economic update ltm (june 2012)
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Real Estate and Economic Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Leadership Team Meeting
Chicago, IL.
June 28, 2012
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Annual Existing Home Sales:A Tough, Flat 4 years
2005 2006 2007 2008 2009 2010 20110
1
2
3
4
5
6
7
8
7.086.52
5.02
4.12 4.34 4.18 4.26
In million units
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Homeownership Rate at 65.4%(Lowest in 15 years)
1965 - Q1 1971 - Q1 1977 - Q1 1983 - Q1 1989 - Q1 1995 - Q1 2001 - Q1 2007 - Q158
60
62
64
66
68
70%
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Owner-Occupancy Sales Falling(All-Cash deals hiding the current dysfunctional mortgage market)
2005 2006 2007 2008 2009 2010 20110
1000
2000
3000
4000
5000
6000 In thousands
QRM rulesRaising g-fees to fund non-housing issuesBanks hoarding cash! … from regulatory uncertainties and lawsuits?
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Despite Second Home Sales Recovery
2005 2006 2007 2008 2009 2010 20110
5001000150020002500300035004000
InvestmentVacation
In thousands
Buy a condo for your college student
53% of REALTOR® members own a residential investment property29% own a commercial property19% own a vacation home
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2012 First Quarter Sales: Strongest in 5 years
Q1 Q2 Q3 Q40
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
20082009201020112012
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Monthly Pending Home Sales IndexPoint to Strongest Second Quarter in 5 years
2007 - Jan
2007 - Apr
2007 - Jul
2007 - Oct
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 - July
2011 - Oct
2012 - Jan
2012-Apr
70
75
80
85
90
95
100
105
110
115
Homebuyer Tax Credit
Source: NAR
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Year-over-Year Change in Pending Contracts:Up for 12 straight months
2010 - May
2010 - Jul
2010 - Sep
2010 - Nov
2011 - Jan
2011 - Mar
2011 - May
2011 - Jul
2011 - Sep
2011 - Nov
2012 - Jan
2012 - Mar
2012 - Apr
-30
-20
-10
0
10
20
30
% change from one year ago
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Improving Factors for Higher Sales in 2012:
1. High Affordability2. Growing Economy and Job Creation 3. Solid stock market recovery from 20084. Rising rents and a larger pool of qualified renters5. Pent-up release of Household Formation
• Rising demand for ownership and rentals as young-adults move out of parent’s basement
6. Smart money chasing real estate (i.e., investors)7. Consumer confidence in buying an appreciating
asset
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Best Affordability Conditions
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
20102012
50
70
90
110
130
150
170
190
210
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Economy out of Recession and GrowingGDP growth for 11 straight quarters
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
-10
-8
-6
-4
-2
0
2
4
6
8
10
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Corporate Profits … Sky High
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
-500
0
500
1000
1500
2000
2500$ billion
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Residential Investment Spending Growth
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
-40
-30
-20
-10
0
10
20
30Home Buyer Tax Credit
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Total U.S. Payroll Jobs Increasing
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr124000
126000
128000
130000
132000
134000
136000
138000
140000
8 million job losses
4 millionjob gains
In thousandsIn thousands
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Total Payroll Jobs(Recovered half of jobs lost a few years ago, but still down by 10 million compared to
long-term projections)
1970 - Jan1971 - M
ar1972 - M
ay1973 - Jul1974 - Sep1975 - N
ov1977 - Jan1978 - M
ar1979 - M
ay1980 - Jul1981 - Sep1982 - N
ov1984 - Jan1985 - M
ar1986 - M
ay1987 - Jul1988 - Sep1989 - N
ov1991 - Jan1992 - M
ar1993 - M
ay1994 - Jul1995 - Sep1996 - N
ov1998 - Jan1999 - M
ar2000 - M
ay2001 - Jul2002 - Sep2003 - N
ov2005 - Jan2006 - M
ar2007 - M
ay2008 - Jul2009 - Sep2010 - N
ov2012 - Jan
50
60
70
80
90
100
110
120
130
140
150In millions Mind
theGAP
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Rent Growth (Component from Consumer Price Index)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr
-1
0
1
2
3
4
5
% change from one year ago
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Visible Inventory of Homes(6-year low for Existing Homes and 50-year low for New Homes)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Existing NewSource: NAR, Census
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Shadow Inventory(Seriously Delinquent: 90+ days late or in foreclosure process)
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
U.S.
In millions
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Housing Starts(Well Below 50-year average of 1.5 million each year)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0
500
1000
1500
2000
2500
multifamily single-familyThousand units (annualized)
Long-term Average
Source: Census, HUD
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Latest Home Price Trend in early 2012(Lagging Indicator … reflects price negotiations from late 2011)
• NAR: Up in more than half of local markets
• FHFA: Up in deep-middle America, New England, South Atlantic, Mountain states
• Case-Shiller: Up in Charlotte, Dallas, Las Vegas, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Tampa, Washington D.C.
