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Housing Market and
Economic Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Annual ConferenceResidential Real Estate Forum
San Francisco, CA
November 8, 2013
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Existing Home Sales20% cumulative increase over 2 years
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Median Home Price18% cumulative increase over 2 years
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Income Trends 2% to 4% cumulative increase over 2 years
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Falling Affordability to 5-year LowBut still 5th best in 40 years
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Inevitable Rise in Mortgage Rates will further hurt Affordability
(30-yr rate have been below 6% for 5 years)
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Refinances will Collapse in 2014(to at least 15-year low)
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All-Cash Buyers Stayed High … even when mortgages were cheap
(Cash share as % of total home sales)
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Financial Industry Profits from Low Rates and RefisNow What … Boost Purchase Apps?
$ billion
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No Increase in Mortgages for Home Purchases during 2-year Recovery; Will Rise in 2014?
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But Will Washington Allow It?
• Washington Policies so far … Too Restrictive– Rising g-fees and FHA insurance premiums?– Uncertainty about QRM down payment
requirement? … Dodd-Frank?– Too many Lawsuits? … Runaway DOJ?
• Mortgages Have Performed Outstandingly – Not because of Washington policies– But because of home price increases
• New Restriction with PATH?
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What is PATH? … Hensarling’s Ideology(Protecting American Taxpayers and Homeowners?)
• For-profit Fannie and Freddie were Arrogant • Today’s Fannie and Freddie have had reforms under
government control• Remove Government Guarantee on Mortgages• 30-yr Fixed Rate Mortgages … Hard to get and higher rates• Large Banks will do Securitization … Small Banks at Risk• Market becomes excessively pro-cyclical• Large Banks have FDIC … taxpayer risk … vulnerable to
nationalization and, if so, government credit allocation
• Global capital could decide to go elsewhere rather than the U.S. …. Other countries grow faster than the U.S.
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Latest Market Trends
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Pending Sales (Contracts, not Closings)(Seasonally Adjusted)
Source: NAR
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Buyer and Seller Traffic How Much from Gov’t Shutdown and Dysfunction?
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Government Shutdown Did Not HelpIRS Forms Along with FHA and USDA Closures
Purchase Apps Fell with Closures Rates Rose with Treasuries
Déjà vu in January?…..February?
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Existing Home Inventory(Bouncing at 13-year lows)
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New Home Inventory(Newly Constructed Homes Inventory at near 50-year low)
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Shadow Inventory(Mortgages Late 90+ day or in
foreclosure process)
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Housing Starts … Need to Reach 1.5 million soon or persistent housing shortage
Thousand units (annualized)
Long-term Average
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Rising Home PricesBecause of Lack of Inventory
(% change from one year ago)
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GDP Growth … Unimpressive but no Fresh Recession
(Could be on the verge of recession if not for housing recovery)
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U.S. Total Payroll Jobs(8 million lost … 7 million gained)
In thousands
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Well Shy of Long Run Trend(6 to 8 million more jobs needed)
In thousands
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States with Fast Job Growth
State Job Growth Rate1 North Dakota 3.2%2 Utah 2.7%3 Idaho 2.5%4 Texas 2.4%5 Colorado 2.3%6 Minnesota 2.3%7 Georgia 2.1%8 Washington 2.1%9 Arizona 2.0%
10 New Jersey 2.0%
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Forecast
Essentially Same as the one made last year in November 2012
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Forecast #1 (in 2012): Inflation will be Notably Higher by 2015
• No Threatening Inflation Signs for 2013
• But Inflation rises to 4% to 6% in 2015
• Well above Fed’s preferred rate of 2%
• But not in double-digits as in 1970s
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Rising Renters’ and Homeowners’ Rent Growth (the biggest weight to Consumer Price Index)
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Forecast #2 (in 2012): Meaningfully Higher Home Prices
• Demand is Up … Supply is Down
• 4% to 5% in 2012 (Case-Shiller, FHFA) … Too Low
• 5% to 7% in 2012 (Median Home Price)… Too Low
• Home price growth could slow or accelerate … all depends on housing starts
• Probably 15% cumulative growth over 3 years
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What If Scenarios on Housing StartsHousing Starts in 2013 Case-Shiller Price Growth Forecast in 2013
900,000 (15% increase) 8 %
1,000,000 (28% increase) 7%
1,130,000 (45% increase) 5% … This was forecasted one year ago
1,200,000 (54% increase) 4%
1,300,000 (67% increase) 3%
1,400,000 (80% increase) 2%
1,500,000 (92% increase) 1%
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What If Scenarios on Housing StartsHousing Starts in 2013 Case-Shiller Price Growth Forecast in 2013
900,000 (15% increase) 8 % … This is closer to actual
1,000,000 (28% increase) 7%
1,130,000 (45% increase) 5%
1,200,000 (54% increase) 4%
1,300,000 (67% increase) 3%
1,400,000 (80% increase) 2%
1,500,000 (92% increase) 1%
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Home Price Forecastby Wall Street Journal Economists Panel
Year WSJ Home Price Forecast
2014 5%
Robert Shiller : “Homes are still affordable … we do not have extravagant mindset today”
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Forecast(Rising Mortgage Rates to 5.3% by end of 2014)
2013forecast
2014forecast
Existing Home Sales 11% 0%
Median Price 11% 6%
Dollar Volume Estimate
+22% +6%
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Forecast #3: More Unequal Wealth Distribution
• Renters do not accumulate wealth• Renter population rising• Homeowners build wealth after buying at low
prices• Stagnant homeowner population• Tight Credit hinders ‘good’ renters from
becoming homeowners• Investors becoming increasing share of
property owners
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Renter Households In thousands
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Homeowner Households has not Grown since 2006 … but Primed to Grow
In thousands
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Wealth Distribution (Federal Reserve data on median net worth)
2014 Forecast by NAR
Bubble Crash
• Dodd-Frank?• PATH?• Lawsuits?• Legacy?
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Top 10 Turnaround Markets in 2013(Realtor.com Analysis)
• Detroit• Santa Barbara• Reno• Ft. Lauderdale• Ann Arbor
• Dallas• West Palm Beach• Boston• Boulder• Las Vegas
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Top 10 Markets to Watch in 2014(Forecast)
• Salt Lake City• Naples• Tampa• Atlanta• Boise
• Houston• Charlotte• Denver• Seattle• Tucson
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What Homebuyers Want?
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Slide 41
Slightly More Preference For Condo or Apartment Living Than In 2011
Housing Type Preference (2013): Housing Type Preference (2011):
Right now, if you could choose, which of the following would you prefer to live in:
6%
Single Family Attached
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Slide 42
In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important.
Privacy, Walkability, Schools Most Important in Deciding Where to Live
Most Important Factors in Deciding Where to Live:
Very Important Somewhat Important
86%
80%
74%
69%
68%
66%
65%
65%
59%
55%
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Slide 43
Walkability and Age-Diversity Gaining in Importance
Changes in Important Factors in Deciding Where to Live
+1 +1
+6
+4 -8
+8 +2
Very Important - 2013 Very Important - 2011
Q.47 In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important.
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What Buyers Want Most From Their Agent