Real Estate Market Trends & Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation to New England REALTORS Conference February 2, 2010
Housing Stimulus Impact Tax Credit and Higher Loan Limit 2 million 1 st -time buyers could claim to date Additional 2.4 million buyers (1 st time and many repeat buyers) by end of June 2010 Existing Home Sales gets 15% boost Home Price gets 3% to 5% boost Preservation of Middle-Class Wealth
Recent Pending Home Sales 120 110 100 90 80 70 60 Recovery pre-dominantly in lower-end and taking longer to close in recent months Source: NAR
Bifurcated Recovery $ thousand % change from one year ago Homes priced under $100K Homes priced above $500K Source: NAR
Aggregate Months Supply In thousand units 12 10 8 6 4 2 0 Source: NAR
National Existing Home Sales 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 Pre-boom sales 1981 1986 1991 1996 2001 2006
Massachusetts Existing Home Sales Thousand units
Maine Existing Home Sales Thousand units
Rhode Island Existing Home Sales Thousand units
New Hampshire Existing Home Sales Thousand units
Vermont Existing Home Sales Thousand units
Connecticut Existing Home Sales Thousand units
First-Time Buyers Used Up or Pent-Up Demand? In year 2000 (pre-boom) 11 million renters with qualifying income to buy a median priced home In 2009 16 million renters with qualifying income to buy a median priced home Most renters are not qualified and should not Most renters are not qualified and should not be homeowners
First-Time Buyers Used Up or Pent-Up Demand? 2000 (pre-boom) 2009 (3 months prior to tax credit) Existing Home Sales 5.2 m 4.6 m 5.3 m New Home Sales 880 K 364 K 418 K Payroll Jobs 131.8 m 135.0 m 131.4 m 2009 (recent 3 months with tax credit) Household Jobs 136.9 m 143.2 m 140.00 m Median Home Price $143,600 $173,600 $177,900 Mortgage Rates 8.1% 5.5% 5.2% Underwriting Standard + FHA % Normal (not loose) About Normal About Normal FHA about 10% FHA 24% FHA 15% to 20% with higher credit score Household Income $41,990 $50,303 $50,303 # renters that could buy a median priced home (assume no tax credit) 11.5 million 16.2 million 16.1 million Change in Pool of Potential 1 st Time Buyers (without tax credit) Change in Pool of Potential 1 st Time Buyers (with tax credit) Fear Factor Impact (Waiting to buy later at a lower price) N/A 4.7 million 4.6 million N/A/ 4.7 million 5.4 million N/A Hard to Measure Hard to Measure
Household Formation (2-year moving average)
Preservation of Middle Class Wealth $8000 Price Drop or $8000 Tax Credit? No difference from buyer s perspective Major differences on market impact $8,000 or 4% decline value means $730 billion in housing wealth destruction Consumer wealth effects Consumer s rational postponement t of purchase
Financial Wealth Rising $ billion Source: Source: Federal Federal Reserve, ReserveNAR estimate
Housing Wealth to Rise ($4 trillion wealth loss in housing from peak) If additional $8,000 price decline $700 billion further loss $ billion Source: Source: Federal Federal Reserve, ReserveNAR estimate
Metro Median Home Price $ thousand Boston Riverside Kansas City Source: NAR
National Existing Home Price 250000 200000 150000 100000 50000 0 1970 1975 1980 1985 1990 1995 2000 2005
Overcorrection Needs to be Halted (Home Price to Income Ratio) 3.6 3.4 32 3.2 3.0 2.8 26 2.6 2.4 2.2 2.0 Stay within Budget and all will be OK! Source: NAR
Mortgage Payment to Income (by middle income person buying a median priced home) 42.0 37.0 32.0 27.0 22.0 17.0 12.0 7.0 20 2.0 Stay within Budget and all will be OK! Source: NAR
Latest Monthly Home Price Trend % change from one year ago Case-Shiller in Green (Boston) FHFA in Red (New England) NAR in blue bar (Northeast)
Housing Starts: Too Much to Too Little 2,500 2,000 New Units Needed 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3 million more people each year 1 to 14million household formation 3 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
Serious Delinquency Rate (90+ days late or foreclosure) 30.0 % 25.0 20.0 Subprime 15.0 10.0 5.0 0.0 Prime (green) FHA VA (purple) FHA Reserve Fund depleting Bailout??? Fannie-Freddie future reform without private profit and taxpayer loss Veterans Affairs backed mortgages slight rise even though a zero-down product stay within budget and all will be OK!
