Presentation at NAR Leadership SummitChicago, IL

August 21, 2008

Presentation at NAR Leadership SummitChicago, IL

August 21, 2008

Lawrence Yun, Ph.D. Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Lawrence Yun, Ph.D. Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Home Sales Starting to Recoverfrom Improving Affordability Conditions

Home Sales Starting to Recoverfrom Improving Affordability Conditions

Source: NARSource: NAR

% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)

Home Price TrendHome Price Trend

Source: NAR

Sales Still StrugglingSales Still Struggling

Source: NARSource: NAR

% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)

National Total Existing-Home Sales(Up markets + Down markets = Stable total)

National Total Existing-Home Sales(Up markets + Down markets = Stable total)

Stable

Housing Stimulus PackageHousing Stimulus Package• First-time Homebuyer Tax CreditFirst-time Homebuyer Tax Credit

– Up to $7,500 (but with repayment Up to $7,500 (but with repayment requirement)requirement)

– Helps unleash chain reaction for trade-up Helps unleash chain reaction for trade-up buyersbuyers

• Permanently higher Loan LimitPermanently higher Loan Limit

– Up to $625,000 … covers most jumbo loansUp to $625,000 … covers most jumbo loans

– Will lower “conforming jumbo” mortgage Will lower “conforming jumbo” mortgage rates by 1% point (from say 7.5% to 6.5%)rates by 1% point (from say 7.5% to 6.5%)

– Saving $4,000 in interest cost per yearSaving $4,000 in interest cost per year

FHA Market Share for Home PurchaseFHA Market Share for Home Purchase

Source: HMDA, NAR Estimate

Annual Existing-Home Salesat 1998 levels

Annual Existing-Home Salesat 1998 levels

In thousand units

1998 vs 20081998 vs 2008• Existing Home Sales stable but trending at Existing Home Sales stable but trending at

10 year ago levels10 year ago levels

From 1998 to 2008From 1998 to 2008

• 25 million more people25 million more people

• 13 million more jobs13 million more jobs

• Comparable affordability conditionsComparable affordability conditions

• Is it credit tightening?Is it credit tightening?

• Is it excessive pessimism?Is it excessive pessimism?

Location, Location, Location:Makes a Big Difference!

Location, Location, Location:Makes a Big Difference!

• All Real Estate is Very LocalAll Real Estate is Very Local

• Local Affordability and Local Job Market Local Affordability and Local Job Market Conditions?Conditions?

• Steepest price declines are concentrated in Steepest price declines are concentrated in neighborhoods with high subprime loansneighborhoods with high subprime loans

• Steep price declines attracting buyers Steep price declines attracting buyers

Delinquency RatesSubprime vs. PrimeDelinquency RatesSubprime vs. Prime

Data: Mortgage Bankers Association

Stresses are in Neighborhoods with Subprime Loans

Stresses are in Neighborhoods with Subprime Loans

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)

Price change from a year ago

One For Every 100 HouseholdsOne For Every 100 Households

• 100 households100 households• 32 renters and 68 homeowners32 renters and 68 homeowners

22 have no mortgage 22 have no mortgage 46 have mortgage46 have mortgage

3 are delinquent 43 are current3 are delinquent 43 are current

1 gets foreclosed 2 work it out 1 gets foreclosed 2 work it out

Historically only ½ gets foreclosedHistorically only ½ gets foreclosed

Homeowners in Denial ?Homeowners in Denial ?• 62% of homeowners say no price decline62% of homeowners say no price decline• Most U.S. Markets are experiencing price Most U.S. Markets are experiencing price

declinedecline• Price info gleamed from transacted homes Price info gleamed from transacted homes

and not all homesand not all homes– More than usual number of transactions from More than usual number of transactions from

REO-foreclosed, short-salesREO-foreclosed, short-sales

– 90% of homes are not on the market90% of homes are not on the market

• Only 9% of homeowners have subprime loansOnly 9% of homeowners have subprime loans• Homeowners have long-term viewHomeowners have long-term view• Rural areas (land prices up 9%)Rural areas (land prices up 9%)

Strong Job Growth States (Yet, Falling Sales because of mortgage

tightening and buyer hesitancy)

Strong Job Growth States (Yet, Falling Sales because of mortgage

tightening and buyer hesitancy)

Source: NARSource: NAR

% change in job growth from one year ago

Interest Rates(Long and Short)

Interest Rates(Long and Short)

