john burns presentation: housing overview and texas details

www.realestateconsulting.com

“Trusted Analysis for Executive Decisions”

Housing Market OverviewOctober 30, 2009

(949) 870-1210

[email protected]

http://www.fieldstone-homes.com/



Our View is a “W” Is Most Likely.

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Temporary PeakTax Credit ExpirationRising Mortgage RatesRising REO Sales

Cyclical BottomJob Growth ReturnsBanks Lending on Balance Sheet



Government Intervention Has Been Very Helpful to Home Sales

1. Housing: $8,000 Federal tax credit to buy a house.

2. Mortgage Rates: The lowest in history thanks to Fed intervention and Fannie / Freddie rescue.

3. Down payments: Only 3.5% required through the FHA, whose market share has grown from 2% to 23%.

4. Economy: $800 billion stimulus kicking in soon

Two Key Questions:1. What would have happened without the intervention above?2. What happens if any of the four programs get pulled?



How Do We Make Sense of The Worst Economy in 51 Years and the Best Affordability in 37 Years?Demand is Weak, but Bottoming Out

1. Adults With Incomes: We’d like 2 million jobs / year (1.5%), but we have 5.7 million losses (-4.2%).

2. Home Buyers: We’d like 4.6% of Households to buy homes every year, and we have 4.6%.

Supply is Too High but Improving

3. New Home Supply: We need up to 1.7 million total homes constructed every year (1.3 mil new HH in normal times + 400K for replacement and 2nd homes). We exceeded this for 5 consecutive years, and have about 2 million more vacant homes than needed.

4. Resale Supply: We’d like less than 7 months of resale supply, but we have 9.4 months

Affordability is Fantastic

5. Payments: We’d like Payment / Income of 38% and we have 27%

6. Price: We’d like Price / Income of 3.7 and we have 3.3



1. Job Growth: No signs of job growth soon. Look for temp hiring, more hours worked, and bank credit for businesses as early indicators.

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Net % of Large U.S. Banks Reporting Tougher Standards of Business Loans

Large & Medium Firms

Small Firms

Source : Federal Reserve/Board of Governors updated through 2009Q3

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Net % of Large U.S. Banks Reporting Tougher Standards of Business Loans

Large & Medium Firms

Small Firms

Source : Federal Reserve/Board of Governors updated through 2009Q3

33.0

33.5

34.0

34.5

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35.5

36.0

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Recession Year Hours Per Week

U.S. Average Hours Worked Per Week

Source: Census Bureau, updated through July 2009; 33.1

32.9

33.0

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U.S. Average Hours Worked Per Week

Source: Census Bureau, updated through July 2009; 33.1

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Source: John Burns Real Estate Consulting US Housing Forecast, Sep. 2009



Texas’ job losses have been more recent.

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2. Sales volume: New home sales per community is still less than half of norm.

Source: John Burns Real Estate Consulting Housing Industry Market Monitor, Sep. 2009



TX new home sales are down 60% from 2006.

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National sales volumes are actually at historical norms, thanks to investors and government intervention.



TX resales have fallen back to 2002 levels.

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3. New Home Supply: We have 2 million excess vacant homes- all added since 2002.


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Excess Vacancy by Type

For Sale

Not For Sale

For Rent

Temporary / In Transition

Seasonal / Second Homes

Source : Census Bureau, data through 2009Q2



Houston’s 1983 downturn lasted 9 years.“L” or “U” Construction RecoveryConstruction in Houston fell 88% from 1983 to 1987, and stayed low through 1996.

V Price RecoveryHouston home prices fell 25% from 1983 – 1987, and did not recover full values until 1992.

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So Cal’s 1990s downturn lasted 8 years.Similar to Current U.S. Job Losses:

So Cal lost 7% of its employment base from 1990 – 1994 and didn’t recover all the jobs until 1997

“L” Construction Recovery:So Cal construction remained very low for 8+ years.

“V” Price Recovery”:So Cal prices fell 22% from 1991 – 1995 and did not recover full values until 1999.

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Forecasting a “U” at Low Levels: Single-family construction is at the bottom. Lack of construction financing will keep construction low.

