Transcript Document

Economic and Housing Market
Trends and Outlook
Jed Smith
Managing Director, Quantitative Research
NATIONAL ASSOCIATION OF REALTORS®
Real Estate Broker Conference
August 7 & 8, 2013
Hyatt O’Hare
Chicago, Illinois
The Outlook: Forecast
Slow Economic Expansion
2011
2012
2013
Forecast
2014
Forecast
GDP Growth
+1.8%
+2.1%
+1.8%
2.7%
Existing Home
Sales
4.3 million
4.7 million
5.0 million
5.2 million
Housing Starts
610 K
780 K
1.0 million
1.25 million
Existing Home
Price Growth
- 4%
+ 6%
+ 8%
+ 5%
30-yr Mortgage 4.7%
Rate
3.7%
4.0%
4.7%
“It Was the Best Of Times, and the Worst of Times”
Index Continues Below 100: Expansion Slow, Weaker than Normal
Conference Board: Consumer Confidence
SA, 1985=100
150
150
125
125
100
100
75
75
50
50
25
25
85
90
95
Source: The Conference Board
00
05
10
07/02/13
“It Was the Best Of Times, and the Worst of Times”
Levels of Uncertainty Higher than Normal
Economy: Slower/Weaker Expansion
Economic Policy Uncertainty Index
1985-09=100
250
250
200
200
150
150
100
100
50
50
85
90
95
Source: PolicyUncertainty.com
00
05
10
07/02/13
U.S. Total Payroll Jobs
Labor Force Participation Rate Down 3 Percent
11.8 Million Unemployed
In thousands
Employment: The Major Issues
Unemployed, 16 Years & Over: 16 yr +
SA, Thous
16000
16000
14000
14000
12000
12000
10000
10000
8000
8000
6000
6000
4000
4000
85
90
95
Source: Bureau of Labor Statistics
00
05
10
07/02/13
• Employment Lower than
Normal.
• Unemployment Duration:
Higher than Normal.
• Job Creation is Lagging.
• It’s Hard to Find a Job!
• Housing Market Expanding,
But Could do Better.
• Good News—But Still
Underperforming.
Housing Outlook: Annual Existing Home Sales
Good News: Impending Multiyear Growth
In million units
Housing Outlook: Home Prices Still Reasonable
Market is Recovering—A Function of Jobs.
Affordability Good, but Credit Availability Needs to Ease.
Existing Home Prices
Actual and Forecast
250000
200000
150000
100000
50000
2000 - Jan
2000 - Sep
2001 - May
2002 - Jan
2002 - Sep
2003 - May
2004 - Jan
2004 - Sep
2005 - May
2006 - Jan
2006 - Sep
2007 - May
2008 - Jan
2008 - Sep
2009 - May
2010 - Jan
2010 - Sep
2011 - May
2012 - Jan
2012 - Sep
may
2014 - Jan
sept
0
Home Prices, Monthly
Forecast, Annual
Housing Outlook: Affordability
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
Housing Outlook: Pending Home Sales
Seasonally Adjusted 2001 = 100; Tax Credit Blips in 2010
140
120
100
80
60
40
20
0
Housing Outlook
Days on Market--Down Very Significantly
Median Days on Market
120
100
96
97
98
101
92
96
98
99
99
97
91
83
80
72
70
69
70
70
71
70
73
71
74
62
60
46
40
20
0
Source: NAR, RCI Survey
41
200905
200906
200907
200908
200909
200910
200911
200912
201001
201002
201003
201004
201005
201006
201007
201008
201009
201010
201011
201012
201101
201102
201103
201104
201105
201106
201107
201108
201109
201110
201111
201112
201201
201202
201203
201204
201205
201206
201207
201208
201209
201210
201211
201212
201301
201302
201303
201304
201305
Housing Outlook
Distressed Sales Down
Percent of Respondents Reporting
Distressed Sales
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Foreclosed As % of Sales
Short Sale As % of Sales
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
Housing Outlook
Low Inventories
Months Supply of Housing
14
12
10
8
6
4
2
0
EHS Months Supply
New SF Homes
Housing Recovery—Why Sustainable?
Housing Starts Requirement
• 1.1 million household formation.
• 0.3 million demolition and uninhabitable.
(Implicitly assumes depreciation rate of more than 200
years)
• 0.2 million net new vacation home demand.
• Total New Housing Need = 1.6 million each
year.
Housing Recovery—Why Sustainable?
Household Formation Accelerating After Great Recession
(in millions)
Housing Recovery—Why Sustainable?
Quantifying Housing Shortage
(2001 to 2012)
Household
Formation
Demolition
New Vacation Housing
Home
Starts
11.0 million
3.6 million
2.0 million
16.6 million
15.7 million
15.7 million
This housing shortage imbalance could grow because
(1) Household Formation will exceed 1 million in 2013 and beyond
(2) Housing Starts need to be 1.5 million per year … Not there in 2013
Housing Recovery—Why Sustainable?
Housing Starts: Long Term Demand Greater than Supply
Thousand units (annualized)
Long-term Average
Housing Recovery—Why Sustainable?
Existing vs. New Home Prices … Big Gap
(single-family homes)
Number of “Qualified” Renters
(credit scores unknown and not factored)
Year
Income Needed to
Buy a Median
Priced Home
Number of Renters
with necessary
income
Share of Renters
Qualified
2000
$40,300
11.8 million
33%
2005
$50,400
9.0 million
24%
2012
$31,700
20.1 million
51%
If the year 2000 is considered as normal, then 11.8 million renters had
the income to buy a median priced home but chose not to.
