Presentation at NAR Leadership Summit Chicago, IL August 17, 2007 Presentation at NAR Leadership...

Presentation at NAR Leadership Summit Chicago, IL

August 17, 2007

Presentation at NAR Leadership Summit Chicago, IL

August 17, 2007

Lawrence Yun, Ph.D. Senior Economist

NATIONAL ASSOCIATION OF REALTORS®

Lawrence Yun, Ph.D. Senior Economist

NATIONAL ASSOCIATION OF REALTORS®

After the StormAfter the Storm

Subprime Loan ImplosionSubprime Loan Implosion

• Homeowners facing higher resetting rates Homeowners facing higher resetting rates and foreclosuresand foreclosures

• Wall Street reassessing riskWall Street reassessing risk

• Sub-prime brokers desperate for Wall Street Sub-prime brokers desperate for Wall Street fundingfunding

• Potential homebuyers left out in the cold Potential homebuyers left out in the cold

Subprime Loan ExposureSubprime Loan Exposure

Prime50%

FHA+VA6%Sub-

prime9%

Free + Clear Homes35%

Source: NAR Estimate

0.0

2.0

4.0

6.0

8.0

Prime VA FHA Sub-primeFixed

Sub-primeARM

0.0

2.0

4.0

6.0

8.0

Prime VA FHA Sub-primeFixed

Sub-primeARM

Foreclosure Rates by Loan Type 2007 Q1

Foreclosure Rates by Loan Type 2007 Q1

Data: MBA

Foreclosed HomesForeclosed Homes

Prime

33%

FHA+

VA

14%

Sub-

prime

53%

Source: NAR Estimate

0.0

3.0

6.0

9.0

12.0

15.0

Prime Subprime

0.0

3.0

6.0

9.0

12.0

15.0

Prime Subprime

National Mortgage Delinquencies

(Big swings for subprime; no real change in prime) National Mortgage Delinquencies

(Big swings for subprime; no real change in prime)

Job Losses pushes up delinquency

Housing boom permitsre-financing and lowers delinquency

StagnantPrices

Data: MBA

0%

50%

100%

150%

200%

0%

50%

100%

150%

200%

Rising Foreclosures Rising Foreclosures

States with Marked Price Deceleration/DeclinesUndergoing rising Foreclosures

Percent change in foreclosure rate in 2005 Q1 vs 2006 Q4

0.0

1.0

2.0

3.0

4.0

0.0

1.0

2.0

3.0

4.0

High Foreclosure States

(2007 Q1) High Foreclosure States

(2007 Q1)

Data: MBA

0%

20%

40%

60%

Prime VA FHA Sub-prime

0%

20%

40%

60%

Prime VA FHA Sub-prime

Delinquency to Foreclosure (Latest Foreclosure/Delinquency ratio) Delinquency to Foreclosure (Latest Foreclosure/Delinquency ratio)

Better Loss Mitigation Programs for VA and FHA

-75%

-50%

-25%

0%

Uta

h

Idah

o

Ore

go

n

New

Mex

ico

Was

hin

gto

n

Wes

t V

irg

inia

So

uth

Car

olin

a

Mar

ylan

d

Mo

nta

na

Wyo

min

g

-75%

-50%

-25%

0%

Uta

h

Idah

o

Ore

go

n

New

Mex

ico

Was

hin

gto

n

Wes

t V

irg

inia

So

uth

Car

olin

a

Mar

ylan

d

Mo

nta

na

Wyo

min

g

Not All Markets are Suffering … States with Falling Foreclosures Not All Markets are Suffering … States with Falling Foreclosures

Mostly Strong Job Growth and Price Appreciating States

Percent change in foreclosure rate in 2005 Q1 vs 2006 Q4

Healthier Future MarketHealthier Future Market• Job growth leads to accumulating and releasing of Job growth leads to accumulating and releasing of

pent-up housing demandpent-up housing demand

• Cut back in new home construction thins out Cut back in new home construction thins out inventory and strengthen home pricesinventory and strengthen home prices

