Transcript Current State of the Housing Market Distressed Property

Real Estate Update:
Have we reached bottom?
Midwest Relocation Conference
Chicago, Illinois
April 4, 2011
Moderator:
Carol Mescal, CRP |
VP Client Relations, TheMIGroup
Speakers:
Jed Smith, Ph.D |
Director, Quantitative Research, National Association of Realtors
Deborah Benavides, CRP |
Director, Relocation and Corporate Services, Shorewest Realtors
Barbara Springer, CRP,GMS, CMS |
Tim Rohlman, CRP |
Executive Vice President, Relocations and Referral Services @Properties
President, Relocation Real Estate Services, Inc.
National Association of Realtors
Jed Smith
Director, Quantitative Research, National Association of Realtors
The Economy – How We Got Here!
Excessive Spending & Leverage, Speculation, Job & Credit Problems,
Weak Balance Sheets & Income, Consumer Confidence Problems
May
2008
Jun
2008
July
2008
Aug
2008
Sep
2008
2009
Current State of the Economy
GDP and Jobs – Slow Recovery
All Employees: Total Nonfarm
SA, Thous
Gross Domestic Product
SAAR, Bil.$
140000
15000
130000
12500
120000
10000
110000
7500
100000
5000
90000
80000
2500
85
Sources: BLS, BEA
90
95
00
05
10
03/11/11
Current State of the Economy – Consumer Confidence
Too Much Gossip Around the Cyber Cracker Barrel
Conference Board: Consumer Confidence
SA, 1985=100
150
150
125
125
100
100
75
75
50
50
25
25
80
85
Source: The Conference Board
90
95
00
05
10
03/10/11
Current State of the Economy
Unemployment Rate
Civilian Unemployment Rate: 16 yr +
SA, %
12
12
10
10
8
8
6
6
4
4
2
2
55
60
65
70
Source: Bureau of Labor Statistics
75
80
85
90
95
00
05
10
03/10/11
Current State of the Housing Market
Longer Unemployment: Slow to Find a Job
Civilians Unemployed for 27 Weeks and Over
SA, Thous.
8000
8000
6000
6000
4000
4000
2000
2000
0
0
55
60
65
70
Source: Bureau of Labor Statistics
75
80
85
90
95
00
05
10
03/10/11
20
00
20 - J
0 an
20 0 01 Ju
l
20 - J
a
0
n
20 1 02 Ju
l
20 - J
02 an
20 03 Ju
l
20 - J
03 an
20 04 Ju
l
20 - J
04 an
20 05 Ju
l
20 - J
0 an
20 5 06 Ju
l
20 - J
0 an
20 6 07 Ju
l
20 - J
a
0
n
20 7 08 Ju
-J l
20 a
0 n
20 8-J
09 ul
-20 Ja
09 n
20 - J
10 ul
20 -Ja
10 n
20 - J
11 ul
-J
an
Current State of the Economy – More Jobs Needed!
Projected Time for Recovery: Four Years?
145000
135000
125000
Source: BLS
Forecasting the Outlook: Black Swans
Unknown Unknowns / Unanticipated Risks
Uncertainties and Unknowns
Impact on the Economy
• Federal and State Government Budgets
• Oil: Prices and Availability
• European Credit Markets
• GSE and Financial Reform
• Credit Availability/Inflation/Uncertainties
• Consumer Confidence
• Structural Changes?
• Federal Policies—Key Impacts
• GDP into Jobs—When Will it Happen?
The Economy – Economic Outlook
Government Actions / Policies – Can Impact Outcome
2007
2008
2009
2010
2011
2012
2.0
0.4
-2.6
2.9
2.7
3.0
1.1
-0.4
-4.4
-0.7
1.4
2.2
2.9
3.8
-0.3
1.6
2.4
3.3
Annual Growth Rate
Real GDP
Non-farm Payroll
Employment
Consumer Prices
Real Disposable
Income
Consumer Confidence
2.8
0.5
0.6
1.4
1.4
2.0
103
58
45
54
65
70
Unemployment Pct.