U.S. Single-Family Housing Starts

U.S. Single-Family Housing Starts

Source: CensusSource: Census

In thousand units

Inventory of New Homes Fell Even as Sales Fell

(Inventory will fall very fast if sales pick up)

Inventory of New Homes Fell Even as Sales Fell

(Inventory will fall very fast if sales pick up)

Source: CensusSource: Census

Home Price ForecastHome Price Forecast• Falling inventory will help stabilize pricesFalling inventory will help stabilize prices• Ben Bernanke’s view … ?Ben Bernanke’s view … ?• Alan Greenspan’s view … early 2009Alan Greenspan’s view … early 2009• 800 Economists view … 2009800 Economists view … 2009• My view … My view …

– Watch out for Denver and Houston on Watch out for Denver and Houston on fundamentalsfundamentals

– Watch out for CA, NV, AZ, and FL on multi-Watch out for CA, NV, AZ, and FL on multi-bidsbids

– Watch out for Pitt, Indy, Cincy once jobs Watch out for Pitt, Indy, Cincy once jobs come aroundcome around

Economic ForecastEconomic Forecast

• Consumers are angryConsumers are angry

• Businesses are OKBusinesses are OK

• Exports boomingExports booming

• Net: Improving economy in the second half Net: Improving economy in the second half of 2008of 2008

• 2009 will depend on persistent or 2009 will depend on persistent or dissipating consumer angerdissipating consumer anger

GDP GrowthGDP Growth

% annualized growth rate

Source: BEA

U.S. Job Changes7 straight months of job cuts

U.S. Job Changes7 straight months of job cuts

Source: BLSSource: BLS

12-month payroll job changes in thousands

Consumer Price InflationConsumer Price Inflation

Source: BLSSource: BLS

Consumer SentimentConsumer Sentiment

Source: University of MichiganSource: University of Michigan

Corporate Profits – Near Record High

Corporate Profits – Near Record High

Source: BEASource: BEA

$ billion

Exports Growing Exports Growing

$ billion (2000-chain $)

Commercial Real Estate Construction SpendingCommercial Real Estate Construction Spending

$ billion (2000-chain $)

Commercial FundamentalsCommercial Fundamentals

• Vacancy Rates rising modestly … all acrossVacancy Rates rising modestly … all across

• Rent Growth slowing still positive in most Rent Growth slowing still positive in most markets and most property typesmarkets and most property types

• Multifamily holding up betterMultifamily holding up better

• ……Retail less soRetail less so

Euro vs DollarEuro vs Dollar

Dollar Strength and Oil PriceDollar Strength and Oil Price

Economic Outlook Economic Outlook

20072007 20082008 20092009

GDPGDP 2.0%2.0% 1.7%1.7% 1.5%1.5%

CPI InflationCPI Inflation 2.9%2.9% 4.1%4.1% 2.6%2.6%

Job GrowthJob Growth 1.1%1.1% 0.1%0.1% 0.2%0.2%

Unemployment RateUnemployment Rate 4.6%4.6% 5.5%5.5% 6.0%6.0%

What will Happen to Fannie and Freddie?What will Happen to Fannie and Freddie?

• Survive Survive

– Able to raise capitalAble to raise capital

– Default rate slowsDefault rate slows

• Do not Survive … become Bear Stearns Do not Survive … become Bear Stearns

• Treasury and Fed helps through the crisis Treasury and Fed helps through the crisis

– Repay the government after crisisRepay the government after crisis

– Chrysler modelChrysler model

• Nationalization Nationalization

– Temporary government takeoverTemporary government takeover

– Re-privatize but with tighter regulationRe-privatize but with tighter regulation

Sharp or Modest Rebound?Sharp or Modest Rebound?• Depends on all of us in informing and educating Depends on all of us in informing and educating

consumersconsumers

– Get the neighborhood information from local Get the neighborhood information from local professionalsprofessionals

– If ready financially, buy a home and get that If ready financially, buy a home and get that special tax breakspecial tax break

– Mortgage rates off rock-bottom points but still Mortgage rates off rock-bottom points but still historically favorable historically favorable

– Though no guarantee, buying a home has been a Though no guarantee, buying a home has been a path to long-term wealth accumulation in vast path to long-term wealth accumulation in vast number of casesnumber of cases

– U.S. homes are on a big-time sale, own a piece of U.S. homes are on a big-time sale, own a piece of AmericaAmerica