8/3/2019 2011 Residential Real Estate Economic Forum
1/100
Economic Issues &
Residential RealEstate Trends Forum
November 11, 2011
8/3/2019 2011 Residential Real Estate Economic Forum
2/100
Local Market Reports
Free to members
Contrast nationalperspective with localconditions
Create more accurate
picture of local conditionsFrame the discussion forthe sub-market
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
4/100
Sections
Metro prices and State Sales volume
Demand: Employment and unemployment
Supply: Construction, Foreclosures, andDelinquencies
Affordability measures
Mortgage Market
Special Topics
8/3/2019 2011 Residential Real Estate Economic Forum
5/100
HeadlineTrends
Long and shorttime horizon
Level andGrowth Rates
8/3/2019 2011 Residential Real Estate Economic Forum
6/100
Zooming In.
8/3/2019 2011 Residential Real Estate Economic Forum
7/100
DemandEmployment
Unemployment
Industry Strengths
Local Economic Index
8/3/2019 2011 Residential Real Estate Economic Forum
8/100
Supply
Construction istraditionally a
driver of housingsupply
8/3/2019 2011 Residential Real Estate Economic Forum
9/100
Supply
Foreclosuresand
delinquencies
are now alarge part ofthe housing
inventory
8/3/2019 2011 Residential Real Estate Economic Forum
10/100
AffordabilityMonthly
payment/Income
as well asprice/income
8/3/2019 2011 Residential Real Estate Economic Forum
11/100
Mortgage Market
Explanation of mortgage rate trends
8/3/2019 2011 Residential Real Estate Economic Forum
12/100
This sectionchanges topic
each quarter toaddress timelyinformation
Special Topics.
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
14/100
WWW.Realtor.org/Research
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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)
8/3/2019 2011 Residential Real Estate Economic Forum
18/100
Best Affordability Conditions
8/3/2019 2011 Residential Real Estate Economic Forum
19/100
Monthly Existing Home SalesFlat Line outside of Tax Credit
No Pick Up Despite Best Affordability
Tax Credit Impact
8/3/2019 2011 Residential Real Estate Economic Forum
20/100
20-Metro Case-Shiller Price Index
Remarkable Stability from 2009
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
22/100
Local Market Trends
Prices UpBismarck
Boston
Buffalo
San Diego
San Francisco
Washington, DC
Prices DownAtlanta
Chicago
Las Vegas
Miami
Phoenix
Portland, OR
8/3/2019 2011 Residential Real Estate Economic Forum
23/100
Newly Built Home Inventory(40 year lows)
In thousands
8/3/2019 2011 Residential Real Estate Economic Forum
24/100
U.S. Housing StartsLowest since the Second World War in the past three years
Housing Starts in thousands
8/3/2019 2011 Residential Real Estate Economic Forum
25/100
Existing Home Inventory(Elevated but Falling even as distressed and shadow inventory flows
in)
8/3/2019 2011 Residential Real Estate Economic Forum
26/100
Financial Industry Corporate Profits
8/3/2019 2011 Residential Real Estate Economic Forum
27/100
KBW Bank Stock Index(still down 64% from pre-crisis levels)
8/3/2019 2011 Residential Real Estate Economic Forum
28/100
Federal Reserve LooseMonetary Policy
via Fed Funds Rate and MBS purchase
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
31/100
First-Time Home BuyerShare Dropped
Source: 2011 NAR Home Buyers and Sellers Survey
8/3/2019 2011 Residential Real Estate Economic Forum
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%
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
34/100
Home Price vs Rent Price Change Potential?
(index = 100 in 1980)
Rent is CPI Primary Rent and Price is NAR median price
8/3/2019 2011 Residential Real Estate Economic Forum
35/100
CPI Rent is RisingPrice Change Potential?
(3-month moving avg., annualized rate)
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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.
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
39/100
Home Price to Income Ratio Price Change Potential ?
(Median single-family home price and median household income)
8/3/2019 2011 Residential Real Estate Economic Forum
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%
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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?
8/3/2019 2011 Residential Real Estate Economic Forum
44/100
Expensive Gold Price(Hedge against Inflation?)
Will Investors shift money to alternative inflation hedge instrument to real estate?