4.6
5.8
9.3
9.6
9.2
8.4
5,652
4,913
5,156
4,907
5,305
5,579
776
485
376
317
334
520
1,355
904
554
586
628
948
219.0
198.1
172.5
172.9
172.2
177.7
247.9
232.1
216.7
221.9
226.0
233.8
Housing Indicators—000
Existing Home Sales*
New Single-Family
Sales
Housing Starts
Existing Home Prices
$--000
New Home Prices
Current State of the Housing Market
What Buyers and Sellers Face
• Price—Major Declines
• Volume—Has Declined, relatively flat for 3 years
• Homeowners With Mortgages—25 percent negative equity, 25
percent minimal equity
• Credit Markets—Good interest rates, but higher standards for
qualification
• Consumer Confidence—Substantially less
• Mortgage Delinquencies
• Distressed Sales—Major part of Market
• Substantial Difference between Buyer and Seller Expectations
Current State of the Housing Market
Distressed Property: Will Probably Continue for Several Years
Current State of the Housing Market
Distressed Property Sells at a Discount to Market
Current State of the Housing Market Housing
Months Supply – Existing Home Sales
NAR Months' Supply of Total Existing Homes, United States
Months
12.5
12.5
10.0
10.0
7.5
7.5
5.0
5.0
2.5
2.5
99
00
01
02
03
Source: National Association of Realtors
04
05
06
07
08
09
10
03/10/11
Current State of the Housing Market Housing
Demand for New Space Above Supply
Approximations: Second Home—100K; Replacements—400K; New HH—1000K
Demand: 1 to 1.5 million New Units Per Year
Supply: Currently Less than 900K Per Year
Current State of the Housing Market
Prices Relative to Median Income Have Declined Significantly
Current State of the Housing Market
Significant Loss of Wealth During Great Recession
Households & Nonprofit Organizations: Net Worth
NSA, Bil.$
67500
67500
60000
60000
52500
52500
45000
45000
37500
37500
30000
30000
99
00
01
02
Source: Federal Reserve Board
03
04
05
06
07
08
09
10
03/10/11
Current State of the Housing Market
Household Debt Still Relatively High
Current State of the Housing Market
Distressed Property -- Issues
• Shadow Inventory
– Delinquencies—Toxic Loans, Job Losses, Upside Down Mortgages
• HAMP—Qualification, Recidivism
• Regional Concentrations
• March 2010 Estimate: 2.5 million homes in Shadow Inventory
• Past Due—8.22% of mortgages
• In Foreclosure—4.63% of mortgages
• Bifurcated Market
Where are we now?
Recent Real Estate Market Experience
• Financial System: Cleaning Up From The Tsunami
– Weakened Balance Sheets, Increased Risk Aversion
– Financial Institutions: Credit less available
• Impacting Housing Markets: Debris from Tsunami
– Major Loss of Wealth, Low Consumer Confidence, Lost Jobs
– Distressed Property: Foreclosures and Short Sales
– Negative Equity
• Current Housing Markets: Concern Over Outlook
– Residential Sales: Recovering, Price, Foreclosures, Supply Consumer
Mood/Debt/Wealth are Issues
– The Numbers Don’t Indicate A Price or Sales Surge: Slow Recovery
– KEY ISSUE: Jobs
Current State of the Housing Market
Interest Rates: Near Historic Lows
1 Yr. Arm
30 Yr Fixed
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
n pr
c t a n pr uly c t a n pr uly c t a n
ul ct an pr uly
a
J
O
O
O
- J - A 7 - 7 - O - J 8-A 8-J 8- 9-J 9-A 9-J 9- 0-J 0-A 0-J 0-- 1-J
07 007 00 00 008 200 200 200 200 200 200 200 201 201 201 01 201
0
2
2
2
2
2
2
Source: Freddie Mac
90
19 - Ja
91 n
19 - Ja
92 n
19 - Ja
93 n
19 - Ja
94 n
19 Ja
95 n
19 - Ja
96 n
19 - Ja
97 n
19 - Ja
98 n
19 Ja
99 n
20 - Ja
00 n
20 - Ja
01 n
20 - Ja
02 n
20 Ja
03 n
20 - Ja
04 n
20 - Ja
05 n
20 - Ja
06 n
20 Ja
07 n
20 Jan
08
20 Jan
09
20 Jan
10
20 Jan
11
-J
an
19
Current State of the Housing Market Housing
Affordability: Median Mortgage Payment
(Principle & Interest) as Percent of Income
Current
Average
30
25
20
15
10
Source: NCR
Current State of the Housing Market Home
Price Trends – Leveling Out
