Housing Market Trends & Outlook

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

Presentation at NAR Annual Conference in

San Diego

November , 2009

Housing Stimulus Impact

• Tax Credit and Higher Loan Limit

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

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

• Preservation of Middle-Class Wealth

Recent Pending Home Sales

60

70

80

90

100

110

120

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

Source: NAR

Bifurcated Recovery

$ thousand

Homes priced under $100K

Homes priced above $500K

% change from one year ago

Source: NAR

Months Supply of Inventory

Source: NAR

Aggregate Months Supply

0

4

8

12

Source: NAR

In 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 be homeowners

First-Time Buyers Used Up or Pent-Up Demand ?

2000

(pre-boom)

2009

(3 months prior to tax credit)

2009

(recent 3 months with 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

Household Jobs 136.9 m 143.2 m 140.0 m

Median Home Price $143,600 $173,600 $177,900

Mortgage Rates 8.1% 5.5% 5.2%

Underwriting Standard + FHA % Normal (not loose)FHA about 10%

About NormalFHA 24%

About NormalFHA 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 1st Time Buyers (without tax credit)

N/A 4.7 million 4.6 million

Change in Pool of Potential 1st Time Buyers (with tax credit)

N/A/ 4.7 million 5.4 million

Fear Factor Impact (Waiting to buy later at a lower price)

N/A Hard to Measure Hard to Measure

Tax Credit to More Buyers?

• Bifurcated inventory conditions … need more inventory on lower priced homes

• Increased velocity stimulate economic activity and helps price stabilization (even though no net change in inventory; months supply falls)

• HVCC/appraisal issue becomes less problematic if there are more comparables.

Tax Credit to More Buyers? … cont.

• Financial gains/losses on FHA, Fannie-Freddie and Federal Reserve MBS depend upon home price recovery

• Bring financially healthy buyers … 4.8 million renters with income above $75,000

• Home value recovery … improves bank balance sheet … greater lending in other areas like small business loans

• Home value recovery … lessens foreclosure pressure … lessens re-default rate after loan modification

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 of purchase

Stock Market Wealth RisingStock Market Wealth Rising

$ billion

Source: Federal ReserveSource: Federal Reserve, NAR estimate

But Consumers Confidence is Down

020406080

100120140160

2000 -Jan

2001 -Jan

2002 -Jan

2003 -Jan

2004 -Jan

2005 -Jan

2006 -Jan

2007 -Jan

2008 -Jan

2009 -Jan

Source: Conference Board

Housing Wealth to RiseHousing Wealth to Rise($4 trillion wealth loss in housing from peak)

If additional $8,000 price decline … $700 billion further loss

$ billion

Source: Federal ReserveSource: Federal Reserve, NAR estimate

Bubble Wealth All Removed

$ thousand Sarasota

Greenville

Source: NAR

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

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

Stay within Budget and all will be OK !

Source: NAR

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

$ thousand

NAR

FHFA

Case-Shiller

National Existing Home Sales

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

1981 1986 1991 1996 2001 2006

Pre-boom sales

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

0

500

1,000

1,500

2,000

Source: Census

In thousand units

New Home Inventory for Sale

200

300

400

500

600

Source: Census

In thousand units

In thousands

Housing Starts: Too Much to Too Little

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

New Units Needed

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

-6.0

-3.0

0.0

3.0

6.0

9.0

2005

-Q

1

2005

-Q

3

2006

-Q

1

2006

-Q

3

2007

-Q

1

2007

-Q

3

2008

-Q

1

2008

-Q

3

2009

-Q

1

2009

-Q

3

2009

Q4

Economy Recovering

GDP annualized growth rate

Source: BEA

Forecast

Job Changes in U.S.

-1000

-800

-600

-400

-200

0

200

400

600

Source: BLS

One-month payroll job changes in thousands

Federal Budget Deficit

-1,600,000

-1,400,000

-1,200,000

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

Source: Congressional Budget Office ProjectionsSource: CBO, NAR estimate

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

Tax Assessors and Appraisers need to meet

%

Economic Outlook

2008 20092010

forecast

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%

Housing Outlook

2008 20092010

forecast

Existing Home Sales

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