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
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
-1-2 -3-4 Economy Growing, though Slowly (No Fresh Recession because of Housing Recovery) Real GDP Growth Rate 4 3 2 1 %
2 - Q1 2 - Q4 21 - Q3 22 - Q2 23 - Q1 23 - Q4 24 - Q3 25 - Q2 26 - Q1 26 - Q4 27 - Q3 28 - Q2 29 - Q1 29 - Q4 21 - Q3 211 - Q2 212 - Q1 212 - Q4 Household Net Worth 7 65 6 55 5 45 4 35 3 $ billion
2 - Q1 2 - Q3 21 - Q1 21 - Q3 22 - Q1 22 - Q3 23 - Q1 23 - Q3 24 - Q1 24 - Q3 25 - Q1 25 - Q3 26 - Q1 26 - Q3 27 - Q1 27 - Q3 28 - Q1 28 - Q3 29 - Q1 29 - Q3 21 - Q1 21 - Q3 211 - Q1 211 - Q3 212 - Q1 212 - Q3 Homeowner Equity as % of Total Value 7 6 5 4 3 2 1 1 - LTV
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Credit Card Bill Outstanding (in $billion) 5 45 4 35 3 25 2 15 1 5
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Credit Card Delinquency Rate 7 6 5 4 3 2 9 days late 3 days late 1
Consumer and Business Spending Growth 15 % Business Consumer 1 5-5 2 21 22 23 24 25 26 27 28 29 21 211 212-1 -15-2
Shrinking Trade Deficit ($ billion in 25 dollars) -1 2 21 22 23 24 25 26 27 28 29 21 211 212-2 -3-4 -5-6 -7-8
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 14 In thousands 138 136 134 132 13 128 126 124 U.S. Total Payroll Jobs (Recovered 7% of jobs lost)
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Employment Rate (How many are working, rather than how many are unemployed) 66% 64% 62% 6% 58% 56% 54%
197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 Consumer Price Inflation (% change from one year ago) 16 14 12 1 8 6 4 2-2 -4 Core Overall
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Rising Renters and Homeowners Rent Growth (the biggest weight to Consumer Price Index) 5 4 3 2 1 Owners' Equivalent Rent Renters' Rent -1
6 5 4 3 2 1 % Monetary Policy by Federal Reserve (zero rate policy to 215?) Fed Funds
Federal Reserve Balance Sheet from Quantitative Easing 35 3 25 2 15 1 5 $ million Total Assets 1-Aug-7 1-Aug-8 1-Aug-9 1-Aug-1 1-Aug-11 1-Aug-12
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Velocity of Money (Nominal GDP to M2) 2.2 2. 1.8 1.6 1.4 1.2 1.
197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 Federal Government Tax Revenue and Spending Revenue Spending 4 35 3 25 2 15 1 5 12-month tally in $ million
Government Spending Growth 8 % 6 4 2 State Federal -2 2 21 22 23 24 25 26 27 28 29 21 211 212-4
7 6 5 4 3 2 1 % Mortgage Rate Forecast (Average Rate of 5.5% in 215?) 3-year Mortgage
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
Monthly Pending Home Sales Index (Seasonally Adjusted) 13 12 Homebuyer Tax Credit 11 1 9 8 7 21 22 23 24 25 26 27 28 29 21 211 212 213 Source: NAR
2 2 - Aug 21 - Mar 21 - Oct 22 - May 22 - Dec 23 - Jul 24 - Feb 24 - Sep 25 - Apr 25 - Nov 26 - Jun 27 27 - Aug 28 - Mar 28 - Oct 29 - May 29 - Dec 21 - Jul 211 - Feb 211 - Sep 212 - Apr 212 - Nov Existing Home Sales 7,5, 7,, 6,5, 6,, 5,5, 5,, 4,5, 4,, 3,5, 3,,
