economic and housing market trends and outlook jed smith managing director, quantitative research...
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Economic and Housing Market
Trends and Outlook
Jed SmithManaging Director, Quantitative ResearchNATIONAL ASSOCIATION OF REALTORS®
Real Estate Broker Conference
August 7 & 8, 2013
Hyatt O’Hare
Chicago, Illinois
The Outlook: ForecastSlow Economic Expansion
2011 2012 2013Forecast
2014Forecast
GDP Growth +1.8% +2.1% +1.8% 2.7%
Existing Home Sales
4.3 million 4.7 million 5.0 million 5.2 million
Housing Starts 610 K 780 K 1.0 million 1.25 million
Existing Home Price Growth
- 4% + 6% + 8% + 5%
30-yr MortgageRate
4.7% 3.7% 4.0% 4.7%
“It Was the Best Of Times, and the Worst of Times”Index Continues Below 100: Expansion Slow, Weaker than Normal
Conference Board: Consumer ConfidenceSA, 1985=100
100500959085Source: The Conference Board 07/02/13
150
125
100
75
50
25
150
125
100
75
50
25
“It Was the Best Of Times, and the Worst of Times”Levels of Uncertainty Higher than Normal
Economy: Slower/Weaker Expansion
Economic Policy Uncertainty Index1985-09=100
100500959085Source: PolicyUncertainty.com 07/02/13
250
200
150
100
50
250
200
150
100
50
U.S. Total Payroll JobsLabor Force Participation Rate Down 3 Percent
11.8 Million Unemployed
In thousands
Employment: The Major Issues
Unemployed, 16 Years & Over: 16 yr +SA, Thous
100500959085Source: Bureau of Labor Statistics 07/02/13
16000
14000
12000
10000
8000
6000
4000
16000
14000
12000
10000
8000
6000
4000
• Employment Lower than Normal.
• Unemployment Duration: Higher than Normal.
• Job Creation is Lagging.• It’s Hard to Find a Job!• Housing Market Expanding,
But Could do Better.• Good News—But Still
Underperforming.
Housing Outlook: Annual Existing Home SalesGood News: Impending Multiyear Growth
In million units
Housing Outlook: Home Prices Still ReasonableMarket is Recovering—A Function of Jobs.
Affordability Good, but Credit Availability Needs to Ease.
Housing Outlook: Affordability
Housing Outlook: Pending Home SalesSeasonally Adjusted 2001 = 100; Tax Credit Blips in 2010
Housing Outlook Days on Market--Down Very Significantly
Housing OutlookDistressed Sales Down
Housing OutlookLow Inventories
Housing Recovery—Why Sustainable?Housing Starts Requirement
• 1.1 million household formation.• 0.3 million demolition and uninhabitable.
(Implicitly assumes depreciation rate of more than 200 years)
• 0.2 million net new vacation home demand. • Total New Housing Need = 1.6 million each
year.
Housing Recovery—Why Sustainable?Household Formation Accelerating After Great Recession
(in millions)
Housing Recovery—Why Sustainable?Quantifying Housing Shortage
(2001 to 2012)
Household Formation
Demolition New Vacation Home
Housing Starts
11.0 million 3.6 million 2.0 million 15.7 million
16.6 million 15.7 million
This housing shortage imbalance could grow because (1) Household Formation will exceed 1 million in 2013 and beyond(2) Housing Starts need to be 1.5 million per year … Not there in 2013
Housing Recovery—Why Sustainable?Housing Starts: Long Term Demand Greater than Supply
Thousand units (annualized)
Long-term Average
Housing Recovery—Why Sustainable?Existing vs. New Home Prices … Big Gap
(single-family homes)
Number of “Qualified” Renters(credit scores unknown and not factored)
Year Income Needed to Buy a Median Priced Home
Number of Renters with necessary income
Share of Renters Qualified
2000 $40,300 11.8 million 33%
2005 $50,400 9.0 million 24%
2012 $31,700 20.1 million 51%
If the year 2000 is considered as normal, then 11.8 million renters had the income to buy a median priced home but chose not to.
In 2012 there are about 8 million more renters with the necessary income but choosing not to be or are unable to be a homeowner.
Housing Recovery—Why Sustainable?Buyer Traffic Greater than Seller Availability--REALTOR® Survey
Price Expectations--Next 12 MonthsSource: REALTOR® Survey
Price Expectations for Next 12 MonthsAs Reported by REALTORS®
Summary of Outlook: Where Are We Headed?
• Likely Multiyear Housing Recovery.– No Recession but Slow Economy.– Continued Job Growth and Household Formation. – Lagging Housing Starts and Continuing Housing
Shortage.• Home prices are primed to rise further, by 13%
cumulatively in 2013 and 2014.• Smooth Sailing Right Now—But Would be Better
with Increased Credit Availability and Job Creation.
• But There are Major Risks.
Risks to Forecast—Housing Related
• Upside Uncertainties … Credit Availability– Housing recovery so far even with tight credit– What happens if mortgage accessibility opens up?
• Downside … Washington Housing Policies– Rising g-fees and FHA insurance premiums– 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?
Credit Risks--Ready to Open Credit?(Average Credit Scores of Approved Loans)
Normal 2009 to 2012 If Normal
Fannie 720 760 to 770 720
Freddie 720 760 to 770 720
FHA 650 680 to 700 660
15% to 20% Higher Sales Possible if Normal Conditions
FICO Scores: Unreasonably HighCredit Availability: Negative Impact on Potential Homeowners
Downside Risk: Mortgage Investor Rights
–Court system clogging the foreclosure process
– Eminent Domain to take mortgages out of investors’ hands? (In order to restructure mortgages)
Downside Risk: Aging Baby Boomers (Live Births per 1000 population in U.S.)
Downside Risk: Student College DebtImportant Issues: Are Colleges Effective, Are Expectations Realistic?
($ trillion)
Downside Risk: GDP Growth … UnimpressiveHow Fragile is the Recovery?
Housing, Quantitative Easing, Other
Community Leaders—Thought Leadership
• Thought Leadership: People Look to Leaders for Ideas on Important Topics.
• Short Term—Recovery is Proceeding Nicely.• Longer Term—There are Major Problems.• The “Longer Term” Could be a Year or Two.– Problems are not Certainties.– But Problems Need to be Addressed.– And Can Show Up as a Surprise.
Major Economic Risks: Problems Not to be Ignored. For Now—Smooth Sailing. Longer Run—Avoid Surprises.
Problems: just ignored.• Budget Deficit.• Quantitative Easing.• Home Ownership Levels.• Entitlements: Social Security, Medical
Care, Disability, Social Welfare Programs.
• State/Local Government Finances.• Labor Force Issues.• Student Loans.• Generational Split.• Income Distribution.• Lack of Growth.• Regulation.• Divisive Rancor.
The iceberg: just ignored. • Photographed morning April 15, 1912…smear of red
paint along the base of the berg, indication that it had collided with a ship sometime in the previous twelve hours.
NAR Research—On Line
• Twitter: https://twitter.com/NAR_Research
• Blog: http://economistsoutlook.blogs.realtor.org/
• NAR Research Page http://www.realtor.org/research-and-statistics
• NAR Housing Statistics – http://www.realtor.org/research-and-statistics/housing-statistics
• Research Reports – http://www.realtor.org/research-and-statistics/housing-statistics
• NAR Commercial Reports – http://www.realtor.org/research-and-statistics/research-reports/
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