2015 vision speech


The Numbers That Drive U.S. Real Estate

1. Home Sales

2. Home Price

3. Months Supply of Inventory

4. Mortgage Rates

5. Affordability

Copyright © 2015 Keller Williams Realty, Inc.3 The Numbers That Drive U.S. Real Estate

1. Home Sales - Annual

4.93M homes sold in 2014—a slight drop from last year. This can be attributed to the slow start in the first quarter, as well as the drop in distressed sales and investor activity.

‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 '13 '14

4.95.14.7

4.34.34.64.4

4.9

5.76.26.0

5.45.04.74.64.74.5

4.03.83.53.53.4

3.22.92.93.0

Total Annual Single-Family Home Sales (in Millions)Source: NAR

4.9

2014 Sales


1. Home Sales - Monthly

The year started slow but returned to a healthy trend once we moved out of the first quarter and into the summer.

Jan '13 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '14 Feb Mar Apr May Jun Jul Aug Sep Oct NovDec '14

54.9

5.35.2

5.15.15

4.9

4.74.64.64.6

4.94.8

5.1

5.35.45.4

5.15.2

5554.9

Seasonally Adjusted Annual Rate of Home SalesSource: NAR


2. Home Price - Annual

Median price for 2014 was $208,500, an increase of 5.8%. We appear to be nearing the end of the bounce-back effect on home prices and are moving back to a long-term growth path.

‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14 '15 '16 '17 '18 '19 '20

Long-term Average = 4% Trend Reset Line Annual Median Home Price (in Thousands)

$225

$222

$179 $198

$95

Source: NAR

$166

$250

$208.5

17%$264

$317


‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 '13 '14

5.8%

11.5%

6.3%

-2.7%

0.6%

-12.5%

-9.8%

-1.8%

1.3%

12.2%

8.3%7.5%7.0%6.3%

4.3%3.8%5.4%5.2%4.8%

3.1%4.0%3.4%2.7%

5.5%

2.9%

5.9%

Annual Median Home Price Appreciation

1989-2000 3.39%

2001-2006 8.9%

2007-2011 - 4.6%

6 The Numbers That Drive U.S. Real Estate

2. Home Price - Annual Appreciation

On an annual basis home prices appreciated 5.8% for 2014, returning close to the long-term average as we predicted last year.

Source: NAR


‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14

Balanced = 6 months Annual Months Supply of Inventory

5.24.95.9

8.3

9.48.8

10.4

8.9

6.5

4.54.34.74.74.64.54.8

3. Months Supply of Inventory - Annual

Inventory loosened in 2014, helping ease price growth back to sustainable levels.

Buye

r’s M

ktSe

ller’s

Mkt

Source: NAR

Bala

nced


'72 '75 '80 '85 '90 '95 '00 '05 '10 '14

Annual Mortgage Rate (%) Historical Average from '72 - '14 Historical Average from '90 - '14


4. Mortgage Rates - Annual

Mortgage rates averaged 4.17% in 2014, up 19 basis points from last year’s average.

Source: Freddie Mac

7.4

16.6

7.38.1 8.5

6.6

4.2


4. Mortgage Rates - Monthly

Jan '11 Jan '12 Nov '12 Dec '13 Jan '15

Monthly Mortgage Rate

3.9%

4.5%4.8%

3.35%

Source: Freddie Mac

Rates balked most economist predictions and trended downward for most of 2014.

4.5%

4.2%

3.7%


15.0%

85.0%

Everything Else Principal and Interest Payment


14.2%

85.8%

5. Affordability - Percentage of Income

The percentage of a typical family’s income increased only slightly in 2014, helped by the fall in interest rates and the slower growth in home prices.

21.6%

78.4%

Historically 2014Source: NAR

2013


5. Affordability - Annual

Despite the small increase in 2014, affordability remains well below the historical average due to low interest rates.

Source: NAR

0

10

20

30

40

'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

151413131415

18

222322

201920202119192020202019

21232324

222223

2628

30

3636

31

26

2221202019

17161717

Affordability Historic Average

21.6


5. Affordability in Perspective - House Payment

Median Home Price: $94,000 (Adj. $179,461)

Mortgage Rate: 10%

Monthly P&I Payment: $825 (Adj. $1,572)

Median Income: $28,906 (Adj. $54,305)

Median Home Price: $208,500

Mortgage Rate: 4%

Monthly P&I Payment: $995

Median Income: $52,250

1989 2014


The Numbers That Drive Canadian Real Estate

1. Home Sales

2. Home Price

3. Inventory

4. Mortgage Rates

5. Affordability

Copyright © 2015 Keller Williams Realty, Inc.The Numbers That Drive Canadian Real Estate14

1. Home Sales - Annual

Canadian home sales grew by 5% in 2014, reaching 481,000 homes.

Source: CREA

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Total Annual Single-Family Home Sales (in Thousands)

317

261

523481

481

2014 Sales


‘80 ‘81 ‘83 ‘85 ‘87 ‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 '13 '14

Avg Home Price (in Thousands $) ‘80-’14 Compounded Growth Rate (CAGR) = 4.4% ‘90-’14 CAGR = 5.4%

408383

363362339

320305307

277249

227207

189172164158152155151151158153150149142147

130110

94807677727667

2. Home Price - Annual

Canadian home prices once again posted significant growth in 2014 with average prices reaching $408,068 (Canadian dollars).

