2011 Residential Real Estate Economic Forum

8/3/2019 2011 Residential Real Estate Economic Forum

1/100

Economic Issues &

Residential RealEstate Trends Forum

November 11, 2011


2/100

Local Market Reports

Free to members

Contrast nationalperspective with localconditions

Create more accurate

picture of local conditionsFrame the discussion forthe sub-market


3/100

How to Use

Agents share withbuyers/seller clients

Brokers use to directagents

Focused on the big

picture at local levelNot geared toward pricing


4/100

Sections

Metro prices and State Sales volume

Demand: Employment and unemployment

Supply: Construction, Foreclosures, andDelinquencies

Affordability measures

Mortgage Market

Special Topics


5/100

HeadlineTrends

Long and shorttime horizon

Level andGrowth Rates


6/100

Zooming In.


7/100

DemandEmployment

Unemployment

Industry Strengths

Local Economic Index


8/100

Supply

Construction istraditionally a

driver of housingsupply


9/100

Supply

Foreclosuresand

delinquencies

are now alarge part ofthe housing

inventory


10/100

AffordabilityMonthly

payment/Income

as well asprice/income


11/100

Mortgage Market

Explanation of mortgage rate trends


12/100

This sectionchanges topic

each quarter toaddress timelyinformation

Special Topics.


13/100

Local Market Reports:

AvailabilityLimited by the data: metro areas

Metro areas defined by the Federal government and

consistent across all groups that create statistics

Data is created quarterly reports are quarterly

Employment, construction, mortgage information notavailable for all markets


14/100

WWW.Realtor.org/Research


15/100

Economic and Housing Market

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS

Presentation at Residential Real Estate ForumNAR Annual ConventionAnaheim, CA

November 11, 2011

OUTLOOK


16/100

Strange World

Great! What the Heck?Best Affordability Conditions No Pick-up in Home Sales

National home prices have stabilized for 2

years

Everyone believes home values have been

falling throughout Why?

Lowest newly constructed inventory Housing Starts still Dead

Huge Cash Reserves at Banks Cash not circulating into the economy

Record High Profits in Financial Industry in

2010 and just as good in 2011

Bank stock prices in the tanks

Federal Reserve Monetary Stimulus to

encourage more lending

Regulation to discourage lending

Consumers work hard to demonstrate

financial responsibility

Some must pay higher borrowing cost

because they are jumbo


17/100

Strangeness Continued

Great! What the Heck?Less risk of a further price decline after 33

percent price drop

More risk-based lending and added fees

to protect against price declines

Fannie and Freddie are making internal

self-sustaining profits on new mortgages

Fannie and Freddie are still reporting net

losses because legacy assets

Investors are seeking bargains Not enough foreclosed properties on

average taking more than a year to reach

the market

Improving Job Market Very Low Consumer Confidence

Inflation is 4%

(Everything is 4% more expensive)

1-year Treasury borrowing rate is 0.2%

(Save money to get essentially nothing)


18/100

Best Affordability Conditions


19/100

Monthly Existing Home SalesFlat Line outside of Tax Credit

No Pick Up Despite Best Affordability

Tax Credit Impact


20/100

20-Metro Case-Shiller Price Index

Remarkable Stability from 2009


21/100

National NAR Median Price andNational Case-Shiller Price Index

NAR Price is the median single-family in $ thousand

Case-Shiller is an index value


22/100

Local Market Trends

Prices UpBismarck

Boston

Buffalo

San Diego

San Francisco

Washington, DC

Prices DownAtlanta

Chicago

Las Vegas

Miami

Phoenix

Portland, OR


23/100

Newly Built Home Inventory(40 year lows)

In thousands


24/100

U.S. Housing StartsLowest since the Second World War in the past three years

Housing Starts in thousands


25/100

Existing Home Inventory(Elevated but Falling even as distressed and shadow inventory flows

in)


26/100

Financial Industry Corporate Profits


27/100

KBW Bank Stock Index(still down 64% from pre-crisis levels)


28/100

Federal Reserve LooseMonetary Policy

via Fed Funds Rate and MBS purchase


29/100

Banks/RegulatorsRestricting Credit

(Average Credit Scores of Approved Loans)

