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Real Estate Update: Have we reached bottom?. Midwest Relocation Conference Chicago, Illinois April 4, 2011. Moderator: Carol Mescal, CRP | VP Client Relations, TheMIGroup Speakers: Jed Smith, Ph.D | Director, Quantitative Research, National Association of Realtors
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Real Estate Update: Have we reached bottom? Midwest Relocation Conference Chicago, Illinois April 4, 2011 Moderator: Carol Mescal, CRP |VP Client Relations, TheMIGroup Speakers: Jed Smith, Ph.D |Director, Quantitative Research, National Association of Realtors Deborah Benavides, CRP |Director, Relocation and Corporate Services, Shorewest Realtors Barbara Springer, CRP,GMS, CMS |Executive Vice President, Relocations and Referral Services @Properties Tim Rohlman, CRP |President, Relocation Real Estate Services, Inc.
National Association of Realtors Jed Smith Director, Quantitative Research, National Association of Realtors
The Economy – How We Got Here! Excessive Spending & Leverage, Speculation, Job & Credit Problems, Weak Balance Sheets & Income, Consumer Confidence Problems May 2008 Aug 2008 Jun 2008 July 2008 Sep 2008 2009
Current State of the Economy GDP and Jobs – Slow Recovery
Current State of the Economy – Consumer Confidence Too Much Gossip Around the Cyber Cracker Barrel
Current State of the Economy Unemployment Rate
Current State of the Housing Market Longer Unemployment: Slow to Find a Job
Current State of the Economy – More Jobs Needed! Projected Time for Recovery: Four Years? Source: BLS
Forecasting the Outlook: Black Swans Unknown Unknowns / Unanticipated Risks
Uncertainties and Unknowns Impact on the Economy • Federal and State Government Budgets • Oil: Prices and Availability • European Credit Markets • GSE and Financial Reform • Credit Availability/Inflation/Uncertainties • Consumer Confidence • Structural Changes? • Federal Policies—Key Impacts • GDP into Jobs—When Will it Happen?
The Economy – Economic Outlook Government Actions / Policies – Can Impact Outcome
Current State of the Housing Market What Buyers and Sellers Face • Price—Major Declines • Volume—Has Declined, relatively flat for 3 years • Homeowners With Mortgages—25 percent negative equity, 25 percent minimal equity • Credit Markets—Good interest rates, but higher standards for qualification • Consumer Confidence—Substantially less • Mortgage Delinquencies • Distressed Sales—Major part of Market • Substantial Difference between Buyer and Seller Expectations
Current State of the Housing Market Distressed Property: Will Probably Continue for Several Years
Current State of the Housing Market Distressed Property Sells at a Discount to Market
Current State of the Housing Market Housing Months Supply – Existing Home Sales
Current State of the Housing Market Housing Demand for New Space Above Supply Approximations: Second Home—100K; Replacements—400K; New HH—1000K Demand: 1 to 1.5 million New Units Per Year Supply: Currently Less than 900K Per Year
Current State of the Housing Market Prices Relative to Median Income Have Declined Significantly
Current State of the Housing Market Significant Loss of Wealth During Great Recession
Current State of the Housing Market Household Debt Still Relatively High
Current State of the Housing Market Distressed Property -- Issues • Shadow Inventory • Delinquencies—Toxic Loans, Job Losses, Upside Down Mortgages • HAMP—Qualification, Recidivism • Regional Concentrations • March 2010 Estimate: 2.5 million homes in Shadow Inventory • Past Due—8.22% of mortgages • In Foreclosure—4.63% of mortgages • Bifurcated Market
Where are we now?Recent Real Estate Market Experience • Financial System: Cleaning Up From The Tsunami • Weakened Balance Sheets, Increased Risk Aversion • Financial Institutions: Credit less available • Impacting Housing Markets: Debris from Tsunami • Major Loss of Wealth, Low Consumer Confidence, Lost Jobs • Distressed Property: Foreclosures and Short Sales • Negative Equity • Current Housing Markets: Concern Over Outlook • Residential Sales: Recovering, Price, Foreclosures, Supply Consumer Mood/Debt/Wealth are Issues • The Numbers Don’t Indicate A Price or Sales Surge: Slow Recovery • KEY ISSUE: Jobs
Current State of the Housing Market Interest Rates: Near Historic Lows Source: Freddie Mac
Current State of the Housing Market Housing Affordability: Median Mortgage Payment (Principle & Interest) as Percent of Income Source: NCR
Current State of the Housing Market Home Price Trends – Leveling Out
Forecast: Changing Home Sales Percent Change - Actual and Projected Source: NCR
Forecast: Changes in Median Home Prices Actual and Projected Source: NCR
