Presentation to the 2010 Joint Legislative Idaho Association of REALTORS®

Economic Outlook and Revenue Assessment Committee

prepared by

John Eaton, Government Affairs DirectorJohn Eaton, Government Affairs Director

• The Real Estate and Construction Industries remain onef th l t t f th Id h tiof the largest sectors of the Idaho economy, generating

tens of millions of dollars in tax revenue for the statethrough both sales and income taxes.

• Active construction and real estate markets at the locallevel generate millions for local governments in newproperty tax revenues.p p y

• Real Estate and Construction currently account for 17.5percent of the Idaho Gross State Product.

• NAR estimates the total income derived from the

When a home is sold in Idaho…NAR estimates the total income derived from thesale of a new home in Idaho to be $57,851.

• Since this study was done we have seen a significantreduction in the average price of a home It follows thatreduction in the average price of a home. It follows thatthere has been be a reduction in total income derivedfrom the sale of a home in Idaho in 2009, which alsomeans less tax revenue for the statemeans less tax revenue for the state.

Economic Impact of Real Estate Activity In Idahoby NAR Research, April 2008

More Idaho Homes Sold in 2009

• 2008 Tracked Single Family Residential Sales = 14,834• 2009 Tracked Single Family Residential Sales = 15,692• This represents a 5.78 percent increase statewide.

However, prices continue to decline…

• 2008 Tracked SFR Average Price = $212,817• 2009 Tracked SFR Average Price = $177,229• This represents a 16.72 percent decrease statewide.• More houses are selling, but for less money.

IAR MEMBERSHIPIAR MEMBERSHIPActive Licensees vs. REALTORSA ti S l & B k REALTORS® ( ffili t i l d d)

6506

6619

6673

6722

6702

6761

6769

6862

6999

7192

7349

7483 7757

7935

8038

8201

8335

8403

8487

8692

8878

9077

9234

9431

9525

9650 9927

9985

1001

499

7399

2299

3210

048

1018

110

259

1038

610

500

1050

410

541

1036

810

077

1003

298

5997

4897

2697

5197

8597

8697

4896

9795

9292

6289

4287

6983

7182

9082

7382

5982

4082

6182

5281

8181

8680

2078

2977

7375

31

3 676 8607 8990 9218

9299

9404

9388

9412

9063

9153

9063

8906

8607

8545

8530

8608

8627

8600

8550

8486

8269

7991

7872

516 89 67 61 38 7233

304 93 271

7234

39 06 06000

8000

10000

12000

Active Sales & Brokers REALTORS® (no affiliates included)

5971 67

7 7 6 7 7 75 72 72 716

72 7 73 72 7 770

370

068

3

2000

4000

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MOST SELLERS USE AREAL ESTATE AGENT

FEDERAL QUESTIONS• Health Care bill a major concern for business expansion in general,

and specifically for the construction industry.• Home Valuation Code of Conduct (HVCC).• Cap and Trade would have a major impact on housing.• Continue tax credit for first time buyers.• Increasing deficits will continue to have a drag on the economy.• New Lending Regulations and Mortgage Insurance availability.• Unprecedented number of new federal regulations impacting the

real estate economy at the same time.

Housing Market Trends & OutlookTrends & Outlook

Lawrence Yun, Ph.D.Chief EconomistNATIONAL ASSOCIATION OF REALTORS®OF REALTORS®

Presentation at NAR Annual Conference in San Diegog

November , 2009

Housing Stimulus Impactg p

• Tax Credit and Higher Loan LimitTax Credit and Higher Loan Limit

• Raised Sales by 350 000 to 400 000 amongRaised Sales by 350,000 to 400,000 among First-time buyers in 2009

• In 2010 – Existing Home Sales gets 15% boost– Existing Home Sales gets 15% boost– Home Price gets 3% to 5% boost

• Preservation of Middle-Class Wealth

Recent Pending Home Sales

Recovery pre-dominantly in lower-end and taking longer to close in recent months

100110120

708090

100

6070

Source: NAR

Bifurcated Recoveryy$ thousand

% change from one year ago

Homes priced under $100Kg y g

H i d b $500KHomes priced above $500K

Source: NAR

Months Supply of Inventorypp y yUnited States

Months Supply - Single Family Homes

20

Months Supply - Single Family HomesSeasonally Adjusted

0-100K

10

15100-250K

5

10250-500K

01999 2001 2003 2005 2007 2009

500K+

1999 2001 2003 2005 2007 2009

Source: NAR

Aggregate Months Supply

In thousand units

12

4

8

0

Source: NAR

Consumers Confidence is Down, but Rebounding SlightlyRebounding Slightly

140160

6080

100120140

0204060

2000 -Jan

2001 -Jan

2002 -Jan

2003 -Jan

2004 -Jan

2005 -Jan

2006 -Jan

2007 -Jan

2008 -Jan

2009 -Jan

Source: Conference Board

Overcorrection Needs to be Halted(Home Price to Income Ratio)( )