Normal 2009 2010 If Normal

Fannie 720 761 762 720

Freddie 720 757 758 720

FHA 650 682 698 660

15% to 20% Higher Sales


30/100

Demographics of Recent Buyers

2011 Profile 2010 Profile

Median Age 43 39

Gross Household

Income

$80,900 $72,200

Household Composition 64% married couples

18% single females

10% single males

7% unmarried couples

58% married couples

20% single females

12% single males

8% unmarried couples

Own a 2nd

Home 19% 14%

Fi t Ti H B


31/100

First-Time Home BuyerShare Dropped

Source: 2011 NAR Home Buyers and Sellers Survey


32/100

Loan Limit Changes to 42 States

More People need to take out Jumbo Mortgages

CBO Lower taxpayer risk if loan limits are

raised

America today Work hard, be financially

responsible then you will get punished ???

Conforming Rate = 4.1% Jumbo Rate = 4.8%


33/100

Price Decline Potential?

If prices fall more underwater homeowners more default risk

More risk to decline when there is a bubble

Less risk to decline after a crash

Many metrics suggest price decline potentialis minimal with more price increase potential

Yet Banks/Regulators have been pursuing easy lending during bubble and tight lendingafter crash


34/100

Home Price vs Rent Price Change Potential?

(index = 100 in 1980)

Rent is CPI Primary Rent and Price is NAR median price


35/100

CPI Rent is RisingPrice Change Potential?

(3-month moving avg., annualized rate)


36/100

Rental Households

Rents expected to rise 7% to 10% in the next two years

Home prices should therefore rise in the next two years


37/100

Annual Household FormationFuture Rent Pressure?(3 separate Census data)

In millions

Household Formation leads to increase ownership and renters;

Could begin to return to normal of at least 1 million from 2012.


38/100

Home Price vs Construction Cost Price Change Potential?

Price is NAR Single-family median price and Construction Cost is Census Construction Cost Weighted Price Index


39/100

Home Price to Income Ratio Price Change Potential ?

(Median single-family home price and median household income)


40/100

Cost Comparisons over 30 years

Item Price Indexin 1981

PriceIndex in2011

% Change

Consumer price index

87.2 226.3 160%

Rent index

84.7 254.3 200%

Food price index

91.6 229.6 150%

Gasoline price index

103.6 308.4 197%

College tuition index

75.8 601.3 693%

Medical care index

78.6 401.4 410%

Monthly mortgage payment on amedian priced home

$598(14% mortgagerate)

$698(4% mortgagerate)

17%


41/100

Fannie/Freddie Future

Disastrous Outcome as government-backed Private Corporation

Perverse incentive to gamble with taxpayers money

Good Outcome as government corporation

Pre-1970s no problem

Post-2009 no problem

Government corporations generate enough internal profit for self-sustainability

Assure liquidity on a very simple non-innovative mortgage product (e.g.,fixed rate mortgages that meets basic underwriting standards)

Grandparents 30-year mortgage same as Grandchildrens 30-year mortgage

Need to pursue counter-cyclical policy less fees in downturn andmore fees during boom/bubble

Never trust government to produce innovative products


42/100

Fannie and Freddie PerformanceMortgage Default after 18 months

Fannie Mae

Vintage

Cumulative

Default Rate

after 18 months

2002 3.1%

2003 2.5%

2004 4.6%

2005 4.8%

2006 11.6%

2007 28.7%2008 12.6%

2009 1.2%

Freddie Mac

Vintage

Cumulative

Default Rate

after 18 months

2002 2.7%

2003 1.2%

2004 2.0%

2005 1.8%

2006 6.0%

2007 22.3%2008 13.7%

2009 1.1%

Source: Federal Housing Finance Agency


43/100

Investors want Deals

All-cash record high at 30% to 35% of all sales Multiple bidding becoming common on foreclosed

properties (though not on short-sales)

Financial asset recovery helping with cash

Rental income beats putting money in the bank

Anticipating rising home prices

Opens up lending more home sales

Boost consumer confidence more home sales

Further boost home prices and rate of return on investment

Hedge against future inflation alternative toexpensive gold

Not enough foreclosed homes for sale?


44/100

Expensive Gold Price(Hedge against Inflation?)

Will Investors shift money to alternative inflation hedge instrument to real estate?