28 28 - Apr 28 - Jul 28 - Oct 29 29 - Apr 29 - Jul 29 - Oct 21 21 - Apr 21 - Jul 21 - Oct 211 211 - Apr 211 - Jul 211 - Oct 212 212 - Apr 212 - Jul 212 - Oct Buyer and Seller Traffic from REALTOR Survey 7. 6. 5. 4. 3. 2. 1.. Buyer Seller
Second Home Sales 4 In thousands 35 3 25 2 15 Investment Vacation 1 5 23 24 25 26 27 28 29 21 211 212
Housing Affordability Index 22 2 18 16 14 12 1 2 21 22 23 24 25 26 27 28 29 21 211 212 213
45 4 35 3 25 2 15 1 5 2 Existing Home Inventory (Bouncing at 13-year lows) 21 22 23 24 25 26 27 28 29 21 211 212 213
Month-to-Month Inventory Change 25 2 Weaker Inventory Growth 15 1 5-5 -1??? Average Change Last Year This Year Jan. to Feb. Feb. to March March to April
1964 1966 1968 197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 7 Visible New Home Inventory (Newly Constructed Homes Inventory at 5-year low) 6 5 4 3 2 1
2 - Q1 2 - Q3 21 - Q1 21 - Q3 22 - Q1 22 - Q3 23 - Q1 23 - Q3 24 - Q1 24 - Q3 25 - Q1 25 - Q3 26 - Q1 26 - Q3 27 - Q1 27 - Q3 28 - Q1 28 - Q3 29 - Q1 29 - Q3 21 - Q1 21 - Q3 211 - Q1 211 - Q3 212 - Q1 212 - Q3 5. 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. Shadow Inventory Falling (Seriously delinquent mortgage + homes in foreclosure process) million units Distressed Sales Market Share 21 33% 211 33% 212 25% 213 15% 214 8% 215 5%
25 - Q1 25 - Q2 25 - Q3 25 - Q4 26 - Q1 26 - Q2 26 - Q3 26 - Q4 27 - Q1 27 - Q2 27 - Q3 27 - Q4 28 - Q1 28 - Q2 28 - Q3 28 - Q4 29 - Q1 29 - Q2 29 - Q3 29 - Q4 21 - Q1 21 - Q2 21 - Q3 21 - Q4 211 - Q1 211 - Q2 211 - Q3 211 - Q4 212 - Q1 212 - Q2 212 - Q3 Foreclosures Rapidly Falling in Non-Judicial States Example: Seriously Delinquent Mortgages in AZ, CA, MI AZ MI 14 12 1 8 6 4 2 %
25 - Q1 25 - Q2 25 - Q3 25 - Q4 26 - Q1 26 - Q2 26 - Q3 26 - Q4 27 - Q1 27 - Q2 27 - Q3 27 - Q4 28 - Q1 28 - Q2 28 - Q3 28 - Q4 29 - Q1 29 - Q2 29 - Q3 29 - Q4 21 - Q1 21 - Q2 21 - Q3 21 - Q4 211 - Q1 211 - Q2 211 - Q3 211 - Q4 212 - Q1 212 - Q2 212 - Q3 Foreclosures Clogged in Judicial States Example Seriously Delinquent Mortgages in CT and IL 12 CT IL 1 % 8 6 4 2
25 - Q1 25 - Q2 25 - Q3 25 - Q4 26 - Q1 26 - Q2 26 - Q3 26 - Q4 27 - Q1 27 - Q2 27 - Q3 27 - Q4 28 - Q1 28 - Q2 28 - Q3 28 - Q4 29 - Q1 29 - Q2 29 - Q3 29 - Q4 21 - Q1 21 - Q2 21 - Q3 21 - Q4 211 - Q1 211 - Q2 211 - Q3 211 - Q4 212 - Q1 212 - Q2 212 - Q3 212 - Q4 Tennessee Seriously Delinquent Mortgages 8 7 6 5 4 3 2 1 % TN
21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Home Price Change (% change from one year ago) 2 15 1 5-5 -1-15 -2-25 Blue = NAR Median Price Red = Case-Shiller Index
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 1 5 2 21 22 23 24 25 26 27 28 29 21 211 212
Household Formation Bursting Out (in millions) 2. 1.8 1.6 1.4 1.2 1..8.6.4.2.
