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Economic Outlook in Uncertain TimesEconomic Outlook in Uncertain Times
Lawrence Yun, Ph.D.Lawrence Yun, Ph.D.Chief EconomistChief Economist
NATIONAL ASSOCIATION OF REALTORSNATIONAL ASSOCIATION OF REALTORS®®
Presentation to Silicon Valley Association of REALTORSPresentation to Silicon Valley Association of REALTORS®®October 11, 2010October 11, 2010
Federal Reserve FOMC Federal Reserve FOMC •• Ben Bernanke Ben Bernanke (Chairman): (Chairman):
•• ““Outlook remains unusually uncertainOutlook remains unusually uncertain””
•• Alan Greenspan Alan Greenspan (former Chairman):(former Chairman):
•• ““If home prices start falling again, we could be facing a doubleIf home prices start falling again, we could be facing a double‐‐dip dip recessionrecession””
•• James Bullard James Bullard (St. Louis Fed)(St. Louis Fed): : •• ““The U.S. is closer to a JapaneseThe U.S. is closer to a Japanese‐‐style deflationary outcomestyle deflationary outcome””
•• Thomas Hoenig Thomas Hoenig (Kansas City Fed)(Kansas City Fed): : •• ““Too rapid money creation results in eventual high inflationToo rapid money creation results in eventual high inflation””
•• To speak at NAR conference in New OrleansTo speak at NAR conference in New Orleans
GDP Growing, but DeceleratingGDP Growing, but Deceleratingannualized % growth rateannualized % growth rate
Pending Contracts on Existing HomesPending Contracts on Existing Homes
Tax Credit ImpactTax Credit Impact
California Existing Home Sales: Quarterly Change
0100200300400500600700
In thousands, annualized and seasonally adjusted Tax Credit Impact?Tax Credit Impact?
Metro Median Home PriceMetro Median Home Price
0
100
200
300
400
500
600
700
800
900 $ thousand $ thousand
Source: NARSource: NAR
San JoseSan Jose
San FranciscoSan Francisco
Case‐Shiller Home Price for San Francisco
Metro Median Home PriceMetro Median Home Price
0
50
100
150
200
250
300
350$ thousand $ thousand
Source: NARSource: NAR
Las VegasLas Vegas
ColumbiaColumbia
Share of First‐Time Buyers
Corporate Profits and Business SpendingCorporate Profits and Business Spending$ billion$ billion
U.S. Private Sector Job GainsU.S. Private Sector Job Gains(763,000 from Jan. to Aug. 2010)(763,000 from Jan. to Aug. 2010)
MonthMonth‐‐toto‐‐month job gains in thousandsmonth job gains in thousands
700800900
100011001200
Source: BLS
In thousands
Total Payroll Jobs in Total Payroll Jobs in San JoseSan Jose‐‐SunnyvaleSunnyvale‐‐Santa ClaraSanta Clara
3500
4000
4500
5000
Source: BLS
In thousands
Total Payroll Jobs in MichiganTotal Payroll Jobs in Michigan
2000
2200
2400
2600
Source: BLS)
In thousands
Total Payroll Jobs in Washington D.C. MetroTotal Payroll Jobs in Washington D.C. Metro
125000
130000
135000
140000
Source: BLS
In thousands
Total Payroll Jobs Total Payroll Jobs ……Long Way to Go Before Full RecoveryLong Way to Go Before Full Recovery
Weekly 1Weekly 1stst time Unemployment time Unemployment Claims: Need to Fall FurtherClaims: Need to Fall Further
In thousandsIn thousands
Still High Months Supply of Still High Months Supply of Existing Home InventoryExisting Home Inventory
Post Tax Credit
Number of Distressed Loans
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2006
/Q1
2006
/Q2
2006
/Q3
2006
/Q4
2007
/Q1
2007
/Q2
2007
/Q3
2007
/Q4
2008
/Q1
2008
/Q2
2008
/Q3
2008
/Q4
2009
/Q1
2009
/Q2
2009
/Q3
2009
/Q4
Thou
sand
s
Mortgage Payments Past Due 30‐59 Days
Mortgage Payments Past Due 90+ Days
Mortgage Foreclosures Started
Mortgage Foreclosure Inventory
U.S. Housing Starts
Newly Built Homes on the MarketNewly Built Homes on the Market
Depressed Housing Starts in Bay Area MSA(S.F., San Jose, Oakland, Fremont)
010,00020,00030,00040,00050,00060,000
In thousands
1010‐‐Year Treasury impacted by Year Treasury impacted by Inflationary ExpectationsInflationary Expectations
Inflationary Pressure ?Indicator % change from one year ago
Consumer Price Index 1.2%
Producer Price Index (Finished Product)
3.0%
Producer Price Index (Intermediate Product)
5.0%