Source: CREA

4.4%

5.4%

3.9% growth

16.3% growth

1.4% growth

10.1% growth

3.8% growth


‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14

Total Annual Single Family Home Sales 40% 60%

54%53%52%53%52%

59%

47%

62%61%64%64%66%

71%

63%

56%56%

50%50%48%

39%42%42%44%

40%

33%

47%

3. Inventory - Nationwide/Annual

Canadian inventory has remained in balanced territory throughout the year, but saw some slight tightening in the summer months coinciding with the pickup in sales and prices. This has since eased slightly at the end of the year.

Buy

er’s

Mkt

Selle

r’s M

ktB

alan

ced

Source: CREA

60%

40%


4. Mortgage Rates - Annual/Monthly

Mortgage rates in Canada declined as well in 2014, due to similar reasons as those in the United States.

‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 '13 '14 Jan Mar May Jul Sep NovDec

Average Annual Mortgage Rate (Percentage)2014 Actual Monthly Mortgage Rate (Percentage)2014 Special Offer Mortgage Rate (Percentage)

Source: Bank of Canada

4.9

6.07.2

12.1

13.4

8.4

6.9

8.8

5.65.2 4.8

MonthlyYearly

3.2


Property TypeQ3

2013Q3

2014Q3/Q3

Change

Detached bungalow 43.3% 42.6% -0.8%

Standard two-storey 48.9% 47.8% -1.2%

Standard condo 28.0% 27.1% -1%

The Numbers That Drive Canadian Real Estate18

5. Affordability - Annual

Affordability increased for all property types in 2014 due to the decline in interest rates.

An increase (+) in cost (%) represents deteriorated affordability ( ) A decrease (-) in cost (%) represents improved affordability ( )

Source: RBC

Avg. Since 1985

Q3 2014

Vs. Avg

39.2% +3.4%

43.7% +4.1%

27.0% +0.1%


The U.S. Economy

1. Gross Domestic Product

2. Unemployment

3. Inflation

Copyright © 2015 Keller Williams Realty, Inc.20 The U.S. Economy

1. Gross Domestic Product - Annual

GDP grew 2.4% in 2014. Growth was hampered by weather and a generally slow first quarter; however, things picked up in the final three quarters and 2014 overall was a strong year.

‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 '13 '14

2.4%2.2%2.3%1.6%

2.5%

-2.8%

-0.3%

1.8%

2.7%3.3%

3.8%

2.8%

1.8%

1%

4.1%4.7%4.5%4.5%

3.8%

2.7%

4%

2.7%

3.6%

-0.1%

1.9%

3.7%

Real GDP Year-over-Year Change (Percentage)Source: BEA


1. Gross Domestic Product - Quarterly

Growth has seen a strong pace so far this year and should continue into 2015 with the help of lower energy prices.

Q2 ‘07 Q4 ‘07 Q2 ‘08 Q4 ‘08 Q2 ‘09 Q4 ‘09 Q2 ‘10 Q4 ‘10 Q2 ‘11 Q4 ‘11 Q2 ‘12 Q4 ‘12 Q2 '13 Q4 '13 Q2 '14 Q4 '14

2.6%

5.0%4.6%

-2.1%

3.5%4.5%

1.8%2.7%

0.1%

2.5%1.6%

2.3%

4.6%

0.8%

2.9%

-1.5%

2.5%2.7%3.9%

1.7%

3.9%

1.3%

-0.5%

-5.4%

-8.2%

-1.9%

2.0%

-2.7%

1.4%

2.7%3.1%

0.2%

Real GDP Growth Rate, Quarterly, Seasonally Adjusted (Percentage)Source: BEA


2. Unemployment - Annual

2014 was the strongest year since the recession for improvement in the unemployment rate.

Source: BLS

'47 '50 '60 '70 '80 '90 '00 '14

9.7% 1982

6.2% 2014

Fed’s Long-Term Projection (5.2% - 5.8%)

3.9% 1947

2.9% 1953

9.6% 2010

4.6% 2006-2007

5.8%5.2%

Annual Unemployment


Jan '08 May '08 Sep '08 Jan '09 May '09 Sep '09 Jan '10 May '10 Sep '10 Jan '11 May '11 Sep '11 Jan '12 May '12 Sep '12 Jan '13 May '13 Sep '13 Jan '14 May '14 Sep '14 Jan '15

10%

5%5.7%

2. Unemployment - Monthly

Now that the unemployment rate has dropped much closer to a normal level, 2015 will likely see the conversation begin to shift from unemployment to wages. Unemployment dropped 1% in 2014.

Source: BLS


3. Inflation - Annual

Inflation will be important to watch. As Europe faces deflation, the Fed will need to make sure it does not spill into the U.S. economy.