8/3/2019 2011 Residential Real Estate Economic Forum
45/100
Florida Home Sales Risingdespite/because of many distressed properties
8/3/2019 2011 Residential Real Estate Economic Forum
46/100
Arizona Home Sales Rising
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
48/100
Total U.S. Payroll Jobs Modest Recovery
(2.2 million job creation from low point in 2010)
In thousands
8/3/2019 2011 Residential Real Estate Economic Forum
49/100
High Unemployment Rate
Source: BLS
Economic Expansion
8/3/2019 2011 Residential Real Estate Economic Forum
50/100
Economic Expansion(GDP growth after recession should be
sustained 4% to 5% not 1% as in 1st half in 2011)
Desired Pace
8/3/2019 2011 Residential Real Estate Economic Forum
51/100
Consumer Confidence in the Tanks
8/3/2019 2011 Residential Real Estate Economic Forum
52/100
North Dakota Jobs Everywhere(Starting Wage at McDonalds $15 to 18 per hour)
In thousands
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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)
8/3/2019 2011 Residential Real Estate Economic Forum
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%
8/3/2019 2011 Residential Real Estate Economic Forum
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)
8/3/2019 2011 Residential Real Estate Economic Forum
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)
8/3/2019 2011 Residential Real Estate Economic Forum
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.
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
61/100
For Daily Update and Analysis
FACEBOOKhttp://www.Facebook.com/NarResearchGroup
@NAR_Research
8/3/2019 2011 Residential Real Estate Economic Forum
62/100
US Macro Overview
Dick PeachNovember 11, 2011
Disclaimer
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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)
8/3/2019 2011 Residential Real Estate Economic Forum
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)
Source: Bureau of Labor Statistics
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: Bureau of Economic Analysis
Real PCE
Real Disposable
Income
Personal
Saving Rate
70
Personal Saving Rate and Household Net Worth
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: Bureau of Economic Analysis
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Quarters Since NBER Peak
Source: Bureau of Labor Statistics
1973 Cycle
Current Cycle
Ratio Ratio
1981 Cycle
(Series Set to 1.0 at NBER Peak)
1990 Cycle
2001 Cycle
74
Single Family Housing MarketLevel Level
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
79/100
79
(Series Set to 1 00 at NBER Peak)Real Business Investment: Equipment and Software
8/3/2019 2011 Residential Real Estate Economic Forum
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
Quarters Since NBER Peak
Source: Bureau of Labor Statistics
1973 Cycle
Current Cycle
Ratio Ratio
1981 Cycle
(Series Set to 1.00 at NBER Peak)
1990 Cycle
2001 Cycle
80
(Series Set to 1 00 at NBER Peak)Real Business Investment: Nonresidential Structures
8/3/2019 2011 Residential Real Estate Economic Forum
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
Quarters Since NBER Peak
Source: Bureau of Labor Statistics
1973 Cycle
Current Cycle
Ratio Ratio
1981 Cycle
(Series Set to 1.00 at NBER Peak)
1990 Cycle
2001 Cycle
81
(Series Set to 1 00 at NBER Peak)Real Exports of Goods and Services
8/3/2019 2011 Residential Real Estate Economic Forum
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
Quarters Since NBER Peak
Source: Bureau of Economic Analysis
1973-75 Cycle
Current Cycle
Ratio Ratio
1981-82 Cycle
(Series Set to 1.00 at NBER Peak)
1990-91 Cycle
2001 Cycle
82
Senior Loan Officers SurveyNet Percent Net Percent
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
84/100
% Change 13-week AR % Change 13-week AR
Source: Federal Reserve Board
-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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: Bureau of Labor Statistics
Implicit Price Deflator
Unit Labor Costs
85
TIPS Based Inflation ExpectationsPercent Percent
8/3/2019 2011 Residential Real Estate Economic Forum
86/100
Source: Federal Reserve Board
-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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: Federal Reserve Board
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
Source: Federal Reserve Board
Reference Slides
8/3/2019 2011 Residential Real Estate Economic Forum
91/100
91
The Federal Fiscal Pipeline (Current Law)
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: CBO and authors calculations
% of GDP
With Budget Control Act Capson Discretionary Spending
Under Current Policy
With Budget Control Act
% of GDP
Federal Discretionary Outlays
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: CBO and authors calculations
% 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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Source: Federal Reserve Board
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
Source: Federal Reserve Board
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
8/3/2019 2011 Residential Real Estate Economic Forum
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
Top Related