Radar Logic 28-Day House Price, 25 MSA Composite ($/Sqft)
S&P/Case-Shiller Home Price Index: Composite 20 (SA, Jan-00=100)
FHFA House Price Index: Purchase Only, United States (SA, Q1-91=100)
Freddie Mac House Price Index, United States (Dec 2000=100)
280
225
200
240
175
200
150
125
160
100
120
75
99
00
01
02
Sources: RL, S&P, FHFA, FHLMC
03
04
05
06
07
08
09
10
03/10/11
Forecast: Changing Home Sales
Percent Change - Actual and Projected
13
10
7
4
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-2
1990
1
-5
-8
-11
-14
Source: NCR
-2
-14
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Forecast: Changes in Median Home Prices
Actual and Projected
13
10
7
4
1
-5
-8
-11
Source: NCR
Concluding Comments
In a Recovery Mode
• Issues and Good News
–
–
–
–
–
Probably Near the Bottom—Some Markets Doing Well
Major Issues: Uncertainties, Black Swans, Distressed property
Fannie Mae Survey: 75%--increasing prices
Gen Y—Larger than Boomers—Live in Apartments—Want Houses
Jobs the major market influence
• Increased Understanding of Home Ownership Dream
– A HOME is for your family—for living
– Long term lifestyle decision
– Investment aspects secondary
• Good time to buy a house IF:
– Financially Qualified and Prudent
– Understand Market Trends, The News, Uncertainties
Headlines Sell Papers
Much Less Drama Than Suggested by the News
• Back to Normal
– Home—A Major Decision
– Avoiding Flipping, Speculation, Excesses Home Ownership Dream
• Working Out of the Mess
– Continuing Impacts on Buyer Psychology/Moods
– Changed Markets
– New Requirements/Ways of Doing Business
• Implications for Mobility
– Transfers in Today’s Economy and Housing Markets
– Possible Changing Buyer Demands
– Implications for Services Expected
Southeastern Wisconsin
Real Estate Market
Deborah Benavides, CRP
Director, Relocation and Corporate Services, Shorewest Realtors
Wisconsin Regional Reports
Region
Median Price
2010
2009
% Change
Sales
% Change
2010 2009
Southeast
156,500
157,000
-0.3%
17,682
19,871 -11%
South Central
162,500
164,900
-1.5%
10,236
11,257 -9.1%
West
133,500
131,000
+1.9%
5,793
6,205
-6.6%
Northeast
125,000
122,000
+2.5%
8,914
9,550
-6.7%
Central
110,000
114,900
-4.3%
3,355
3,445
-2.6%
North
120,000
115,500
+3.9%
4,888
4,675 +4.6%
STATEWIDE
141,000
142,500
-1.1%
50,945
Source: WRA
55,089
-7.5%
Southeastern (4 County) Wisconsin - Solds
Source: GMAR
Southeastern Wisconsin - Listings
Source: GMAR
Annual Ratio (Listings: Sales)
Source: GMAR
Southeastern Wisconsin
Months of Inventory
Source: GMAR
Wisconsin’s
Guidelines
2004 – 3-5%
down on
conventional
loans
2010 – 15-20%
down
Source: WSJ 02/16/2011 Pg. A2
. . . median existing home ownership costs are
now below median new apartment rental rates . . .
Sources: U.S. Census and Marquette University. Existing home housing payment assumes a 90% loan-tovalue, prevailing 30-year mortgage interest rates, and a 1.2% real estate tax rate.
Employment Outlook
Source: MMAC
Unemployment vs Home Values vs Absorption
2008
6%
-5%
9 month
2009
8%
-9%
11 month
2010
8%
-12%
12 month
Currently
7.4%
??
13 month
Source: MMAC
Condo Conditions – SE WI
• Depressed, oversupply; lagging behind in sales
•
Issues: condo associations have little or no reserve => banks
unwilling to make loans unless 20% down (no PMI coverage)
•
Converted from condos to apartment
•
3-5 year recovery – longer to reach 2005 peak
Unique Challenges in Region
• State Budget - moved focus away from jobs to
• Income / benefits
• Creating a lot of unknowns and uncertainty
• Paralyzing people => decrease in sales
Positive News
• Increase in web traffic
• Median house prices ’09-10 remain stable
• Sales expected to pick up 2nd half 2011
Have We Reached Bottom?
1. Pent-up potential from new household formation
Have We Reached Bottom?
