dr. lawrence yun economic update
TRANSCRIPT
Presentation at NAR Leadership Summit
Chicago, IL
August 21, 2008
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Home Sales Starting to Recover
from Improving Affordability Conditions
0
10
20
30
40
50
60
Source: NAR
% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)
Home Price Trend
Source: NAR
Sales Still Struggling
-35
-30
-25
-20
-15
-10
-5
0
Source: 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)
4,000,000
5,000,000
6,000,000
7,000,000
8,000,0002
00
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20
06
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20
06
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20
07
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20
07
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20
07
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20
08
-J
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20
08
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Stable
Housing Stimulus Package
• First-time Homebuyer Tax Credit
– Up to $7,500 (but with repayment requirement)
– Helps unleash chain reaction for trade-up buyers
• Permanently higher Loan Limit
– Up to $625,000 … covers most jumbo loans
– Will lower “conforming jumbo” mortgage rates by 1% point (from say 7.5% to 6.5%)
– Saving $4,000 in interest cost per year
FHA Market Share for Home Purchase
0%
5%
10%
15%
20%
2000 2001 2002 2003 2004 2005 2006 2007 est.
2008 proj.
2009 proj.
Source: HMDA, NAR Estimate
Annual Existing-Home Sales
at 1998 levels
3,000
4,000
5,000
6,000
7,000
8,000In thousand units
1998 vs 2008
• Existing Home Sales stable but trending at 10 year ago levels
From 1998 to 2008
•25 million more people
•13 million more jobs
•Comparable affordability conditions
• Is it credit tightening?
• Is it excessive pessimism?
Location, Location, Location:
Makes a Big Difference!
• All Real Estate is Very Local
• Local Affordability and Local Job Market Conditions?
• Steepest price declines are concentrated in neighborhoods with high subprime loans
• Steep price declines attracting buyers
Delinquency Rates
Subprime vs. Prime
Data: Mortgage Bankers Association
Stresses are in Neighborhoods with
Subprime Loans
-50%
-40%
-30%
-20%
-10%
0%
Detroit Miami Las Vegas
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 Households
• 100 households
• 32 renters and 68 homeowners
22 have no mortgage 46 have mortgage
3 are delinquent 43 are current
1 gets foreclosed 2 work it out
Historically only ½ gets foreclosed
Homeowners in Denial ?• 62% of homeowners say no price decline
• Most U.S. Markets are experiencing price decline
• Price info gleamed from transacted homes and not all homes
– More than usual number of transactions from REO-foreclosed, short-sales
– 90% of homes are not on the market
• Only 9% of homeowners have subprime loans
• Homeowners have long-term view
• Rural areas (land prices up 9%)
Strong Job Growth States (Yet, Falling Sales because of mortgage
tightening and buyer hesitancy)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Source: NAR
% change in job growth from one year ago
Interest Rates(Long and Short)
U.S. Single-Family
Housing Starts
Source: Census
In thousand units
Inventory of New Homes Fell
Even as Sales Fell(Inventory will fall very fast if sales pick up)
Source: Census
Home Price Forecast• Falling inventory will help stabilize prices
• Ben Bernanke’s view … ?
• Alan Greenspan’s view … early 2009
• 800 Economists view … 2009
• My view …
– Watch out for Denver and Houston on fundamentals
– Watch out for CA, NV, AZ, and FL on multi-bids
– Watch out for Pitt, Indy, Cincy once jobs come around
Economic Forecast
• Consumers are angry
• Businesses are OK
• Exports booming
• Net: Improving economy in the second half of 2008
• 2009 will depend on persistent or dissipating consumer anger
GDP Growth
% annualized growth rate
Source: BEA
U.S. Job Changes
7 straight months of job cuts
Source: BLS
12-month payroll job changes in thousands
Consumer Price Inflation
Source: BLS
Consumer Sentiment
50
60
70
80
90
100
110
120 Sentiment
Source: University of Michigan
Corporate Profits –
Near Record High
Source: BEA
$ billion
Exports Growing
$ billion (2000-chain $)
Commercial Real Estate
Construction Spending$ billion (2000-chain $)
Commercial Fundamentals
• Vacancy Rates rising modestly … all across
• Rent Growth slowing still positive in most markets and most property types
• Multifamily holding up better
• …Retail less so
Euro vs Dollar
Dollar Strength and Oil Price
Economic Outlook
2007 2008 2009
GDP 2.0% 1.7% 1.5%
CPI Inflation 2.9% 4.1% 2.6%
Job Growth 1.1% 0.1% 0.2%
Unemployment Rate 4.6% 5.5% 6.0%
What will Happen to
Fannie and Freddie?• Survive
– Able to raise capital
– Default rate slows
• Do not Survive … become Bear Stearns
• Treasury and Fed helps through the crisis
– Repay the government after crisis
– Chrysler model
• Nationalization
– Temporary government takeover
– Re-privatize but with tighter regulation
Sharp or Modest Rebound?• Depends on all of us in informing and educating
consumers
– Get the neighborhood information from local professionals
– If ready financially, buy a home and get that special tax break
– Mortgage rates off rock-bottom points but still historically favorable
– Though no guarantee, buying a home has been a path to long-term wealth accumulation in vast number of cases
– U.S. homes are on a big-time sale, own a piece of America