Economic and Housing Market

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation at Vanderbilt University

April 18, 2012

T R E N D S a n d O U T L O O K

Monthly Pending Home Sales Index(Seasonally Adjusted)

2007 - Jan

2007 - Apr

2007 - Jul

2007 - Oct

2008 - Jan

2008 - Apr

2008 - Jul

2008 - Oct

2009 - Jan

2009 - Apr

2009 - Jul

2009 - Oct

2010 - Jan

2010 - Apr

2010 - Jul

2010 - Oct

2011 - Jan

2011 - Apr

2011 - July

2011 - Oct

2012 - Jan

70

75

80

85

90

95

100

105

110

115Homebuyer Tax Credit

Monthly Existing Home Sales

2005 - Jan

2005 - Jun

2005 - Nov

2006 - Apr

2006 - Sep

2007 - Feb

2007 - Jul

2007 - Dec

2008 - May

2008 - Oct

2009 - Mar

2009 - Aug

2010 - Jan

2010 - Jun

2010 - Nov

2011 - Apr

2011 - Sep

2012 - Feb

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Monthly New Homes

2005 - Jan

2005 - May

2005 - Sep

2006 - Jan

2006 - May

2006 - Sep

2007 - Jan

2007 - May

2007 - Sep

2008 - Jan

2008 - May

2008 - Sep

2009 - Jan

2009 - May

2009 - Sep

2010 - Jan

2010 - May

2010 - Sep

2011 - Jan

2011 - May

2011 - Sep

2012 - Jan

0200400600800

100012001400160018002000

New Home Sales Single-Family Housing Starts

Improving Factors for Higher Home Sales

• Improving Factors– Very high affordability– Job creation – Solid stock market recovery from 2008– Rising rents and larger pool of qualified renters– Household formation pent-up release– Smart money chasing real estate

• Potential Huge Positive … Lending opens up• Potential Huge Negative … Washington policy

Best Affordability Conditions

Annual Existing Home Sales

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

0

1

2

3

4

5

6

7

8

7.08 6.52

5.024.12 4.34 4.18 4.26 4.61 4.75

In million units

Second Home vs. Primary

Primary62%Vacation

11%

Investment27%

2011

Primary73%

Vacation10%

Investment17%

2010

Second Home Sales

2003 2004 2005 2006 2007 2008 2009 2010 20110

500

1000

1500

2000

2500

3000

3500

4000

InvestmentVacation

In thousands

Housing Starts

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

0

500

1000

1500

2000

2500

MultifamilySingle-Family

In thousand units

New Home Sales

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

0

200

400

600

800

1000

1200

1400

1600

1800

2000

NHS Single-family startsIn thousand units

Visible Housing Inventory

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Existing New

Shadow Inventory(Seriously delinquent mortgage + homes in foreclosure process)

million units

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Median Home Price

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

Existing New

History Forecast

Economy

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-5-4-3-2-1012345678

Real GDP Growth Nominal GDP Growth%

Payroll Jobs Changes(December to December)

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-6

-5

-4

-3

-2

-1

0

1

2

3

4

In millions

Unemployment Rate(Average during the Year)

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

0

2

4

6

8

10

12%

Labor Force Participation Rate

1990 - Jan 1993 - Jan 1996 - Jan 1999 - Jan 2002 - Jan 2005 - Jan 2008 - Jan 2011 - Jan61

62

63

64

65

66

67

68%

Labor Force Participation Rate has been falling at the beginning of the recession. Many went to school or took early retirement packages and are therefore no longer counted as part of the labor force. If the labor force participation were to be normal (or had it not fallen) then the corresponding unemployment rate would be closer to 11%.

Consumer Price Inflation

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-1

0

1

2

3

4

5

Rent All Items Core%

Fed Policy and Interest Rates

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

0

1

2

3

4

5

6

7

Fed Funds 10-year Treasury 30-year Mortgage%

Homes Bought How?More People Sought Help From REALTORS®

2005 2006 2007 2008 2009 2010 20110

102030405060708090

100

Homebuilder Directly from ownerReal estate agent

Foreclosure Inventory(% of all mortgage outstanding; about 1/3 of homes are free and clear)

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

0.0

2.0

4.0

6.0

8.0 New Jersey Arizona

Important Judicial States with slow foreclosure process: • IL, IN, OH (Midwest)• NJ, NY, CT (Northeast)• FL

Housing Starts

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

0

500

1000

1500

2000

2500

MultifamilySingle-Family

In thousand units

Financial Industry Corporate Profits

2001 - Q1

2001 - Q3

2002 - Q1

2002 - Q3

2003 - Q1

2003 - Q3

2004 - Q1

2004 - Q3

2005 - Q1

2005 - Q3

2006 - Q1

2006 - Q3

2007 - Q1

2007 - Q3

2008 - Q1

2008 - Q3

2009 - Q1

2009 - Q3

2010 - Q1

2010 - Q3

2011 - Q1

2011 - Q3

-100

0

100

200

300

400

500

600$ billions; seasonally adjusted annualized

Banks/Regulators Restricting Credit

(Average Credit Scores of Approved Loans)

Normal 2009 2010 If Normal

Fannie 720 761 762 720

Freddie 720 757 758 720

FHA 650 682 698 660

15% to 20% Higher Sales

Annual Household Formation… Future Rent Pressure?

(3 separate Census data)

In millions

Household Formation leads to increase ownership and renters; Could begin to return to normal of at least 1 million from 2012.

Cost Comparisons over 30 yearsItem Price Index

in 1981Price Index in 2011

% Change

Consumer price index 

87.2 226.3 160%

Rent index 

84.7 254.3 200%

Food price index 

91.6 229.6 150%

Gasoline price index 

103.6 308.4 197%

College tuition index 

75.8 601.3 693%

Medical care index 

78.6 401.4 410%

Monthly mortgage payment on a median priced home 

$598(14% mortgage rate)

Same if no cash out refi

0%(free and clear ownership)

Home Prices (FHFA index) 100 319 219%

Annual Forecast2011History

2012Forecast

2013Forecast

Existing Home Sales 4.26 million 4.65 million 4.71 million

New Home Sales 304,000 400,000 530,000

Housing Starts 611,000 760,000 960,000

Existing Home Price $166,100 $168,000 $172,000

GDP Growth +1.8% +2.3% +3.1%

Payroll Job Gains +1.7 million +2.7 million +2.7 million

Fed Funds Rate 0.1% 0.1% 0.1%

30-yr Mortgage 4.7% 4.3% 4.9%

Long-Term Demographics

U.S. Population Aged 25-to-34

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

34000

35000

36000

37000

38000

39000

40000

41000

42000

43000

44000

Forecast Population Aged 25-to-34

20122014

20162018

20202022

20242026

20282030

20322034

20362038

20402042

20442046

20482050

30000

35000

40000

45000

50000

55000

60000

U.S. Population Aged 35-to-44

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Forecast Population Aged 35-to-44

20122014

20162018

20202022

20242026

20282030

20322034

20362038

20402042

20442046

20482050

30000

35000

40000

45000

50000

55000

60000

U.S. Population Aged 45-to-54

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Forecast Population Aged 45-to-54

20122014

20162018

20202022

20242026

20282030

20322034

20362038

20402042

20442046

20482050

30000

35000

40000

45000

50000

55000

U.S. Population Aged 55-to-64

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

5000

10000

15000

20000

25000

30000

35000

40000

Forecast Population Aged 55-to-64

20122014

20162018

20202022

20242026

20282030

20322034

20362038

20402042

20442046

20482050

30000

32000

34000

36000

38000

40000

42000

44000

46000

48000

50000