < $2M +

REALTOR® Commercial Markets

65%

35%

Did you complete a sales transaction?

YesNo

Source: National Association of REAL-TORS®

Over $10 M

Between $5 M and $10 M

$2 M and $5 M

Between $1 M and $2 M

Between $500K and $1 M

Between $250K and $500K

Under $250K

1%

1%

6%

17%

19%

23%

33%

Dollar amount of last transaction

92% of deals are <$2M

REALTOR® Commercial Markets

2008.Q4 2009.Q1 2009.Q2 2009.Q3 2009.Q4 2010.Q1 2010.Q2 2010.Q3 2010.Q4 2011.Q1 2011.Q2 2011.Q3 2011.Q4 2012.Q1 2012.Q2 2012.Q3

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Commercial Sales Trends, Quarterly

Sales Volume Sales Prices Business Opportunity

Source: National Association of Realtors®

REALTOR® Commercial Concerns

2012.Q3

2012.Q2

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

REALTORS® Most Pressing Challenges

InventoryDistressFinancingLocal EconomyNational EconomyPricing Gap: Buyers vs SellersOther

Major Markets - Financing


REALTOR® Markets - Financing

National banks (“Big four”)

Regional banks

Local banks

Credit unions

Life insurance companies

REITs

Private investors

Public companies

Small Business Administration

Other, please specify

0% 5% 10% 15% 20% 25% 30%

8%

17%

25%

7%

6%

4%

18%

1%

11%

3%

REALTORS® 2012 Commercial Lending Survey

Source: National Association of REALTORS®

REALTOR® Markets – FinancingLending Hampers Sales

67%

33%

Have you had a sales transaction fail during the past 12 months due to

lack of financing?

YesNo

Source: National Association of REALTORS®

50%50%

Have your clients failed to complete a re-financing transaction during the

past 12 months?

YesNo

Manhatt

an

Chicago

Dallas

Boston

Houston

Atlanta

Miami

San Dieg

o

Orange

Co.

Baltimore

East

Bay

Minneapolis

Raleigh

/Durham

Portlan

d

Detroit

-100%

-50%

0%

50%

100%

150%

200%

250%

2012.H1 Sales Volume (YoY % Chg)


Commercial Markets Outlook

Improving Fundamentals & Rising Sales

Growth of Secondary & Tertiary Markets

Light at End of Tunnel – Exit?

2009 2010 2011 2012 2013 20140

50

100

150

200

250

300

350

0%

10%

20%

30%

40%

50%

60%

70%

Total ($Bil) Loans with LTV > 100%

Source: Foresight Analytics

2009 2010 2011 2012 2013 20140

50

100

150

200

250

300

350

Banks CMBS Life Cos. Other

Source: Foresight Analytics

Light at End of Tunnel – Train?

VS

FEDERALREGULATIONS

+“FISCAL CLIFF”


For More Information…

REALTOR® Resources

• > economistsoutlook.blogs.realtor.org

• > www.facebook.com/narresearchgroup

• > twitter.com/#!/NAR_Research

• > www.realtor.org/research-and-statistics




Forum

Housing Market and

Economic Outlook

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation at NAR Annual Conference

Orlando, FL

November 9, 2012

Forecast #1: Inflation will be Notably Higher by 2015

• No Threatening Inflation Signs for 2013

• But Inflation rises to 4% to 6% in 2015

• Well above Fed’s preferred rate of 2%

• But not in double-digits as in 1970s

Consumer Price Inflation(% change from one year ago)

1970 - Jan 1975 - Jul 1981 - Jan 1986 - Jul 1992 - Jan 1997 - Jul 2003 - Jan 2008 - Jul

-4

-2

0

2

4

6

8

10

12

14

16

Core Overall

Rising Renters’ and Homeowners’ Rent Growth (the biggest weight to Consumer Price Index)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr

-1

0

1

2

3

4

5

Owners' Equivalent Rent Renters' Rent

201012

201101

201102

201103

201104

201105

201106

201107

201108

201109

201110

201111

201112

201201

201202

201203

201204

201205

201206

201207

201208

2012090%

10%

20%

30%

40%

50%

60%

Percent of REALTORS® Reporting Changing Rent Levels as Compared to 12 Months Ago

Higher Rents Lower Rents Constant rents

Sept '12: Rising rent: 57%

Monetary Policy by Federal Reserve (zero rate policy to 2015 ?)

