Lawrence Yun, Ph.D.
Chief Economist NATIONAL ASSOCIATION OF REALTORS®
P s n tio a re e ta n t
Mrq e U iv rs a u tte n e ity
Dc me 1 , 2 0 e e br 0 09
Housing Stimulus Impact
• Tax Credit and Higher Loan Limit • Raised Sales by 350,000 to 400,000 among First-time buyers in 2009 • In 2010 – Existing Home Sales gets 15% boost – Home Price gets 3% to 5% boost • Preservation of Middle-Class Wealth
Recent Pending Home Sales
Recovery pre-dominantly in lower-end and taking longer to close in recent months
111 66 6 666 66 66 66 66
Source: NAR
Bifurcated Recovery
$ thousand % change from one year ago
Homes priced under $100K
Homes priced above $500K
Source: NAR
Aggregate Months Supply
In thousand units
66
Source: NAR
National Existing Home Sales
6666666 6666666 6666666 6666666 6666666 6666666 6666666 6666666 6
6666 1111 6666 1111 6666 1111
Pre-boom sales
Wisconsin Existing Home Sales
In thousand units
Wisconsin Home Sales Quarterly
% Change from one year ago
First-Time Buyers Used Up or Pent-Up Demand ?
• In year 2000 (pre-boom) – 11 million renters with qualifying income to buy a median priced home • In 2009 – 16 million renters with qualifying income to buy a median priced home • Most renters are not qualified and should not be homeowners
First-Time Buyers Used Up or Pent-Up Demand ?
2000 (pre-boom) 5.2 m 880 K 131.8 m 136.9 m $143,600 8.1% Normal (not loose) FHA about 10% $41,990 Existing Home Sales New Home Sales Payroll Jobs Household Jobs Median Home Price Mortgage Rates Underwriting Standard + FHA % 4.6 m 364 K 135.0 m 143.2 m $173,600 5.5% About Normal FHA 24% $50,303 16.2 million 5.3 m 418 K 131.4 m 140.0 m $177,900 5.2%
2009 2009 (3 months prior to tax (recent 3 months with tax credit) credit)
About Normal FHA 15% to 20% with higher credit score $50,303 16.1 million
Household Income
# renters that could buy a median 11.5 million priced home (assume no tax credit)
Change in Pool of Potential 1st TimeN/A Buyers (without tax credit) Change in Pool of Potential 1st TimeN/A/ Buyers (with tax credit) Fear Factor Impact (Waiting to buy N/A later at a lower price)
4.7 million 4.7 million Hard to Measure
4.6 million 5.4 million Hard to Measure
Household Formation
(2-year moving average)
Preservation of Middle Class Wealth
• $8000 Price Drop or $8000 Tax Credit ? • No difference from buyer’s perspective • Major differences on market impact • $8,000 or 4% decline value means $730 billion in housing wealth destruction • Consumer wealth effects • Consumer’s rational postponement of purchase
Financial Wealth Rising
$ billion
Source: Federal Reserve, NAR estimate Source: Federal Reserve
Housing Wealth to Rise
($4 trillion wealth loss in housing from peak)
If additional $8,000 price decline … $700 billion further loss
$ billion
Source: Federal Reserve, NAR estimate Source: Federal Reserve
Bubble Wealth All Removed
$ thousand Sarasota
Milwaukee
Source: NAR
National Existing Home Price
First-time buyers attracted to deeply discounted distressed sale properties.
250000 200000 150000 100000 50000 0
1970 1975 1980 1985 1990 1995 2000 2005
Overcorrection Needs to be Halted
(Home Price to Income Ratio)
3 .6 3 .4 3 .2 3 .0 2 .8 2 .6 2 .4 2 .2 2 .0
Stay within Budget and all will be OK ! Source: NAR
Mortgage Payment to Income
(by middle income person buying a median priced home)
4 2 .0 3 7 .0 3 2 .0 2 7 .0 2 2 .0 1 7 .0 1 2 .0 7 .0 2 .0
Stay within Budget and all will be OK ! Source: NAR
Latest Monthly Home Price Trend
Case-Shiller, Govt (FHFA), NAR … Seasonally Adjusted Data
$ thousand FHFA
NAR
Case-Shiller
Housing Starts: Too Much to Too Little
2,500 2,000 1,500 1,000 500 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
New Units Needed
3 million more people each year … 1 to 1.4 million household formation … need to account for 300,000 demolitions …. need 1.3 to 1.7 new units
Wisconsin Housing Permits
In thousand units
Source: Census
Serious Delinquency Rate
(90+ days late or foreclosure)
%
3 0 .0 2 5 .0 2 0 .0 1 5 .0 1 0 .0 5 .0 0 .0
Subprime
FHA VA (purple)
Prime (green)
•FHA Reserve Fund depleting … may need funds to implement a countercyclical policy •Fannie-Freddie will need funds … future reform of the secondary mortgage market •Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK!