Producer Price Index (Crude Product)
18.2%
Dow Jones Commodity Spot Price Index 21.1%
Gold Price Record High Price
Baseline OutlookBaseline Outlook•• Moderate GDP Expansion 2 to 2.5% in the next 2 Moderate GDP Expansion 2 to 2.5% in the next 2 years (historical average is 3%)years (historical average is 3%)
•• 1 to 1.5 million annual job additions in the next 1 to 1.5 million annual job additions in the next 2 years 2 years
•• Unemployment rate of 8% in 2012 Unemployment rate of 8% in 2012 …… and and normal 6% in 2015normal 6% in 2015
Baseline Outlook Cont.Baseline Outlook Cont.•• Mortgage Rates rising to 5.7% in 2011 and 6.2% in 2012 and higheMortgage Rates rising to 5.7% in 2011 and 6.2% in 2012 and higher r
in later yearsin later years
•• Home values Home values –– no meaningful change in the national price in the no meaningful change in the national price in the next 2 yearsnext 2 years
•• Housing Starts to rise 40% to 50% in 2011 to about 900,000 Housing Starts to rise 40% to 50% in 2011 to about 900,000 …… from from exceptionally low levels of the past two years (historical normaexceptionally low levels of the past two years (historical normal is l is 1.5 million)1.5 million)
•• Home sales will struggle in the near term (after tax credit Home sales will struggle in the near term (after tax credit hangover) and then rise in line with job growth hangover) and then rise in line with job growth
Alternative OutlooksAlternative Outlooks•• High inflation High inflation …… people desire tangible investment like real estate, but people desire tangible investment like real estate, but
interest rate will be higherinterest rate will be higher
•• Deflation Deflation …… people hold back for better price people hold back for better price …… holds back economyholds back economy
•• Budget deficit tipping point Budget deficit tipping point …… higher interest rate and sharp cut back higher interest rate and sharp cut back in standard of livingin standard of living
•• Sharp 4% to 5% GDP growth Sharp 4% to 5% GDP growth …… release of pentrelease of pent‐‐up housing demand (30 up housing demand (30 million more people today versus 2000 when home sales were similmillion more people today versus 2000 when home sales were similar) ar) …… surprisingly higher home sales and home pricessurprisingly higher home sales and home prices
Homeownership Matters CampaignHomeownership Matters Campaign
Housing Market Bubble and Collapse
• Unprecedented Boom and Bust: 2000 to 2010
• Sales Boomed and Retreated
• Prices Overshot and Corrected
• Fundamental Back to Justifiable Levels
• Why? Not Long‐standing Housing Policy but from Credit Market Bubble
29
Existing‐Home Sales
In million units
30
Home Sale to Jobs
National Median Home PriceNational Median Home Price
0
50,000
100,000
150,000
200,000
250,000
Source: NARSource: NAR
Home Price to Income Ratio
2.02.22.42.62.83.03.23.43.6
Stay within Budget and all will be OK !Source: NAR
Mortgage Credit Market ShareMortgage Credit Market Share
0
25
50
75
100
2003 2005-2006 2009-2010
Source: NARSource: NAR
Home Equity
Subprime and Alt-A
Traditional
Subprime/AltSubprime/Alt‐‐A/Home Equity A/Home Equity Mortgage Credit DollarsMortgage Credit Dollars
0
200
400
600
800
1,000
1,200
1,400
1,600
2003 2005-2006 2009-2010
Source: NAR estimate based on Inside Mortgage Finance dataSource: NAR estimate based on Inside Mortgage Finance data
$ billion$ billion
1995
1995
1998
1998
2001
2001
2004
2004
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Renter Homeowner
2007
20072007
2007
Long‐Term Path to Self Reliance may be Helped from Long‐Term Housing Wealth Gains
Long‐Term Path to Self Reliance may be Helped from Long‐Term Housing Wealth Gains
Source: Federal Reserve, NAR estimate for 2010
Median Family Net Worth
2010
2010
Housing Policy• Mortgage Interest Deduction
• FHA
– Self‐financing without ever needing taxpayer funds (as of yet)
• GSE
– Made mistakes and need to be restructured
• Affordable Housing Goals
– Need to assure successful outcome not numbers of homeowners initially helped