45/100

Florida Home Sales Risingdespite/because of many distressed properties


46/100

Arizona Home Sales Rising


47/100

U.S. Existing Home Sales No Meaningful Recovery

New downwardly revised figures to come out soon Re-benchmarking process to assure better accuracy Overtime, MLS figures get inflated due to double-counting issues, flippings, and fewer FSBOs

Total U S Payroll Jobs


48/100

Total U.S. Payroll Jobs Modest Recovery

(2.2 million job creation from low point in 2010)

In thousands


49/100

High Unemployment Rate

Source: BLS

Economic Expansion


50/100

Economic Expansion(GDP growth after recession should be

sustained 4% to 5% not 1% as in 1st half in 2011)

Desired Pace


51/100

Consumer Confidence in the Tanks


52/100

North Dakota Jobs Everywhere(Starting Wage at McDonalds $15 to 18 per hour)

In thousands


53/100

CPI Inflation Rising(% change from one year ago)

Social Security COLA forecast to rise 3.5% in 2012 Workers Wage to rise by 1.7% in 2011


54/100

Broad Inflationary Pressure

Indicator % change from one year ago

Consumer Price Index 3.9%

Producer Price Index (Finished Product) 7.0%

Producer Price Index (Intermediate Product) 10.8%

Producer Price Index (Crude Product) 21.1%

Dow Jones Commodity Spot Price Index 7.2% decelerating

Gold Price Off Record High Price but very

high


55/100

CPI Inflation and 10-year Treasury Yield(Rare for Inflation to be higher than 10-year yield)

10-Year Treasury yield at 2.2%; CPI Inflation at 3.9% If Inflation does not turn down then expect rising

interest rate environment.

CPI Inflation (blue)

10-year Treasury (red)


56/100

Forecast

2012 2013 2014

GDP Growth 2.0% to 2.5% 2.3% to 2.8% 3.0% to 3.5%

Net New Jobs 1.7 to 2.2 million 2.0 to 2.5 million 2.5 to 3.0 million

CPI Inflation 3.0 to 3.5% 3.0 to 3.5% 2.5 to 3.0%

Rent Growth 3.0% 3.5% 3.5%

Home price Growth 2.0% 3.0% 4.0%

Home Sales 4.0% 6.0% 6.0%

Mortgage Rate 4.5% 4.8% 5.5%


57/100

Special Local Market Forecast for 2012

North Dakota continuing 3% to 5% priceincrease Jobs, Jobs, Jobs, Everywhere

3.3% unemployment rate

South Florida surprising 10% price increase

Slow jobs recovery, but prices are too good to passup

Bargain hunters circling and bidding

International Destination attracts foreign buyers (fromweakened U.S. dollar)


58/100

The End of Strangeness

Let the Prices Recover without obstacles If 5% gain in home price

2 million fewer underwater homeowners

Bank lending opens up Consumer confidence about home buying improves

Strangeness is past and back towards normalcy

But what could be the obstacles

Rising mortgages rates (market forces of higherinflation and high budget deficit)

QRM 20% downpayment rules, loan limit, MID(Washington policymakers)


59/100

The Road to Reality

Most Academics, Newspaper Editorials, Think-Tanks Attacking Homeownership

Tea Party Leave us alone tyranny of the government

Occupy Wall Street Someone screwed us tyranny ofcorporations

James Madison

Road to reality runs through politics. Property owners are best defenders against tyranny.

REALTORS and Consumers Defend ownership

Sustainable ownership (not bubble ownership) related to higherstudent test scores, more volunteer time, civic engagement, etc.


60/100

National Museum of American History

4 million no-down-payment VA mortgages

for World War II veterans

Fueled an unprecedentedgrowth of Americas

middle class


61/100

For Daily Update and Analysis

FACEBOOKhttp://www.Facebook.com/NarResearchGroup

Twitter

@NAR_Research


62/100

US Macro Overview

Dick PeachNovember 11, 2011

Disclaimer


63/100

63

Disclaimer

The views I am about to express aremy own and do not necessarily reflectthe views of the Federal Reserve Bankof New York or the Federal ReserveSystem.

Overview


64/100

64

Nearly two and one half years since the official end of the Great

Recession, the economy continues to operate well below itspotential.

Growth strengthened somewhat in 2011Q3 as temporary restrainingfactors began to fade.

Nonetheless, the economy continues to face significant structuralimpediments to growth. The legacy of the housing boom and bust. Fiscal contraction at the federal and state and local levels.

Inflation rose more than expected over 2011H1, but fundamentalssuggest a return to subdued inflation.

