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Real Estate Update: Have we reached bottom? Midwest Relocation Conference Chicago, Illinois April 4, 2011 Moderator: Carol Mescal, CRP | VP Client Relations, TheMIGroup Speakers: Jed Smith, Ph.D | Director, Quantitative Research, National Association of Realtors Deborah Benavides, CRP | Director, Relocation and Corporate Services, Shorewest Realtors Barbara Springer, CRP,GMS, CMS | Tim Rohlman, CRP | Executive Vice President, Relocations and Referral Services @Properties President, Relocation Real Estate Services, Inc. National Association of Realtors Jed Smith Director, Quantitative Research, National Association of Realtors The Economy – How We Got Here! Excessive Spending & Leverage, Speculation, Job & Credit Problems, Weak Balance Sheets & Income, Consumer Confidence Problems May 2008 Jun 2008 July 2008 Aug 2008 Sep 2008 2009 Current State of the Economy GDP and Jobs – Slow Recovery All Employees: Total Nonfarm SA, Thous Gross Domestic Product SAAR, Bil.$ 140000 15000 130000 12500 120000 10000 110000 7500 100000 5000 90000 80000 2500 85 Sources: BLS, BEA 90 95 00 05 10 03/11/11 Current State of the Economy – Consumer Confidence Too Much Gossip Around the Cyber Cracker Barrel Conference Board: Consumer Confidence SA, 1985=100 150 150 125 125 100 100 75 75 50 50 25 25 80 85 Source: The Conference Board 90 95 00 05 10 03/10/11 Current State of the Economy Unemployment Rate Civilian Unemployment Rate: 16 yr + SA, % 12 12 10 10 8 8 6 6 4 4 2 2 55 60 65 70 Source: Bureau of Labor Statistics 75 80 85 90 95 00 05 10 03/10/11 Current State of the Housing Market Longer Unemployment: Slow to Find a Job Civilians Unemployed for 27 Weeks and Over SA, Thous. 8000 8000 6000 6000 4000 4000 2000 2000 0 0 55 60 65 70 Source: Bureau of Labor Statistics 75 80 85 90 95 00 05 10 03/10/11 20 00 20 - J 0 an 20 0 01 Ju l 20 - J a 0 n 20 1 02 Ju l 20 - J 02 an 20 03 Ju l 20 - J 03 an 20 04 Ju l 20 - J 04 an 20 05 Ju l 20 - J 0 an 20 5 06 Ju l 20 - J 0 an 20 6 07 Ju l 20 - J a 0 n 20 7 08 Ju -J l 20 a 0 n 20 8-J 09 ul -20 Ja 09 n 20 - J 10 ul 20 -Ja 10 n 20 - J 11 ul -J an Current State of the Economy – More Jobs Needed! Projected Time for Recovery: Four Years? 145000 135000 125000 Source: BLS Forecasting the Outlook: Black Swans Unknown Unknowns / Unanticipated Risks Uncertainties and Unknowns Impact on the Economy • Federal and State Government Budgets • Oil: Prices and Availability • European Credit Markets • GSE and Financial Reform • Credit Availability/Inflation/Uncertainties • Consumer Confidence • Structural Changes? • Federal Policies—Key Impacts • GDP into Jobs—When Will it Happen? The Economy – Economic Outlook Government Actions / Policies – Can Impact Outcome 2007 2008 2009 2010 2011 2012 2.0 0.4 -2.6 2.9 2.7 3.0 1.1 -0.4 -4.4 -0.7 1.4 2.2 2.9 3.8 -0.3 1.6 2.4 3.3 Annual Growth Rate Real GDP Non-farm Payroll Employment Consumer Prices Real Disposable Income Consumer Confidence 2.8 0.5 0.6 1.4 1.4 2.0 103 58 45 54 65 70 Unemployment Pct. 4.6 5.8 9.3 9.6 9.2 8.4 5,652 4,913 5,156 4,907 5,305 5,579 776 485 376 317 334 520 1,355 904 554 586 628 948 219.0 198.1 172.5 172.9 172.2 177.7 247.9 232.1 216.7 221.9 226.0 233.8 Housing Indicators—000 Existing Home Sales* New Single-Family Sales Housing Starts Existing Home Prices $--000 New Home Prices Current State of the Housing Market What Buyers and Sellers Face • Price—Major Declines • Volume—Has Declined, relatively flat for 3 years • Homeowners With Mortgages—25 percent negative equity, 25 percent minimal equity • Credit Markets—Good interest rates, but higher standards for qualification • Consumer Confidence—Substantially less • Mortgage Delinquencies • Distressed Sales—Major part of Market • Substantial Difference between Buyer and Seller Expectations Current State of the Housing Market Distressed