Economy Recovering
9.0 6.0 3.0 0.0
- Q 1 - Q 3 - Q 1 - Q 3 - Q 1 - Q 3 - Q 1 - Q 3 - Q 1 - Q 3
GDP annualized growth rate
Forecast
-3.0 -6.0
5 0 2
5 0 2
6 0 2
6 0 2
7 0 2
7 0 2
8 0 2
8 0 2
9 0 2
Source: BEA
9 0 2
4 Q 9 0 2
Total Payroll Jobs in U.S. Total Jobs in U.S.
140000 138000 136000 134000 132000 130000 128000 126000 124000
In thousands
Source: BLS
Total Payroll Jobs in Wisconsin
In thousands
2900 2800 2700
Source: BLS
Total Payroll Jobs in Michigan
5000 4500 4000 3500
In thousands
Source: BLS
Total Payroll Jobs in Washington D.C. Metro
In thousands
2600 2400 2200 2000
Source: BLS; (12-month moving average)
Federal Budget Deficit
0 9 1 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 1 7 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 0 2 3 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 2 8 0 2 9 0 0 2 0 1 0 2 2 1 0 2 1 1 0 2
4 0 0 ,0 0 0 2 0 0 ,0 0 0 0 -2 0 0 ,0 0 0 -4 0 0 ,0 0 0 -6 0 0 ,0 0 0 -8 0 0 ,0 0 0 -1 ,0 0 0 ,0 0 0 -1 ,2 0 0 ,0 0 0 -1 ,4 0 0 ,0 0 0 -1 ,6 0 0 ,0 0 0
Source: Congressional Budget Office Projections Source: CBO, NAR estimate
Federal Housing Policy
• Tax Favoritism
– – – – Mortgage interest deduction Capital gains tax exclusion Property tax deduction But who pays taxes?
• Ownership and Positive Externalities
– Student test scores, teen pregnancy, juvenile delinquency
• What is the proper homeownership rate? • Any Ownership vs Successful Ownership
Economic Outlook
2008 2009 2010 forecast 2.6% 1.6% 10.0%
GDP CPI Inflation Unemployment Rate
0.4% 3.8% 5.8%
-2.5% -0.4% 9.3%
10-year Treasury
3.7%
3.2%
3.6%
Housing Outlook
2008 2009 2010 forecast 5.7 m 560 k 4%
Existing Home Sales New Home Sales Home Price Growth
4.9 m 485 k -10%
5.1 m 394 k -13%
Mortgage Rate Price Fear Factor
6.1% ?
5.1% ?
5.5% None
Commercial and Residential Property Prices
Index = 100 in 1990
300 250 200 150 100 50 0
Case-Shiller MIT
2009 data is for Q2
Who Is Buying?
Commercial Credit Freeze
Credit Crisis 2008: Libor vs. Fed Funds Rate
Subprime acting up Bear Stearns Lehman Brothers belly up
Credit Crunch Ending?
• Libor Rates improving • Junk Bond yields becoming less wild • Banks making profit … but are they getting too big again (75% of assets controlled by 10 banks) • Federal Reserve lending at zero (though not to consumers) • Not Yet … Need to see – Lower rate on jumbo mortgages – Lower rate on second home purchases – Lower rate on condo purchases – Lower rate on commercial real estate loans
Office Market Fundamentals
Office Rent Growth
Commercial Market Outlook
• 2008 to 2009
– – – – – Net absorption turns negative Rising Vacancy Rates and Stagnant Rent Markedly Fewer Transactions Property Prices Falling Distress Rising
• 2010
– Economic recovery
• Local market recovery
– Commercial recovery with lag time – Modestly Positive net absorption – Rent struggles to move positive
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