• Shift to “traditional” productsShift to “traditional” products– Reckless lenders going belly up Reckless lenders going belly up – Wall Street tighteningWall Street tightening– FHA revivalFHA revival– Higher prevalence of fixed-rate mortgagesHigher prevalence of fixed-rate mortgages

• Short-term Pain from lower home salesShort-term Pain from lower home sales• Long-term Gain from lower defaultsLong-term Gain from lower defaults

Steady U.S. Job GainsNear 2 Million in Past 12 months

Steady U.S. Job GainsNear 2 Million in Past 12 months

-3

-2

-1

0

1

2

3

4

Source: BLSSource: BLS

12-month payroll job changes in millions

Wage Growth Picking UpWage Growth Picking Up

1

2

3

4

5

% change from a year ago

%

Source: BLSSource: BLS

Aggregate U.S. Wages and Salary Disbursement

Aggregate U.S. Wages and Salary Disbursement

4,000

5,000

6,000

7,000

Source: BEASource: BEA

$ billion

Corporate Profits – Record HighCorporate Profits – Record High

500

1,000

1,500

2,000

Source: BEASource: BEA

$ billion

S&P 500 IndexS&P 500 Index

800

1000

1200

1400

1600

Source: NYSESource: NYSE

Profit = $800 billion Profit = $1,600 billion

-3.0

0.0

3.0

6.0

9.0

2000 - Q

1

2001 - Q

1

2002 - Q

1

2003 - Q

1

2004 - Q

1

2005 - Q

1

2006 - Q

1

2007 - Q

1

-3.0

0.0

3.0

6.0

9.0

2000 - Q

1

2001 - Q

1

2002 - Q

1

2003 - Q

1

2004 - Q

1

2005 - Q

1

2006 - Q

1

2007 - Q

1

Economic Growth Economic Growth

% annualized growth rate

-3.0

0.0

3.0

6.0

9.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

-3.0

0.0

3.0

6.0

9.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

Consumer Spending Consumer Spending

% annualized growth rate

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

Business Spending Business Spending

% annualized growth rate

500

1000

1500

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

500

1000

1500

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

Export Growth Export Growth

$ billion

Worry Spot - Oil Price Worry Spot - Oil Price

0

20

40

60

80

Source: Wall Street JournalSource: Wall Street Journal

$ per barrel

Economic Outlook Economic Outlook

20062006 20072007 20082008

GDPGDP 3.3%3.3% 2.0%2.0% 2.8%2.8%

CPI InflationCPI Inflation 3.2%3.2% 2.6%2.6% 2.4%2.4%

Job GrowthJob Growth 1.9%1.9% 1.5%1.5% 1.5%1.5%

Unemployment RateUnemployment Rate 4.6%4.6% 4.6%4.6% 4.7%4.7%

The Fed cuts rate in early 2008

U.S. Existing-Home SalesU.S. Existing-Home Sales

0

2,000

4,000

6,000

8,000

EHS

Source: NARSource: NAR

In thousand units15% Retreat from Peak

U.S. New-Home SalesU.S. New-Home Sales

0

500

1,000

1,500

NHS

Source: NAR, CensusSource: NAR, Census

34% Retreat from Peak34% Retreat from Peak

In thousand units

Inventory of HomesInventory of Homes

0

2

4

6

8

10

12

Existing New

Source: CensusSource: Census

Home Price GrowthHome Price Growth

-3

0

3

6

9

12

15

Source: NARSource: NAR

% change from a year ago

Something appears Out of Whack! Something appears Out of Whack!