Overview

Personal Income Excluding Current Transfer Receipts Per Capita


65/100

0.88

0.92

0.96

1.00

1.04

1.08

1.12

-4 -2 0 2 4 6 8 10 12 14 16

0.88

0.92

0.96

1.00

1.04

1.08

1.12

Quarters Since NBER Peak

Source: Bureau of Labor Statistics

1953 Cycle

1973 Cycle

Ratio Ratio

1957 Cycle

(Series Set to 1.00 at NBER Peak)

1960 Cycle

1969 Cycle

1981 Cycle

1990 Cycle

2001 Cycle

Current Cycle

65

Employment to Population Ratio


66/100

55

57

59

61

63

65

1980 1984 1988 1992 1996 2000 2004 2008 2012

55

57

59

61

63

65

Source: Bureau of Labor Statistics 66

Percent Percent

The Distribution of National Income


67/100

58

60

62

64

66

68

70

1951 1963 1975 1987 1999 2011

5

8

11

14

17

20

Percent Percent

Source: Bureau of Economic Analysis

Employee Compensation(Left Axis)

Corporate Profits

(Right Axis)

67

Q3 Est.

(15.0%)

University of Michigan Index of Consumer SentimentL l L l


68/100

40

60

80

100

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

40

60

80

100

120

Level Level

Source: University of Michigan

Consumer

Expectations

Current Conditions

Consumer Sentiment

68

Consumer Price Inflation12 Month % Change (Annualized) 12 Month % Change (Annualized)


69/100

-5

0

5

10

2000 2002 2004 2006 2008 2010 2012

-30

-20

-10

0

10

20

30

40

50

60

12-Month % Change (Annualized) 12-Month % Change (Annualized)


Total CPI

(Left Axis)

CPI- Food

(13.7%)

(Left Axis)

CPI- Energy

(9.1%)

(Right Axis)

69

Real PCE, Disposable Income and Personal Saving Rate


70/100

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

2000 2002 2004 2006 2008 2010

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

% Change Year to Year Percent


Real PCE

Real Disposable

Income

Personal

Saving Rate

70

Personal Saving Rate and Household Net Worth


71/100

0

2

4

6

8

10

12

14

16

400 450 500 550 600 650

0

2

4

6

8

10

12

14

16

Source: Bureau of Economic Analysis and Federal Reserve Board

Households Net Worth as a Percent of Disposable Income

2006-2007

2008Q2

2009Q2

Note: Fitted line is from 1983Q1 to 2005Q4.

2011Q2

Personal Saving Rate (Percent) Personal Saving Rate (Percent)

2011Q3

Estimate

(486.8 , 4.1)

2010Q2

Government Consumption & Gross Investment


72/100

-6

-4

-2

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-6

-4

-2

0

2

4

6

8

10

12

% Change Year to Year % Change Year to Year


Real Federal

Government

Consumption &

Gross Investment

(Left Axis)

Real State & Local

Government

Consumption &

Gross Investment

(Right Axis)

72

1003 Stance of Fiscal PolicyCh i F ll E l t P i B l P t f P t ti l GDP


73/100

-6

-4

-2

0

2

4

6

1988 1991 1994 1997 2000 2003 2006 2009 2012

-6

-4

-2

0

2

4

6

Source: Bureau of Economic Analysis, Congressional Budget Office

Percent

Change in Full Employment Primary Balance as a Percent of Potential GDP

Change in Full Employment

Primary Balance

(Percent of Potential GDP)

(Left Axis)

Real GDP

(Right Axis)

73

Percent

(Series Set to 1 0 at NBER Peak)Real Private Residential Investment


74/100

0.50

0.75

1.00

1.25

1.50

-2 0 2 4 6 8 10 12 14 16

0.50

0.75

1.00

1.25

1.50



1973 Cycle

Current Cycle

Ratio Ratio

1981 Cycle


1990 Cycle

2001 Cycle

74

Single Family Housing MarketLevel Level


75/100

20

50

80

110

140

170

200

230

1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

3

4

5

6

7

8

9

10

11

12

13

Level Level

Source: CoreLogic, National Association of REALTORS

CoreLogic Single

Family Detached

House Price Index(Left Axis)

NAR Months Supply of

Single Family Homes on the

Market (Right Axis)

