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Economic and Housing Market
TRENDS and OUTLOOK

            Lawrence Yun, Ph.D.
               Chief Economist
     NATIONAL ASSOCIATION OF REALTORS®

       Presentation at Vanderbilt University

                 April 18, 2012
Monthly Pending Home Sales Index
                         (Seasonally Adjusted)

115
           Homebuyer Tax Credit
110
105
100
95
90
85
80
75
70
  2007 - 2007 - 2008 - 2008 - 2009 - 2009 - 2010 - 2010 - 2011 - 2011 - 2012 -
   Jan    Jul    Jan    Jul    Jan    Jul    Jan    Jul    Jan    July   Jan
1,000,000
                              2,000,000
                                                      4,000,000
                                                                  5,000,000
                                                                              6,000,000
                                                                                          7,000,000
                                                                                                      8,000,000




                                          3,000,000



              0
 2005 - Jan
2005 - May
 2005 - Sep
 2006 - Jan
2006 - May
 2006 - Sep
 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
                                                                                                                  Monthly Existing Home Sales




2011 - May
 2011 - Sep
 2012 - Jan
200
               600
               800
              1000
              1200
              1400
              1800
              2000




               400
              1600




                 0
 2005 - Jan
2005 - May
 2005 - Sep
 2006 - Jan
2006 - May
 2006 - Sep
 2007 - Jan
2007 - May
                     New Home Sales




 2007 - Sep
 2008 - Jan
2008 - May
 2008 - Sep
 2009 - Jan
2009 - May
 2009 - Sep
 2010 - Jan
2010 - May
                                                    Monthly New Homes
                     Single-Family Housing Starts




 2010 - Sep
 2011 - Jan
2011 - May
 2011 - Sep
 2012 - Jan
Improving Factors for Higher Home Sales
• Improving Factors
   –   Very high affordability
   –   Job creation
   –   Solid stock market recovery from 2008
   –   Rising rents and larger pool of qualified renters
   –   Household formation pent-up release
   –   Smart money chasing real estate

• Potential Huge Positive … Lending opens up
• Potential Huge Negative … Washington policy
Best Affordability Conditions
Annual Existing Home Sales
8    In million units

7
6
5
4
    7.08
3           6.52
                        5.02                                4.61       4.75
2                              4.12   4.34   4.18   4.26

1
0
    2005     2006       2007   2008   2009   2010   2011     2012       2013
                                                           forecast   forecast
Second Home vs. Primary
                                              2011
               2010


      Investment
         17%                     Investment
                                    27%

Vacation
  10%

                                Vacation             Primary
                                  11%                  62%
                      Primary
                        73%
Second Home Sales
       In thousands
4000

3500

3000

2500

2000                                                  Investment
1500                                                  Vacation
1000

500

   0
       2003 2004 2005 2006 2007 2008 2009 2010 2011
Housing Starts
2500   In thousand units


2000


1500

                                                                             Multifamily
1000                                                                         Single-Family


500


   0
        2005   2006   2007   2008   2009   2010   2011     2012     2013
                                                         forecast forecast
New Home Sales
       In thousand units      NHS          Single-family starts
2000
1800
1600
1400
1200
1000
800
600
400
200
   0
           2005    2006    2007     2008       2009      2010     2011     2012       2013
                                                                         forecast   forecast
Visible Housing Inventory
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
 500,000
       0
            2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
            - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
                                      Existing    New
0.5
                        1.0
                              1.5
                                          2.5
                                                3.0
                                                      3.5
                                                            4.0
                                                                  4.5
                                                                        5.0




            0.0
                                    2.0
2000 - Q1
2000 - Q3
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
                                                                                                   million units




2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
                                                                                                                                           Shadow Inventory




2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
                                                                          (Seriously delinquent mortgage + homes in foreclosure process)




2011 - Q1
2011 - Q3
Median Home Price
260,000
                                 History   Forecast
240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000




                Existing   New
Economy
            Real GDP Growth        Nominal GDP Growth
     %
 8
 7
 6
 5
 4
 3
 2
 1
 0
-1   2005   2006   2007   2008   2009   2010   2011     2012     2013
-2                                                    forecast forecast
-3
-4
-5
Payroll Jobs Changes
                         (December to December)
4

