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Transcript of Becoming the Local Real Estate Economist of Choice MAPS Agent Masterminds November 5, 2007 Austin,...
Becoming the Local Real Estate Economist of Choice
MAPS Agent MastermindsNovember 5, 2007
Austin, Texas
Keller Williams Realty International
The New Mindset: I am a knowledgeable, research-based real
estate consultant. I understand the big picture and I know
which numbers really matter. I constantly research the local market
conditions and trends that will impact your plans and decisions.
I am the local real estate economist
of choice.
Macro– Economic Growth– Inflation– Interest Rates
Metro– Population– Employment– Household Income
Micro– Neighborhood
Dynamics– Property Conditions– Home Prices
What Impacts Affordability and Availability
Local
City
National
Truth # 1: Real Estate Markets are Always
Shifting.
What goes up must come down.
What comes down won’t stay there.
10.2
4.4
0
2
4
6
8
10
12
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
1
2
3
4
5
6
7
Source: NAR
Months Million
Housing Inventory (left axis)
Existing Home Sales – Single Family Homes (right axis)
Buyers Market
Sellers Market
19 Years of National Market Shifts
Truth # 2: The Economy is Consistently Growing.
Since 1970, the Gross Domestic Product (GDP) has increased an average of 7.2% per year.
GDP growth remains consistent over the past ten years.
Gross Domestic Product 1970-2007
$13.9
$0
$2
$4
$6
$8
$10
$12
$14
$16
1970q1
1971q3
1973q1
1974q3
1976q1
1977q3
1979q1
1980q3
1982q1
1983q3
1985q1
1986q3
1988q1
1989q3
1991q1
1992q3
1994q1
1995q3
1997q1
1998q3
2000q1
2001q3
2003q1
2004q3
2006q1
2007q3
Trillion
Source: Bureau of Economic Analysis
Gross Domestic ProductYear to Year Change
1971-2007
5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1971q1
1972q3
1974q1
1975q3
1977q1
1978q3
1980q1
1981q3
1983q1
1984q3
1986q1
1987q3
1989q1
1990q3
1992q1
1993q3
1995q1
1996q3
1998q1
1999q3
2001q1
2002q3
2004q1
2005q3
2007q1
Source: Bureau of Economic Analysis
Gross Domestic Product 1998-2007
$13.9
$0
$2
$4
$6
$8
$10
$12
$14
$16
1998q1
1999q3
2001q1
2002q3
2004q1
2005q3
2007q1
Trillion
Source: Bureau of Economic Analysis
5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1998q1
1999q3
2001q1
2002q3
2004q1
2005q3
2007q1
Source: Bureau of Economic Analysis
Gross Domestic ProductYear to Year Change
1998-2007
Truth #3: Inflation is consistent and steady – the
sign of a healthy economy.
During the past 37 years (1970-2007) the Consumer Price Index (CPI) has increased at an average annual rate of 4.6%.
For the past 10 years it has averaged only 2.4% per year.
Consumer Price Index 1970-2007
202
0
50
100
150
200
250
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: Bureau of Labor Statistics
Consumer Price IndexYear to Year Change
1971-2006
3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1971
1976
1981
1986
1991
1996
2001
2006
Source: Bureau of Labor Statistics
Consumer Price Index 1998-2007
208
0
50
100
150
200
250
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: Bureau of Labor Statistics
Consumer Price IndexYear to Year Change
1998-2006
3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Bureau of Labor Statistics
Truth #4: Mortgage interest rates are low and stable.
Interest rates are near the lowest point they have ever been since 1970.
During the past 10 years the rates have been at or under 8%.
For the past 5 years they have stayed at or near 6% and show no signs of rising.
Mortgage RatesFixed Rate - 30 Year
1971-2007
6.4%
0%
4%
8%
12%
16%
20%
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Source: Freddie Mac
Mortgage RatesFixed Rate - 30 Year
1998-2007
6.4%
0%
4%
8%
12%
16%
20%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: Freddie Mac
Truth #5: The workforce is increasing and
unemployment is low.
Since 1982, unemployment has been on a steady downward trend.
During the past 5 years unemployment has decreased from 6% to under 5%.
Only Michigan has unemployment of over 7%.
Unemployment Rates 1970-2007
4.7%
0%
2%
4%
6%
8%
10%
12%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: Bureau of Labor Statistics
Unemployment Rates 1998-2007
4.7%
0%
2%
4%
6%
8%
10%
12%
1998
1998
1999
1999
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
20062006
2007
2007
Source: Bureau of Labor Statistics
TX
UT
MT
CA
AZ
ID
NV
OR
IA
COKS
WY
NM
MO
MN
NE
OK
SD
WA
AR
ND
LA
IL OH
FL
GAAL
WI
VA
IN
MI
MS
KY
TN
PA
NC
SC
WV
NJ
ME
NY
VT
MD
NH
CT
DE
MARI
0 -
2.9% 3
- 3.9%
4 -
4.9% 5
- 5.9%
6 -
6.9% 7
- 10%
Unemployment Rates(September, 2007)
US = 4.7%
Source: Bureau of Labor Statistics
Data: September, 2007
Truth #6: Homeownership remains a fundamental part of
the “American Dream.”
