Transcript 2011 Economic Summit

ECONOMIC SUMMIT 2011
Residential Real Estate in
WASHINGTON COUNTY
“A Review and a Preview”
Presented by Vardell H Curtis, RCE
Chief Executive Officer
Washington County Board of REALTORS®
Where Did It All Begin?
First, home buyers qualified for a plethora of
home-baked mortgages – Interest Only,
Negative Amortization and of course all of
those Subprime Mortgages – all of which grew
debt three times faster than income. The lack
of control in the sector resulted in excessive
lending and often an absence of credit checks
that brought about the only possible outcome;
a total collapse of the economy.
Swanepoel TRENDS Report - 2010
And Then What Happened?
Then we watched as the federal
government rushed in and began doing
what only it can do: throw obscene
amounts of money at the crisis.
And so we watched it all unfold as we
moved deeper and deeper into the current
recession with unemployment at its highest
level in years – 10.2% to 17% -- and a real
estate market trying to dig itself out of a
very cold snow drift.
Swanepoel TRENDS Report 2010
Who Knows What
to Expect in 2011?
Just how much snow has been shoveled to
date is a matter of opinion and there
certainly isn’t a shortage of those. Opinions
are being offered from every corner and
they range from overly positive to
extremely negative. Every side of the issue
has been hashed out by the “experts” for
months now and every conclusion has
been supported by one theory or another.
Swanepoel TRENDS Report - 2010
The Threat of Inflation
At the end of 2010, inflation remained a nonissue,
with the Consumer Price Index up a low 1.1 percent
from 2009. Indeed, some analysts have been
talking about the risks of entering a period of
Japanese-style deflation in which the expectation
for continuing price drops keeps people from
spending. But there are signs that prices could
start heading up soon, a possibility that the Federal
Reserve fueled in late 2010 when it announced it
would flood the economy with money by buying
$600 billion worth of Treasury bonds in the first
three quarters of 2011 to stimulate growth.
REALTOR.org – 12/23/10
The Threat of Inflation
One of the big remaining questions is whether
inflation, long dormant, is poised to return in 2011
or 2012 as the recovery solidifies and businesses
start to raise prices. Interest rates will likely
increase to hedge against rapid inflation. Keeping
rates low will help in the recovery in the short term,
but the long-term consequences could be even
higher inflation that’s difficult to manage. The
impact will fall hardest on first-time homebuyers;
as interest rates rise along with inflation,
homeownership will become increasingly out of
reach.
REALTOR.org – 12/23/10
Rise in Yields Pushes Up Rates
A sudden and unexpectedly quick bounce in
Treasury yields has jolted the financial markets –
including mortgage rates, which have risen rapidly
in response. Freddie Mac puts 30-year home loan
interest at an average of 4.83 percent for the week
ended Dec. 16, up from a record bottom of 4.17
percent a month ago. Although the rate is still
favorable by historical norms, any jump in
borrowing costs is certain to pinch housing
demand, prevent refinancing, and motivate sellers
to reduce asking prices.
Daily Real Estate News – 12/17/10
Rising Rates
Could Get Buyers Moving
Ironically, it could be rising interest rates that
finally push home buyers off of the fence and into
the market. While Congress is debating the tax-cut
compromise, the financial markets have interpreted
the proposal as a development that will likely push
mortgage interest rates higher than they have been
for months. Analysts are predicting that buyers will
move quickly when it looks like rates are going up
and are unlikely to come down. “Once people see
this might actually be the bottom, they’ll go for it,”
says Paul Dales of Capital Economics.
Fortune Magazine – 12/10/10
Consumer Behavior
One of the key issues concerning the growth
of the housing market going forward will be the
behavior of consumers. The large losses in
wealth they have suffered at the hands of
reduced house values, losses in the stock
market and unemployment have severely
constrained spending. It is a complex issue
that will require attention to be paid to multiple
elements outside the real estate industry.
Swanepoel TRENDS Report 2010
Consumer Confidence
In the past, as the economy emerged from
recession, businesses poured money into
growing their capacity – hiring workers,
renting office space, replacing old
equipment – to position themselves for
growth. But that hasn’t happened this time.
The reluctance among business leaders to
spend, despite sitting on money from
strong profit growth during the recovery,
stems from low consumer confidence.
REALTOR.org – 12/23/10
Consumer Confidence
With unemployment high and lingering
concerns about whether home prices have
really stabilized, consumers remain far from
certain that the worst is behind them. Weak
business spending also stems from
uncertainty over how much it will cost to
comply with last years Wall Street and
health care reform laws. Businesses don’t
know fully what the rules of the game are
going to be down the line.