Economy Recovering 9.0 GDP annualized growth rate 6.0 3.0 0.0-3.0 30-6.0 Forecast 2005 -Q1 2005 -Q3 2006 -Q1 2006 -Q3 2007 -Q1 2007 -Q3 2008 -Q1 2008 -Q3 2009 -Q1 2009 -Q3 2009 Q4 20100 -Q2 20100 -Q4 Source: BEA
Job Changes in U.S. Total Payroll Jobs in U.S. y (one year change) 4000 In thousands 2000 0 2000 4000 6000 8000 Source: BLS
Temp Hire Job Changes in U.S. Total Payroll Jobs in U.S. y (one year change) In thousands 400 200 0 200 400 600 800 Source: BLS
Total Payroll Jobs in Massachusetts 3400 In thousands 3300 3200 3100 3000 Source: BLS
Total Payroll Jobs in Maine 640 620 600 580 560 In thousands Source: BLS
Total Payroll Jobs in Rhode Island 500 490 480 470 460 450 440 430 In thousands Source: BLS
In thousands Total Payroll Jobs in New Hampshire 660 650 640 630 620 610 600 590 Source: BLS
Total Payroll Jobs in Vermont 315 310 305 300 295 290 285 In thousands Source: BLS
Total Payroll Jobs in Connecticut In thousands 1720 1700 1680 1660 1640 1620 1600 1580 1560 Source: BLS
Total Payroll Jobs in Michigan 5000 In thousands 4500 4000 3500 Source: BLS
Total Payroll Jobs in Washington D.C. 2600 2400 2200 2000 In thousands Metro Source: BLS; (12-month moving average)
Federal Budget Deficit 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 400,000 200,000 0-200,000-400,000-600,000 000-800,000-1,000,000-1,200,000 200000-1,400,000-1,600,000 Source: Congressional CBO, NAR Budget estimate Office Projections
Federal Housing Policy Tax Favoritism Mortgage interest deduction Capital gains tax exclusion Property tax deduction But who pays taxes? Ownership and Positive Externalities Student test scores, teen pregnancy, juvenile delinquency What is the proper homeownership rate? Any Ownership vs Successful Ownership
Economic Outlook 2008 2009 2010 forecast GDP 04% 0.4% -2.5% 28% 2.8% CPI Inflation 3.8% -0.2% 1.3% Unemployment Rate 5.8% 9.3% 9.9% 10-year Treasury 3.7% 3.3% 3.8% Unemployment Rate Peak at 10.5% in few months before going down consistently
Housing Outlook 2008 2009 2010 forecast Existing Home Sales 49 4.9 m 52 5.2 m 57 5.7 m New Home Sales 485 k 380 k 530 k Home Price Growth -10% -13% 4% Mortgage Rate 6.1% 5.1% 5.5% Price Fear Factor?? None
Commercial and Residential Index = 100 in 1990 Property Prices 300 250 200 Case-Shiller Residential 150 100 MIT Commercial 50 0 2009 data is for Q2
Who Is Buying? Billions $140 $120 Crossborder Equity Fund Inst'l Private Public User/other Unknown $100 $80 $60 $40 $20 $- 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 Source: Real Capital Analytics
P e r c e n t a g e 8 7 6 5 4 3 2 1 0 Credit Crisis 2008: Libor vs. Fed Funds Rate Subprime acting up Lehman Brothers belly up Bear Stearns Jan 1 2007 Jan 24 2007 Feb 16 2007 Mar 13 2007 Apr 5 2007 Apr 30 2007 May 23 2007 Jun 15 2007 Jul 10 2007 Aug 2 2007 Aug 27 2007 Sep 19 2007 Oct 12 2007 Nov 6 2007 Nov 29 2007 Dec 24 2007 Jan 16 2008 Feb 8 2008 Mar 4 2008 Mar 27 2008 Apr 21 2008 May 14 2008 Jun 6 2008 Jul 1 2008 Jul 24 2008 Aug 18 2008 Sep 10 2008 Oct 3 2008 Oct 28 2008 Nov 20 2008 Dec 15 2008 Jan 7 2009 Jan 30 2009 Feb 24 2009 Mar 19 2009 Apr 13 2009 Libor Fed Funds
Credit Crunch Ending? Libor Rates improving Junk Bond yields becoming less wild Banks making profit but are they getting too big again (75% of assets controlled by 10 banks) Federal Reserve lending at zero (though not to consumers) Not Yet Need to see Lower rate on jumbo mortgages Lower rate on second home purchases Lower rate on condo purchases Lower rate on commercial real estate loans
Office Market Fundamentals Completions Absorption Vacancy Square Feet ('000s) 20000 15000 10000 5000 0 5000 2009.1 2009.2 2009.3 2009.4 2010.1 2010.2 10000 15000 20000 25000 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 80% Percent (%) Source: NAR/CBRE-EA
Office Rent Growth National Rent Growth 15.00% 10.00% 5.00% 0.00% -5.00% 2004 2005 2006 2007 2008 2009 2010-10.00% 00% -15.00% -20.00% Source: NAR/CBRE-EA
Commercial Market Outlook 2008 to 2009 Net absorption turns negative Rising Vacancy Rates and Stagnant Rent Markedly Fewer Transactions Property Prices Falling Distress Rising 2010 Economic recovery Local market recovery Commercial recovery with lag time Modestly Positive net absorption Rent struggles to move positive
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