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Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Leadership Summit Chicago, IL August 21, 2008 Home Sales Starting to Recover from Improving Affordability Conditions % change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted) Source: NAR Home Price Trend Source: NAR Sales Still Struggling % change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted) Source: NAR National Total Existing-Home Sales (Up markets + Down markets = Stable total) Stable Housing Stimulus Package • First-time Homebuyer Tax Credit – Up to $7,500 (but with repayment requirement) – Helps unleash chain reaction for trade-up buyers • Permanently higher Loan Limit – Up to $625,000 … covers most jumbo loans – Will lower “conforming jumbo” mortgage rates by 1% point (from say 7.5% to 6.5%) – Saving $4,000 in interest cost per year FHA Market Share for Home Purchase Source: HMDA, NAR Estimate Annual Existing-Home Sales at 1998 levels In thousand units 1998 vs 2008 • Existing Home Sales stable but trending at 10 year ago levels From 1998 to 2008 • 25 million more people • 13 million more jobs • Comparable affordability conditions • Is it credit tightening? • Is it excessive pessimism? Location, Location, Location: Makes a Big Difference! • All Real Estate is Very Local • Local Affordability and Local Job Market Conditions? • Steepest price declines are concentrated in neighborhoods with high subprime loans • Steep price declines attracting buyers Delinquency Rates Subprime vs. Prime Data: Mortgage Bankers Association Stresses are in Neighborhoods with Subprime Loans Price change from a year ago Yellow – Mostly Prime Conforming Loans Only (OFHEO) Orange – All Loans including subprime and jumbo loans (Case-Shiller) Red – Subprime Loans (NAR estimate based on weighted average) One For Every 100 Households • 100 households • 32 renters and 68 homeowners 22 have no mortgage 46 have mortgage 3 are delinquent 1 gets foreclosed 43 are current 2 work it out Historically only ½ gets foreclosed Homeowners in Denial ? • 62% of homeowners say no price decline • Most U.S. Markets are experiencing price decline • Price info gleamed from transacted homes and not all homes – More than usual number of transactions from REO-foreclosed, short-sales – 90% of homes are not on the market • Only 9% of homeowners have subprime loans • Homeowners have long-term view • Rural areas (land prices up 9%) Strong Job Growth States (Yet, Falling Sales because of mortgage tightening and buyer hesitancy) % change in job growth from one year ago Source: NAR Interest Rates (Long and Short) U.S. Single-Family Housing Starts In thousand units Source: Census Inventory of New Homes Fell Even as Sales Fell (Inventory will fall very fast if sales pick up) Source: Census Home Price Forecast • • • • • Falling inventory will help stabilize prices Ben Bernanke’s view … ? Alan Greenspan’s view … early 2009 800 Economists view … 2009 My view … – Watch out for Denver and Houston on fundamentals – Watch out for CA, NV, AZ, and FL on multibids – Watch out for Pitt, Indy, Cincy once jobs come around Economic Forecast • Consumers are angry • Businesses are OK • Exports booming • Net: Improving economy in the second half of 2008 • 2009 will depend on persistent or dissipating consumer anger GDP Growth % annualized growth rate Source: BEA U.S. Job Changes 7 straight months of job cuts 12-month payroll job changes in thousands Source: BLS Consumer Price Inflation Source: BLS Consumer Sentiment Source: University of Michigan Corporate Profits – Near Record High $ billion Source: BEA Exports Growing $ billion (2000-chain $) Commercial Real Estate Construction Spending $ billion (2000-chain $) Commercial Fundamentals • Vacancy Rates rising modestly … all across • Rent Growth slowing still positive in most markets and most property types • Multifamily holding up better • …Retail less so Euro vs Dollar Dollar Strength and Oil Price Economic Outlook 2007 2008 2009 GDP 2.0% 1.7% 1.5% CPI Inflation 2.9% 4.1% 2.6% Job Growth 1.1% 0.1% 0.2% Unemployment Rate 4.6% 5.5% 6.0% What will Happen to Fannie and Freddie? • Survive – Able to raise capital – Default rate slows • Do not Survive … become Bear Stearns • Treasury and Fed helps through the crisis – Repay the government after crisis – Chrysler model • Nationalization – Temporary government takeover – Re-privatize but with tighter regulation Sharp or Modest Rebound? • Depends on all of us in informing and educating consumers – Get the neighborhood information from local professionals – If ready financially, buy a home and get that special tax break – Mortgage rates off rock-bottom points but still historically favorable – Though no guarantee, buying a home has been a path to long-term wealth accumulation in vast number of cases – U.S. homes are on a big-time sale, own a piece of America