3 In millions

2

1

0

-1   2005       2006   2007   2008   2009   2010   2011     2012     2013
                                                          forecast forecast
-2

-3

-4

-5

-6
Unemployment Rate
     %
                         (Average during the Year)
12

10

8

6

4

2

0
         2005   2006   2007   2008   2009   2010     2011     2012     2013
                                                            forecast forecast
Labor Force Participation Rate
      %
68
67
66
65
64
63
62
61




      2002 - Jan




      2008 - Jan
      1990 - Jan
      1991 - Jan
      1992 - Jan
      1993 - Jan
      1994 - Jan
      1995 - Jan
      1996 - Jan
      1997 - Jan
      1998 - Jan
      1999 - Jan
      2000 - Jan
      2001 - Jan

      2003 - Jan
      2004 - Jan
      2005 - Jan
      2006 - Jan
      2007 - Jan

      2009 - Jan
      2010 - Jan
      2011 - Jan
      2012 - Jan
     Labor Force Participation Rate has been falling at the beginning of the recession. Many
     went to school or took early retirement packages and are therefore no longer counted as
     part of the labor force. If the labor force participation were to be normal (or had it not
     fallen) then the corresponding unemployment rate would be closer to 11%.
Consumer Price Inflation
                               Rent     All Items    Core
     %
5

4

3

2

1

0
         2005    2006   2007     2008     2009      2010    2011     2012     2013
-1                                                                 forecast forecast
Fed Policy and Interest Rates
           Fed Funds     10-year Treasury      30-year Mortgage
    %
7

6

5

4

3

2

1

0
    2005   2006   2007   2008     2009      2010   2011     2012     2013
                                                          forecast forecast
Homes Bought How?
         More People Sought Help From REALTORS®

      Homebuilder    Directly from owner      Real estate agent
100
 90
 80
 70
 60
 50
 40
 30
 20
 10
  0
      2005    2006    2007     2008        2009    2010     2011
Foreclosure Inventory
(% of all mortgage outstanding; about 1/3 of homes are free and clear)

10.0
                             New Jersey             Arizona
 8.0
 6.0
 4.0
 2.0
 0.0
    2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 -
     Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1




 Important Judicial States with slow foreclosure process:
 • IL, IN, OH (Midwest)
 • NJ, NY, CT (Northeast)
 • FL
Housing Starts
2500   In thousand units


2000


1500

                                                                             Multifamily
1000                                                                         Single-Family


500


   0
        2005   2006   2007   2008   2009   2010   2011     2012     2013
                                                         forecast forecast
-100
            0
                100
                      200
                            300
                                  400
                                        500
                                                         600
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
                                              $ billions; seasonally adjusted annualized




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
                                                                                           Financial Industry Corporate Profits




2011 - Q3
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
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.
Cost Comparisons over 30 years
Item                            Price Index     Price        % Change
                                in 1981         Index in
                                                2011
Consumer price index            87.2            226.3        160%

Rent index                      84.7            254.3        200%

Food price index                91.6            229.6        150%

Gasoline price index            103.6           308.4        197%

College tuition index           75.8            601.3        693%

Medical care index              78.6            401.4        410%

Monthly mortgage payment on a   $598            Same if no   0%
median priced home              (14% mortgage   cash out     (free and clear
                                rate)
                                                refi         ownership)
Home Prices (FHFA index)        100             319          219%
Annual Forecast
                      2011           2012           2013
                      History        Forecast       Forecast
Existing Home Sales 4.26 million     4.65 million   4.71 million

New Home Sales        304,000        400,000        530,000

Housing Starts        611,000        760,000        960,000

Existing Home Price   $166,100       $168,000       $172,000

GDP Growth            +1.8%          +2.3%          +3.1%

Payroll Job Gains     +1.7 million   +2.7 million   +2.7 million

Fed Funds Rate        0.1%           0.1%           0.1%

30-yr Mortgage        4.7%           4.3%           4.9%
Long-Term Demographics
U.S. Population Aged 25-to-34
44000
43000
42000
41000
40000
39000
38000
37000
36000
35000
34000
30000
               35000
                               45000
                                       50000
                                               55000
                                                       60000