REALTOR.org – 12/23/10
Consumer Confidence
A barometer of consumers’ expectations
rose to 74.2 in November – the highest level
since May – from 67.5 in October. When it
comes to buying plans, 5.4% of consumers
in November said they have plans to buy an
automobile within six months, up from 5.2%
in October. The percentage of those with
plans to buy a home fell to 1.7% from 2.2%,
and those with plans to buy major
appliances fell to 24.4 % from 25.4%.
Rismedia.com – 12/2/10
Collateral Damage
While consumers facing foreclosure and
banks facing bankruptcy dominate
economic headlines, millions of other
Americans are suffering effects of the
housing market collapse, while subtler, are
very real. Homeowners who are under water
often can’t move to take advantage of new
job opportunities, they can’t refinance and
take advantage of low mortgage rates, and
they generally feel rotten about their
prospect.
MSNBC.com – 12/2/10
Shadow Inventory
As foreclosed and distressed properties
continue to be a part of the market, we are
going to see certain banks holding more
properties off the market, hoping to be able to
sell them when the economy becomes
stronger. This “Shadow Inventory” is
estimated to be as much as 1.7 million homes.
So just how many loans are in arrears or have
been foreclosed upon and not listed on the
market is anyone’s guess at this point.
Swanepoel TRENDS Report 2010
Shadow Inventory
A recent research report from the Amherst Security
Group says “the single largest impediment to a
recovery in the housing market is the large number
of loans that are either in delinquent status or in
foreclosure that are destined to liquidate.” If
lenders sell off their inventory over time on a
controlled basis then local home prices will be
supported. However, if lenders suddenly dump
massive numbers of foreclosed properties then the
result will be substantially reduced home values
for everyone.
Realtytrac – 12/2/10
Shadow Inventory
Today we have a marketplace where potential
losses are so great in some areas that many
owners cannot offer their homes for sale. In terms
of distressed real estate we have huge numbers of
properties entering the foreclosure system – but
far fewer that are leaving because lenders want to
avoid losses. The result is a massive backlog of
unsold distressed properties, homes at the center
of the shadow inventory. The slow release of
foreclosed homes is intended to stabilize home
prices by limiting supply.
Realtytrac - 12/2/10
The Shadow Inventory
If banks begin dumping REOs on the
market at significantly reduced prices, the
impact will be very significant. There are
several keys to this issue to watch,
including the credit market, unemployment
rates and what happens in the commercial
real estate market. Of particular interest will
be what happens in the foreclosure market
and what the industry is doing to smooth
out the wrinkles in the short sale process.
Swanepoel TRENDS Report 2010
Shadow Inventory
The worry raised by the shadow inventory is that
the insurance and maintenance costs required to
retain growing lender inventories cannot be
sustained, forcing lenders to quickly release more
and more distressed homes into local markets. The
direct result would be more homes for sale,
increased supply and lower real estate prices. But
while the worry is real, the reality is that lenders
are unlikely to quickly unload foreclosed inventory
because accounting rules and the potential for
current losses and future profits are too powerful
to ignore.
Realtytrac – 12/2/10
What About Empty Houses?
The fragile U.S. economy will not recover
until someone solves the issue of empty
houses and their drag on everyone’s
financial stability. According to the U.S.
Census Bureau, there already are 19 million
vacant homes in America. Nothing would
more quickly kill a fledgling recovery and
further decimate everyone’s home values
than dumping another projected 10 million
or so more foreclosures in the pipeline.
MSNBC – 12/2/10
Empty Neighborhoods
The empty house problem impacts us all.
Each foreclosure drains $4,000 in equity
from neighboring homes, according to
some estimates. Empty neighborhoods
create blight; empty houses kill the new
construction industry. And even if you
aren’t among the 10 million homeowners at
risk of foreclosure, odds are good that you
are a responsible mortgage payer whose
home is now “under water.”
MSNBC – 12/2/10
Who Created This
Empty House Mess?
The empty house problem is vexing because it is
not monolithic. One side might think the problem
was created by homeowners who overreached and
deserve to lose their homes; the other side
counters that corrupt banks tricked families into
booby-trapped loans. In fact, the housing mess is
all those things, and more. Lenders who used
illegal tactics like “robo-signing” foreclosure
documents and greedy speculators who bought
properties hoping to flip them for profit also
contributed to the mess.
MSNBC – 12/2/10
Robo-signing?
