1. Real Estate and Economic Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at St. Charles County Association of REALTORS®
St. Charles, MO
February 20, 2014

2. Existing Home Sales
20% cumulative increase over 2 years
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

3. Median Home Price
(Near 20% gain in 2 years)
$240,000
$220,000
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

4. St. Louis Housing Statistics
• Closed Sales in 2013
Up +10% from 1 year ago
Up +27% from 2 years ago
• Average Price
Up +9% from 1 year ago
Up +10% from 2 years ago
• Dollar Volume
Up +19% from a year ago
Up +37% from 2 years ago
• Active Listings … shrinking for 4th straight year

5. St. Charles Housing Statistics
• Closed Sales in 2013
Up +18% from 1 year ago
Up +43% from 2 years ago
• Median Prices
Up +8% from 1 year ago
Up +11% from 2 years ago
• Dollar Volume
Up +26% from a year ago
Up +54% from 2 years ago
• Days on Market … shrinking for 2nd straight year, typically sold in
53 days

6. Monthly Pending Sales Index
(Seasonally Adjusted)
115.0
110.0
105.0
100.0
95.0
90.0
85.0
80.0
75.0
70.0
Source: NAR

7. 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
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
Buyer and Seller Traffic
How Much from Gov’t Shutdown and Dysfunction?
Buyer
Seller
80
70
60
50
40
30
20
10
0

8. Mismatch Growth
Home Price
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Household Income
19%
4%
2-year Growth

9. 2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
Inevitable Rise in Mortgage Rates will
further hurt Affordability
(30-yr rate have been below 6% for 5 years)
9%
8
7
6
5
4
3

10. 2013 - Jan
2011 - Jan
2009 - Jan
2007 - Jan
2005 - Jan
2003 - Jan
2001 - Jan
1999 - Jan
1997 - Jan
1995 - Jan
1993 - Jan
1991 - Jan
1989 - Jan
1987 - Jan
1985 - Jan
1983 - Jan
1981 - Jan
1979 - Jan
1977 - Jan
1975 - Jan
1973 - Jan
1971 - Jan
Falling Affordability to 5-year Low
But still 5th best in 40 years
250
200
150
100
50
0

11. 2013 - Jul
2013 - Apr
5%
2013 - Jan
10%
2012 - Oct
2012 - Jul
2012 - Apr
2012 - Jan
2011 - Oct
2011 - Jul
2011 - Apr
2011 - Jan
2010 - Oct
2010 - Jul
2010 - Apr
2010 - Jan
2009 - Oct
2009 - Jul
2009 - Apr
40%
2009 - Jan
2008 - Oct
All-Cash Buyers Stayed High … even when
mortgages were cheap
(Cash share as % of total home sales)
35%
30%
25%
20%
15%
Normal Range
0%

12. Jan 14 2000
Jul 14 2000
Jan 12 2001
Jul 13 2001
Jan 11 2002
Jul 12 2002
Jan 10 2003
Jul 11 2003
Jan 9 2004
Jul 9 2004
Jan 7 2005
Jul 8 2005
Jan 6 2006
Jul 7 2006
Jan 5 2007
Jul 6 2007
Jan 4 2008
Jul 4 2008
Jan 2 2009
Jul 3 2009
Jan 1 2010
Jul 2 2010
Dec 31 2010
Jul 1 2011
Dec 30 2011
Jun 29 2012
Dec 28 2012
Jun 28 2013
Refinances will Collapse in 2014
(to at least 15-year low)
12000
10000
8000
6000
4000
2000
0

13. 500
-100
-200
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
2012 - Q3
2013 - Q1
2013 - Q3
Financial Industry Profits from Low Rates and Refis
Now What … Boost Purchase Apps?
$ billion
400
300
200
100
0