                       40000
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
                                                               Forecast Population Aged 25-to-34




2050
U.S. Population Aged 35-to-44
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
    0
30000
               35000
                               45000
                                       50000
                                               55000
                                                       60000




                       40000
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
                                                               Forecast Population Aged 35-to-44




2050
U.S. Population Aged 45-to-54
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
    0
30000
               35000
                       40000
                               45000
                                       50000
                                               55000
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
                                                       Forecast Population Aged 45-to-54




2050
U.S. Population Aged 55-to-64
40000
35000
30000
25000
20000
15000
10000
5000
    0
Forecast Population Aged 55-to-64
50000
48000
46000
44000
42000
40000
38000
36000
34000
32000
30000
                      2016




                                                         2026
        2012
               2014


                             2018
                                    2020
                                           2022
                                                  2024


                                                                2028
                                                                       2030
                                                                              2032
                                                                                     2034
                                                                                            2036
                                                                                                   2038
                                                                                                          2040
                                                                                                                 2042
                                                                                                                        2044
                                                                                                                               2046
                                                                                                                                      2048
                                                                                                                                             2050

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Vanderbilt Presentation (April 2012)

  • 1. Economic and Housing Market TRENDS and OUTLOOK Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at Vanderbilt University April 18, 2012
  • 2. Monthly Pending Home Sales Index (Seasonally Adjusted) 115 Homebuyer Tax Credit 110 105 100 95 90 85 80 75 70 2007 - 2007 - 2008 - 2008 - 2009 - 2009 - 2010 - 2010 - 2011 - 2011 - 2012 - Jan Jul Jan Jul Jan Jul Jan Jul Jan July Jan
  • 3. 1,000,000 2,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 3,000,000 0 2005 - Jan 2005 - May 2005 - Sep 2006 - Jan 2006 - May 2006 - Sep 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 Monthly Existing Home Sales 2011 - May 2011 - Sep 2012 - Jan
  • 4. 200 600 800 1000 1200 1400 1800 2000 400 1600 0 2005 - Jan 2005 - May 2005 - Sep 2006 - Jan 2006 - May 2006 - Sep 2007 - Jan 2007 - May New Home Sales 2007 - Sep 2008 - Jan 2008 - May 2008 - Sep 2009 - Jan 2009 - May 2009 - Sep 2010 - Jan 2010 - May Monthly New Homes Single-Family Housing Starts 2010 - Sep 2011 - Jan 2011 - May 2011 - Sep 2012 - Jan
  • 5. Improving Factors for Higher Home Sales • Improving Factors – Very high affordability – Job creation – Solid stock market recovery from 2008 – Rising rents and larger pool of qualified renters – Household formation pent-up release – Smart money chasing real estate • Potential Huge Positive … Lending opens up • Potential Huge Negative … Washington policy
  • 7. Annual Existing Home Sales 8 In million units 7 6 5 4 7.08 3 6.52 5.02 4.61 4.75 2 4.12 4.34 4.18 4.26 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast
  • 8. Second Home vs. Primary 2011 2010 Investment 17% Investment 27% Vacation 10% Vacation Primary 11% 62% Primary 73%
  • 9. Second Home Sales In thousands 4000 3500 3000 2500 2000 Investment 1500 Vacation 1000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011
  • 10. Housing Starts 2500 In thousand units 2000 1500 Multifamily 1000 Single-Family 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast
