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
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