2012 economic and housing market outlook
TRANSCRIPT
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Economic and Housing Market
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS
Presentation at 2012 Resort and Second-Home SymposiumKiawah Island, SC
March 19, 2012
OUTLOOK
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Monthly Existing Home Sales Recovering
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
2
008-Jan
2008-Mar
20
08-May
2008-Jul
2
008-Sep
2008-Nov
2
009-Jan
2009-Mar
20
09-May
2009-Jul
2
009-Sep
2009-Nov
2
010-Jan
2010-Mar
20
10-May
2010-Jul
2
010-Sep
2010-Nov
2
011-Jan
2011-Mar
20
11-May
2011-Jul
2
011-Sep
2011-Nov
2
012-Jan
Tax Credit Impact
Old Data
New Data
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Annual U.S. Existing Home Sales
Flat Line for 4 tough years
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
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Second Home Sales
0
500
1000
1500
2000
2500
3000
3500
4000
2003 2004 2005 2006 2007 2008 2009 2010 2011
Investment
Vacation
In thousands
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Case-Shiller Price Index
Stability from 2009
0
20
40
60
80
100
120
140
160
180
200
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Median Price of Transacted Homes:Vacation Home Suffered More
Primary (Blue) vs Vacation (Red)
100000
120000
140000
160000
180000
200000
220000
2007 2008 2009 2010 2011
Source: NAR
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Columbia and Myrtle Beach(Home Price Index: 1995 = 100)
100
120
140
160
180
200
220
240
2000 -
Q1
2001 -
Q1
2002 -
Q1
2003 -
Q1
2004 -
Q1
2005 -
Q1
2006 -
Q1
2007 -
Q1
2008 -
Q1
2009 -
Q1
2010 -
Q1
2011 -
Q1
Source: Federal Housing Finance Agency
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Bend and Portland, Oregon(Home Price Index: 1995 = 100)
100
150
200
250
300
350
2000 -
Q1
2001 -
Q1
2002 -
Q1
2003 -
Q1
2004 -
Q1
2005 -
Q1
2006 -
Q1
2007 -
Q1
2008 -
Q1
2009 -
Q1
2010 -
Q1
2011 -
Q1
Source: Federal Housing Finance Agency
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Santa Fe and Albuquerque(Home Price Index: 1995 = 100)
100
120
140
160
180
200
220
2000 -
Q1
2001 -
Q1
2002 -
Q1
2003 -
Q1
2004 -
Q1
2005 -
Q1
2006 -
Q1
2007 -
Q1
2008 -
Q1
2009 -
Q1
2010 -
Q1
2011 -
Q1
Source: Federal Housing Finance Agency
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Las Vegas and Miami vsKansas City and Milwaukee
(Home Price Index: 1995 = 100)
100
150
200
250
300
350
400
2000 -
Q1
2001 -
Q1
2002 -
Q1
2003 -
Q1
2004 -
Q1
2005 -
Q1
2006 -
Q1
2007 -
Q1
2008 -
Q1
2009 -
Q1
2010 -
Q1
2011 -
Q1
Source: Federal Housing Finance Agency
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U.S. Housing StartsLowest since the Second World War in the past three years
0
500
1000
1500
2000
2500
3000
1959-Jan
1961-Jan
1963-Jan
1965-Jan
1967-Jan
1969-Jan
1971-Jan
1973-Jan
1975-Jan
1977-Jan
1979-Jan
1981-Jan
1983-Jan
1985-Jan
1987-Jan
1989-Jan
1991-Jan
1993-Jan
1995-Jan
1997-Jan
1999-Jan
2001-Jan
2003-Jan
2005-Jan
2007-Jan
2009-Jan
2011-Jan
Long-term Average;
Long-term RequirementHousing Starts in thousands
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New Home Inventory 50 year low
0
100
200
300
400
500
600
700
1963-Jan
1965-Jan
1967-Jan
1969-Jan
1971-Jan
1973-Jan
1975-Jan
1977-Jan
1979-Jan
1981-Jan
1983-Jan
1985-Jan
1987-Jan
1989-Jan
1991-Jan
1993-Jan
1995-Jan
1997-Jan
1999-Jan
2001-Jan
2003-Jan
2005-Jan
2007-Jan
2009-Jan
2011-Jan
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Visible Existing Home Inventory(6-year lows)
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
2000
- Jan
2001
- Jan
2002
- Jan
2003
- Jan
2004
- Jan
2005
- Jan
2006
- Jan
2007
- Jan
2008
- Jan
2009
- Jan
2010
- Jan
2011
- Jan
2012
- Jan
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Serious Delinquent Mortgages Mostly those who took out loans in bubble years
(90+ days late or in foreclosure process)
0.0
2.0
4.06.0
8.0
10.0
12.0
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
2006
-Q3
2007
-Q1
2007
-Q3
2008
-Q1
2008
-Q3
2009
-Q1
2009
-Q3
2010
-Q1
2010
-Q3
2011
-Q1
2011-Q3
U.S.
U.S.
