Real Estate Outlook Jan 2010
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Transcript of Real Estate Outlook Jan 2010
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Real Estate Market OverviewJanuary 2010
Stan Humphries, PhD
Chief Economist
206.470.7127
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• Case-Shiller usually reports
on the Composite-20 Indexwhich is dominated bybubble markets.
• Case-Shiller only looks atsingle-family homes(excludes condos/coops).
• Case-Shiller only includes
homes that have sold atleast twice (and excludes allnew construction)
• Case-Shiller includesforeclosure re-sales eventhough these aresubstantially different thannon-distressed sales.
• ZHVI looks at all homevalues, regardless of whathas sold or not.
• ZHVI does not includeforeclosure re-sales.
Differences Between Zillow Home Value Index (ZHVI) and Case-Shiller
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Home Values in the United States
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Foreclosures in the United States
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Local Markets: The Good, The Bad and The Ugly
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Local Real Estate Performance: The Good
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What Do the Good Look Like? Los Angeles Home Values
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What Do the Good Look Like? Los Angeles Foreclosures
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Local Real Estate Performance: The Bad
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What Do the Bad Look Like? Tampa Home Values
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What Do the Bad Look Like? Seattle Foreclosures
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Local Real Estate Performance: The Ugly
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What Do the Ugly Look Like? Las Vegas Home Values
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What Do the Ugly Look Like? Las Vegas Foreclosures
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Continuing Challenges for Housing Market
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Negative Equity + Unemployment = More Foreclosures
Metro marketswith the highest
rates of negativeequity
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Negative Equity Among the Largest Metro Markets
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Lots of Vacant Inventory
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• Up 40 BPSsince earlyDecember
• Likely toincreasefurther as Fedcontinues toramp down
purchase of MBS
Mortgage Rates Rising Again
Source: Zillow.com; see real-time rates and historical charts athttp://www.zillow.com/Mortgage_Rates/
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Mortgages Continue to Reset and Recast
Source: Deutsche Bank Global Markets Research
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Internal Dynamics of the Current Real Estate Market
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• In most metro areas,the value of the lowerthird of homes hasfallen farther than thevalue of the uppertwo-thirds.
• This holds true inmetro areas like SanFrancisco, New York,Los Angeles, Chicago,Philadelphia, Atlanta,
Detroit, Boston, etc.
Low-End Homes Falling Faster than High-End Homes
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• The trend of
differencesbetween pricetiers plays outgeographically,as well.
• San Franciscometro cities andtowns with ahigher ZillowHome ValueIndex show lessof a decline.
Low-End Homes Falling Faster than High-End Homes, Cont’d
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• In some metroregions, however, thethree price tiers arebehaving similarly.
• This is true in theSeattle, Miami,Portland, Ore. andOrlando metros.
Low-End Homes Falling Faster than High-End Homes, Cont’d
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• In the Seattle
metro area,trends indepreciationseemindependent of home values.
Low-End Homes Falling Faster than High-End Homes, Cont’d
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Foreclosures Move Up-Market
• Homes in the top one-third of home values
now make up twice theproportion of foreclosures they didthree years ago.
• In 2006, the top one-third made up 16% of foreclosures.
• In July 2009, they madeup 30%.
• High delinquency ratesin Prime, Alt-A andOption Adjustable Ratemortgages result inforeclosures outside of subprime.
• Cure rates are low, andwith 21% of all single-family homes withmortgages underwater,they will likely stay low.
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Foreclosures are a Distinct Market from Non-Foreclosures
• Foreclosures sell for
substantially lessthan non-foreclosures, evenafter controlling forlocation and physicalspecifications.
• In Seattle, foreclosedhomes currently sellfor 81% of non-foreclosure saleprice.
• Across all metros,foreclosures sell forabout 72% of non-foreclosure saleprice.
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• More foreclosures in
an area do lead to asmaller gap betweenforeclosure and non-foreclosure prices.
• But this discount israrely less than 20%.
• Methodology:Comparing actualsales of foreclosuresand non-foreclosuresto Zillow valuation
(Zestimate)
Foreclosures are a Distinct Market from Non-Foreclosures, Cont’d
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• Home values will continue to fall until Q2 2010
• Likely another 5% decrease in the ZHVI for a total peak-to-trough decline of 25%.
• Further declines driven by foreclosures (themselves drivenby negative equity and unemployment as well as by moremortgage resets/recasts), increasing mortgage rates, analready high supply of for-sale homes, and weaker demandafter the homebuyer tax credits lapse due to demand-
shifting.
• Very anemic appreciation after bottom is reached; may notappreciate at all in real terms for next 3-5 years.
Conclusions