1,033,100

1982: 548,667

1,077,600

1991: 751,000

1,682,000

2009P: 405,000

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Crn

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A)

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U.S. Single-Family Permits

Single Family Recession Years Long Term Average

Sources: John Burns Real Estate Consulting, Census Bureau for history and JBREC for forecast (Pub:Aug/2009) NSA, Current=SA, (Data: July/09)

YoY SA: -20.3%

Over-Supply

Under-Supply

Sources: John Burns Real Estate Consulting, Census Bureau for history and JBREC for forecast (Pub:Aug/2009) NSA, Current=SA, (Data: July/09)

YoY SA: -20.3%

LTA




TX permits are back to 1996 levels and headed to 1994 levels.

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4. Resale Supply: Listings are low in the West and high in FL.

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Source: John Burns Real Estate Consulting Housing Industry Market Monitor, Oct. 2009



Listings haven’t risen much in TX.

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Layoffs and Option ARM resets will keep foreclosure starts above 2 million through 2012.

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U.S. Annual Foreclosure Forecast ComponentsEconomy-related Foreclosures (JBREC)

Foreclosures from ARM Resets (JBREC)

Baseline Foreclosures (JBREC)

Source: John Burns Real Estate Consulting


U.S. Foreclosure Starts (NoDs) Forecast



Most defaulted loans have not been taken REO.

Category Rate Number*30+ days Delinquent 3.68% 2,057,120 60-90 days Delinquent 1.68% 939,120 90+ days Delinquent 3.88% 2,168,920 In Foreclosure 4.30% 2,403,700

13.54% 7,568,860

Source: Mortgage Bankers Association

* Sample Size: 44.5 million, but number applied to all 55.9 million U.S. mortgages

LOAN DELINQUENCIES



It is taking 2 years from NoD to REO sale.

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The typical Notice of Default date on REO homes sold in California in 9/09 was Q3 2006.



At least 7 MSAs had more foreclosure notices than sales in the last year.

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Foreclosure notices are trending down in TX as the high subprime problem is long gone.

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5. Payments: Affordability is the best since we began tracking it by MSA in 1981.

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Median Housing Cost to Income Ratio

Source: JBREC, NAR, updated through Jul 2009; 27.2%

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Housing Cycle Barometer

Source: JBREC, updated through Jul 2009; 0.7

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Owning is now cheaper than renting in many markets.

Las Vegas Homeownership is $171 per month cheaper than renting.

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6. Price: Reports of price appreciation are wrong.A shift to low-priced homes in worse neighborhoods drove Q4 2008 – Q2 2009 prices down.

ORANGE COUNTYU.S.

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Real Appreciation (JBREC)

Single-Family Median Home Price, YOY Change

Source: NAR, updated through Jul, 2009; -14.6%

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Nominal Median (NAR)

Real Median - Current $ (JBREC)

Single-Family Median Home Price

Sources: NAR, JBREC, updated through Jul, 2009; $178,300

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Orange County Example: From 7/08 – 5/09, the transaction volume shifted to the low priced zip codes, driving the median price down much more than true prices really fell. Today’s reported appreciation is due to a shift back.



The higher the price, the slower the sales.Demand / Supply ratio has improved at lower price points and worsened at higher perice points.



During August, California new home prices turned positive for the first time since the downturn began.

Source: John Burns Real Estate Consulting, Sept 2009 survey of 1,855 new home communities.



JB’s 4 year Theory of REO DispositionHousing Construction Loans were the first problems and will be sold first.

• Bid – Ask• Spread

Appraisal Received



Conclusions for Informed Builders

• Housing will stabilize when we have job growth and no needed intervention.

• The excess vacancy will take years to fill.• A tsunami of distressed home sales will create a

buyer’s market, causing prices to fall, but less in TX.• Government intervention is helping a lot.• Government intervention will determine the extent and

timing of future price declines.

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About John Burns Real Estate Consulting Founded in 2001 by

John Burns20 professionals6 cities

North AmericaIrvine, CA (HQ)San Diego, CASacramento, CADallas, TXPalm Beach, FLPortsmouth, NH

Contact Tel (949) 870-1200Fax (949) 870-1299

[email protected]

The best decisions are made by those with the right information.

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John Burns, President & CEOQ & A

john burns presentation: housing overview and texas details

Documents

housing market overviewoctober

construction low

tx new home sales

market share

reo homes

price income

improvingnew home supply

median price