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

4.5%

5.0%

1.4%1.0%

CPI (Includes Energy and Food) Core CPI (Excludes Energy and Food) Target = 2%Source: BEA

1.75%1.7%

2%


The Canadian Economy

1. Gross Domestic Product

2. Unemployment

3. Inflation

Copyright © 2015 Keller Williams Realty, Inc.The Canadian Economy26

1. Gross Domestic ProductGDP is expected to have grown by 2.4% in 2014. This is up slightly from last year with the Canadian housing market driving growth.

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14

2.4%2.0%1.7%

2.4%

3.4%

-3.0%

0.9%

2.3%2.8%3.0%3.1%

2.1%2.7%

1.4%

5.3%5.6%

3.9%

Real GDP Year-over-Year ChangeSource: Statistics Canada


2. Unemployment

‘76 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10 '14

Long-term Average = 8.5% Unemployment

6.97.17.37.58.08.3

6.26.16.36.8

7.27.67.7

7.36.8

7.68.3

9.19.69.5

10.4

11.411.2

10.3

8.27.57.8

8.89.6

10.5

11.412.0

11.1

7.67.57.5

8.48.1

7.1

Unemployment averaged 6.9% in 2014 in Canada. This is down slightly from last year.

Source: Statistics Canada

8.5%


3. InflationInflation was moderately low in Canada in 2014. The more recent concern is the coming effects of dropping oil prices on inflation and how lowered interest rates affect prices on other goods.

'93 ‘95 '97 '99 '01 '03 ‘05 '07 '09 '11 '13 '14

1.3%

2.4%

1.5%

CPI (Includes Energy) Core CPI (Excludes Energy) Target = 2%Source: Statistics Canada

2.2%2%


Events That Drive the Numbers in the U.S.

1. Industry

2. Credit Conditions

3. Distressed Sales

4. Underwater Homes

5. Federal Reserve Policy

6. New Home Construction

7. Oil Prices

8. Student Loan Debt

Copyright © 2015 Keller Williams Realty, Inc.30 U.S. Events

‘76 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10 '14

Sides Per Agent 10.3 Historical Average

9.09.89.3

8.47.97.86.9

7.5

9.5

11.212.312.612.913.213.513.613.8

12.211.6

10.710.710.39.2

8.28.08.0

9.59.39.99.69.19.4

7.07.6

8.5

11.0

12.714.013.8

1. Sides Per AgentSides per agent decreased slightly in 2014 as the agent population remained close to 1 million and home sales decreased from 5.1 million to 4.9 million.

Source: NAR


‘76 ‘80 ‘85 ‘90 ‘95 ‘00 ‘05 ‘10 '14

Sides Per Agent Agents (in Thousands) Available Sides (in Millions) 10.3 Historical Average

1. Sides Per AgentSides per agent decreased slightly in 2014 as the agent population remained close to 1 million and home sales decreased from 5.1 million to 4.9 million.

1,099,102

9.9 M

1,358,00014.2M

4.4M

6.7M

486,000

Source: NAR

13.8

7.0

13.8

6.9

9.0

10.3


2. Credit ConditionsIn the last few years, banks began to loosen standards back toward normalcy. The third and fourth quarters of 2014 saw the largest number of banks loosening credit standards since the recession.

Source: Federal Reserve

Tightening

Loosening

Q3 '07 Q1 '08 Q3 '08 Q1 '09 Q3 '09 Q1 '10 Q3 '10 Q1 '11 Q3 '11 Q1 '12 Q3 '12 Q1 '13 Q3 '13 Q1 '14 Q3 '14

Tightening

Steady

Loosening


Oct '08 Jan '10 Jan '11 Jan '12 Jan '13 Jan '14 Dec '14

Foreclosures Short Sales

3. Distressed Sales

14%

49%

34%38%

40%

35%

In 2014 the percentage of sales made up of distressed properties declined more slowly as we moved into a more normal market.

Source: NAR

3%

6%

24%


4. Underwater HomesMore homes continued to reach positive equity in 2014; however, this effect was substantially less than last year as home price growth slowed and we moved away from a recovery and back toward a fundamentally driven market.

Q2 '10 Q4 '10 Q2 '11 Q4 '11 Q2 '12 Q4 '12 Q2 '13 Q4 '13 Q2 '14

10.3%10.7%12.7%13.3%13%

14.5%

19.7%21.7%22%22.3%

23.7%25.2%24.4%24.8%25%25.4%24.7%25.1%

Underwater Homes (% of Mortgaged Homes)Sources: Core Logic, Harvard Joint Center for Housing Studies


5. Federal Reserve PolicyIn 2014 the Federal Reserve ended its quantitative easing program, due to general improvement in both the economy and the labor market. This year they will have their first opportunity to consider raising interest rates.

1. In 2015 the Federal Reserve will closely watch for continued improvement in the economy and labor market as they weigh raising the Federal Funds rate.

2. The Fed will likely pay special attention to wage growth in 2015.

3. They will also be on alert for inflation moving too far below target levels of 2%.

4. The first round of rate increases most likely won’t happen until the second half of 2015.


6. New Home Construction

Historical '07 '08 '09 '10 '11 '12 '13 '14

648618535

430471445

622

1,0461,082

New Homes (in Thousands)

Single-family home construction increased 5% in 2014. While this makes 2014 the best year for construction since 2007, it still keeps us well below the historic average.