14. Jan 7 2000
Jul 7 2000
Jan 5 2001
Jul 6 2001
Jan 4 2002
Jul 5 2002
Jan 3 2003
Jul 4 2003
Jan 2 2004
Jul 2 2004
Dec 31 2004
Jul 1 2005
Dec 30 2005
Jun 30 2006
Dec 29 2006
Jun 29 2007
Dec 28 2007
Jun 27 2008
Dec 26 2008
Jun 26 2009
Dec 25 2009
Jun 25 2010
Dec 24 2010
Jun 24 2011
Dec 23 2011
Jun 22 2012
Dec 21 2012
Jun 21 2013
No Increase in Mortgages for Home Purchases
during 2-year Recovery; Will Rise in 2014?
600
500
400
300
200
100
0

15. Market Incentive to Lend More
• Huge Cash Reserve
• Refi going away … purchase should be the only
game
• Loans performing outstandingly
• Far fewer seriously delinquent mortgages
• Home price increases lower defaults

16. But Will Washington Allow It?
• Washington Policies so far … Too Restrictive
– Rising g-fees and FHA insurance premiums?
– Uncertainty about QRM down payment
requirement? … Dodd-Frank?
– Too many Lawsuits? … Runaway DOJ?
• Mortgages Have Performed Outstandingly
– Not because of Washington policies
– But because of home price increases
• New Restriction with PATH?

17. What is PATH? … Hensarling’s Ideology
(Protecting American Taxpayers and Homeowners?)
• For-profit Fannie and Freddie were Arrogant
• Today’s Fannie and Freddie have had reforms under
government control
• Remove Government Guarantee on Mortgages
• 30-yr Fixed Rate Mortgages … Hard to get and higher rates
• Large Banks will do Securitization … Small Banks at Risk
• Market becomes excessively pro-cyclical
• Large Banks have FDIC … taxpayer risk … vulnerable to
nationalization and, if so, government credit allocation
• Global capital could decide to go elsewhere rather than the
U.S. …. Other countries grow faster than the U.S.

18. Latest Market Trends

19. 1964 - Jan
1966 - Jan
1968 - Jan
1970 - Jan
1972 - Jan
1974 - Jan
1976 - Jan
1978 - Jan
1980 - Jan
1982 - Jan
1984 - Jan
1986 - Jan
1988 - Jan
1990 - Jan
1992 - Jan
1994 - Jan
1996 - Jan
1998 - Jan
2000 - Jan
2002 - Jan
2004 - Jan
2006 - Jan
2008 - Jan
2010 - Jan
2012 - Jan
New Home Inventory
(Newly Constructed Homes Inventory at near 50-year low)
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0

20. Existing Home Inventory
(near 13-year low)
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 2013
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

21. 2013 - Q3
10
2012 - Q4
4
2012 - Q1
2011 - Q2
2010 - Q3
2009 - Q4
2009 - Q1
2008 - Q2
2007 - Q3
2006 - Q4
2006 - Q1
2005 - Q2
2004 - Q3
2003 - Q4
2003 - Q1
2002 - Q2
2001 - Q3
2000 - Q4
2000 - Q1
Shadow Inventory in NY and MO
(Mortgages Late 90+ day or in foreclosure process)
12
NY
8
6
MO
2
0

22. Housing Starts … Need to Reach 1.5 million
soon or persistent housing shortage
multifamily
single-family
2500
Thousand units (annualized)
2000
Long-term Average
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

23. St. Louis Area Housing Permits
(year-to-date)
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

24. 330
1995 - Q1
1995 - Q4
1996 - Q3
1997 - Q2
1998 - Q1
1998 - Q4
1999 - Q3
2000 - Q2
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
2013 - Q1
Phoenix and St. Louis
Repeat-Transaction Home Price Index
280
230
180
130
80

25. GDP … No Fresh Recession in Sight
% growth from one year ago
4
3
2
1
0
-1
-2
-3
-4
-5

26. -2
-4
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
1998 - Q1
1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
2005 - Q3
2007 - Q1
2008 - Q3
2010 - Q1
2011 - Q3
2013 - Q1
Consumer Spending Growth
(2% growth; not 3% or 4%)
8
6
4
2
0