Since 1994, the percentage of Americans owning their own home has increased from 64% to over 68%.
The Government continues to institute policies and funding programs that encourage homeownership.
Homeownership 1970-2007
68%
60%
62%
64%
66%
68%
70%
1970q1
1971q3
1973q1
1974q3
1976q1
1977q3
1979q1
1980q3
1982q1
1983q3
1985q1
1986q3
1988q1
1989q3
1991q1
1992q3
1994q1
1995q3
1997q1
1998q3
2000q1
2001q3
2003q1
2004q3
2006q1
Source: Census Bureau
Homeownership 1998-2007
68%
64%
65%
66%
67%
68%
69%
70%
1998q1
1999q3
2001q1
2002q3
2004q1
2005q3
2007q1
Source: Census Bureau
Truth # 7: Household incomes and median home prices both
increase in a parallel manner.
Since 1981, household incomes have increased at an average annual rate of 3.9%.
During the same time period, median home prices have increased at 4.9% per year.
Median Home Price & Family Income
1970-2007
$0
$50,000
$100,000
$150,000
$200,000
$250,000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
$0
$50,000
$100,000
$150,000
$200,000
Income (right axis)
Home Price (left axis)
Source: NAR
Annual Growth Rates Income and Price set to Index of 100
1970-2007
Home Price
Income
0%
2%
4%
6%
8%
10%
12%
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
Source: NAR
Comparison of Income to Home Price
Income and Price set to Index of 100 in 1970
1970-2007
Home Price
Income
0
200
400
600
800
1000
1200
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
Source: NAR
Comparison of Income to Home Price
Income and Price set to Index of 100 in 1990
1990-2007Home Price
Income
0
50
100
150
200
250
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: NAR
Truth #8: Affordability is, and always will be, the primary real
estate issue. When interest rates go up, affordability
comes down. When home prices rise, affordability
drops. When affordability drops too low or too
fast, the number of home sales decrease and selling prices will ultimately drop.
The more dramatic the run-up in home appreciation, the steeper the decline in sales and prices.
Housing Affordability & Home Price
1970-2007
$0
$50,000
$100,000
$150,000
$200,000
$250,000
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
0
20
40
60
80
100
120
140
160
180
Affordability (right axis)
Median Home Price (left axis)
Source: NAR
Housing Affordability & Home Price
1998-2007
$0
$50,000
$100,000
$150,000
$200,000
$250,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
20
40
60
80
100
120
140
160
Affordability (right axis)
Median Home Price (left axis)
Source: NAR
Home Price IndexYear to Year Change
1976-2007
3%
0%
4%
8%
12%
16%
1976 Q1
1978 Q3
1981 Q1
1983 Q3
1986 Q1
1988 Q3
1991 Q1
1993 Q3
1996 Q1
1998 Q3
2001 Q1
2003 Q3
2006 Q1
Source: OFHEO
Home Price IndexYear to Year Change
1998-2007
3%
0%
4%
8%
12%
16%
1998 Q1
1998 Q4
1999 Q3
2000 Q2
2001 Q1
2001 Q4
2002 Q3
2003 Q2
2004 Q1
2004 Q4
2005 Q3
2006 Q2
2007 Q1
Source: OFHEO
$50
$100
$150
$200
$250
$300
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2004
2005
2006
2007
20
30
40
50
60
70
80
Housing Opportunity Index (right axis)
Median Home Price (left axis)
Thousand
Source: NAHB/Wells Fargo
National Housing Affordability1991-2007
Truth #9: Real estate is a local business. Affordability is always
felt locally. When the market shifts locally it
usually shifts in a dramatic and rapid manner.
Local areas that have the greatest and fastest appreciation will deal with the most dramatic down shifts.
Affordability must be tracked in each metro and micro market – that is where sellers and buyers have to deal with the issues.