Property: Will Probably Continue for Several Years Current State of the Housing Market Distressed Property Sells at a Discount to Market Current State of the Housing Market Housing Months Supply – Existing Home Sales NAR Months' Supply of Total Existing Homes, United States Months 12.5 12.5 10.0 10.0 7.5 7.5 5.0 5.0 2.5 2.5 99 00 01 02 03 Source: National Association of Realtors 04 05 06 07 08 09 10 03/10/11 Current State of the Housing Market Housing Demand for New Space Above Supply Approximations: Second Home—100K; Replacements—400K; New HH—1000K Demand: 1 to 1.5 million New Units Per Year Supply: Currently Less than 900K Per Year Current State of the Housing Market Prices Relative to Median Income Have Declined Significantly Current State of the Housing Market Significant Loss of Wealth During Great Recession Households & Nonprofit Organizations: Net Worth NSA, Bil.$ 67500 67500 60000 60000 52500 52500 45000 45000 37500 37500 30000 30000 99 00 01 02 Source: Federal Reserve Board 03 04 05 06 07 08 09 10 03/10/11 Current State of the Housing Market Household Debt Still Relatively High Current State of the Housing Market Distressed Property -- Issues • Shadow Inventory – Delinquencies—Toxic Loans, Job Losses, Upside Down Mortgages • HAMP—Qualification, Recidivism • Regional Concentrations • March 2010 Estimate: 2.5 million homes in Shadow Inventory • Past Due—8.22% of mortgages • In Foreclosure—4.63% of mortgages • Bifurcated Market Where are we now? Recent Real Estate Market Experience • Financial System: Cleaning Up From The Tsunami – Weakened Balance Sheets, Increased Risk Aversion – Financial Institutions: Credit less available • Impacting Housing Markets: Debris from Tsunami – Major Loss of Wealth, Low Consumer Confidence, Lost Jobs – Distressed Property: Foreclosures and Short Sales – Negative Equity • Current Housing Markets: Concern Over Outlook – Residential Sales: Recovering, Price, Foreclosures, Supply Consumer Mood/Debt/Wealth are Issues – The Numbers Don’t Indicate A Price or Sales Surge: Slow Recovery – KEY ISSUE: Jobs Current State of the Housing Market Interest Rates: Near Historic Lows 1 Yr. Arm 30 Yr Fixed 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 n pr c t a n pr uly c t a n pr uly c t a n ul ct an pr uly a J O O O - J - A 7 - 7 - O - J 8-A 8-J 8- 9-J 9-A 9-J 9- 0-J 0-A 0-J 0-- 1-J 07 007 00 00 008 200 200 200 200 200 200 200 201 201 201 01 201 0 2 2 2 2 2 2 Source: Freddie Mac 90 19 - Ja 91 n 19 - Ja 92 n 19 - Ja 93 n 19 - Ja 94 n 19 Ja 95 n 19 - Ja 96 n 19 - Ja 97 n 19 - Ja 98 n 19 Ja 99 n 20 - Ja 00 n 20 - Ja 01 n 20 - Ja 02 n 20 Ja 03 n 20 - Ja 04 n 20 - Ja 05 n 20 - Ja 06 n 20 Ja 07 n 20 Jan 08 20 Jan 09 20 Jan 10 20 Jan 11 -J an 19 Current State of the Housing Market Housing Affordability: Median Mortgage Payment (Principle & Interest) as Percent of Income Current Average 30 25 20 15 10 Source: NCR Current State of the Housing Market Home Price Trends – Leveling Out Radar Logic 28-Day House Price, 25 MSA Composite ($/Sqft) S&P/Case-Shiller Home Price Index: Composite 20 (SA, Jan-00=100) FHFA House Price Index: Purchase Only, United States (SA, Q1-91=100) Freddie Mac House Price Index, United States (Dec 2000=100) 280 225 200 240 175 200 150 125 160 100 120 75 99 00 01 02 Sources: RL, S&P, FHFA, FHLMC 03 04 05 06 07 08 09 10 03/10/11 Forecast: Changing Home Sales Percent Change - Actual and Projected 13 10 7 4 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 -2 1990 1 -5 -8 -11 -14 Source: NCR -2 -14 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Forecast: Changes in Median Home Prices Actual and Projected 13 10 7 4 1 -5 -8 -11 Source: NCR Concluding Comments In a Recovery Mode • Issues and Good News – – – – – Probably Near the Bottom—Some Markets Doing Well Major Issues: Uncertainties, Black Swans, Distressed property Fannie Mae Survey: 