There has been such a crush of new
foreclosures entering the system that
banks were essentially having notaries
rubber stamping foreclosure files as fast as
they could without reviewing the files to
insure they contained the actual documents
and figures they were supposed to. One
lender was using 7 or 8 notaries to notarize
over 18000 files per month, obviously they
couldn’t be thoughtfully reviewing that
many files.
thexbroker.com – 12/2/10
National Foreclosure Moratorium
Banks have taken a month (or two) to clean up
what amounts to procedural defects in their
processing of foreclosures. However, this
“moratorium” must be relatively temporary in that
the housing market cannot afford to slow down
anymore than it already has. A protracted
“foreclosure freeze” would be very bad for the
overall housing market (and economy) as it would
further stagnate inventory that’s already stuck in
quagmire. The cost of credit would rise as well, as
banks and investors pass on the costs of holding
inventory to new buyers.
thexbroker.com – 12/2/10
Congress Calls for
Program Revamp
The government should retool its foreclosureprevention program because so far it hasn’t
worked, a report released by the Congressional
Oversight Panel declares. The program “will never
have the reach necessary to put an appreciable
dent into the foreclosure crisis,” the report says.
The report calls for the Treasury Department to set
objectives and hold banks that administer
mortgages accountable for failing to complete loan
modifications properly.
Associated Press – 12/14/10
Foreclosures Challenge
New Construction
Much of the price excesses from the
housing bubble have been squeezed out of
the market. In fact, home prices may have
even overcorrected in certain
circumstances. This price correction
creates a whole new problem in the market.
Specifically, the cost of duplicating an
existing home, when you factor in the
expense of buying bricks and mortar and
putting it all together, is likely going to be
more expensive.
REALTOR.org – 12/23/10
Home Building Industry Outlook
Short-term Outlook: A number of factors should
help the housing market move forward in the near
term. Over the past couple of years, there has been
pent-up demand – people have doubled up and
moved in with family and friends during the
recession. We anticipate that low mortgage rates,
stabilizing home vales and these demographic
trends should result in more households entering
the housing market in the coming months.
National Association of Home Builders
Home Building Industry Outlook
Long-term Outlook: As household formation rates
return to normal, the prospects for housing are
much brighter. The NAHB economists project that
the industry will need to deliver 16 million homes
over the next decade just to keep pace with
demand.
Main Industry Challenge: NAHB’s top priority is
opening up the lines of credit for new housing
production; and resolving problems with the
appraisal process.
National Association of Home Builders
Commercial Real Estate Market
This is potentially a ticking time bomb that has
been building for a long time as banks and
financial institutions have avoided taking a hit
in hopes that unemployment will turn around
and resolve the problem. This is unlikely to
happen in the near term and they are going to
have to face the problem. There are sure to be
some ripple effects that will impact the
residential market, further drying up credit for
one.
Swanepoel TRENDS Report 2010
2010 Census Shows 9.7% Jump
The U.S Census Bureau released the first
results from the 2010 census which showed
there are 308.74 million Americans, an
increase of 27 million or 9.7 percent since
2000. About 13 million of the increase is
new immigrants, while 17 million came from
births by existing residents. Nearly 80
percent of the growth was among
minorities, with Hispanics registering the
biggest gains.
Where is the
Population Growth Occurring?
Most of the population growth is in the
South and West. The 10 fastest-growing
states had average population gains of 21
percent. The states were:
1. Nevada
2. Arizona
3. Utah
4. Idaho
5. Texas
6. North Carolina
7. Georgia
8. Florida
9. Colorado
10. South Carolina
2011’s
Strongest & Weakest Markets
Home prices are expected to rise in 40 percent of
major metropolitan areas, according to Veros Real
Estate Solutions, a research firm that provides
information to the mortgage industry.
STRONGEST
San Diego / Carlsbad
Kennewick / Richland
Pittsburgh
Fargo
Washington DC
WEAKEST
Reno / Sparks
Orlando / Kissimmee
Boise / Nampa
Daytona Beach
Port St.Lucie
Housing Wire.com
ACCRA COST OF LIVING
THIRD QUARTER 2010
City
Composite Grocery Housing Utilities Health Care
St.George
94.5
97.8
91.3
87.1
88.7
Salt Lake City
101.2
93.9
106.4
73.5
100.4
Las Vegas
101.8
109.6
88.7
99.0
112.4
Phoenix
103.0
115.7
90.2
101.1
114.1
Prescott
104.0
95.0
121.0
92.3
97.4
Cedar City
88.1
99.5
72.9
84.5
85.1
Logan
94.9
103.9
66.6
84.0
101.0
Honolulu
167.8
164.5
255.4
148.5
118.2
San Francisco
162.0
109.2
278.9
96.4
115.4
Manhattan
207.9
147.9
370.5
172.8
127.1
Harlingen, TX
79.9
78.9
71.4
102.3
95.0
People Still Want to
Own a House
The desire to own a home hasn’t been
diminished by the downturn in the industry,
according to a survey by Fannie Mae. Of
owners and renters surveyed, 51 percent
say the housing crisis has not affected their
overall willingness to buy a home. About 27
percent say they are more likely to buy
since the crisis, presumably because of
lowered prices, and 19 percent say they are
more likely to rent.