20052006

20072008

20092010

20112012

2013 foreca

st

2014 foreca

st

2015 foreca

st0

1

2

3

4

5

6

Fed Funds

%

Federal Reserve Balance Sheet from Quantitative Easing

1-Aug-0

7

7-Nov-0

7

13-Feb-08

21-May

-08

27-Aug-0

8

3-Dec-0

8

11-Mar-

09

17-Jun-09

23-Sep-09

30-Dec-0

9

7-Apr-1

0

14-Jul-1

0

20-Oct-

10

26-Jan-11

4-May

-11

10-Aug-1

1

16-Nov-1

1

22-Feb-12

30-May

-12

5-Sep-12

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

Total Assets

$ million

Federal Government Tax Revenue and Spending

1970 - Jan1975 - Jul1981 - Jan1986 - Jul1992 - Jan1997 - Jul2003 - Jan2008 - Jul0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

Revenue Spending

12-month tally in $ million

Huge Federal Budget Deficit … Will Push Up Borrowing Cost and/or Ignite Inflation

1960 - Jan 1967 - Jan 1974 - Jan 1981 - Jan 1988 - Jan 1995 - Jan 2002 - Jan 2009 - Jan

-12

-10

-8

-6

-4

-2

0

2

4Deficit in relation to GDP

Impact to Deficit

• Mortgage Interest Deduction … $90 billion– Not the source of the current budget deficit since

MID was present for nearly 100 years

• Interest Rates Revert back to historical average … $300 billion in extra interest expense

Mortgage Rate Forecast(Average Rate of 5.5% in 2015 ?)

20052006

20072008

20092010

20112012

2013 foreca

st

2014 foreca

st

2015 foreca

st01234567

30-year Mortgage%

Modestly higher rates could help home sales as banks re-staff mortgage work for home purchase applications and less refinance applications.

Forecast #2: Meaningfully Higher Home Prices

• Demand is Up … Supply is Down

• 4% to 5% in 2012 (Case-Shiller, FHFA)

• 5% to 7% in 2012 (Median Home Price)

• Home price growth could slow or accelerate … all depends on housing starts

• Probably 15% cumulative growth over 3 years

Buyer and Seller Traffic from REALTOR® Survey

2008 - Jan

2008 - Apr

2008 - Jul

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

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Buyer Seller

SentriLock Key Usage(limited region; adjusted to get us comparable data)

Monthly Pending Home Sales Index(Seasonally Adjusted)

2007 - Jan

2007 - May

2007 - Sep

2008 - Jan

2008 - May

2008 - Sep

2009 - Jan

2009 - May

2009 - Sep

2010 - Jan

2010 - May

2010 - Sep

2011 - Jan

2011 - May

2011 - Sep

2012 - Jan

2012 - May

2012 - Sep

70

75

80

85

90

95

100

105

110

115Homebuyer Tax Credit

Source: NAR

Annual Existing Home Sales:U-Shaped Recovery

2005

2006

2007

2008

2009

2010

2011

2012

est

.