Concluding CommentsIn a Recovery Mode • Issues and Good News • Probably Near the Bottom—Some Markets Doing Well • Major Issues: Uncertainties, Black Swans, Distressed property • Fannie Mae Survey: 75%--increasing prices • Gen Y—Larger than Boomers—Live in Apartments—Want Houses • Jobs the major market influence • Increased Understanding of Home Ownership Dream • A HOME is for your family—for living • Long term lifestyle decision • Investment aspects secondary • Good time to buy a house IF: • Financially Qualified and Prudent • Understand Market Trends, The News, Uncertainties
Headlines Sell PapersMuch Less Drama Than Suggested by the News • Back to Normal • Home—A Major Decision • Avoiding Flipping, Speculation, Excesses Home Ownership Dream • Working Out of the Mess • Continuing Impacts on Buyer Psychology/Moods • Changed Markets • New Requirements/Ways of Doing Business • Implications for Mobility • Transfers in Today’s Economy and Housing Markets • Possible Changing Buyer Demands • Implications for Services Expected
Southeastern Wisconsin Real Estate Market Deborah Benavides, CRP Director, Relocation and Corporate Services, Shorewest Realtors
Wisconsin Regional Reports Region Median Price % Change Sales % Change 2010 2009 2010 2009 Southeast 156,500 157,000 -0.3% 17,682 19,871 -11% South Central 162,500 164,900 -1.5% 10,236 11,257 -9.1% West 133,500 131,000 +1.9% 5,793 6,205 -6.6% Northeast 125,000 122,000 +2.5% 8,914 9,550 -6.7% Central 110,000 114,900 -4.3% 3,355 3,445 -2.6% North 120,000 115,500 +3.9% 4,888 4,675 +4.6% STATEWIDE 141,000 142,500 -1.1% 50,945 55,089 -7.5% Source: WRA
Southeastern (4 County) Wisconsin - Solds Source: GMAR
Southeastern Wisconsin - Listings Source: GMAR
Annual Ratio (Listings: Sales) Source: GMAR
Southeastern WisconsinMonths of Inventory Source: GMAR
Wisconsin’s Guidelines 2004 – 3-5% down on conventional loans 2010 – 15-20% down Source: WSJ 02/16/2011 Pg. A2
. . . median existing home ownership costs are now below median new apartment rental rates . . . Sources: U.S. Census and Marquette University. Existing home housing payment assumes a 90% loan-to-value, prevailing 30-year mortgage interest rates, and a 1.2% real estate tax rate.
Employment Outlook Source: MMAC
Unemployment vs Home Values vs Absorption Source: MMAC
Condo Conditions – SE WI • Depressed, oversupply; lagging behind in sales • Issues: condo associations have little or no reserve => banks unwilling to make loans unless 20% down (no PMI coverage) • Converted from condos to apartment • 3-5 year recovery – longer to reach 2005 peak
Unique Challenges in Region • State Budget - moved focus away from jobs to • Income / benefits • Creating a lot of unknowns and uncertainty • Paralyzing people => decrease in sales
Positive News • Increase in web traffic • Median house prices ’09-10 remain stable • Sales expected to pick up 2nd half 2011
Have We Reached Bottom? 1. Pent-up potential from new household formation
Have We Reached Bottom? • 2. Minorities will play an increasing role in all housing markets; • 3. Multifamily demand will bounce back with increased occupancy rates and solid rent growth; • 4. Single-family will continue to struggle with the large shadow housing market; • 5. Delinquency, default, and foreclosure rates will make nice improvements throughout the year; Interest rates will remain well-behaved around current rates; and • 6. Housing is the most affordable as it has been in half a century.
The Chicagoland Real Estate Market Barbara Springer, CRP, GMS Executive Vice President, @Properties
Headlinesin Illinois today • Homeownership hits new 8-year low as residents seek refuge in Renting • Local Illinois home prices post 13th quarterly fall • Suburban apartment rents up 7.4% in fourth quarter • Condo deals die in shadows of financially distressed buildings • Developer turning former nursing home into rentals • Jimmy Johns Checks out Florida to Flee Illinois Tax • Caterpillar tells Governor Quinn tax hike could drive it from Illinois
Chicagoland Real Estate Market Significant Influences • Illinois income tax increase to help address billions of dollars in state budget shortfalls. The corporate income tax rate increased from 4.8 to 7 percent and individual income tax from 3 percent to 5 percent. • U.S. decline on a weak job market and a bloated supply of unsold homes, including properties in foreclosure or those facing a short sale, which typically are priced less than normal properties. • a shrinking population may also explain why soft demand is pushing Chicago's prices lower. Chicago's population decreased nearly 7% to 2.7 million in 2010, compared to 2.9 million in 2000, while Cook County's population fell roughly 3.4% to 5.2 million in the same period, according to the U.S. Census. • It could take us take a lot longer to see the gains we've seen in other markets.
Foreclosure Activity by Month 6 Month Trend Falling Source: Realty Trac
Foreclosure Status Distribution and Estimated Market Value throughout Illinois Highest Availability100-200K Source: Realty Trac