3 23.43.6

2 62.83.03.2

2.22.42.6

2.0

Stay within Budget and all will be OK !Source: NAR

Homebuilders Down and Out(Single Family Starts and New Home Sales)

In thousand units

1,500

2,000

1,000

1,500

0

500

0

Source: Census

Economy Recovering

6.0

9.0 GDP annualized growth rate

3.0 Forecast

3 0

0.0

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q4

-6.0

-3.0

2005

-Q

2005

-Q

2006

-Q

2006

-Q

2007

-Q

2007

-Q

2008

-Q

2008

-Q

2009

-Q

2009

-Q

2009

Q

2 2 2 2 2 2 2 2 2 2

Source: BEA

Federal Budget Deficit g

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

112

01

2

0200,000400,000

0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2

-400,000-200,000

0

-1,000,000-800,000-600,000

-1 600 000-1,400,000-1,200,000

1,600,000

Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate

U.S. Economic Outlook

2008 20092010

2008 2009forecast

GDP 0 4% -2 5% 2 7%GDP 0.4% -2.5% 2.7%

CPI Inflation 3.8% -0.4% 1.6%

Unemployment Rate 5.8% 9.3% 9.9%

10-year Treasury 3.7% 3.2% 3.7%

U.S. Housing Outlook g

2008 20092010

2008 2009forecast

Existing Home 4 9 5 0 5 8gSales 4.9 m 5.0 m 5.8 m

New Home Sales 485 k 397 k 560 k

Home Price Growth -10% -13% 4%

Mortgage Rate 6.1% 5.2% 5.7%

Price Fear Factor ? ? None

IDAHO HOUSING OUTLOOKIDAHO HOUSING OUTLOOK• REALTORS® are active and working.

P i d b t l i• Prices are down, but sales are moving up.• Similar to national economy in that the recovery is

bifurcatedbifurcated.• Excess of stock in major markets.• Mobility is a major problem.• Idaho will likely lag behind the national recovery in

housing sector.E t fl t th f b d ti• Expect flat growth for budgeting purposes.

NATIONAL ASSOCIATION OF REALTORS: HOUSING AFFORDABILITY INDEX

Median Priced Monthly Payment Median Affordability IndexesExisting Single- Mortgage P & I as a % Family Qualifying

Year Family Home Rate* Payment of Income Income Income** Composite Fixed ARM

2006 221,900 6.58 1131 23.2 58,407 54,288 107.6 107.1 109.6

2007 217,900 6.52 1104 21.6 61,355 52,992 115.8 115.7 117.9

2008 196,600 6.15 958 18.5 62,030 45,984 134.9 134.5 140.0

2009 Nov 171,900 5.09 746 14.9 60,034 35,808 167.7 167.0 N/A*

This Month YearThis Month Year

Month Ago Ago

Northeast 221,400 5.02 953 17.5 65,251 45,744 142.6 131.6 106.7

Mid est 139 400 5 09 605 11 8 61 521 29 040 211 8 204 8 191 5Midwest 139,400 5.09 605 11.8 61,521 29,040 211.8 204.8 191.5

South 153,100 5.11 666 14.4 55,321 31,968 173.1 176.1 154.8

West 235,000 5.12 1,023 19.8 62,058 49,104 126.4 131.8 108.8

Affordabilit Inde in Idaho

170 163 164

Affordability Index in Idaho

150

160

132

139

149

120

130

140

121

132

90

100

110

80

90

Lewiston CDA Twin Falls Ada Pocatello Idaho Falls

Absorption Rates in Idaho

9.3

Absorption Rates in Idaho

Ada

Lewiston

9.8

9.3

Twin Falls

Pocatello

12.5

10.4

CDA

Idaho Falls

13.7

13.6

3 5 7 9 11 13 15

CDA

Tax Revenue Collections(4-quarter change as of 2009 Q1)( q g )

%

Tax Assessors and Appraisers need to meet

LOCAL GOVERNMENT REVENUE INCREASES

1987-2010 Idaho State General Fund Growth1987 2010 Idaho State General Fund Growth$ in Millions

THE ROLE OF THE IDAHO LEGISLATURETHE ROLE OF THE IDAHO LEGISLATURE

• Implement an Idaho version of Utah’s Home Run program to incentivize investment in the marketplaceprogram to incentivize investment in the marketplace.

• Cap the Homeowner’s Exemption.• Change law with regard to when you get homeownersChange law with regard to when you get homeowners

exemption. • Keep an eye on other states with regard to economic

development and tax policy. Compete nationally.• Do not increase the burden on an already struggling

industryindustry.

Home Run ProgramHome Run Program

• State grants to buyers who purchase a property that has never been lived inproperty that has never been lived in.

• First round in Utah was 1600, $6000 grants.• Program utilized $10 million to leverage $376Program utilized $10 million to leverage $376

million in new home sales in only 90 days.• Burned through half of their vacant inventory.• Second round was 2000, $4000 grants.• Very successful in helping to halt further

construction job lossesconstruction job losses.