2. Minorities will play an increasing role in all housing markets;
3. Multifamily demand will bounce back with increased occupancy
rates and solid rent growth;
4. Single-family will continue to struggle with the large shadow
housing market;
5. Delinquency, default, and foreclosure rates will make nice
improvements throughout the year; Interest rates will remain wellbehaved around current rates; and
6. Housing is the most affordable as it has been in half a century.
The Chicagoland
Real Estate Market
Barbara Springer, CRP, GMS
Executive Vice President, @Properties
Headlines in Illinois today
• Homeownership hits new 8-year low as residents seek refuge in
Renting
• Local Illinois home prices post 13th quarterly fall
• Suburban apartment rents up 7.4% in fourth quarter
• Condo deals die in shadows of financially distressed buildings
• Developer turning former nursing home into rentals
• Jimmy Johns Checks out Florida to Flee Illinois Tax
• Caterpillar tells Governor Quinn tax hike could drive it from
Illinois
Chicagoland Real Estate Market
Significant Influences
•
Illinois income tax increase to help address billions of dollars in
state budget shortfalls. The corporate income tax rate increased
from 4.8 to 7 percent and individual income tax from 3 percent to 5
percent.
•
U.S. decline on a weak job market and a bloated supply of unsold
homes, including properties in foreclosure or those facing a short
sale, which typically are priced less than normal properties.
•
a shrinking population may also explain why soft demand is
pushing Chicago's prices lower. Chicago's population decreased
nearly 7% to 2.7 million in 2010, compared to 2.9 million in 2000,
while Cook County's population fell roughly 3.4% to 5.2 million in
the same period, according to the U.S. Census.
•
It could take us take a lot longer to see the gains we've seen in
other markets.
Foreclosure Activity by Month
6 Month Trend Falling
Source: Realty Trac
Foreclosure Status Distribution and
Estimated Market Value throughout Illinois
Highest Availability
100-200K
Source: Realty Trac
Foreclosure Actions
In Illinois 1 in every 552 housing units received a foreclosure
filing in February 2011
Source: Realty Trac
Geographical Comparison - Chicago, IL
Foreclosure filings in the six-county Chicago region climbed 14.1% to 79,986 last
year, compared with 70,122 in 2009.
Geographical Comparison
Is your area’s foreclosure rate as high as state and national averages?
Home Loans will be harder to get
We went from the WILD lending days to almost
a lock down and have suffocated the market.
Mortgage Jail
The situation is slowing any
recovery of the condo market,
often the housing of choice for
first-time buyers. Owners in
troubled buildings aren't able
to refinance, and sellers who
want or need to sell find thin
ranks of buyers. Last year,
42.5 percent of all initial
foreclosure filings in the sixcounty Chicago area were
against condos.
Chicagoland Condo Market
The fourth quarter for the city
of Chicago shows true signs of
stabilization and health
returning to the marketplace,
and performing without the
temporary Federal Homebuyer
Tax Credit, which expired in
April 2010.
The Chicago condo market
during this period showed an
increase in the average price
of 4.7 percent, to $331,131, up
from $316,163 during the
same time in 2009.
Apartments
Apartment landlords are
capturing a bigger slice of the
housing pie these days as
more people favor renting over
buying, whether they can't
qualify for a mortgage or are
scared that local home prices
have further to fall.
But the most important driver
of apartment demand — the
job market — remains stuck in
low gear, meaning landlords,
while thriving now, could see
more gains when hiring picks
up.
Housing Price Forecasts
Illinois Metropolitan Statistical Areas
Source: Illinois Association of Realtors
Have we hit bottom?
In St. Louis, the Real Estate Sky Is Falling
…. or is it?
Tim Rohlman
President, Relocation Real Estate Services, Inc.
Don’t Let the Media Mislead You
Bad News Sells……
The Real Truth is in the Details
But you have to work to find it.
Zip Codes
Tell Different Stories
Location, Location, Location
Location, Location, Location
St. Charles Area
West County
Midtown
St. Louis West County
St. Louis West County
Chesterfield
Ballwin
63005
63017
63011
Number of Days on Market
Homes For Sale vs. Sold
Chesterfield
St. Louis Midtown
St. Louis Midtown
Central West End
St. Louis City
63105
63108
63110
Number of Days on Market
Homes For Sale vs. Sold
Clayton
St. Charles Area
St. Charles Area
O’Fallon
St. Charles
63385
63366
63301
Number of Days on Market
Homes For Sale vs. Sold
Wentzville
Conclusion
In St. Louis, the Real Estate Sky Is NOT Falling
Go with the FACTS, Not the HEADLINES
“Depending upon your outlook, and if you do your homework,
today’s real estate market is very, very promising .”