Axis Title 1 8 6 4 2-2 -4-6 -8 Household Formation boost Renters and Owners Net New Renters and Owners in thousands Net New Renters Net New Owners Q1 75-713 Q2-153 23 Q3 25 244 Q4 26 133
Memphis Housing Statistics Sales up 22% in 213 year-to-date Median Prices up 18% Dollar Volume up about 4%
Household Formation Bursting Out (in millions) 2. 1.8 1.6 1.4 1.2 1..8.6.4.2.
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 14 In thousands 138 136 134 132 13 128 126 124 U.S. Total Payroll Jobs (Recovered 63% of jobs lost)
2 2 - Jul 21 21 - Jul 22 22 - Jul 23 23 - Jul 24 24 - Jul 25 25 - Jul 26 26 - Jul 27 27 - Jul 28 28 - Jul 29 29 - Jul 21 21 - Jul 211 211 - Jul 212 212 - Jul 213 Memphis Payroll Jobs 66 In thousands 64 62 6 58 56 54 52 5
4,5, 4,, 3,5, 3,, 2,5, 2,, 1,5, 1,, 5, Visible Existing Home Inventory (Existing home inventory at 8-year low) 2 21 22 23 24 25 26 27 28 29 21 211 212
1964 1966 1968 197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 7 Visible New Home Inventory (Newly Constructed Homes Inventory at 5-year low) 6 5 4 3 2 1
Memphis Housing Permits (year-to-date) 12 1 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 211212
199 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2 - Q1 21 - Q1 22 - Q1 23 - Q1 24 - Q1 25 - Q1 26 - Q1 27 - Q1 28 - Q1 29 - Q1 21 - Q1 211 - Q1 212 - Q1 Home Price Index Memphis Phoenix 35 3 25 2 15 1 5
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
2 - Q1 2 - Q3 21 - Q1 21 - Q3 22 - Q1 22 - Q3 23 - Q1 23 - Q3 24 - Q1 24 - Q3 25 - Q1 25 - Q3 26 - Q1 26 - Q3 27 - Q1 27 - Q3 28 - Q1 28 - Q3 29 - Q1 29 - Q3 21 - Q1 21 - Q3 211 - Q1 211 - Q3 212 - Q1 Net Equity in Real Estate 16 14 In $ billion Bubble growth 12 1 If 4% annual gain 8 6 4 2
Wealth Distribution (Federal Reserve data on median net worth) $3, $25, Bubble Crash $2, $15, $1, $5, 1998 21 24 27 21 214 $ Renter Owner 214 Forecast by NAR
198 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 199 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2 - Q1 21 - Q1 22 - Q1 23 - Q1 24 - Q1 25 - Q1 26 - Q1 27 - Q1 28 - Q1 29 - Q1 21 - Q1 211 - Q1 212 - Q1 Renter Households 41, In thousands 39, 37, 35, 33, 31, 29, 27, 25,
198 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 199 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2 - Q1 21 - Q1 22 - Q1 23 - Q1 24 - Q1 25 - Q1 26 - Q1 27 - Q1 28 - Q1 29 - Q1 21 - Q1 211 - Q1 212 - Q1 Homeowner Households 8, 75, In thousands 7, 65, 6, 55, 5,
21 - Q1 21 - Q3 22 - Q1 22 - Q3 23 - Q1 23 - Q3 24 - Q1 24 - Q3 25 - Q1 25 - Q3 26 - Q1 26 - Q3 27 - Q1 27 - Q3 28 - Q1 28 - Q3 29 - Q1 29 - Q3 21 - Q1 21 - Q3 211 - Q1 211 - Q3 212 - Q1 Financial Industry Profits (excluding Federal Reserve) 5 $ billion 4 3 2 1-1 -2
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 197 198 199 2 212 Source: Janicki and Prescott, BankRate.com
Banks/Regulators Restricting Credit (Average Credit Scores of Approved Loans) Normal 29 to 212 If Normal Fannie 72 76 to 77 72 Freddie 72 76 to 77 72 FHA 65 68 to 7 66 15% to 2% Higher Sales
Forecast (If Prolonged Fiscal Cliff is Avoided) 211 212 213 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%
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?
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