27. 2012 - Q4
2012 - Q1
2011 - Q2
2010 - Q3
2009 - Q4
2009 - Q1
2008 - Q2
2007 - Q3
2006 - Q4
2006 - Q1
2005 - Q2
2004 - Q3
2003 - Q4
2003 - Q1
2002 - Q2
2001 - Q3
75000
2000 - Q4
2000 - Q1
Household Net Worth
$ billion
70000
65000
60000
55000
50000
45000
40000

28. -5
-10
-15
-20
1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
1998 - Q1
1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
2005 - Q3
2007 - Q1
2008 - Q3
2010 - Q1
2011 - Q3
2013 - Q1
Business Spending Growth
(2% growth; not sustained 5% to 10%)
25
20
15
10
5
0

29. 1980 - Q1
1981 - Q3
1983 - Q1
1984 - Q3
1986 - Q1
1987 - Q3
1989 - Q1
1990 - Q3
1992 - Q1
1993 - Q3
1995 - Q1
1996 - Q3
1998 - Q1
1999 - Q3
2001 - Q1
2002 - Q3
2004 - Q1
2005 - Q3
2007 - Q1
2008 - Q3
2010 - Q1
2011 - Q3
2013 - Q1
Business Spending in relation to
Corporate Profits
Profits
Business Spending
2500
2000
1500
1000
500
0

30. 140000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - May
2013 - Nov
U.S. Total Payroll Jobs
(8 million lost … Almost 8 million gained)
In thousands
138000
136000
134000
132000
130000
128000
126000
124000

31. 2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
Improvement in Unemployment Rate
12
10
8
6
4
2
0

32. 2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
No Improvement in Employment Rate
66
64
62
60
58
56
54

33. St. Louis Area Total Jobs
1370
In thousands
1350
1330
1310
1290
1270
1250
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan

34. Forecast

35. Forecast #1:
Inflation will be Notably Higher by 2015
• No Threatening Inflation Signs for 2014
• But Inflation rises to 3% to 6% in 2015
• Well above Fed’s preferred rate of 2%
• But not in double-digits as in 1970s

36. -1
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
Rising Renters’ and Homeowners’ Rent Growth
(the biggest weight to Consumer Price Index)
Owners' Equivalent Rent
Renters' Rent
5
4
3
2
1
0

37. Forecast #2
(Rising Mortgage Rates to 5.3% by end of 2014)
2014
forecast
0%
2015
forecast
4%
Median Price
5%
4%
Dollar Volume
Estimate
+5%
+8%
Existing Home Sales

38. 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

39. 41,000
39,000
1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
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
Renter Households
In thousands
37,000
35,000
33,000
31,000
29,000
27,000
25,000

40. 80,000
1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
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
Homeowner Households has not Grown since
2006 … but Primed to Grow
In thousands
75,000
70,000
65,000
60,000
55,000
50,000

41. Wealth Distribution
(Federal Reserve data on median net worth)
$300,000
Bubble Crash
$250,000
$200,000
1998
2001
$150,000
2004
$100,000
2007
2010
$50,000
2014
$0
Renter
2014 Forecast by NAR
Owner
•
•
•
•
Dodd-Frank?
PATH?
Lawsuits?
Legacy?

42. What Homebuyers Want?

43. Slightly More Preference For Condo or
Apartment Living Than In 2011
Housing Type Preference (2013):
Housing Type Preference (2011):
Condo
or Apt.
8%
14%
Condo or Apt.
5%
Single
Family
Attached
7%
4%
6%
Single Family
Attached
76%
Single Family
Detached
House
80%
Single Family
Detached House
Right now, if you could choose, which of the following would you prefer to live in:
Slide 43