In 2012 there are about 8 million more renters with the necessary
income but choosing not to be or are unable to be a homeowner.
Housing Recovery—Why Sustainable?
Buyer Traffic Greater than Seller Availability--REALTOR® Survey
Indexes of Buyer and Seller Traffic
80
May 2013: Buyer: 71 Seller : 43
70
60
50
40
30
Buyer Traffic Index
Seller Traffic Index
201304
201301
201210
201207
201204
201201
201110
201107
201104
201101
201010
201007
201004
201001
200910
200907
200904
200901
200810
200807
200804
200801
20
Price Expectations--Next 12 Months
Source: REALTOR® Survey
Constant/Rising Prices
Falling Prices
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
201301
201210
201207
201204
201201
201110
201107
201104
201101
201010
201007
201004
201001
200910
200907
200904
200901
200810
0%
Price Expectations for Next 12 Months
As Reported by REALTORS®
Summary of Outlook: Where Are We Headed?
• Likely Multiyear Housing Recovery.
– No Recession but Slow Economy.
– Continued Job Growth and Household Formation.
– Lagging Housing Starts and Continuing Housing
Shortage.
• Home prices are primed to rise further, by 13%
cumulatively in 2013 and 2014.
• Smooth Sailing Right Now—But Would be Better
with Increased Credit Availability and Job
Creation.
• But There are Major Risks.
Risks to Forecast—Housing Related
• Upside Uncertainties … Credit Availability
– Housing recovery so far even with tight credit
– What happens if mortgage accessibility opens up?
• Downside … Washington Housing Policies
– Rising g-fees and FHA insurance premiums
– QRM 20% down payment requirement?
– Basel 3 … capital rule that punishes private mortgage
with low down payment and commercial loans
– Trim mortgage interest deduction?
– Capital gains tax on home sale?
Credit Risks--Ready to Open Credit?
(Average Credit Scores of Approved Loans)
Normal
2009 to 2012
If Normal
Fannie
720
760 to 770
720
Freddie
720
760 to 770
720
FHA
650
680 to 700
660
15% to 20% Higher Sales
Possible if Normal Conditions
FICO Scores: Unreasonably High
Credit Availability: Negative Impact on Potential Homeowners
FICO Scores: Recent Scores vs. 2005
80%
May 2013: 57% of reported credit scores are 740+
70%
60%
50%
40%
30%
20%
10%
0%
lt 620
740+
Fannie/Freddie 740+
Downside Risk: Mortgage Investor Rights
– Court system clogging the foreclosure
process
– Eminent Domain to take mortgages out of
investors’ hands? (In order to restructure
mortgages)
Downside Risk: Aging Baby Boomers
(Live Births per 1000 population in U.S.)
Downside Risk: Student College Debt
Important Issues: Are Colleges Effective, Are Expectations Realistic?
($ trillion)
-2
-4
-6
1960 - Q1
1962 - Q1
1964 - Q1
1966 - Q1
1968 - Q1
1970 - Q1
1972 - Q1
1974 - Q1
1976 - Q1
1978 - Q1
1980 - Q1
1982 - Q1
1984 - Q1
1986 - Q1
1988 - Q1
1990 - Q1
1992 - Q1
1994 - Q1
1996 - Q1
1998 - Q1
2000 - Q1
2002 - Q1
2004 - Q1
2006 - Q1
2008 - Q1
2010 - Q1
2012 - Q1
Downside Risk: GDP Growth … Unimpressive
How Fragile is the Recovery?
Housing, Quantitative Easing, Other
GDP Growth
Percent Change, Year to Year, Constant Dollars
10
8
6
4
2
0
Community Leaders—Thought Leadership
• Thought Leadership: People Look to Leaders
for Ideas on Important Topics.
• Short Term—Recovery is Proceeding Nicely.
• Longer Term—There are Major Problems.
• The “Longer Term” Could be a Year or Two.
– Problems are not Certainties.
– But Problems Need to be Addressed.
– And Can Show Up as a Surprise.
Major Economic Risks: Problems Not to be Ignored.
For Now—Smooth Sailing. Longer Run—Avoid Surprises.
Problems: just ignored.
The iceberg: just ignored.
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Budget Deficit.
Quantitative Easing.
Home Ownership Levels.
Entitlements: Social Security, Medical
Care, Disability, Social Welfare
Programs.
State/Local Government Finances.
Labor Force Issues.
Student Loans.
Generational Split.
Income Distribution.
Lack of Growth.
Regulation.
Divisive Rancor.
Photographed morning April 15, 1912…smear of red
paint along the base of the berg, indication that it had
collided with a ship sometime in the previous twelve
hours.
NAR Research—On Line
•
Twitter: https://twitter.com/NAR_Research
•
Blog: http://economistsoutlook.blogs.realtor.org/
•
NAR Research Page http://www.realtor.org/research-and-statistics
•
NAR Housing Statistics
– http://www.realtor.org/research-and-statistics/housing-statistics
• Research Reports
– http://www.realtor.org/research-and-statistics/housing-statistics
• NAR Commercial Reports
– http://www.realtor.org/research-and-statistics/researchreports/commercial-real-estate