“As a taxpayer, I appreciate the efficiency and transparency of this program Immediately after the first round of grants were awardedprogram. Immediately after the first round of grants were awarded—just 90 days later—a study confirmed the economic benefits of the program: 7,205 jobs were created, producing $239.9 million in wages This $10 million dollar program also generated $20 millionwages. This $10 million dollar program also generated $20 million in taxes. Taxpayers saw the results of the program within months. Rarely does a government program run with such efficiency and transparency.”p y

- Scott Parsons, Vice Chair of the Salt Lake Chamber

Stabilizing the construction gindustry is important to the future economyfuture economy.

US Population Will Continue to Grow

• Today – 300,000,000• 2040’s – 400 000 0002040 s 400,000,000

As Population Grows, So Will Demand

• Brookings Institute: 59 million homes by 2030, or 2.67 million homes per year., p y

• Virginia Tech: 70 million homes by 2040 2 19 million homes per year2040, 2.19 million homes per year.

Housing Starts: Too Much to Too Little

2,000

2,500New Units Needed

1,000

1,500

0

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3 million more people each year 1 to 1 4 million household formation3 million more people each year … 1 to 1.4 million household formation … need to account for 300,000 demolitions …. need 1.3 to 1.7 new units

U.S. HOME CONSTRUCTION• How many are we building?• Less than 1 million per year.p y• If we do not find ways to incentivize the

market, we will be faced with the samemarket, we will be faced with the same supply and demand issues that lead to the run up in 2004 and 2005.the run up in 2004 and 2005.

Cost of an Idaho Program?

• IAR estimates there are approximately 1300 qualifying homes on the market.

• A $4000 grant program in Idaho would cost about $2.4 millionA $4000 grant program in Idaho would cost about $2.4 million in order to achieve similar results as Utah.

• Program more than pays for itself through increased tax revenue.revenue.

• Good idea that is searching for a funding source.

HOUSING PRICE INDEX

HOUSING PRICE INDEX

• Current scheme introduces too much uncertainty into the marketplace with regard to property tax rate. Larger impact in low value and rural areaslow value and rural areas.

• For the first couple of years the HPI shifted taxes to businesses, now it is shifting back to homeowners.Th HPI i th l t li bl f th th i d• The HPI is the least reliable of the three indexes.

• Rate lags behind due to when taxing dates are set.• The statute was so poorly written that the Legislature has

already had to fix the language in the original bill, and you are going to have to go back and fix it again.

• Legislature should set a number so the Exemption doesn’t fluctuate.

Latest Monthly Home Price TrendCase-Shiller, Govt (FHFA), NAR … Seasonally Adjusted DataCase Shiller, Govt (FHFA), NAR … Seasonally Adjusted Data

$ thousand

FHFA

NAR

Case-Shiller

63-602G.PROPERTY EXEMPT FROM TAXATION -- HOMESTEAD. (1) During the tax year 2006 and each year thereafter subject to annual adjustment as provided herein the first

Statute cites federal agency that no longer exists…

2006 and each year thereafter, subject to annual adjustment as provided herein, the first seventy-five thousand dollars ($75,000) of the market value for assessment purposes of the homestead as that term is defined in section 63-701, Idaho Code, or fifty percent (50%) of the market value for assessment purposes of the homestead as that term is defined in section 63-701, Idaho Code, whichever is the lesser, shall be exempt from property taxation. Beginning for tax year 2007, the state tax commission shall publish adjustments to the maximum amount subject to property tax exemption to reflect cost-of-living fluctuations. The adjustments shall effect changes in the amount subject to tax exemption by a percentage equal as near as practicable to the annual change in the Idaho housing price index as determined by the United States office of federal housing enterprise oversight The state tax commission shall publish theStates office of federal housing enterprise oversight. The state tax commission shall publish the adjustments required by this subsection each and every year the office of federal housing enterprise oversight announces a change in the Idaho housing price index. The adjustments shall be published no later than October 1 of each year and shall be effective for claims filed in and for the following property tax year. The publication of adjustments under this subsection shall be exempt from the provisions of chapter 52, title 67, Idaho Code, but shall be provided to each county and to members of the public upon request and without charge.

HOUSING PRICE INDEXHOUSING PRICE INDEXThe Bottom Line…

• Adding the HPI to the Homeowner’s Exemption was a poorly conceived, poorly executed plan that has hindered economic development and market certainty in Idaho. The HPI should be repealed and a flat number should be adopted.

Also need to change the statute so that all buyers can take advantage of the HOE

63-602G (2) The exemption allowed by this section may be granted only if:(a) The homestead is owner-occupied and used as the primary dwelling place of the owner as of January 1, provided that in the event the homestead is ownerprovided that in the event the homestead is owner-occupied after January 1 but before April 15, the owner of the property is entitled to the exemption.

WE WILL DO OUR PART

The Idaho Association of REALTORS® will continue to work to craft policies that enhance and protect the realwork to craft policies that enhance and protect the real estate industry and the free transaction of real property.