44. Walkability and Age-Diversity
Gaining in Importance
Changes in Important Factors in Deciding Where to Live
50%
40%
+1
+1
46% 45%
45% 44%
+6
37%
30%
+4
28%
31%
-8
36%
28%
+2
23%
24%
20%
+8
23%
21%
15%
10%
0%
Privacy from
neighbors
High-quality
public schools
Sidewalks and
places to take
walks
Being within an Being within a
easy walk of
short commute
other places and
to work
things in the
community
Very Important - 2013
A community Easy access to the
with people at
highway
all stages of life
adults, families
with children
and older people
Very Important - 2011
Q.47 In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important,
not very important, or not at all important.
Slide 44

45. What Buyers Want Most From Their Agent
Determine Help with
paperwork, 7
what
%
comparable
homes were
selling
for, 8%
Help with the
price
negotiations,
11%
Help find
and arrange
financing, 3
%
Help buyer
negotiate the
terms of
sale, 12%
Help find the
right home to
purchase, 53
%

46. REALTOR® Median Gross Income
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
1995 1998 2000 2002 2004 2006 2007 2008 2009 2010 2011 2012
How many with more than $100,000? … 200,000
How many with less than $10,000? … 360,000

47. Annual Membership
(at year-end)
1,500,000
1,400,000
1,300,000
1,200,000
1,100,000
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
47

48. Commercial Market Activity

49. Commercial Real Estate
Sales Volume Recovering

50. Prices Up
Source: Moody's/REAL National - All Property Type Aggregate Index (CPPI)

51. Rents Increasing

52. St. Louis Commercial Statistics
• Office Vacancy 18% … no rent increase
• Apartment Vacancy 5% … 2% rent increase
• Retail Vacancy 13% … 1% rent increase

53. REALTOR® Markets & Deal Size
2013 CRE Lending Survey: Value of most recent sales transaction
> $10,000,000
$5,000,000 - $10,000,000
2%
1%
$2,000,000 - $5,000,000
$1,000,000 - $2,000,000
12%
17%
$500,000 - $1,000,000
$250,000 - $500,000
< $250,000
26%
22%
21%
Source: NAR
REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

54. REALTOR® CRE Markets Rebound
Sales Volume (YoY % Chg)
Major CRE Markets
Realtor CRE Markets
200%
150%
Deals > $2.5M
100%
50%
0%
-50%
-100%
Sources: NAR, Real Capital Analytics

55. Small Banks Important to REALTORS®
Current sources of financing for commercial deals
National banks (“Big four”)
3%
1%
8%
Regional banks
11%
Local banks
17%
Credit unions
Life insurance companies
REITs
18%
Private investors
Public companies
Small Business Administration
4%
25%
6%
7%
Source: NAR
Other, please specify

56. NAR REALTORS® Commercial Activity Survey
As of Third Quarter 2013
• Sales Volume Compared with Previous Year: Up 11%.
• Sales Prices Compared with Previous Year: Up 4%.
• Rental Volume Compared with Previous Quarter: Up
2%.
• Rental Rates Compared with Previous Quarter: Up 1%.
• Direction of Business Opportunities Compared with
Previous Quarter: Up 4%.

57. Cap Rates and Treasuries: Large Gap
10yr UST*
Cap Rate
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: Real '13
Capital Analytics

58. Commercial Forecast

59. Forecast over the next 2 years
• GDP Growth near 3%
• Net New Jobs about 2 million a year
• Rising interest rates …
– 10-year Treasury to reach 4% by late 2015
• Cap rates rise somewhat (narrow the gap first)
• Increased occupancy and falling vacancy (new
supply lacking)
• Rising rents
• Overall … improving business opportunities

60. Washington Policy Watch on
Commercial Real Estate
• Facilitate Covered Bonds to help credit flow
• Raise cap on holding of commercial RE loans by
credit unions
• Preserve Like-Kind Exchanges
• Preserve Terrorism Insurance
• Preserve capital gains status on carried interest
• Depreciation Rules should match economic life
• Oppose lease-accounting changes

61. For Daily Update and Analysis
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