Buyers Market

Sellers Market

75

Price to Earnings RatiosRatio Ratio


76/100

0

5

10

15

20

25

30

35

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

0

0.25

0.5

0.75

1

Ratio Ratio

S&P 500

Composite

Price/OperatingEarnings Ratio

(Left Axis)

Home Price/Rent

(Right Axis)

76Source: S&P, BLS, and CoreLogic

Average Duration by Performance Status

F fi t t l i i t d ft 2004


77/100

1

3

5

7

9

11

1

2

3

4

5

6

7

8

9

10

11

May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11

For first mortgage loans originated on or after 2004

90+ days delinquent

Foreclosure

REO

MonthsMonths

77


78/100

78

Historical and Forecasted Annual Flows (Millions)

Year

60dd into

90dd

90dd to

Foreclosure

Foreclosure

to REO Out of REO

2005 0.60 0.29 0.09 0.11

2006 0.63 0.34 0.13 0.12

2007 0.95 0.57 0.20 0.11

2008 1.77 1.00 0.37 0.21

2009 2.77 1.60 0.45 0.34

2010 2.19 1.73 0.61 0.34

2011 1.52 1.40 1.10 0.46

2012 1.29 1.72 1.86 1.83

2013 1.11 1.23 1.82 1.93


79/100

79

(Series Set to 1 00 at NBER Peak)Real Business Investment: Equipment and Software


80/100

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

-2 0 2 4 6 8 10 12 14 16

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40



1973 Cycle

Current Cycle

Ratio Ratio

1981 Cycle


1990 Cycle

2001 Cycle

80

(Series Set to 1 00 at NBER Peak)Real Business Investment: Nonresidential Structures


81/100

0.70

0.80

0.90

1.00

1.10

1.20

-2 0 2 4 6 8 10 12 14 16

0.70

0.80

0.90

1.00

1.10

1.20



1973 Cycle

Current Cycle

Ratio Ratio

1981 Cycle


1990 Cycle

2001 Cycle

81

(Series Set to 1 00 at NBER Peak)Real Exports of Goods and Services


82/100

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

-2 0 2 4 6 8 10 12 14 16 18 20

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5



1973-75 Cycle

Current Cycle

Ratio Ratio

1981-82 Cycle


1990-91 Cycle

2001 Cycle

82

Senior Loan Officers SurveyNet Percent Net Percent


83/100

-25

0

25

50

75

100

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

-25

0

25

50

75

100

Net Percent Net Percent

Source: Federal Reserve Board

Tightening

Standards for

Commercial RealEstate

Banks Tightening

C&I Loans

83

Tightening

Standards

for

Residential

MortgagesTightening

Standards for

Consumer Credit

Cards

C&I Loans: All Commercial Banks% Ch 13 k AR % Ch 13 k AR


84/100

% Change 13-week AR % Change 13-week AR


-30

-20

-10

0

10

20

30

40

2001 2003 2005 2007 2009 2011

-30

-20

-10

0

10

20

30

40

84

Implicit Price Deflator and Unit Labor Costs% Ch 8 Q t AR % Ch 8 Q t AR


85/100

-2.5

0.0

2.5

5.0

1995 2000 2005 2010

-2.5

0.0

2.5

5.0

% Change 8-Quarter AR % Change 8-Quarter AR


Implicit Price Deflator

Unit Labor Costs

85

TIPS Based Inflation ExpectationsPercent Percent


86/100


-1

0

1

2

3

4

2006 2007 2008 2009 2010 2011

-1

0

1

2

3

4

Percent Percent

2-3 Years

Note: Carry-adjusted.

4-5 Years

5-10 Years November 2:

2.48

November 2:

2.12

November 2:

2.09

86

Monetary Policy Developments


87/100

87

Conventional Open Market Operations

In September of 2007, FOMC began to reduce the federal funds rate, reaching0 to 25 basis points by December of 2008.

Forward guidance December of 2008for some time March of 2009---for an extended period August of 2011---until mid 2013

Unconventionalmonetary policy at the zero bound November, 2008announce purchases of GSE MBS and debt. March, 2009expand purchases of GSE MBS to $1.25 trillion, of

GSE debt up to $200 billion, and announce purchases of up to

$300 billion of longer dated Treasury debt. November, 2010---announce purchase of an additional $600 billion

of Treasury debt. September, 2011--- maturity extension of Treasury portfolio and

reinvestment of MBS prepayments back into MBS.