• LPS and Core Logic: many markets with price gains
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Equity and Underwater HomeownersPositive Equity Homeowners
Negative Equity Homeowners
Early 2012 About 65 million
Of which 25 million have no mortgages
11 to 12 million
After 5% price appreciation
67 million 9 million
After 10% price appreciation
69 million 7 million
Source: Census, Federal Reserve, CoreLogic, NAR estimates
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Wealth Distribution(Federal Reserve data on median net worth, with 2011 NAR estimate)
Renter Owner$0
$50,000
$100,000
$150,000
$200,000
$250,000
19982001200420072011 estimate
Data Source for Median Net Worth: Federal Reserve, NAR estimate for 2011
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Producer Price Inflationary Pressure … Diminishing
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr
-20
-15
-10
-5
0
5
10
15
20
Finished Intermediate%
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Consumer Price Inflation(Above Fed’s preferred 2% core inflation rate)
2005 2006 2007 2008 2009 2010 2011 2012 forecast
2013 forecast
-1
0
1
2
3
4
5
Rent All Items Core%
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Prepare for Early Move (2014) by Federal Reserve
20052006
20072008
20092010
2011
2012 foreca
st
2013 foreca
st
2014 foreca
st01234567
Fed Funds 30-year Mortgage%
Modestly higher rates could help home sales as banks re-staff mortgage work for home purchase applications and less refinance applications.
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U.S. Federal Budget Deficit
2000 - Jan 2001 - Dec 2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul
-1600000
-1400000
-1200000
-1000000
-800000
-600000
-400000
-200000
0
200000
400000
$ million; 12-month Total
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Housing Forecast2011History
2012Forecast
2013Forecast
Existing Home Sales 4.26 million 4.6 to 4.7 million 4.8 to 5.0 million
New Home Sales 304,000 400,000 500,000 to 600,000
Housing Starts 610,000 770,000 1 million
Existing Home Price(Growth)
$166,100(-3.9%)
$170,100(+2.4%)
$177,300(+4.2%)
GDP Growth +1.8% +2.3% +3.1%
Payroll Job Gains +1.7 million +1.8 million +2.5 million
Fed Funds Rate 0.1% 0.1% 0.1%
30-yr Mortgage 4.7% 4.0% 4.5%
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Risks to Forecast
• Washington Policy– QRM 20% down payment requirement?– Other Dodd-Frank rules? Help or Hurt?– Trim mortgage interest deduction?– Capital gains tax on home sale?
– Fiscal Cliff on January 1, 2013 … if no new compromised budget, then:
• Automatic deep cuts to military and domestic spending• Automatic higher taxes• 3% shaved off GDP
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Commercial Real Estate
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Source: Real Capital Analytics, 4Q 2011.
Big Transactions Coming Back$2.5 million property and above
13
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REALTOR® Business Deals(Majority are less than $1 million)
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Method of Finance
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Underwriting Standards?
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Multifamily Fundamentals
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-50,000
0
50,000
100,000
150,000
200,000
250,000
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0Completions Net Absorption Vacancy
Source: NAR/REIS
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Office Fundamentals
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-150,000,000
-100,000,000
-50,000,000
0
50,000,000
100,000,000
150,000,000
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0Completions Net Absorption Vacancy
Source: NAR/REIS
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Commercial Market ForecastOFFICE 2011 2012 2013
Vacancy Rate 16.6% 16.3% 15.9%Net Absorption ('000 sq. ft.) 20,178 31,700 53,000
Completions ('000 sq. ft.) 11,659 25,474 37,847Rent Growth 1.4% 1.7% 2.4%
INDUSTRIAL 2011 2012 2013
Vacancy Rate 12.4% 11.9% 11.1%Net Absorption ('000 sq. ft.) 61,957 41,249 59,855
Completions ('000 sq. ft.) 20,462 26,947 54,881Rent Growth -0.5% 1.8% 2.3%
RETAIL 2011 2012 2013
Vacancy Rate 12.9% 12.2% 11.0%Net Absorption ('000 sq. ft.) 1,238 13,547 23,330
Completions ('000 sq. ft.) 4,207 12,677 19,878Rent Growth -0.2% 0.7% 1.4%
MULTI-FAMILY 2011 2012 2013
Vacancy Rate 5.4% 4.6% 4.5%Net Absorption (Units) 238,398 126,621 102,687
Completions (Units) 38,014 88,839 93,706Rent Growth 2.5% 3.5% 3.8%
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International Home Buyers
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Sales to International Buyers Up By 24 Percent on Yearly Basis
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Twenty Seven Percent of Realtors® Reported Working with an International Client
Twelve Months Ending March 2012
32%
26%
23%
28% 28% 27%
20%22%24%26%28%30%32%34%36%38%40%
2007 2008 2009 2010 2011 2012
Perc
enta
ge o
f Res
pond
ents
Realtors® with International Clients
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Residents from Most Countries Have Some Participation in U.S. Residential MarketMajor Purchasers Listed Below
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International Buyers Are Throughout the U.S.But Concentrated in a Few States
Arizona California Florida Georgia Nevada New York Texas
2007 5% 16% 10% 2% 2% 4% 8%
2008 5% 11% 9% 3% 2% 4% 7%
2009 7% 13% 23% 1% 1% 2% 11%
2010 11% 12% 22% 5% 3% 4% 8%
2011 6% 12% 31% 2% 2% 3% 9%
2012 7% 11% 26% 4% 2% 4% 7%
0%
5%
10%
15%
20%
25%
30%
35%
Percent of International Sales by State
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International PurchasersCash for Majority of Purchases
28%
43%46%
55%62% 62%
69%
54% 52%
44%36% 37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 2012
Type of Financing
All cash With mortgage financing