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Economic and Housing Market

OUTLOOK. Economic and Housing Market. Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at Park City Board of REALTORS® Park City, UT February 16, 2012. Strange World. Strangeness Continued. Best Affordability Conditions.

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Economic and Housing Market

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  1. OUTLOOK

    Economic and Housing Market

    Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at Park City Board of REALTORS® Park City, UT February 16, 2012
  2. Strange World
  3. Strangeness Continued
  4. Best Affordability Conditions
  5. Monthly Existing Home Sales .. Before/After Revision Same Market Characterization Tax Credit Impact Old Data New Data
  6. National Existing Home Sales Measurement What it is How many homes sold in 1970, 1980, 1990, 2000 from Census data Apply MLS sales change … if 10% higher then Existing Home Sales is presumed to have risen 10% What it is not Actual sales count from MLSs Actual sales count as recorded from property deeds No changes to MLS data No changes to local sales of MLS data counts
  7. Homes Bought How?More People Sought Help From REALTORS®
  8. Example of FSBO Impact to Home Sales Estimate
  9. Annual U.S. Existing Home Sales … Flat Line for 4 tough years
  10. 20-Metro Case-Shiller Price Index…Remarkable Stability from 2009
  11. Las Vegas vs. Greater SLC(Home Price Index: 1995 = 100) Source: Federal Housing Finance Agency
  12. Local Markets Davis County home sales Up 0.9% in 2011 Davis County Median Price of Transacted Homes Down 8.0% in 2011 Weber County home sales Up 1.4% in 2011 Weber County Median Price of Transacted Homes Down 9.6% in 2011 Inventory down by at least 20%
  13. Other Local Market Trends Prices Up Bismarck Boston Buffalo Honolulu San Francisco Washington, DC Prices Down Atlanta Chicago Las Vegas Miami Phoenix Portland, OR
  14. U.S. Housing Starts Lowest since the Second World War… in the past three years Housing Starts in thousands
  15. Utah Housing Permits
  16. Greater Salt Lake City Housing Permits
  17. Summit County Housing Permits 1990 to 2004 … about 500 to 600 units 2005 to 2007 … 800 to 1200 units 2008 to 2010 … 200 to 400 units 2011 … 100 units
  18. Existing Home Inventory(Elevated but Falling even as distressed and shadow inventory flows in)
  19. Financial Industry Corporate Profits
  20. KBW Bank Stock Index(still down 64% from pre-crisis levels)
  21. Federal Reserve Loose Monetary Policy
  22. Banks/Regulators Restricting Credit(Average Credit Scores of Approved Loans) 15% to 20% Higher Sales
  23. Demographics of Recent Buyers
  24. Loan Limit Changes to 42 States Now, more People need to take out Jumbo Mortgages CBO … Lower taxpayer risk if loan limits are raised America today … Work hard, be financially responsible … then you will get punished ??? Conforming Rate = 3.89% Jumbo Rate = 4.43%
  25. Price Decline Potential? If prices fall … more underwater homeowners … more default risk More risk to decline when there is a bubble Less risk to decline after a crash Many metrics suggest price decline potential is minimal with more price increase potential Yet Banks/Regulators have been pursuing … easy lending during bubble and tight lending after crash
  26. Home Price vs Rent … Price Change Potential?(index = 100 in 1980) Rent is CPI Primary Rent and Price is NAR median price
  27. CPI Rent is Rising…Biggest Weight to CPI(% change from 12 month ago)
  28. 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.
  29. Home Price vs Construction Cost …Price Change Potential? Price is NAR Single-family median price and Construction Cost is Census Construction Cost Weighted Price Index
  30. Home Price to Income Ratio … Price Change Potential ?(Median single-family home price and median household income)
  31. Home Value Undervaluation(Recent analysis by The Economist magazine)
  32. Cost Comparisons over 30 years
  33. Fannie/Freddie Future Disastrous Outcome as government-backed Private Corporation Perverse incentive to gamble with taxpayers money Good Outcome as government corporation Pre-1970s … no problem Post-2009 … no problem Government corporations generate enough internal profit for self-sustainability Assure liquidity on a very simple non-innovative mortgage product (e.g., fixed rate mortgages that meets basic underwriting standards) Grandparents 30-year mortgage same as Grandchildren’s 30-year mortgage Need to pursue counter-cyclical policy … less fees in downturn and more fees during boom/bubble Never trust government to produce innovative products
  34. Fannie and Freddie PerformanceMortgage Default after 18 months Source: Federal Housing Finance Agency
  35. Investors want Deals All-cash record high at 30% to 35% of all sales Multiple bidding becoming common on foreclosed properties (though not on short-sales) Financial asset recovery helping with cash Rental income … beats putting money in the bank Anticipating rising home prices Opens up lending … more home sales Boost consumer confidence … more home sales Further boost home prices and rate of return on investment Hedge against future inflation … alternative to expensive gold Not enough foreclosed homes for sale?
  36. Expensive Gold Price(Hedge against Inflation?) Will Investors shift money to alternative inflation hedge instrument … to real estate?
  37. Total U.S. Payroll Jobs – Modest Recovery(2.6 million job creation from low point in 2010) In thousands
  38. Economic Expansion(GDP growth after recession should be sustained 4% to 5% … not 1.7% as occurred in 2011) Desired Pace
  39. North Dakota … Jobs Everywhere(Starting Wage at McDonalds … $15 to 18 per hour) In thousands
  40. Michigan Payroll Jobs – Ongoing Structural Changes In thousands
  41. Salt Lake City Payroll Jobs
  42. CPI Inflation Retreating?(% change from one year ago)
  43. Broad Inflationary Pressure(Data as of November 2010)
  44. Serious Delinquent Mortgages … Mostly those who took out loans in bubble years(90+ days late or in foreclosure process)
  45. Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years
  46. Improving Factors for Higher Home Sales Improving Factors Job Creation (though slowly) 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 Potential Huge Positive … Lending opens up Potential Huge Negative … Washington policy
  47. The End of Strangeness Let the Prices Recover without obstacles If 5% gain in home price 2 million fewer underwater homeowners Bank lending opens up Consumer confidence about home buying improves Strangeness is past and back towards normalcy But what could be the obstacles QRM 20% downpayment rules, MID, Property tax deduction, capital gains, still lower loan limit Rising mortgages rates (market forces of higher inflation and high budget deficit)
  48. Forecast
  49. Presidential Quotes Franklin Delano Roosevelt: “A nation of homeowners is unconquerable.” Ronald Reagan “We will preserve the part of the American dream which the mortgage-interest deduction symbolizes."
  50. National Museum of American History 4 million no-down-payment VA mortgages for World War II veterans Fueled an unprecedented growth of America’s middle class
  51. For Daily Update and Analysis FACEBOOK http://www.Facebook.com/NarResearchGroup Twitter @NAR_Research
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