2013

2014

2015

012345678

7.086.52

5.02

4.12 4.34 4.18 4.264.65

5.05 5.3 5.6

In million units

Total Payroll Jobs(Lost Decade: Up, Down, ½ Up)

2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr124000

126000

128000

130000

132000

134000

136000

138000

140000 In thousands

Unemployment Rate(Slow Steady Progress)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0

2

4

6

8

10

12

Employment Rate … No Progress(How many of the civilian population is working)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr54%

56%

58%

60%

62%

64%

66%

Visible Housing Inventory(Existing home inventory at 8-year low)

2000 - Jan 2001 - Dec 2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Visible Housing Inventory(Newly Constructed Homes Inventory at 50-year low)

1964 - Jan 1970 - Jul 1977 - Jan 1983 - Jul 1990 - Jan 1996 - Jul 2003 - Jan 2009 - Jul0

100

200

300

400

500

600

700

Housing Starts(Well Below 50-year average of 1.5 million each year)

2000 - Jan 2002 - Apr 2004 - Jul 2006 - Oct 2009 - Jan 2011 - Apr0

500

1000

1500

2000

2500

multifamily single-familyThousand units (annualized)

Long-term Average NASDAQ up 13% Dow up 9%Homebuilder stocks up 62%in 12 months

Shadow Inventory … Falling(Seriously delinquent mortgage + homes in foreclosure process)

million units

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

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0 Distressed Sales Market Share

2010 … 33%

2011 … 33%

2012 … 25%

2013 … 15%

2014 … 8%

2015 … 5%

Home PricesMetric % change from one year ago Comment

NARMedian Price

+ 11.3% (September) Mix of homes impact price … fewer distressed sales recently …

Case-Shiller +2.0% (June, July, August average) Lagging indicator

Near double-digit on an annualized basis in recent months

FHFA + 4.7% (August) Monthly gains in 9 of recent 10 months

Housing Starts ScenariosHousing Starts Case-Shiller Price Growth in 2013

900,000 (15% increase) 8 %

1,000,000 (28% increase) 7%

1,130,000 (45% increase) 5%

1,200,000 (54% increase) 4%

1,300,000 (67% increase) 3%

1,400,000 (80% increase) 2%

1,500,000 (92% increase) 1%

Forecast #3: More Unequal Wealth Distribution

• Renters do not accumulate wealth

• Renter population rising

• Homeowners build wealth after buying at low prices

• Stagnant homeowner population

• Tight Credit hinders ‘good’ renters from becoming homeowners

• Investors becoming increasing share of property owners

Net Equity in Real Estate

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

0

2000

4000

6000

8000

10000

12000

14000

16000In $ billion

If 4% annual gain

Bubble growth

Wealth Distribution (Federal Reserve data on median net worth)

Renter Owner$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

199820012004200720102014

2014 Forecast by NAR

Bubble Crash

2013

Renter Households

1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q425,000

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000In thousands

Homeowner Households

1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q450,000

55,000

60,000

65,000

70,000

75,000

80,000In thousands

Homeownership Rate at 65.5%(Lowest in 15 years)

1965 - Q1 1971 - Q1 1977 - Q1 1983 - Q1 1989 - Q1 1995 - Q1 2001 - Q1 2007 - Q158

60

62

64

66

68

70%

Household Formation(Usually 2/3 owners and 1/3 renters

= 66% homeownership rate)

1995-2000

2000-2005

2006 2007 2008 2009 2010 2011 2010-2020

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

All Renters

Source: Harvard Joint Center for Housing Studies

Forecast #4: Few Local Market Forecast

• New Jersey and New York rebuilds• New Jersey and New York will still lag in home

prices• Arizona rapid ascent may slow• Texas gains steadily• California housing shortage continues• Florida attracts global buyers but running out

of land?

New Orleans MetroHousing Permits

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20120

2000

4000

6000

8000

10000

12000

14000

Post-Katrina Rebuilding

New JerseyHousing Permits

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20120

10000

20000

30000

40000

50000

60000

70000

Foreclosures Clogged in Judicial States Example Seriously Delinquent Mortgages in CT and IL

2005 - Q1

2005 - Q3

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

02468

1012

CT IL

%

Should a trigger be set up to foreclose without a court approval? • Vacant property• Missed Mortgages for 6 months or longer

