Transcript Slide 1

Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Leadership Summit
Chicago, IL
August 21, 2008
Home Sales Starting to Recover
from Improving Affordability Conditions
% change in existing home sales from 2008 Q1 to 2008 Q2
(seasonally adjusted)
Source: NAR
Home Price Trend
Source: NAR
Sales Still Struggling
% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)
Source: NAR
National Total Existing-Home Sales
(Up markets + Down markets = Stable total)
Stable
Housing Stimulus Package
• First-time Homebuyer Tax Credit
– Up to $7,500 (but with repayment
requirement)
– Helps unleash chain reaction for trade-up
buyers
• Permanently higher Loan Limit
– Up to $625,000 … covers most jumbo loans
– Will lower “conforming jumbo” mortgage
rates by 1% point (from say 7.5% to 6.5%)
– Saving $4,000 in interest cost per year
FHA Market Share for Home Purchase
Source: HMDA, NAR Estimate
Annual Existing-Home Sales
at 1998 levels
In thousand units
1998 vs 2008
• Existing Home Sales stable but trending at
10 year ago levels
From 1998 to 2008
• 25 million more people
• 13 million more jobs
• Comparable affordability conditions
• Is it credit tightening?
• Is it excessive pessimism?
Location, Location, Location:
Makes a Big Difference!
• All Real Estate is Very Local
• Local Affordability and Local Job Market
Conditions?
• Steepest price declines are concentrated in
neighborhoods with high subprime loans
• Steep price declines attracting buyers
Delinquency Rates
Subprime vs. Prime
Data: Mortgage Bankers Association
Stresses are in Neighborhoods with
Subprime Loans
Price change from a year ago
Yellow – Mostly Prime Conforming Loans Only (OFHEO)
Orange – All Loans including subprime and jumbo loans (Case-Shiller)
Red – Subprime Loans (NAR estimate based on weighted average)
One For Every 100 Households
• 100 households
• 32 renters and 68 homeowners
22 have no mortgage
46 have mortgage
3 are delinquent
1 gets foreclosed
43 are current
2 work it out
Historically only ½ gets foreclosed
Homeowners in Denial ?
• 62% of homeowners say no price decline
• Most U.S. Markets are experiencing price
decline
• Price info gleamed from transacted homes
and not all homes
– More than usual number of transactions from
REO-foreclosed, short-sales
– 90% of homes are not on the market
• Only 9% of homeowners have subprime loans
• Homeowners have long-term view
• Rural areas (land prices up 9%)
Strong Job Growth States
(Yet, Falling Sales because of mortgage
tightening and buyer hesitancy)
% change in job growth from one year ago
Source: NAR
Interest Rates
(Long and Short)
U.S. Single-Family
Housing Starts
In thousand units
Source: Census
Inventory of New Homes Fell
Even as Sales Fell
(Inventory will fall very fast if sales pick up)
Source: Census
Home Price Forecast
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Falling inventory will help stabilize prices
Ben Bernanke’s view … ?
Alan Greenspan’s view … early 2009
800 Economists view … 2009
My view …
– Watch out for Denver and Houston on
fundamentals
– Watch out for CA, NV, AZ, and FL on multibids
– Watch out for Pitt, Indy, Cincy once jobs
come around
Economic Forecast
• Consumers are angry
• Businesses are OK
• Exports booming
• Net: Improving economy in the second half
of 2008
• 2009 will depend on persistent or
dissipating consumer anger
GDP Growth
% annualized growth rate
Source: BEA
U.S. Job Changes
7 straight months of job cuts
12-month payroll job changes in thousands
Source: BLS
Consumer Price Inflation
Source: BLS
Consumer Sentiment
Source: University of Michigan
Corporate Profits –
Near Record High
$ billion
Source: BEA
Exports Growing
$ billion (2000-chain $)
Commercial Real Estate
Construction Spending
$ billion (2000-chain $)
Commercial Fundamentals
• Vacancy Rates rising modestly … all across
• Rent Growth slowing still positive in most
markets and most property types
• Multifamily holding up better
• …Retail less so
Euro vs Dollar
Dollar Strength and Oil Price
Economic Outlook
2007
2008
2009
GDP
2.0%
1.7%
1.5%
CPI Inflation
2.9%
4.1%
2.6%
Job Growth
1.1%
0.1%
0.2%
Unemployment Rate
4.6%
5.5%
6.0%
What will Happen to
Fannie and Freddie?
• Survive
– Able to raise capital
– Default rate slows
• Do not Survive … become Bear Stearns
• Treasury and Fed helps through the crisis
– Repay the government after crisis
– Chrysler model
• Nationalization
– Temporary government takeover
– Re-privatize but with tighter regulation
Sharp or Modest Rebound?
• Depends on all of us in informing and educating
consumers
– Get the neighborhood information from local
professionals
– If ready financially, buy a home and get that
special tax break
– Mortgage rates off rock-bottom points but still
historically favorable
– Though no guarantee, buying a home has been a
path to long-term wealth accumulation in vast
number of cases
– U.S. homes are on a big-time sale, own a piece of
America