Federal Funds RatePercent Percent


88/100

-2

-1

0

1

2

3

4

5

6

7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-2

-1

0

1

2

3

4

5

6

7

Source: Bureau of Economic Analysis, Bureau of Labor Statistics

88Real Federal Funds Rate = Nominal Federal Funds Rate 12 Month % Change of the Core CPI

Real Federal FundsRate

Effective Federal

Funds Rate

30 Year Mortgage Interest Rate SpreadsPercent Percent


89/100

0

0.4

0.8

1.2

1.6

2

2.4

2.8

2007 2008 2009 2010 2011

0

0.4

0.8

1.2

1.6

2

2.4

2.8

Source: Federal Reserve Board /Federal Home Loan Mortgage Corporation

Primary/Risk Free

Spread

Primary/Secondary

Spread

Secondary/RiskFree Rate Spread

Nov. 25, 2008:

Announcement of

MBS Program

28

QEII Led to an Improvement in Financial Conditions2-3 Year TIPS Based Inflation ExpectationsBaa-Aaa Spread

Difference Difference


90/100

90

-1.0

-0.5

0.0

0.5

1.0

1.52.0

2.5

3.0

3.5

4.0

2005 2006 2008 2009 2011

-1.0

-0.5

0.0

0.5

1.0

1.52.0

2.5

3.0

3.5

4.0

Percent Percent


Nov. 2:

2.09

700

800

900

1000

1100

1200

1300

1400

1500

1600

2005 2006 2007 2008 2009 2010 2011 2012

700

800

900

1000

1100

1200

1300

1400

1500

1600

S&P 500 CompositeIndex Index

Source: Wall Street Journal

Nov. 2:

1238

90

95

100

105

110

115

2005 2006 2007 2008 2009 2010 2011 2012

90

95

100

105

110

115

Nominal Broad DollarIndex, January 1997 = 100 Index, January 1997 = 100

Source: Federal Reserve Board Note: Trade-Weighed.

Oct. 28:

96.88

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2005 2006 2007 2008 2009 2010 2011 2012

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Nov. 1:

1.31

Difference Difference


Reference Slides


91/100

91

The Federal Fiscal Pipeline (Current Law)


92/100

2012

Expiration of 2 percentage point reduction of employee's share of OASDI payroll tax. Expiration of full expensing of qualified investment put in place. Reverts to 50% bonus depreciation in 2012 and then reverts to old depreciation schedules in 2013.

Significant reduction of AMT exemption amount. Expiration of EUC and EB unemployment benefits. Provision of Budget Control Act.

Caps on discretionary spending (-$27 billion, 0.2% of GDP)

Join Select Committee provisions (unknown, but likely in the $20 to $30 billion) Steep reduction of Medicare reimbursements to physicians.

2013 Provision of Budget Control Act.

Caps on discretionary spending (-$49 billion, 0.3% of GDP) Join Select Committee provisions (unknown, but likely $50 to $60 billion)

New taxes on high income ($200,000 single/$250,000 joint) taxpayers included in healthreform legislation. (about $22 billion in 2013)

Individuals share of HI (Medicare Part A) payroll tax rises from 1.45% to 2.35% ofearned income.

3.8% surtax on lesser of investment income or other income above threshold. 2001/2003 tax cuts expire

Effect of Deficit Control Act of 2010 on Federal Deficit


93/100

Total

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 2012-2021

Discretionary Spending

Establishment of Caps -25 -47 -59 -67 -74 -81 -89 -97 -104 -112 -756

Program Integrity 1 1 1 1 2 2 2 2 2 2 15

Subtotal -25 -46 -58 -66 -72 -79 -87 -95 -102 -110 -741

Mandatory Spending

Program Integrity 0 0 -1 -1 -1 -2 -2 -2 -3 -3 -16

Pell Grants 4 8 5 0 0 0 0 0 0 0 17

Other education -1 -2 -2 -2 -2 -2 -2 -2 -2 -3 -22

Subtotal 3 6 2 -3 -3 -4 -4 -4 -5 -6 -21

Debt Service 0 -1 -3 -6 -10 -15 -20 -26 -33 -40 -154

Joint Select Committee on -25 -50 -75 -100 -125 -160 -195 -230 -255 -285 -1500

Deficit Reduction*

Total Effect on Deficit* -47 -92 -135 -176 -211 -258 -306 -355 -395 -441 -2416

Percent of GDP -0.3 -0.6 -0.8 -1.0 -1.1 -1.3 -1.5 -1.6 -1.7 -1.9

Source: CBO

*Author's allocation of 10 year total.