Source: U.S. Census Bureau


7. Oil PricesOil prices have declined close to 60% since June 2014. Cheaper energy prices showed a boon to U.S. consumers and a tailwind to the U.S. economy in 2015.

37 U.S. Events

Jan '00 Jan '01 Jan '02 Jan '03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Jan '14 Jan '15

Weekly Oil Prices

46.6

23.6

141

114.3

35

Source: Federal Reserve Bank of St. Louis


8. Student Loan DebtBetween 2003 and 2014, the total amount of student loan debt more than quadrupled, going from $241 billion to $1.1 trillion—a 356% increase.

71% of recent graduates had student loans, with balances averaging $29,400. At 6.5%, that is a payment of $333 per month.

38 U.S. Events

0

1

2

3

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Student Loans (in Trillions) All Other Consumer Debt (in Trillions)

Source: Federal Reserve Bank of New York


Events That Drive the Numbers in Canada

1. Sides Per Agent

2. Monetary Policy

Copyright © 2015 Keller Williams Realty, Inc.Canadian Events40

1. Sides Per AgentSides per agent increased slightly from 2013 to 2014 in Canada as agent count kept up with the slight increase in home sales.

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14

Sides Per Agent 10.3 Historic Average

8.88.58.58.88.89.5

8.9

11.110.911.712.012.212.612.2

10.510.19.2

10.3

Copyright © 2015 Keller Williams Realty, Inc.Canadian Events41

2. Monetary Policy

The Bank of Canada held the target overnight rate steady throughout 2014; however, in January of this year, they lowered rates in anticipation of the negative economic effects of falling oil prices.

1. This will likely place downward pressure on mortgage rates.

2. The BOC may have to lower rates again early this year depending on how oil prices impact the economy.

3. At the beginning of this year, the Bank of Canada will be looking to weigh inflation risks created by a weakening Canadian dollar against the potential economic downturn created by low oil prices.

4. This is in part an effort to cushion the housing market against the impact of reduced employment and incomes that may result from the oil price shock.


Global Concerns

Copyright © 2015 Keller Williams Realty, Inc.43 Global Concerns

Global ConcernsThere are currently several issues in the world that could impact the U.S. market.

1. Continued slow growth and low inflation in Europe.

1.1. This could increase the U.S. trade deficit and put downward pressure on interest rates. A new stimulus package announced by the European Central Bank should help alleviate some of this risk.

2. Rising geopolitical tension in eastern Europe and Asia.

2.1. Political instability in the world caused people to move into the most stable markets. The most notable outcome will likely be continued downward pressure on interest rates as money moves into U.S. treasuries as a safe-haven asset.

3. Global ramifications of low oil prices.

3.1. A lot of countries depend on oil exports as a major part of their economies. While oil prices are good for the United States overall, the effect that prices have on other countries could have a less predictable impact.


Luxury

1. The World’s Wealthy

2. Allocation of Financial Investments

3. Months Supply of Inventory

4. Days on Market


1. The World’s Wealthy

45

YearHNWI* in US

(in Thousands)HNWI in Canada (in Thousands)

Global HNWI (in Millions)

Wealth of Global HNWIs (in US$ Trillions)

2005 2,669 232 8.8 $33.42006 2,920 248 9.5 $37.22007 3,019 281 10.1 $40.72008 2,460 231 8.6 $32.82009 2,866 251 10 $392010 3,104 282 10.9 $42.72011 3,068 280 11 $42

2012 3,436 298 12 $46.2

2013 4,006 320 12.4 $52.6

2005 - 201350%

increase38%

increase41%

increase57%

increase

Sources: Merrill Lynch Global Wealth Management and Capgemini

*HNWI = high net worth individuals

Luxury

Copyright © 2015 Keller Williams Realty, Inc.46

2. Allocation of Financial Investments - Globally

Year Real Estate Cash/Deposits Fixed Income Stock MarketAlternative

Investments

2004 16% 13% 24% 28% 19%

2005 16% 13% 21% 30% 20%

2006 24% 14% 21% 31% 10%

2007 14% 17% 27% 33% 9%

2008 18% 21% 29% 25% 7%

2009 18% 17% 31% 29% 6%

2010 19% 14% 29% 33% 5%

2012 20% 28% 16% 26% 10%

2013 18.7% 26.6% 15.7% 24.8% 13.5%

Sources: Merrill Lynch Global Wealth Management and Capgemini * No data for 2011.

Luxury


3. Months Supply of Inventory M

onth

s Su

pply

Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14

39.4

10.9

22.9

6.3

12.9

3.9

14.5

8.4

5.6

11.6

8.2

6.7

19.2

11.3

7.86

Luxury Move-Up Starter Balanced (6 Months)

11.1

6.5

4.0

Source: BrokerMetrics

10.9

6.2

4.1

Luxury


4. Days on Market

Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14

Luxury Move-Up Starter

164

121126

109

90

8992

112

143

Source: BrokerMetrics

109

81

93

144

84

96

119

79

85

144

98

110

Luxury


Commercial

1. Job Growth

2. Vacancy Rates

3. Loan Delinquency Rates

4. Commercial Property Price Index

Copyright © 2015 Keller Williams Realty, Inc.50 Commercial

1. Job Growth

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

3-Week Moving Average of Net Jobs Added, in Thousands 0 Jobs Added

237

301

172

-167-290

-780

314

0

Source: REIS

289

Businesses in the United States added a net 2.95 million jobs this year, the best year since 1999.