75%--increasing prices Gen Y—Larger than Boomers—Live in Apartments—Want Houses Jobs the major market influence • Increased Understanding of Home Ownership Dream – A HOME is for your family—for living – Long term lifestyle decision – Investment aspects secondary • Good time to buy a house IF: – Financially Qualified and Prudent – Understand Market Trends, The News, Uncertainties Headlines Sell Papers Much Less Drama Than Suggested by the News • Back to Normal – Home—A Major Decision – Avoiding Flipping, Speculation, Excesses Home Ownership Dream • Working Out of the Mess – Continuing Impacts on Buyer Psychology/Moods – Changed Markets – New Requirements/Ways of Doing Business • Implications for Mobility – Transfers in Today’s Economy and Housing Markets – Possible Changing Buyer Demands – Implications for Services Expected Southeastern Wisconsin Real Estate Market Deborah Benavides, CRP Director, Relocation and Corporate Services, Shorewest Realtors Wisconsin Regional Reports Region Median Price 2010 2009 % Change Sales % Change 2010 2009 Southeast 156,500 157,000 -0.3% 17,682 19,871 -11% South Central 162,500 164,900 -1.5% 10,236 11,257 -9.1% West 133,500 131,000 +1.9% 5,793 6,205 -6.6% Northeast 125,000 122,000 +2.5% 8,914 9,550 -6.7% Central 110,000 114,900 -4.3% 3,355 3,445 -2.6% North 120,000 115,500 +3.9% 4,888 4,675 +4.6% STATEWIDE 141,000 142,500 -1.1% 50,945 Source: WRA 55,089 -7.5% Southeastern (4 County) Wisconsin - Solds Source: GMAR Southeastern Wisconsin - Listings Source: GMAR Annual Ratio (Listings: Sales) Source: GMAR Southeastern Wisconsin Months of Inventory Source: GMAR Wisconsin’s Guidelines 2004 – 3-5% down on conventional loans 2010 – 15-20% down Source: WSJ 02/16/2011 Pg. A2 . . . median existing home ownership costs are now below median new apartment rental rates . . . Sources: U.S. Census and Marquette University. Existing home housing payment assumes a 90% loan-tovalue, prevailing 30-year mortgage interest rates, and a 1.2% real estate tax rate. Employment Outlook Source: MMAC Unemployment vs Home Values vs Absorption 2008 6% -5% 9 month 2009 8% -9% 11 month 2010 8% -12% 12 month Currently 7.4% ?? 13 month Source: MMAC Condo Conditions – SE WI • Depressed, oversupply; lagging behind in sales • Issues: condo associations have little or no reserve => banks unwilling to make loans unless 20% down (no PMI coverage) • Converted from condos to apartment • 3-5 year recovery – longer to reach 2005 peak Unique Challenges in Region • State Budget - moved focus away from jobs to • Income / benefits • Creating a lot of unknowns and uncertainty • Paralyzing people => decrease in sales Positive News • Increase in web traffic • Median house prices ’09-10 remain stable • Sales expected to pick up 2nd half 2011 Have We Reached Bottom? 1. Pent-up potential from new household formation Have We Reached Bottom? 2. Minorities will play an increasing role in all housing markets; 3. Multifamily demand will bounce back with increased occupancy rates and solid rent growth; 4. Single-family will continue to struggle with the large shadow housing market; 5. Delinquency, default, and foreclosure rates will make nice improvements throughout the year; Interest rates will remain wellbehaved around current rates; and 6. Housing is the most affordable as it has been in half a century. The Chicagoland Real Estate Market Barbara Springer, CRP, GMS Executive Vice President, @Properties Headlines in Illinois today • Homeownership hits new 8-year low as residents seek refuge in Renting • Local Illinois home prices post 13th quarterly fall • Suburban apartment rents up 7.4% in fourth quarter • Condo deals die in shadows of financially distressed buildings • Developer turning former nursing home into rentals • Jimmy Johns Checks out Florida to Flee Illinois Tax • Caterpillar tells Governor Quinn tax hike