50

100

150

200

250

Income Home Price

50

100

150

200

250

Income Home Price

Income and Price set to Index of 100 in 1990

Source: NAR

Mortgage Obligation to Income Manageable

Mortgage Obligation to Income Manageable

10

15

20

25

30

U.S. Average

Source: NAR

%

Renters Getting Squeezed Renters Getting Squeezed

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Rent Growth

Source: Torto-Wheaton ResearchSource: Torto-Wheaton Research

%

Fed Controls on Short Rates OnlyFed Controls on Short Rates Only

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Mortgage Rate Fed Funds Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Mortgage Rate Fed Funds Rate

Source: Freddie Mac, Federal ReserveSource: Freddie Mac, Federal Reserve

%

House prices 'to soar 40 percent within next five years'

House prices 'to soar 40 percent within next five years'

• News from National Housing Federation in News from National Housing Federation in U.K. … August 2007U.K. … August 2007

• U.K. home prices soared 156% past 10 U.K. home prices soared 156% past 10 years … twice as fast as U.S. home pricesyears … twice as fast as U.S. home prices

• Not building Enough Homes! Housing Not building Enough Homes! Housing Shortage!Shortage!

U.S. New Single-Family Construction

U.S. New Single-Family Construction

0

500,000

1,000,000

1,500,000

2,000,000

Starts

Source: CensusSource: Census

33% 2-year Tumble33% 2-year Tumble

Florida New Single-Family Construction

Florida New Single-Family Construction

0

50,000

100,000

150,000

200,000

250,000

Starts

Source: CensusSource: Census

70% 2-year Tumble70% 2-year Tumble

States with Sharp Construction Contraction

(YTD May 2007 vs YTD May 2006)

States with Sharp Construction Contraction

(YTD May 2007 vs YTD May 2006)

-60%

-40%

-20%

0%

Buyers Lining Up ?Buyers Lining Up ?20052005 20072007 DifferenceDifference

Total Home Total Home Sales Sales

8.4 million8.4 million 6.9 million6.9 million - 1.5 million- 1.5 million

Subprime LoansSubprime Loans 1.6 million1.6 million 800,000 (?)800,000 (?) - 800,000- 800,000

JobsJobs 133.7 million133.7 million 138.0 million138.0 million + 4.3 million+ 4.3 million

Wage + SalaryWage + Salary $5.7 trillion$5.7 trillion $6.4 trillion$6.4 trillion + $700 billion+ $700 billion

Household Household WealthWealth

$52 trillion$52 trillion $57 trillion$57 trillion + $5 trillion+ $5 trillion

Home PricesHome Prices $219,600$219,600 $219,300$219,300 - $300- $300

Mortgage RatesMortgage Rates 5.9%5.9% 6.5%6.5% + 0.6% points+ 0.6% points

FHA Market Share for Home PurchaseFHA Market Share for Home Purchase

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 est.

2008forecast

Source: HMDA,NAR estimate

National Housing OutlookNational Housing Outlook

20062006 20072007 20082008

Existing-Home SalesExisting-Home Sales 6.48 million6.48 million 6.04 million6.04 million 6.38 million6.38 million

New Home SalesNew Home Sales 1.05 million1.05 million 0.85 million0.85 million 0.85 million0.85 million

Housing StartsHousing Starts 1.80 million1.80 million 1.43 million1.43 million 1.40 million1.40 million

30-Year FRM 30-Year FRM 6.4%6.4% 6.5%6.5% 6.6%6.6%

1-Year ARM 1-Year ARM 5.5%5.5% 5.5%5.5% 5.2%5.2%

Existing-Home Price Existing-Home Price GrowthGrowth 1.0%1.0% -1.2%-1.2% 2.0%2.0%

0.0

150.0

300.0

450.0

600.0

0.0

150.0

300.0

450.0

600.0

Median Home Price in Los Angeles Median Home Price in Los Angeles

Source: NAR

1995

1995

1998

1998

2001

2001

2004

2004

$0

$50,000

$100,000

$150,000

$200,000

Renter Homeowner

1995

1995

1998

1998

2001

2001

2004

2004

$0

$50,000

$100,000

$150,000

$200,000

Renter Homeowner

Best Evidence:Household Wealth Accumulation

Best Evidence:Household Wealth Accumulation

Source: Federal Reserve

Median Net Worth

$184,400$184,400

$4,000