'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Office Industrial Retail Apt

51 Commercial

2. Vacancy Rates

7.2%

17%

11%

6.9%

12.6%

6.4%

8.3%

7.9%

3.2%

16.6%

10.2%

9%

4.3%

7.9%

9.1%

7.1%

3.8%

9.5%

7.5%

5.7%

17%

11.4%

10.6%

8%

17.6%

11.7%

11%

6.6%

Source: REIS

Overall, vacancy rates declined for all property types, with apartments continuing to be the strongest market.


‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 '99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14

Average '91 to present Commercial Real Estate Loan Delinquency Rate

3. Loan Delinquency Rates

12.06%

1.05%

8.76%

1.78%

Source: Board of Governors of the Federal Reserve System

The most recent loan delinquency rate is 1.78%, the lowest it has been since 2007.

4.01%


4. Commercial Property Price IndexThe price index increased 12.5% in 2014. Industrial and offices located in central business districts posted the largest gains while retail and suburban offices had the smallest gains.

0

50

100

150

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Commercial Property Price Index (% change from 2000)

8586

46

13

Source: Moody’s/RCA


Industry 1. New Loan Disclosure Forms

2. Mortgage Regulations

3. Lending Requirements Loosened

4. Search Portals

5. New Industry Initiatives

6. Search Engine Optimization

7. Four Tech Trends of 2015

8. Future Home-Buying Process

9. Competitor Update

Copyright © 2015 Keller Williams Realty, Inc.55 Industry

1. New Loan Disclosure Forms1. Problem: Current federal law requires consumers be provided two sets of mortgage loan disclosure forms:

1.1. Provides overlapping information

1.2. Uses inconsistent language

1.3. Confuses consumers

2. Solution: The Dodd-Frank Act requires that these forms be integrated into one by August 2015.

3. Impact:

3.1. The new rules do have the potential to delay closings because the new closing disclosure document must be provided to the consumer at least three business days before the loan closes, which is longer than the previous requirement of one day.

3.2. The new forms should facilitate the home-buying process by making it easier for consumers to understand their mortgage and closing details.


2. Mortgage Regulations - Qualified Mortgages

1. In October, the Qualified Residential Mortgage Exemption was finalized in the new rules governing risk retention for banks. The rule means that banks will no longer have to retain any risk for qualified mortgages they sell in the secondary market.

2. This should loosen mortgage lending.


3. Lending Requirements Loosened

1. FHFA* is lowering the minimum down payment requirement from 5% to 3% for certain buyers:

1.1. First-time home buyers

1.2. Families in underserved areas

1.3. Low to moderate income borrowers

2. FHA lowers MIP from 1.35% to 0.85%.

3. By increasing access to credit, these measures will increase demand in the housing market, especially from first-time home buyers.

*Federal Housing Finance Agency


4. Search Portals

1. Zillow acquired Trulia for $3.5 billion in stock.

1.1. Want a larger market share—estimate the agent advertising market to be worth $12 billion.

1.2. Zillow-ListHub agreement set to expire in April, meaning they are dependent on direct partnerships with MLSs and brokers for data.

1.3. Anticipate price increase.

2. News Corp acquired Move Inc. for $950 million.

2.1. NAR operating still intact, minor changes to come.

2.2. News Corp’s real estate company, REA Group, will hold a 20% stake in Realtor.com. REA Group has a monopoly-level market share in Australia and has been criticized for substantial price increases. Despite a large market share of internet traffic in Australia (75%), clearance rates at auctions have remained the same.


4. Challenge With Search Portals

Leads SALE

Portals


4. Opportunity With Search Portals

Leads SALE

Portals

?


5. New Industry Initiatives

Two separate movements attempting to accomplish what should have happened 10 years ago.

1. Project Upstream: KW is actively working with industry leaders toward a common goal to create an industry-centric portal that represents “My Listings, My Leads.” This will create a single point of entry for listings so agents can control what happens with their leads.

2. Broker Portal: National broker portal initiative is attempting to build the first national MLS consumer-facing search portal. Their goal is to create a portal funded by MLS dues and data, governed by brokers and MLSs, to present listings to consumers with a display that adheres to fair display guidelines devised by a group of MLSs and brokers. Scheduled to launch in 2016.


6. Search Engine Optimization - KW Austin Case Study

1. Problem – KW Market Centers in Austin, which have a 20% listing market share were being challenged by competitive firms who were offering SEO-driven buyer leads.

2. Solution – Our Austin KW Market Centers put together a $10K-per-month budget to pay for outside SEO help. The cost was evenly distributed by the number of agents per Market Center and had a single firm manage their PPC, AdWords, content, social media, and website development.

3. Results

3.1. 185% increase in traffic from December 2013 to December 2014

3.2. Organic SEO traffic up 49.4%

3.3. This removed the competitive challenge


7. Four Tech Trends of 2015

1. Mobile – Native app usage on smartphones is continuing to grow at the expense of the mobile web. Users are spending 86% of the three hours per day they spend on mobile devices interacting with apps.