could drive it from Illinois Chicagoland Real Estate Market Significant Influences • Illinois income tax increase to help address billions of dollars in state budget shortfalls. The corporate income tax rate increased from 4.8 to 7 percent and individual income tax from 3 percent to 5 percent. • U.S. decline on a weak job market and a bloated supply of unsold homes, including properties in foreclosure or those facing a short sale, which typically are priced less than normal properties. • a shrinking population may also explain why soft demand is pushing Chicago's prices lower. Chicago's population decreased nearly 7% to 2.7 million in 2010, compared to 2.9 million in 2000, while Cook County's population fell roughly 3.4% to 5.2 million in the same period, according to the U.S. Census. • It could take us take a lot longer to see the gains we've seen in other markets. Foreclosure Activity by Month 6 Month Trend Falling Source: Realty Trac Foreclosure Status Distribution and Estimated Market Value throughout Illinois Highest Availability 100-200K Source: Realty Trac Foreclosure Actions In Illinois 1 in every 552 housing units received a foreclosure filing in February 2011 Source: Realty Trac Geographical Comparison - Chicago, IL Foreclosure filings in the six-county Chicago region climbed 14.1% to 79,986 last year, compared with 70,122 in 2009. Geographical Comparison Is your area’s foreclosure rate as high as state and national averages? Home Loans will be harder to get We went from the WILD lending days to almost a lock down and have suffocated the market. Mortgage Jail The situation is slowing any recovery of the condo market, often the housing of choice for first-time buyers. Owners in troubled buildings aren't able to refinance, and sellers who want or need to sell find thin ranks of buyers. Last year, 42.5 percent of all initial foreclosure filings in the sixcounty Chicago area were against condos. Chicagoland Condo Market The fourth quarter for the city of Chicago shows true signs of stabilization and health returning to the marketplace, and performing without the temporary Federal Homebuyer Tax Credit, which expired in April 2010. The Chicago condo market during this period showed an increase in the average price of 4.7 percent, to $331,131, up from $316,163 during the same time in 2009. Apartments Apartment landlords are capturing a bigger slice of the housing pie these days as more people favor renting over buying, whether they can't qualify for a mortgage or are scared that local home prices have further to fall. But the most important driver of apartment demand — the job market — remains stuck in low gear, meaning landlords, while thriving now, could see more gains when hiring picks up. Housing Price Forecasts Illinois Metropolitan Statistical Areas Source: Illinois Association of Realtors Have we hit bottom? In St. Louis, the Real Estate Sky Is Falling …. or is it? Tim Rohlman President, Relocation Real Estate Services, Inc. Don’t Let the Media Mislead You Bad News Sells…… The Real Truth is in the Details But you have to work to find it. Zip Codes Tell Different Stories Location, Location, Location Location, Location, Location St. Charles Area West County Midtown St. Louis West County St. Louis West County Chesterfield Ballwin 63005 63017 63011 Number of Days on Market Homes For Sale vs. Sold Chesterfield St. Louis Midtown St. Louis Midtown Central West End St. Louis City 63105 63108 63110 Number of Days on Market Homes For Sale vs. Sold Clayton St. Charles Area St. Charles Area O’Fallon St. Charles 63385 63366 63301 Number of Days on Market Homes For Sale vs. Sold Wentzville Conclusion In St. Louis, the Real Estate Sky Is NOT Falling Go with the FACTS, Not the HEADLINES “Depending upon your outlook, and if you do your homework, today’s real estate market is very, very promising .”