Fannie Mae – 12/15/10
The American Dream
Home ownership is one of the best ways to
build long-term wealth. The historical
picture shows that “a home owner’s net
worth has ranged from 31 to 46 times that
of a non-homeowner”. More than twothirds (67%) of American households are
owner-occupied. America is a nation of
home owners. Home ownership matters!
REALTOR.org/Homeownership
Homeowners’ Net Worth 41 Times
Greater Than That of Renters
In 2010, homeowners’ net worth averaged
between $150,000 and $200,000, with a
substantial part of that net worth coming
from homeowner equity. In the past 12
years, the net worth of the typical
homeowner has ranged between 31 and 46
times that of a renter.
National Association of REALTORS®
Positive Returns
Typical home sellers are experiencing
positive returns despite drops in home
prices over the past couple years.
According to the 2010 Profile of Home
Buyers and Sellers, the typical seller who
purchased a home eight years ago
experienced a median equity gain of
$33,000, a 24 percent increase. Those who
stayed in their homes from 11 to 15 years
saw an increase of 40 percent.
National Association of REALTORS®
Interest Rates = Historic Opportunity
The average interest rate for a 30-year loan was
5 percent over the last 12 months. The average
over the last 10 years was 6.13 percent. The
highest rate since January 1964 was 18.45
percent in October 1981. The lowest rate since
January 1964 was 4.42 percent last November.
That is some history lesson. No matter how you
slice it, today’s home prices and mortgage rates
represent an HISTORIC OPPORTUNITY that
cannot be ignored.
WJ Bradley Mortgage Capital Corp
Unemployment is a Key Factor
While the outlook for 2011 appears inviting,
there’s a catch; unemployment. With a rate
of 10% (which is expected to go higher), all
the attractive low mortgage rates are of no
value if you don’t have a stable job. The job
market, simply put, is critical for the
recovery of the housing market and any
significant movement in the level of
unemployment in either direction will have
an impact on the health of the market.
Swanepoel TRENDS Report 2010
2011 Crystal Ball
This year should be very good for first-time
buyers to shop. The three main ingredients
that affect buyer affordability are mortgage
rates, house prices, and income. With the
first two at or near cyclic lows, buyer
affordability is at the highest level in
decades. The National Association of
REALTORS’® Affordability Index for the
third quarter 2010 reported one of the most
affordable buying markets since the
inception of the index in 1971.
2011 Crystal Ball
While some rise in fixed-rates is expected,
30-year fixed-rate loans are likely to remain
below 5 percent throughout the year. With
federal reserve observers expecting the
central bank to keep the federal funds rate
at its current target range of of zero percent
to 0.25 percent for most or all of 2011,
relatively low mortgage rates will be a
feature of this years mortgage market.
2011 Crystal Ball
Economists clearly see low home-loan
interest rates, rebounding home prices and
more job creation leading to a gradual
recovery in the second half of the year,
according to a new year-end economic
outlook by Freddie Mac. As in the past,
income growth, unemployment rate, and
inflation will affect the performance of the
housing and mortgage markets.
2011 Crystal Ball
Single-family home mortgage delinquency
rates remain extraordinarily high but have
begun to decline in the aggregate. Based
on the last several business cycles, the
share of loans 90-or-more days delinquent
or in foreclosure proceedings, generally
crests within a year of the start of the
recovery in payroll employment, and this
economic recovery appears to fit within that
pattern.
2011 Crystal Ball
Home prices nationwide are close to hitting
bottom. Most experts look for single-family
U.S. indexes to bottom out in the first half
of 2011, with a gradual but sustained
recovery after that. However, local markets
that have relatively large inventories of forsale homes and real estate owned (REO)
dispositions will continue to see homevalue weakness in 2011.
2011 Crystal Ball
Ultimately, the real estate market in 2011 is
not going to be markedly different from the
2010 real estate market. As you can see,
many of the predictions that are being
made for 2011 are cautious assumptions
that the market may change slightly. For the
most part, experts are predicting that
changes will be slow and subtle and that
there will be no huge surprises in 2011.