2. Virtual Tours – 3D and virtual tour streaming technology are on pace to experience a big year in terms of growth and technological advancements.

3. Smart Home – The connected-home trend will impact the real estate industry by providing a more granular level of data on homes and requiring agents to be educated on smart home products.

4. Predictive Analytics – Algorithms used to predict consumer behavior are becoming increasingly accurate.


8. Future Home-Buying Process

Video – Sarah Buys a House in 2020

Four major takeaways from this exercise:

1. Everything could happen on one platform—home search, agent search, financing, and closing.

2. Technology doesn’t have to empower just the consumer—it can empower the agent as well.

3. Real estate fundamentals are just that—fundamentals.

4. The value of data shifting from value of scarcity to value of expertise!


9. Competitor Update1. Berkshire Hathaway Home Services

1.1. Incorporating Prudential offices and using Berkshire Hathaway brand as a tool when recruiting agents, but no new value proposition.

2. RE/MAX

2.1. Launched agent-branded consumer app and continues to expand internationally.

2.2. Stock price is stagnant.

3. Realogy

3.1. Acquired ZipRealty for its Internet-based marketing platform, which will be used to support Realogy’s firms.

3.2. Refinanced their $1.9-billion loan to lower the interest rates, but Realogy’s large debt continues to limit the company’s flexibility.

4. Redfin

4.1. In anticipation of going public, technology-based company raised another $70.9 million in venture capital, increased its presence to more than 50 markets, and launched its first TV commercial.


National Association of Realtors

Copyright © 2015 Keller Williams Realty, Inc.67 National Association of Realtors

First-time Home Buyers

'93 '95 '97 '99 '01 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

33%

38%39%37%

50%47%

41%39%

36%

40%40%40%42%42%42%42%41%

First-time Home Buyers

40% 40%


Primary Reason for Purchasing a Home

2006 2008 2013 2014

Desire to own a home 32% 34% 30% 24%

Desire for a larger home 14 10 12 12

Job-related relocation or move 12 11 8 9

Change in family situation 9 9 7 8

Desire to be closer to family/friends * 6 6 3

Desire for a home in a better area 8 5 6 8

Affordability * 3 6 5

Desire for a smaller home 5 3 5 3

Retirement 4 3 5 3

Desire to be closer to job/school/transit 7 4 4 2

Establish household * 1 3 3

Financial security * 1 2 3


Tenure in Previous Home

2007 2013 2014

1 year or less 6% 3% 4%

2 to 3 years 23 9 9

4 to 5 years 17 13 12

6 to 7 years 13 15 11

8 to 10 years 13 18 20

11 to 15 years 12 19 20

16 to 20 years 7 9 9

21 years or more 10 14 16

Median 3 9 10

13% buy again in less than 4 years.


Buyer’s Expected TenureBuyers expect to stay almost twice as long as they actually do. Stay in touch so that even if your client’s move is unexpected, you are top of mind.

2013 2014

1 year or less 1% 2%

2 to 3 years 2 3

4 to 5 years 9 9

6 to 7 years 3 3

8 to 10 years 15 14

11 to 15 years 6 5

16 to 20 years 27 25

Don’t know 37 39

Median 15 12


Weeks in Home Search

'01 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

10

1212121212

10

888887

Number of Weeks*There is no data for 2002.


First Step in Buying Process

2013 2014

Looked online for properties for sale 42% 43%

Contacted a real estate agent 17 15

Looked online for information about the buying process 14 12

Talked with a friend or relative about the buying process 5 7

Contacted a bank or mortgage lender 6 6

Drove by homes/neighborhoods 7 6

Visited open houses 3 3

Contacted a builder/visited builder models 2 2

Contacted a home seller directly 1 1

Looked in newspapers, magazines, or home-buying guides 1 1

Attended a Home Buying Seminar * 1


Information Sources Buyers Use

2004 2013 2014

Internet 74% 89% 88%

Real estate agent 90 89 87

Mobile or tablet website or application * 45 50

Mobile or tablet search engine * 42 48

Yard sign 74 51 48

Open house 51 45 44

Online video site * 27 26

Print newspaper advertisement 53 23 21

Home builder 37 17 18

Home book or magazine 40 15 14

Billboard 21 5 4

Television 26 4 4

Relocation company 16 3 3


Where Buyers Found The Home They Purchased

‘01 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 '13 '14

Internet 8% 11% 15% 24% 24% 29% 32% 36% 37% 40% 42% 43% 43%

Real estate agent 48 41 38 36 36 34 34 36 38 35 33 33 33

Yard sign/Open house sign 15 16 16 15 15 14 15 12 11 11 9 9 9

Friend, relative, or neighbor 8 7 7 7 8 8 7 6 6 6 5 6 6

Home builder or their agent 3 7 7 7 8 8 7 5 4 5 4 5 5

Directly from sellers/knew the sellers

4 4 5 3 3 3 2 2 2 2 1 2 3

Print newspaper advertisement 7 7 5 5 5 3 3 2 2 2 1 1 1

Home book or magazine 2 1 2 1 1 1 1 * * * * 1 *

Other 3 6 4 -- -- -- -- -- -- -- -- -- *

*There is no data for 2002.