5 Year Annual Rate of Home Price Growth (2006 Q4)
TX
UT
MT
CA
AZ
ID
NV
OR
IA
COKS
WY
NM
MO
MN
NE
OK
SD
WA
AR
ND
LA
IL OH
FL
GAAL
WI
VA
IN
MI
MS
KY
TN
PA
NC
SC
WV
NJ
ME
NY
VT
MD
NH
CT
DE
MARI
Source: OFHEO – House Price Index
Growth as of 4th quarter of 2006
0-4.99%
5-9.99%
10-14.99%
5-year growth at an annual rate
US = 7.6%
TX
UT
MT
CA
AZ
ID
NV
OR
IA
COKS
WY
NM
MO
MN
NE
OK
SD
WA
AR
ND
LA
IL OH
FL
GAAL
WI
VA
IN
MI
MS
KY
TN
PA
NC
SC
WV
NJ
ME
NY
VT
MD
NH
CT
DE
MARI
Source: OFHEO
Growth as of 4th quarter of 2005
Negative Appreciation
0-4.99%
5-9.99%
10-14.99%
Above 15%
US = 13%
1 Year Home Price Growth(2004-2005 Q4)
1 Year Home Price Growth (2005-2006 Q4)
TX
UT
MT
CA
AZ
ID
NV
OR
IA
COKS
WY
NM
MO
MN
NE
OK
SD
WA
AR
ND
LA
IL OH
FL
GAAL
WI
VA
IN
MI
MS
KY
TN
PA
NC
SC
WV
NJ
ME
NY
VT
MD
NH
CT
DE
MARI
Source: OFHEO
Growth as of 4th quarter of 2006
Negative Appreciation
0-4.99%
5-9.99%
10-14.99%
Above 15%
US = 6.1%
TX
UT
MT
CA
AZ
ID
NV
OR
IA
COKS
WY
NM
MO
MN
NE
OK
SD
WA
AR
ND
LA
IL OH
FL
GAAL
WI
VA
IN
MI
MS
KY
TN
PA
NC
SC
WV
NJ
ME
NY
VT
MD
NH
CT
DE
MA
US: 3.2%
RI
Negative Appreciation
0-4.99%
5-9.99%
10-14.99%
Above 15%
Source: OFHEO
YOY Growth as of 2nd quarter of 2007
1 Year Home Price Growth (2006-2007 Q2)
Truth #10: The Law of Supply and Demand has not been
repealed – this is a great time to buy!
As affordability drops, the number of qualified buyers declines.
The decline in buyers mean a reduction in demand.
With the reduction in demand, the supply of homes for sale (inventory) will increase.
As the inventory grows and prices drop, some buyers become more reluctant to buy.
The smart buyers know this is the time to buy. That’s why they call it “a buyer’s market” !!!
10.2
4.4
0
2
4
6
8
10
12
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
1
2
3
4
5
6
7
Housing Inventory (left axis) Existing Home Sales (right axis)
19 Years of Supply & Demand Shifts
Source: NAR
Buyers Market
Sellers Market
Months Million
So, what’s going to happen during this
period of affordability
recovery?
$0
$50,000
$100,000
$150,000
$200,000
$250,000
1970
1975
1980
1985
1990
1995
2000
2005
2010A Pessimistic Look at Affordability
Recovery:US Median Home Prices
A Realistic Look at the Recovery:
Median Sales Price - 1970 to 2020 - at 6.4% Appreciation
$0
$100,000
$200,000
$300,000
$400,000
$500,000
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Actual Projected at 6.4% Recovery
A More Conservative Look at Recovery:
Median Sales Price 1980 to 2020 at 4.3% Appreciation
$0
$100,000
$200,000
$300,000
$400,000
1980 1985 1990 1995 2000 2005 2010 2015 2020
Actual Trend at 4.3% Recovery
While the biggest issue for sellers is the sales price they will be able
to get . . .
. . . the biggest issue for real estate agents is the number of sales and
the amount of available commissions.
$0
$50
$100
$150
$200
$250
$300
$350
0
10
20
30
40
50
60
70
80
90
Housing Opportunity Index (right axis)
Median Home Price (left axis)
19
91 19
92 1
99
3 19
94 1
99
5 19
96 1
99
7 19
98 19
99 20
00 2
00
1 20
02 2
00
3 20
04 2
00
5 20
06 2
00
7Thousand
Source: NAHB/Wells Fargo
Some markets have been hit hard.
Las Vegas Housing Affordability
$60
$160
$260
$360
$460
$560
0
20
40
60
80
100
Housing Opportunity Index (right axis)
Median Home Price (left axis)
19
91 19
92 1
99
3 19
94 1
99
5 19
96 1
99
7 19
98 1
99
9 20
00 2
00
1 20
02 2
00
3 20
04 2
00
5 20
06 20
07
Thousand
Source: NAHB/Wells Fargo
Like really hard!San Diego Housing Affordability
$0
$100
$200
$300
$400
$500
$600
0
10
20
30
40
50
60
70
Housing Opportunity Index (right axis)
Median Home Price (left axis)
Thousand
Source: NAHB/Wells Fargo
19
91 19
92 1
99
3 19
94 1
99
5 19
96 1
99
7 19
98 1
99
9 20
00 2
00
1 20
02 2
00
3 20
04 2
00
5 20
06 20
07
Really, Really Hard!!!NY Metro Housing Affordability
Annual Existing Home Sales Single Family Homes (In Millions)
1970-2007
2007: 4.4M
2005: 6.2M
0
1
2
3
4
5
6
7
1970
1975
1980
1985
1990
1995
2000
2005
Source: NAR. 2007 numbers are projected based on September numbers
Million
Annual Existing Home SalesSingle Family Homes (In Millions)
1998-2007
4.5M 4.4M
0
1
2
3
4
5
6
7
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Million
Source: NAR
The Law of Equilibrium is Real
NAR Members vs Annual Sales
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
NAR Members Annual Sales
As thousands of agents leave the profession, the number of sales available to you is about to increase - IMMEDIATLY!
NAR Members vs Annual Sales
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
NAR Members Annual Sales