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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