Value of Website FeaturesProperty photos

Detailed property info

Virtual video tours

Interactive maps

Agent contact info

Neighborhood info

Recently sold property info

Pending sales

Info about open houses

Videos

Real estate news or articles

0 30 60 90 120

Very Useful Somewhat Useful Not Useful Did Not Use/NA


Method of Home PurchaseJust because buyers are using the Internet more doesn’t mean they’re not relying on you. In fact, the number of buyers using an agent remains near a ten-year high. To keep it that way, understand your value proposition and be able to communicate it.

'01 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

88%88%89%89%83%77%81%79%77%77%77%75%69%

Agent or Broker Builder or Builder's Agent Previous Owner Other



Buyer Representation AgreementThis is a no-brainer risk mitigator for agents wanting to protect their time and income.

2005 2011 2012 2013 2014

Yes, a written arrangement 43% 42% 40% 42% 40%

Yes, an oral arrangement 20 18 19 19 19

No 26 29 28 26 29

Don’t know 12 11 13 13 13


What Buyers Want Most from Their Agent

Help finding the right home

Help negotiating terms

Help with price negotiations

Price of comparable home sales

Help with paperwork

Tell me how much I can afford

Help with financing

Help teach buyer about neighborhood and area

Help find renters for buyers' property

Other 1%

0%

2%

3%

4%

6%

8%

11%

12%

53%


How Buyers Found Their Agent The data is clear. Staying in relationship with your database is the #1 way to get more business.

2005 2011 2012 2013 2014

Referred by (or is) a friend, neighbor, or relative 44% 41% 40% 42% 40%

Used agent previously to buy or sell a home 11 9 10 12 12

Website 7 9 11 9 10

Visited an open house and met agent 7 7 6 6 5

Saw contact information on for sale/open house sign 6 6 6 6 5

Referred by another real estate agent or broker * * * 4 5

Referred through employer or relocation company 4 4 4 4 4

Personal contact by agent (telephone, email, etc.) 3 3 4 3 3

Walked into or called office and agent was on duty 4 4 3 3 2

Search engine * * * * 1

Newspaper, Yellow Pages, or home book ad 2 1 * 1 1

Direct mail (newsletter, flier, postcard, etc.) 1 -- * * *

Other 6 10 10 10 11


Interviews by BuyerTwo out of three times, if you are not the first one they call, there is no possibility to get their business.

2002 2005 2009 2010 2011 2012 2013 2014

One 59% 64% 66% 64% 65% 66% 66% 67%

Two 22 20 19 21 20 20 20 20

Three 19 10 10 10 10 8 10 8

Four or more -- 5 6 6 6 6 5 4


Most Important Factors for Buyers

Honest and trustworthy

Reputation

Agent is family or friend

Knowledge of neighborhood

Caring and good listener

Timely responses

100% accessible (tech)

Association with company

Designations

Other 1%

1%

4%

4%

7%

8%

13%

15%

23%

23%


Home as a Financial Investment

2005 2010 2011 2012 2013 2014

Good financial investment 94% 85% 78% 78% 81% 79%

- Better than stocks * 47 45 46 44 40

- About as good as stocks * 30 24 23 27 27

- Not as good as stocks * 9 9 9 10 12

Not a good financial investment 1 4 8 6 6 7

Don’t know 5 11 14 16 13 14



Buyer: Repeat and Referrals

'14

'13

'12

'11

'10

'09

'08

'07

'06

'05

'04

'03 1%

2%

2%

2%

1%

1%

2%

2%

2%

2%

2%

1%

5%

7%

7%

7%

5%

4%

5%

5%

4%

4%

4%

5%

5%

7%

6%

6%

7%

6%

6%

6%

5%

5%

6%

5%

15%

18%

19%

19%

19%

18%

22%

22%

17%

15%

15%

15%

74%

66%

66%

66%

68%

70%

66%

65%

72%

74%

73%

73%

Definitely Probably Probably Not Definitely Not Don’t Know

88%

88%

89%

89%

27%

88%

88%

87%

85%

85%

84%

89%

Definitely and Probably



Method Sellers Used to Find Their Agent

2005 2011 2012 2013 2014

Referred by (or is) a friend, neighbor, or relative 43% 39% 38% 39% 38%

Used agent previously to buy or sell a home 28 22 23 25 22

Visited an open house and met agent 4 4 4 4 5

Website 2 3 3 4 4

Personal contact by agent (telephone, email, etc.) 5 4 5 4 4

Referred by another real estate agent or broker 3 4 4 4 4

Saw contact information on for sale/open house sign 4 4 4 3 3

Referred through employer or relocation company 3 5 4 3 3

Direct mail (newsletter, flyer, postcard, etc.) 3 2 2 2 2

Walked into or called office and agent was on duty 2 1 2 2 1

Newspaper, Yellow Pages, or home book ad 2 1 1 1 1

Advertising specialty (calendar, magnet, etc.) * * 1 1 *

Other * 11 11 10 14


Seller InterviewsNumber of agents sellers contacted before deciding who to list with.

