economic update with dr. lawrende yun
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TRANSCRIPT
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Real Estate and Economic Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at St. Charles County Association of REALTORS®
St. Charles, MO
February 20, 2014
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Existing Home Sales20% cumulative increase over 2 years
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
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Median Home Price(Near 20% gain in 2 years)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
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St. Louis Housing Statistics• Closed Sales in 2013
Up +10% from 1 year agoUp +27% from 2 years ago
• Average Price Up +9% from 1 year agoUp +10% from 2 years ago
• Dollar Volume Up +19% from a year agoUp +37% from 2 years ago
• Active Listings … shrinking for 4th straight year
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St. Charles Housing Statistics• Closed Sales in 2013
Up +18% from 1 year agoUp +43% from 2 years ago
• Median Prices Up +8% from 1 year agoUp +11% from 2 years ago
• Dollar Volume Up +26% from a year agoUp +54% from 2 years ago
• Days on Market … shrinking for 2nd straight year, typically sold in 53 days
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Monthly Pending Sales Index(Seasonally Adjusted)
2011 - Jan
2011 - Apr
2011 - July
2011 - Oct
2012 - Jan
2012-Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
70.075.080.085.090.095.0
100.0105.0110.0115.0
Source: NAR
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Buyer and Seller Traffic How Much from Gov’t Shutdown and Dysfunction?
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
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
01020304050607080
Buyer Seller
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Mismatch Growth
2-year Growth0%2%4%6%8%
10%12%14%16%18%20% 19%
4%
Home Price Household Income
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Inevitable Rise in Mortgage Rates will further hurt Affordability
(30-yr rate have been below 6% for 5 years)
2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul 2013 - Jun3
4
5
6
7
8
9%
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Falling Affordability to 5-year LowBut still 5th best in 40 years
1971 - Jan 1976 - Jul 1982 - Jan 1987 - Jul 1993 - Jan 1998 - Jul 2004 - Jan 2009 - Jul0
50
100
150
200
250
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All-Cash Buyers Stayed High … even when mortgages were cheap
(Cash share as % of total home sales)
0%
5%
10%
15%
20%
25%
30%
35%
40%
Normal Range
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Refinances will Collapse in 2014(to at least 15-year low)
Jan 14 2000 Jan 11 2002 Jan 9 2004 Jan 6 2006 Jan 4 2008 Jan 1 2010 Dec 30 20110
2000
4000
6000
8000
10000
12000
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Financial Industry Profits from Low Rates and RefisNow What … Boost Purchase Apps?
2001 - Q1
2001 - Q4
2002 - Q3
2003 - Q2
2004 - Q1
2004 - Q4
2005 - Q3
2006 - Q2
2007 - Q1
2007 - Q4
2008 - Q3
2009 - Q2
2010 - Q1
2010 - Q4
2011 - Q3
2012 - Q2
2013 - Q1
-200
-100
0
100
200
300
400
500$ billion
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No Increase in Mortgages for Home Purchases during 2-year Recovery; Will Rise in 2014?
Jan 7 2000 Apr 12 2002 Jul 16 2004 Oct 20 2006 Jan 23 2009 Apr 29 2011 Aug 2 20130
100
200
300
400
500
600
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Market Incentive to Lend More
• Huge Cash Reserve• Refi going away … purchase should be the only
game• Loans performing outstandingly• Far fewer seriously delinquent mortgages• Home price increases lower defaults
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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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New Home Inventory(Newly Constructed Homes Inventory at near 50-year low)
1964 - Jan 1970 - Jul 1977 - Jan 1983 - Jul 1990 - Jan 1996 - Jul 2003 - Jan 2009 - Jul0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
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Existing Home Inventory(near 13-year low)
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan0
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
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Shadow Inventory in NY and MO(Mortgages Late 90+ day or in foreclosure process)
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
2012 - Q1
2012 - Q4
2013 - Q3
0
2
4
6
8
10
12
NY
MO
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Housing Starts … Need to Reach 1.5 million soon or persistent housing shortage
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr0
500
1000
1500
2000
2500multifamily single-family
Thousand units (annualized)
Long-term Average
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St. Louis Area Housing Permits(year-to-date)
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr0
2000
4000
6000
8000
10000
12000
14000
16000
18000
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Phoenix and St. LouisRepeat-Transaction Home Price Index
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
2011 - Q1
2012 - Q1
2013 - Q1
80
130
180
230
280
330
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GDP … No Fresh Recession in Sight
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
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
-5-4-3-2-1012345
% growth from one year ago
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Consumer Spending Growth(2% growth; not 3% or 4%)
1980 - Q11984 - Q11988 - Q11992 - Q11996 - Q12000 - Q12004 - Q12008 - Q12012 - Q1
-4
-2
0
2
4
6
8
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Household Net Worth
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
2012 - Q1
2012 - Q4
40000
45000
50000
55000
60000
65000
70000
75000$ billion
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Business Spending Growth(2% growth; not sustained 5% to 10%)
1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q4
-20
-15
-10
-5
0
5
10
15
20
25
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Business Spending in relation to Corporate Profits
1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q40
500
1000
1500
2000
2500
Profits Business Spending
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U.S. Total Payroll Jobs(8 million lost … Almost 8 million gained)
2000 - Jan 2002 - Mar 2004 - May 2006 - Jul 2008 - Sep 2010 - Nov 2013 - Jan124000
126000
128000
130000
132000
134000
136000
138000
140000In thousands
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Improvement in Unemployment Rate
2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul 2013 - Jun0
2
4
6
8
10
12
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No Improvement in Employment Rate
2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul 2013 - Jun54
56
58
60
62
64
66
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St. Louis Area Total Jobs
2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul1250
1270
1290
1310
1330
1350
1370In thousands
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Forecast
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Forecast #1: Inflation will be Notably Higher by 2015
• No Threatening Inflation Signs for 2014
• But Inflation rises to 3% 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)
2000 - Jan 2001 - Dec2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul 2013 - Jun
-1
0
1
2
3
4
5
Owners' Equivalent Rent Renters' Rent
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Forecast #2(Rising Mortgage Rates to 5.3% by end of 2014)
2014forecast
2015forecast
Existing Home Sales 0% 4%
Median Price 5% 4%
Dollar Volume Estimate
+5% +8%
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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
1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q425,000
27,000
29,000
31,000
33,000
35,000
37,000
39,000
41,000In thousands
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Homeowner Households has not Grown since 2006 … but Primed to Grow
1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q450,000
55,000
60,000
65,000
70,000
75,000
80,000In thousands
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Wealth Distribution (Federal Reserve data on median net worth)
Renter Owner$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
199820012004200720102014
2014 Forecast by NAR
Bubble Crash
• Dodd-Frank?• PATH?• Lawsuits?• Legacy?