  • 11. New Home Sales In thousand units NHS Single-family starts 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast
  • 12. Visible Housing Inventory 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan Existing New
  • 13. 0.5 1.0 1.5 2.5 3.0 3.5 4.0 4.5 5.0 0.0 2.0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 million units 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 Shadow Inventory 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 (Seriously delinquent mortgage + homes in foreclosure process) 2011 - Q1 2011 - Q3
  • 14. Median Home Price 260,000 History Forecast 240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 Existing New
  • 15. Economy Real GDP Growth Nominal GDP Growth % 8 7 6 5 4 3 2 1 0 -1 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2 forecast forecast -3 -4 -5
  • 16. Payroll Jobs Changes (December to December) 4 3 In millions 2 1 0 -1 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast -2 -3 -4 -5 -6
  • 17. Unemployment Rate % (Average during the Year) 12 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast
  • 18. Labor Force Participation Rate % 68 67 66 65 64 63 62 61 2002 - Jan 2008 - Jan 1990 - Jan 1991 - Jan 1992 - Jan 1993 - Jan 1994 - Jan 1995 - Jan 1996 - Jan 1997 - Jan 1998 - Jan 1999 - Jan 2000 - Jan 2001 - Jan 2003 - Jan 2004 - Jan 2005 - Jan 2006 - Jan 2007 - Jan 2009 - Jan 2010 - Jan 2011 - Jan 2012 - Jan Labor Force Participation Rate has been falling at the beginning of the recession. Many went to school or took early retirement packages and are therefore no longer counted as part of the labor force. If the labor force participation were to be normal (or had it not fallen) then the corresponding unemployment rate would be closer to 11%.
  • 19. Consumer Price Inflation Rent All Items Core % 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 -1 forecast forecast
  • 20. Fed Policy and Interest Rates Fed Funds 10-year Treasury 30-year Mortgage % 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast
  • 21. Homes Bought How? More People Sought Help From REALTORS® Homebuilder Directly from owner Real estate agent 100 90 80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011
  • 22. Foreclosure Inventory (% of all mortgage outstanding; about 1/3 of homes are free and clear) 10.0 New Jersey Arizona 8.0 6.0 4.0 2.0 0.0 2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Important Judicial States with slow foreclosure process: • IL, IN, OH (Midwest) • NJ, NY, CT (Northeast) • FL
  • 23. Housing Starts 2500 In thousand units 2000 1500 Multifamily 1000 Single-Family 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 forecast forecast
  • 24. -100 0 100 200 300 400 500 600 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 $ billions; seasonally adjusted annualized 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 Financial Industry Corporate Profits 2011 - Q3
  • 25. 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
  • 26. 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.
  • 27. Cost Comparisons over 30 years Item Price Index Price % Change in 1981 Index in 2011 Consumer price index 87.2 226.3 160% Rent index 84.7 254.3 200% Food price index 91.6 229.6 150% Gasoline price index 103.6 308.4 197% College tuition index 75.8 601.3 693% Medical care index 78.6 401.4 410% Monthly mortgage payment on a $598 Same if no 0% median priced home (14% mortgage cash out (free and clear rate) refi ownership) Home Prices (FHFA index) 100 319 219%
  • 28. Annual Forecast 2011 2012 2013 History Forecast Forecast Existing Home Sales 4.26 million 4.65 million 4.71 million New Home Sales 304,000 400,000 530,000 Housing Starts 611,000 760,000 960,000 Existing Home Price $166,100 $168,000 $172,000 GDP Growth +1.8% +2.3% +3.1% Payroll Job Gains +1.7 million +2.7 million +2.7 million Fed Funds Rate 0.1% 0.1% 0.1% 30-yr Mortgage 4.7% 4.3% 4.9%
  • 30. U.S. Population Aged 25-to-34 44000 43000 42000 41000 40000 39000 38000 37000 36000 35000 34000
  • 31. 30000 35000 45000 50000 55000 60000 40000 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 Forecast Population Aged 25-to-34 2050
  • 32. U.S. Population Aged 35-to-44 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0
  • 33. 30000 35000 45000 50000 55000 60000 40000 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 Forecast Population Aged 35-to-44 2050
  • 34. U.S. Population Aged 45-to-54 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0
  • 35. 30000 35000 40000 45000 50000 55000 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 Forecast Population Aged 45-to-54 2050
  • 36. U.S. Population Aged 55-to-64 40000 35000 30000 25000 20000 15000 10000 5000 0
  • 37. Forecast Population Aged 55-to-64 50000 48000 46000 44000 42000 40000 38000 36000 34000 32000 30000 2016 2026 2012 2014 2018 2020 2022 2024 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050