Economic Outlook in Uncertain Times Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation to Silicon Valley Association of REALTORS October 11, 2010
Federal Reserve FOMC Ben Bernanke (Chairman): Outlook remains unusually uncertain Alan Greenspan (former Chairman): If home prices start falling again, we could be facing a double dip dip recession James Bullard (St. Louis Fed) (St. Louis Fed): The U.S. is closer to a Japanese style style deflationary outcome Thomas Hoenig (Kansas City Fed) (Kansas City Fed): Too rapid money creation results in eventual high inflation To speak at NAR conference in New Orleans
GDP Growing, but Decelerating annualized % growth rate
Pending Contracts on Existing Homes Tax Credit Impact
California Existing Home Sales: Quarterly Change 700 600 500 400 300 200 100 0 In thousands, annualized and seasonally adjusted Tax Credit Impact?
Metro Median Home Price 900 800 700 600 500 400 300 200 100 0 $ thousand San Jose San Francisco Source: NAR
Case Shiller Home Price for San Francisco
Metro Median Home Price 350 300 $ thousand 250 200 150 100 50 Las Vegas Columbia 0 Source: NAR
Share of First Time Buyers
Corporate Profits and Business Spending $ billion
U.S. Private Sector Job Gains (763,000 from Jan. to Aug. 2010) Month to to month job gains in thousands
In thousands Total Payroll Jobs in San Jose Sunnyvale Sunnyvale Santa Santa Clara 1200 1100 1000 900 800 700 Source: BLS
Total Payroll Jobs in Michigan 5000 In thousands 4500 4000 3500 Source: BLS
Total Payroll Jobs in Washington D.C. Metro 2600 In thousands 2400 2200 2000 Source: BLS)
In thousands 140000 135000 Total Payroll Jobs Long Way to Go Before Full Recovery 130000 125000 Source: BLS
Weekly 1 st time Unemployment Claims: Need to Fall Further In thousands
Still High Months Supply of Existing Home Inventory Post Tax Credit
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Number of Distressed Loans Mortgage Payments Past Due 30 59 Days Mortgage Payments Past Due 90+ Days Mortgage Foreclosures Started Mortgage Foreclosure Inventory Thousands 2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3 2007/Q4 2008/Q1 2008/Q2 2008/Q3 2008/Q4 2009/Q1 2009/Q2 2009/Q3 2009/Q4
U.S. Housing Starts
Newly Built Homes on the Market
Depressed Housing Starts in Bay Area MSA (S.F., San Jose, Oakland, Fremont) In thousands 60,000 50,000 40,000 30,000 20,000 10,000 0
10 Year Treasury impacted by Inflationary Expectations
Inflationary Pressure? Indicator % change from one year ago Consumer Price Index 1.2% Producer Price Index (Finished Product) Producer Price Index (Intermediate Product) Producer Price Index (Crude Product) 3.0% 5.0% 18.2% Dow Jones Commodity Spot Price Index 21.1% Gold Price Record High Price
Baseline Outlook Moderate GDP Expansion 2 to 2.5% in the next 2 years (historical average is 3%) 1 to 1.5 million annual job additions in the next 2 years Unemployment rate of 8% in 2012 and normal 6% in 2015
Baseline Outlook Cont. Mortgage Rates rising to 5.7% in 2011 and 6.2% in 2012 and higher in later years Home values no meaningful change in the national price in the next 2 years Housing Starts to rise 40% to 50% in 2011 to about 900,000 from exceptionally low levels of the past two years (historical normal l is 1.5 million) Home sales will struggle in the near term (after tax credit hangover) and then rise in line with job growth
Alternative Outlooks High inflation people desire tangible investment like real estate, but interest rate will be higher Deflation people hold back for better price holds back economy Budget deficit tipping point higher interest rate and sharp cut back in standard of living Sharp 4% to 5% GDP growth release of pent up housing demand (30 million more people today versus 2000 when home sales were similar) surprisingly higher home sales and home prices
Homeownership Matters Campaign
Housing Market Bubble and Collapse Unprecedented Boom and Bust: 2000 to 2010 Sales Boomed and Retreated Prices Overshot and Corrected Fundamental Back to Justifiable Levels Why? Not Long standing Housing Policy but from Credit Market Bubble
Existing Home Sales In million units 29
Home Sale to Jobs 30
National Median Home Price 250,000 200,000 150,000 100,000 50,000 0 Source: NAR
Home Price to Income Ratio 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0 Stay within Budget and all will be OK! Source: NAR
Mortgage Credit Market Share 100 75 Traditional 50 25 Subprime and Alt-A Home Equity 0 2003 2005-2006 2009-2010 Source: NAR
Subprime/Alt A/Home A/Home Equity Mortgage Credit Dollars 1,600 1,400 $ billion 1,200 1,000 800 600 400 200 0 2003 2005-2006 2009-2010 Source: NAR estimate based on Inside Mortgage Finance data
Long Term Path to Self Reliance may be Helped from Long Term Housing Wealth Gains 2007 $300,000 $250,000 $200,000 Median Family Net Worth 1998 2001 2004 2007 2010 $150,000 1995 $100,000 $50,000 $0 1995 1998 2001 2004 Renter 2007 2010 Homeowner Source: Federal Reserve, NAR estimate for 2010
Housing Policy Mortgage Interest Deduction FHA Self financing without ever needing taxpayer funds (as of yet) GSE Made mistakes and need to be restructured Affordable Housing Goals Need to assure successful outcome not numbers of homeowners initially helped