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!