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Fannie and Freddie PerformanceMortgage Default after 18 months
Fannie Mae
Vintage
Cumulative
Default Rate
after 18 months
2002 3.1%
2003 2.5%
2004 4.6%
2005 4.8%
2006 11.6%
2007 28.7%2008 12.6%
2009 1.2%
Freddie Mac
Vintage
Cumulative
Default Rate
after 18 months
2002 2.7%
2003 1.2%
2004 2.0%
2005 1.8%
2006 6.0%
2007 22.3%2008 13.7%
2009 1.1%
Source: Federal Housing Finance Agency
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Foreclosure Starts(% of all mortgage outstanding; about 1/3 of homes are free and
clear)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000 -
Q1
2001 -
Q1
2002 -
Q1
2003 -
Q1
2004 -
Q1
2005 -
Q1
2006 -
Q1
2007 -
Q1
2008 -
Q1
2009 -
Q1
2010 -
Q1
2011 -
Q1
New Jersey Arizona
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Foreclosure Inventory(% of all mortgage outstanding; about 1/3 of homes are free and
clear)
0.0
1.0
2.0
3.0
4.05.0
6.0
7.0
8.0
9.0
2000 -
Q1
2001 -
Q1
2002 -
Q1
2003 -
Q1
2004 -
Q1
2005 -
Q1
2006 -
Q1
2007 -
Q1
2008 -
Q1
2009 -
Q1
2010 -
Q1
2011 -
Q1
New Jersey Arizona
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Economic Expansion(GDP growth after recession should be
sustained 4% to 5% not 1.7% as occurred in 2011)
-10
-8
-6
-4
-2
0
2
4
6
8
10
2000-Q
1
2000-Q
3
2001-Q
1
2001-Q
3
2002-Q
1
2002-Q
3
2003-Q
1
2003-Q
3
2004-Q
1
2004-Q
3
2005-Q
1
2005-Q
3
2006-Q
1
2006-Q
3
2007-Q
1
2007-Q
3
2008-Q
1
2008-Q
3
2009-Q
1
2009-Q
3
2010-Q
1
2010-Q
3
2011-Q
1
2011-Q
3
Desired Pace
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Total U.S. Payroll Jobs Recovering(3.4 million job creation from low point in 2010)
124000
126000
128000
130000
132000
134000
136000
138000
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
In thousands
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Labor Force Participation Rate
61
62
63
64
65
66
67
68
1990-Jan
1991-Jan
1992-Jan
1993-Jan
1994-Jan
1995-Jan
1996-Jan
1997-Jan
1998-Jan
1999-Jan
2000-Jan
2001-Jan
2002-Jan
2003-Jan
2004-Jan
2005-Jan
2006-Jan
2007-Jan
2008-Jan
2009-Jan
2010-Jan
2011-Jan
2012-Jan
%
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Financial Industry Corporate Profits
-100
0
100
200
300
400
500
600
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
$ billions; seasonally adjusted annualized
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Federal ReserveLoose Monetary Policy
0
1
2
3
4
56
7
8
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
30-year Mortgage Fed Funds
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Banks/RegulatorsRestricting 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
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CPI Rent is RisingBiggest Weight to CPI(% change from 12 month ago)
-1
0
1
2
3
4
5
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
%
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Home Value Undervaluation(Recent analysis by The Economist magazine)
Metric Magnitude of Over or
Undervaluation
U.S. Home Prices Home Price vs. Rent 8% undervaluation
U.S. Home Prices Home Price vs. Income 22% undervaluation
U.K. Home Prices Home Price vs. Rent 28% overvaluation
U.K. Home Prices Home Price vs. Income 20% overvaluation
Ireland Home Prices Home Price vs. Rent 10% overvaluation
Ireland Home Prices Home Price vs. Income Proper valuation
(neither over nor under)
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Improving Factors for Higher Home Sales
Improving Factors Job Creation Solid stock market recovery from 2008 Rising rents and larger pool of qualified renters
Pent-up Release of Household Formation Smart money chasing real estate (instead of gold?) Consumer confidence OK (no longer dire) Great affordability conditions
Favorable demographics for second home buyers
Potential Huge Positive Lending opens up Potential Huge Negative Washington policy
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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.
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Consumer Confidence
0
20
40
60
80
100
120
140
160
2000
- Jan
2001
- Jan
2002
- Jan
2003
- Jan
2004
- Jan
2005
- Jan
2006
- Jan
2007
- Jan
2008
- Jan
2009
- Jan
2010
- Jan
2011
- Jan
2012
- Jan
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Best Affordability Conditions
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Monthly Pending Home Sales Index(Seasonally Adjusted)
70
75
80
85
90
95
100
105
110
115
2007 -
Jan
2007 -
Jul
2008 -
Jan
2008 -
Jul
2009 -
Jan
2009 -
Jul
2010 -
Jan
2010 -
Jul
2011 -
Jan
2011 -
July
2012 -
Jan
Homebuyer Tax Credit
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Median Age and Income of Homebuyers
Primary 37 years old with $69,600
Investment 45 years old with $87,600
Vacation 49 years old with $99,500
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U.S. Population Aged 55-to-64
0
5000
10000
15000
20000
25000
30000
35000
40000
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Forecast Population Aged 55-to-64
30000
32000
34000
36000
38000
4000042000
44000
46000
48000
50000
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
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Rising World Population
0
1
2
3
4
56
7
8
9
10
1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100
In billion
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Washington Policy Obstacles
QRM 20% downpayment rules
Mortgage Interest Deduction Limitation onsecond homes
Capital gains tax increase
Lower loan limit for conforming mortgages
More consumers face jumbo mortgages
Rising mortgages rates (market forces ofhigher inflation and high budget deficit)
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Forecast
2011 2012 2013
Existing Home Sales 4.26 million 4.55 million 4.70 million
New Home Sales 305,000 370,000 510,000
Housing Starts 599,000 710,000 980,000
Existing Home Price $166,100 $168,000 $172,000
GDP Growth +1.8% +2.3% +3.1%
Payroll Job Gains +1.7 million +2.3 million +2.6 million
30-yr Mortgage 4.7% 4.4% 5.4%
Second Home and Resort Markets suffered more Therefore,
Ripe for a stronger recovery for both sales and prices
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