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What Homebuyers Want?
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76%Single Family
Detached House
Single Family At-tached
4%
14%Condo or Apt.
80%Single Family De-
tached House
7%
5%
Condo or Apt.
8%
Slide 43
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 44
Walkability and Age-Diversity Gaining in Importance
0%
10%
20%
30%
40%
50%
46% 45%
37%
28% 28%
23% 23%
45% 44%
31%
24%
36%
15%
21%
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
Help find the right home to
purchase; 53%
Help buyer negotiate the terms of sale;
12%
Help with the price negotia-
tions; 11%
Determine what compa-rable homes were selling
for; 8%
Help with paperwork;
7%Help find and arrange
financing; 3%
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REALTOR® Median Gross Income
1995 1998 2000 2002 2004 2006 2007 2008 2009 2010 2011 2012$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
How many with more than $100,000? … 200,000How many with less than $10,000? … 360,000
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47
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0100,000200,000300,000400,000500,000600,000700,000800,000900,000
1,000,0001,100,0001,200,0001,300,0001,400,0001,500,000
Annual Membership(at year-end)
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Commercial Market Activity
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Commercial Real EstateSales Volume Recovering
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Prices UpSource: Moody's/REAL National - All Property Type Aggregate Index (CPPI)
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Rents Increasing
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St. Louis Commercial Statistics
• Office Vacancy 18% … no rent increase
• Apartment Vacancy 5% … 2% rent increase
• Retail Vacancy 13% … 1% rent increase
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REALTOR® Markets & Deal Size
< $250,000
$250,000 - $500,000
$500,000 - $1,000,000
$1,000,000 - $2,000,000
$2,000,000 - $5,000,000
$5,000,000 - $10,000,000
> $10,000,000
21%
22%
26%
17%
12%
1%
2%
2013 CRE Lending Survey: Value of most recent sales transaction
Source: NAR
REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC
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REALTOR® CRE Markets Rebound
2008.Q4
2009.Q1
2009.Q2
2009.Q3
2009.Q4
2010.Q1
2010.Q2
2010.Q3
2010.Q4
2011.Q1
2011.Q2
2011.Q3
2011.Q4
2012.Q1
2012.Q2
2012.Q3
2012.Q4
2013.Q1
2013.Q2
-100%
-50%
0%
50%
100%
150%
200%
Sales Volume (YoY % Chg)
Major CRE Markets Realtor CRE Markets
Sources: NAR, Real Capital Analytics
Deals > $2.5M
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8%
17%
25%
7%
6%
4%
18%
1% 11%
3%Current sources of financing for commercial deals
National banks (“Big four”)
Regional banks
Local banks
Credit unions
Life insurance companies
REITs
Private investors
Public companies
Small Business Administration
Other, please specify
Source: NAR
Small Banks Important to REALTORS®
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NAR REALTORS® Commercial Activity SurveyAs of Third Quarter 2013
• Sales Volume Compared with Previous Year: Up 11%.
• Sales Prices Compared with Previous Year: Up 4%.
• Rental Volume Compared with Previous Quarter: Up 2%.
• Rental Rates Compared with Previous Quarter: Up 1%.
• Direction of Business Opportunities Compared with Previous Quarter: Up 4%.
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Cap Rates and Treasuries: Large Gap
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0%
1%
2%
3%
4%
5%
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7%
8%
9%
10%
10yr UST* Cap Rate
Source: Real Capital Analytics
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Commercial Forecast
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Forecast over the next 2 years
• GDP Growth near 3%• Net New Jobs about 2 million a year• Rising interest rates …
– 10-year Treasury to reach 4% by late 2015• Cap rates rise somewhat (narrow the gap first)• Increased occupancy and falling vacancy (new
supply lacking)• Rising rents• Overall … improving business opportunities
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Washington Policy Watch onCommercial Real Estate
• Facilitate Covered Bonds to help credit flow• Raise cap on holding of commercial RE loans by
credit unions• Preserve Like-Kind Exchanges• Preserve Terrorism Insurance• Preserve capital gains status on carried interest• Depreciation Rules should match economic life• Oppose lease-accounting changes
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For Daily Update and Analysis
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