Foreclosures Rapidly Falling in Non-Judicial States

Example: Seriously Delinquent Mortgages in AZ, CA , MI

2005 - Q1

2005 - Q3

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

0

2

4

6

8

10

12

14

AZ MI CA

%

Home Prices RisingMiami up 7% from one year ago

Phoenix up 19% from one year ago

1989 - Jan 1991 - Jul 1994 - Jan 1996 - Jul 1999 - Jan 2001 - Jul 2004 - Jan 2006 - Jul 2009 - Jan 2011 - Jul0

50

100

150

200

250

300

Phoenix

Miami

Source: Case-Shiller

Arizona JobsQuickly Turning Around


2100

2200

2300

2400

2500

2600

2700

2800 In thousands

Texas JobsUp, Up, and Away


100001020010400106001080011000 In thousands

California & Texas Housing Permits(Who will gain Additional Electoral College Votes in 2020?)

20002001200220032004200520062007200820092010201120120

50000

100000

150000

200000

250000

Florida Jobs from 1940(When will the state run out of land?)

1939 - Jan1948 - Jul1958 - Jan1967 - Jul1977 - Jan1986 - Jul1996 - Jan2005 - Jul0

1000

2000

3000

4000

5000

6000

7000

8000

9000 In thousands

Nonfarm Payroll Jobs

Global Buyers buying Where?

Arizona California Florida Georgia Nevada New York Texas

2007 5% 16% 10% 2% 2% 4% 8%

2008 5% 11% 9% 3% 2% 4% 7%

2009 7% 13% 23% 1% 1% 2% 11%

2010 11% 12% 22% 5% 3% 4% 8%

2011 6% 12% 31% 2% 2% 3% 9%

2012 7% 11% 26% 4% 2% 4% 7%

0%

5%

10%

15%

20%

25%

30%

35%

Percent of International Sales by State

Global Buyers from Where?

Brazil Canada China France Germany India Japan Mexico Russia U.K.2007 2% 11% 5% 3% 3% 6% 1% 13% 1% 12%

2008 2% 24% 8% 3% 4% 6% 1% 9% 2% 12%

2009 1% 18% 5% 2% 4% 9% 1% 10% 1% 11%

2010 1% 23% 8% 3% 4% 5% 1% 10% 3% 9%

2011 3% 23% 9% 3% 4% 7% 1% 7% 1% 6%

2012 3% 24% 11% 3% 3% 6% 1% 8% 2% 6%

0%

5%

10%

15%

20%

25%

30%

Percent of International Sales by Country

Forecast Summary: Business $Volume rises by double-digits in 2013 & 2014

2011History

2012Forecast

2013Forecast

2014Forecast

GDP Growth +1.8% +2.1% +2.5% 3.1%

Existing Home Sales

4.26 million 4.64 million 5.05 million 5.3 million

New Home Sales

301,000 368,000 575,000 650,000

Housing Starts 612,000 776,000 1,128,000 1,300,000

Existing Home Price

$166,100 $176,100 $185,200 $195,000

Fed Funds Rate 0.1% 0.1% 0.1% 0.1%

30-yr Mortgage 4.7% 3.7% 4.0% 4.6%

Financial Industry Profits(excluding Federal Reserve)

2001 - Q1

2001 - Q4

2002 - Q3

2003 - Q2

2004 - Q1

2004 - Q4

2005 - Q3

2006 - Q2

2007 - Q1

2007 - Q4

2008 - Q3

2009 - Q2

2010 - Q1

2010 - Q4

2011 - Q3

2012 - Q2

-200

-100

0

100

200

300

400

500$ billion

Risks to Forecast

• Upside … Credit Availability– Housing recovery so far even with tight credit– What happens if mortgage accessibility opens up?– Counter-cyclical housing policy … lower FHA premiums and

lower GSE g-fees• Downside … Washington Policy

– QRM 20% down payment requirement?– Basel 3 … capital rule that punishes private mortgage with

low down payment and commercial loans– Trim mortgage interest deduction?– Capital gains tax on home sale?

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