Economic and Housing Market Trends and Outlook

Transcription

1 Economic and Housing Market Trends and Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation to Memphis Area Association of REALTORS Memphis, TN April 2, 213

2 Forecast #1: Inflation will be Notably Higher by 215 No Threatening Inflation Signs for 213 But Inflation rises to 4% to 6% in 215 Well above Fed s preferred rate of 2% But not in double-digits as in 197s

3 Economy Growing, though Slowly (No Fresh Recession because of Housing Recovery) Real GDP Growth Rate %

4 2 - Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Household Net Worth $ billion

5 2 - Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Homeowner Equity as % of Total Value LTV

6 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Credit Card Bill Outstanding (in $billion)

7 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Credit Card Delinquency Rate days late 3 days late 1

8 Consumer and Business Spending Growth 15 % Business Consumer

9 Shrinking Trade Deficit ($ billion in 25 dollars)

10 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul In thousands U.S. Total Payroll Jobs (Recovered 7% of jobs lost)

11 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Employment Rate (How many are working, rather than how many are unemployed) 66% 64% 62% 6% 58% 56% 54%

12 Consumer Price Inflation (% change from one year ago) Core Overall

13 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Rising Renters and Homeowners Rent Growth (the biggest weight to Consumer Price Index) Owners' Equivalent Rent Renters' Rent -1

14 % Monetary Policy by Federal Reserve (zero rate policy to 215?) Fed Funds

15 Federal Reserve Balance Sheet from Quantitative Easing $ million Total Assets 1-Aug-7 1-Aug-8 1-Aug-9 1-Aug-1 1-Aug-11 1-Aug-12

16 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Velocity of Money (Nominal GDP to M2)

17 Federal Government Tax Revenue and Spending Revenue Spending month tally in $ million

18 Government Spending Growth 8 % State Federal

19 % Mortgage Rate Forecast (Average Rate of 5.5% in 215?) 3-year Mortgage

20 Forecast #2: Meaningfully Higher Home Prices Demand is Up Supply is Down 5% in 212 (Case-Shiller, FHFA) 7% in 212 (Median Home Price) Home price growth could slow or accelerate all depends on housing starts Probably 15% cumulative growth over 3 years

21 Monthly Pending Home Sales Index (Seasonally Adjusted) Homebuyer Tax Credit Source: NAR

22 2 2 - Aug 21 - Mar 21 - Oct 22 - May 22 - Dec 23 - Jul 24 - Feb 24 - Sep 25 - Apr 25 - Nov 26 - Jun Aug 28 - Mar 28 - Oct 29 - May 29 - Dec 21 - Jul Feb Sep Apr Nov Existing Home Sales 7,5, 7,, 6,5, 6,, 5,5, 5,, 4,5, 4,, 3,5, 3,,

23 Apr 28 - Jul 28 - Oct Apr 29 - Jul 29 - Oct Apr 21 - Jul 21 - Oct Apr Jul Oct Apr Jul Oct Buyer and Seller Traffic from REALTOR Survey Buyer Seller

24 Second Home Sales 4 In thousands Investment Vacation

25 Housing Affordability Index

26 Existing Home Inventory (Bouncing at 13-year lows)

27 Month-to-Month Inventory Change 25 2 Weaker Inventory Growth ??? Average Change Last Year This Year Jan. to Feb. Feb. to March March to April

28 Visible New Home Inventory (Newly Constructed Homes Inventory at 5-year low)

29 2 - Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Shadow Inventory Falling (Seriously delinquent mortgage + homes in foreclosure process) million units Distressed Sales Market Share 21 33% % % % 214 8% 215 5%

30 25 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Foreclosures Rapidly Falling in Non-Judicial States Example: Seriously Delinquent Mortgages in AZ, CA, MI AZ MI %

31 25 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Foreclosures Clogged in Judicial States Example Seriously Delinquent Mortgages in CT and IL 12 CT IL 1 %

32 25 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Tennessee Seriously Delinquent Mortgages % TN

33 Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Home Price Change (% change from one year ago) Blue = NAR Median Price Red = Case-Shiller Index

34 Housing Starts (Well Below 5-year average of 1.5 million each year) 25 multifamily Thousand units (annualized) single-family 2 15 Long-term Average

35 Household Formation Bursting Out (in millions)

36 Axis Title Household Formation boost Renters and Owners Net New Renters and Owners in thousands Net New Renters Net New Owners Q Q Q Q

37 Memphis Housing Statistics Sales up 22% in 213 year-to-date Median Prices up 18% Dollar Volume up about 4%

38 Household Formation Bursting Out (in millions)

39 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 14 In thousands U.S. Total Payroll Jobs (Recovered 63% of jobs lost)

40 2 2 - Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 213 Memphis Payroll Jobs 66 In thousands

41 4,5, 4,, 3,5, 3,, 2,5, 2,, 1,5, 1,, 5, Visible Existing Home Inventory (Existing home inventory at 8-year low)

42 Visible New Home Inventory (Newly Constructed Homes Inventory at 5-year low)

43 Memphis Housing Permits (year-to-date)

44 199 - Q Q Q Q Q Q Q Q Q Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q1 Home Price Index Memphis Phoenix

45 Forecast #3: More Unequal Wealth Distribution Renters do not accumulate wealth Renter population rising Homeowners build wealth after buying at low prices Stagnant homeowner population Tight Credit hinders good renters from becoming homeowners Investors becoming increasing share of property owners

46 2 - Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Net Equity in Real Estate In $ billion Bubble growth 12 1 If 4% annual gain

47 Wealth Distribution (Federal Reserve data on median net worth) $3, $25, Bubble Crash $2, $15, $1, $5, $ Renter Owner 214 Forecast by NAR

48 198 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q1 Renter Households 41, In thousands 39, 37, 35, 33, 31, 29, 27, 25,

49 198 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 2 - Q Q Q Q Q Q Q Q Q Q Q Q Q1 Homeowner Households 8, 75, In thousands 7, 65, 6, 55, 5,

50 21 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Financial Industry Profits (excluding Federal Reserve) 5 $ billion

51 Small Sized Banks Had Been the Source of Construction Loans; But, Big Banks getting Bigger Bringing Too-Big-to-Fail Problem 6% 5% 4% 3% 2% 1% % Top 1 Banks' Share of Total Deposits Source: Janicki and Prescott, BankRate.com

52 Banks/Regulators Restricting Credit (Average Credit Scores of Approved Loans) Normal 29 to 212 If Normal Fannie to Freddie to FHA to % to 2% Higher Sales

53 Forecast (If Prolonged Fiscal Cliff is Avoided) Forecast 214 Forecast GDP Growth +1.8% +2.1% +1.8% 3.% Existing Home Sales 4.3 million 4.7 million 5. million 5.4 million Housing Starts 61 K 78 K 1.1 million 1.4 million Existing Home Price Growth - 4% + 6% + 7% + 4% 3-yr Mortgage Rate 4.7% 3.7% 3.9% 4.7%

54 Risks to Forecast Upside Credit Availability Housing recovery so far even with tight credit What happens if mortgage accessibility opens up? Downside Washington Policy Rising g-fees and FHA insurance premiums QRM 2% down payment requirement? Basel 3 capital rule that punishes private mortgage with low down payment and commercial loans Trim mortgage interest deduction? Capital gains tax on home sale?

55 For Daily Update and Analysis