2002 2010 2011 2012 2013 2014

One 76% 66% 66% 65% 66% 67%

Two 16 19 16 20 19 20

Three 8 10 13 11 11 8

Four or more -- 6 5 5 4 4



What Sellers Want Most from Their Agent

2005 2010 2011 2012 2013 2014

Help sellers market home to potential buyers * 20% 24% 21% 25% 23%

Help sell the home within specific time frame 27 19 19 22 20 20

Help price the home competitively 17 23 20 18 19 19

Help find a buyer for the home 28 21 19 19 15 14

Help sellers find ways to fix up the home to sell it for more 12 7 9 10 11 13

Help with negotiations and dealing with buyers 5 5 5 5 4 5

Help with paperwork/inspections/preparing for settlement 7 4 3 3 4 3

Help sellers see homes available for purchase 3 1 2 1 1 2



Most Important Factor for Sellers

2005 2010 2011 2012 2013 2014

Reputation of agent 57% 35% 38% 37% 35% 36%

Agent is honest and trustworthy * 23 20 19 18 19

Agent’s knowledge of the neighborhood 17 12 11 12 14 15

Agent is friend or family member * 16 18 13 15 13

Agent has caring personality/Good listener * 4 4 4 5 4

Agent’s association with a particular firm 6 4 5 4 5 4

Agent’s commission * * * * 3 4

Agent seems 100% accessible because of use of technology like tablet or smartphone

* * * * 1 3

Professional designations held by agent 3 1 1 1 1 2

Other 17 4 4 5 3 2



Compensation Negotiations

2011 2012 2013 2014

Real estate agent initiated discussion of compensation 43% 43% 43% 46%

Client brought up the topic and the real estate agent was able and willing to negotiate their commission or fee

26 22 25 21

Client did not know commissions and fees could be negotiated

13 15 14 15

Client did know commissions and fees could be negotiated but did not bring up the topic

8 11 10 11

Client brought up the topic and the real estate agent was not willing or able to negotiate their commission or fee

10 9 8 7



Seller: Repeat and Referrals'14

'13

'12

'11

'10

'09

'08

'07

'06

'05

'04

'03 1%

2%

2%

1%

1%

2%

1%

3%

2%

1%

2%

7%

8%

6%

7%

7%

6%

7%

8%

5%

7%

7%

7%

6%

8%

6%

8%

9%

8%

10%

7%

8%

7%

8%

8%

15%

19%

23%

19%

19%

20%

22%

21%

16%

18%

19%

15%

70%

63%

65%

63%

62%

65%

59%

63%

69%

66%

65%

68%

Definitely Probably Probably Not Definitely Not Don’t Know

1%

2%

3%

1%

2%

1%

1%

2%

0%

2%

1%

83%

84%

84%

85%

84%

81%

85%

81%

82%

88%

82%

85%

Definitely and Probably



Method Used to Sell Home

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sold home using an agent or broker

79% 83% 82% 85% 84% 85% 84% 85% 88% 87% 88% 88% 88%

For sale by owner (FSBO) 13 14 14 13 12 12 13 11 9 10 9 9 9

Sold to home-buying company 1 1 1 1 1 1 1 1 1 1 1 1 1

Other 7 3 3 2 3 2 2 3 3 2 2 2 2




Incentives Offered to Attract Buyers

2011 2012 2013 2014

None 59% 60% 64% 64%

Home warranty policies 23 22 19 19

Assistance with closing costs 20 17 16 18

Credit toward remodeling or repairs 7 7 7 6

Other incentives, such as a car, flat-screen TV, etc. 3 3 4 4

Assistance with condo association fees 1 * * 1

Other 4 5 4 3



Keller Williams Research

1. MLS Study

2. Mortgage Regulations

Copyright © 2015 Keller Williams Realty, Inc.93 Keller Williams Research

1. MLS Study: Percentage of Expired Listings

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

7%4%

10%

6%

10%13%

19%

27%

33%

21%

7%4%

11%

6%

12%12%14%

18%

26%

17%

Full Service Limited Service


1. MLS Study: Average Price

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

335319

234232231

186

293298306

323

345

315

237

215

307

215

325340340

328

Full-Service Average Price (in Thousands of Dollars) Limited-Service Average Price (in Thousands of Dollars)



1. MLS Study: Days on Market

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

54

47

58

6864

81

8791

82

64

4947

57

72747776

86

80

67

Full Service Limited Service



1. MLS Study: Market Share

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

1.2%1.2%1.3%1.43%

2.43%2.07%2.17%

2.65%

4.04%3.78%

Limited-Service Broker Market Share



2. Commission: Average Seller

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

2.40%2.44%

2.40% 2.40% 2.40% 2.40%

2.50%

2.59%2.56%

2.63%2.60%

2.68%2.71%



2. Commission: Average Buyer

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

2.80%2.77% 2.78%

2.71% 2.70%2.68%

2.83%

3.00%

2.86% 2.87%

2.80%

2.75%2.78%


2015 vision speech

Documents

keller williams realty

home sales annual4

line annual median home

annual basis home prices

home sales monthlythe

real estate1

real estate2

real estate4