Billions of Dollars

93

Federal Deficit as a Percentage of GDP


94/100

94

-10

-8

-6

-4

-2

0

2

4

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

-10

-8

-6

-4

-2

0

2

4

Source: CBO and authors calculations

% of GDP

With Budget Control ActCaps on DiscretionarySpending

Under Current Policy

With Budget Control Act

% of GDP

Federal Debt Held by Public


95/100

95

30

40

50

60

70

80

90

100

110

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

30

40

50

60

70

80

90

100

110


% of GDP

With Budget Control Act Capson Discretionary Spending

Under Current Policy

With Budget Control Act

% of GDP

Federal Discretionary Outlays


96/100

96

2

3

4

5

6

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

2

3

4

5

6


% of GDP % of GDP

Defense OutlaysDotted Line = With Budget Control Act Caps on Discretionary Spending

Solid Line = Under Current Policy

Non Defense Outlays

Dotted Line = With Budget Control Act Caps on Discretionary Spending

Solid Line = Under Current Policy

ISM IndicesLevel Level


97/100

30

35

40

45

50

55

60

65

2000 2002 2004 2006 2008 2010

30

35

40

45

50

55

60

65

Level Level

Source: Institute of Supply Management

Manufacturing

Index

Note: Above 50 = Increasing

Nonmanufacturing Index

97


98/100

Percent of First Mortgage Loans with CLTV>100

Source: CoreLogic

98

State 2011Q1

Alabama 10.3%

Alaska 7.6%

Arizona 49.6%

Arkansas 10.1%

California 30.9%

Colorado 20.2%

Connecticut 12.9%

Delaware 14.1%

Florida 46.1%

Georgia 30.4%

Hawaii 9.9%

Idaho 24.2%

Illinois 21.7%

State 2011Q1

Indiana 10.9%

Iowa 8.8%

Kansas 10.3%

Kentucky 8.7%

Louisiana NA

Maine NA

Maryland 23.8%

Massachusetts 15.4%

Michigan 36.0%

Minnesota 16.1%

Mississippi NA

Missouri 15.7%

Montana 8.0%

State 2011Q1

Nebraska 9.3%

Nevada 62.6%

New Hampshire 18.7%

New Jersey 16.2%

New Mexico 13.4%

New York 6.2%

North Carolina 11.2%

North Dakota 6.9%

Ohio 21.9%

Oklahoma 6.5%

Oregon 17.2%

Pennsylvania 7.5%

Rhode Island 21.2%

State 2011Q1

South Carolina 15.2%

South Dakota NA

Tennessee 14.1%

Texas 10.1%

Utah 21.2%

Vermont NA

Virginia 23.1%

Washington 16.9%

Washington, DC 14.7%

West Virginia NA

Wisconsin 14.5%

Wyoming NA

US 22.7%

11 million property owners are underwater by an average amount of $65,000Another 2.4 million are near negative equity, meaning 95 < CLTV


99/100

99

0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

2.7

3

2005 2006 2007 2008 2009 2010 2011 2012

0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

2.7

3


October:

2.4

0

0.5

1

1.5

2

2.5

3

3.5

4

2005 2006 2007 2008 2009 2010 2011 2012

0

1

1

2

2

3

3

4

4

Nov. 1:

1.31


700

800

900

1000

1100

1200

1300

1400

1500

1600

2005 2006 2007 2008 2009 2010 2011 2012

700

800

900

1000

1100

1200

1300

1400

1500

1600

S&P 500 CompositeIndex Index

Source: Wall Street Journal

Nov. 2:

1238

90

95

100

105

110

115

2005 2006 2007 2008 2009 2010 2011 2012

90

95

100

105

110

115

Nominal Broad DollarIndex, January 1997 = 100 Index, January 1997 = 100

Source: Federal Reserve Board Note: Trade-Weighed.

Oct. 28:

96.88

Blue Chip Forecasts for US Economy


100/100

October 11

1.2CPI

9.6

Real GDP

2010Q4/Q4 growth rate

Unemployment

(End of Period Level)

3.1

3.1

9.1

1.7

2.2

9.0

2.0

2011 2012

2011 Residential Real Estate Economic Forum

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