06MYMRes2

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Slide1: 

David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC -- May 2006

Five-Year Boom … Something to Remember: 

Five-Year Boom … Something to Remember Memories, Like the corners of my mind Misty water-colored memories Of the Way We Were…

Five Straight Record Years: Existing-Home Sales : 

Five Straight Record Years: Existing-Home Sales In million units Source: NAR

Five Straight Record Years: New-Home Sales: 

In thousand units Source: Census Five Straight Record Years: New-Home Sales

Extraordinary Home Price Appreciation: 

Extraordinary Home Price Appreciation Source: NAR

Hot Markets in Past Five Years (2000 to 2005): 

Hot Markets in Past Five Years (2000 to 2005) Source: NAR

Rates Near Historic Lows: 

Rates Near Historic Lows Source: Freddie Mac 1970s 9% average 1980s 13% average 1990s 8% average 2000s 6.5% average

Lean Housing Inventory : 

Lean Housing Inventory Source: NAR

NAR Membership: 

NAR Membership Source: NAR in thousands 499,000 gain in 5 years

Real Estate Employment Surges: 

Real Estate Employment Surges Source: NAR, BLS * Construction jobs in the residential sector. ** Lending jobs in credit intermediation but not commercial banking. %

Residential Real Estate Industry Revenue Surges: 

Residential Real Estate Industry Revenue Surges Source: BEA GDP excluding residential real estate

Overconfidence and Rising Rates Emptied the Punch Bowl: 

Overconfidence and Rising Rates Emptied the Punch Bowl

Rising Mortgage Rates: 

Rising Mortgage Rates Source: Freddie Mac

Income Not Keeping Pace With Home Prices: 

Income Not Keeping Pace With Home Prices Source: NAR Income and Price set to Index of 100 in 1990

Mortgage Debt Obligation to Income High in Some Markets: 

Mortgage Debt Obligation to Income High in Some Markets Source: NAR San Diego

Mortgage Debt Obligation to Income High in Some Markets: 

Mortgage Debt Obligation to Income High in Some Markets Source: NAR Miami

Too Much Speculation: 

Too Much Speculation Flipping Pre-construction purchases / sales Long lines at sales offices and lottery purchases Long distance purchases (without seeing property) Interest-only and/or adjustable loans dominate some markets Interest-Only stretched household income

Adjustable Mortgages (2005 Q4) : 

Adjustable Mortgages (2005 Q4) Source: FHFB %

Interest-Only Mortgages: 

Interest-Only Mortgages Source: Loan Performance %

Interest-Only Loans : 

Interest-Only Loans Stretching to get a 40% larger loan $250,000 traditional loan at 6% rate equals $1,499 per month $350,000 interest-only loan at 5% rate equals $1,458 per month Minimum Payment – Option ARMS Loans Even more stretching

Even Muhammad Ali Had Limits: 

Even Muhammad Ali Had Limits Successive Record Years Not Sustainable Double-digit Price Gains Not Healthy or Sustainable Inevitable Rate Rise from Generational Low Mortgage Rates

But Roof Not Caving: 

But Roof Not Caving No Bust – Just Deceleration Boom Winding Down to Expansion Inventory Building, but not Excess Price Appreciation Slowing Sales Take a Dip – but only for a year A Needed Cleansing

Housing Inventory : 

Housing Inventory Source: NAR All-time High

Housing Inventory Months Supply: 

Housing Inventory Months Supply Source: NAR

Home Price Appreciation : 

Home Price Appreciation Source: NAR Percent Change

Lower Existing-Home Sales: 

Lower Existing-Home Sales In million units Source: NAR

Declining Mortgage Applications for Home Purchase: 

Declining Mortgage Applications for Home Purchase Source: Mortgage Bankers Association

Real-Time Housing Market Ticker Live Information: 

Real-Time Housing Market Ticker Live Information

Tale of Two Cities: 

Tale of Two Cities Boom Cities Adjusting from Seller to Buyer Market Non-Boom Cities showing Booming Tendencies Common Thread for Both Markets – Job Gains and Income Growth (excluding Michigan) Healthy Local Economy assures boom cities to land softly Healthy Local Economy assures non-boom cities to grow

Days on Market Lengthening in Boom Markets : 

Days on Market Lengthening in Boom Markets

Days on Market Shortening in Non-Boom Markets : 

Days on Market Shortening in Non-Boom Markets

Existing-Home Sales (2006 Q1 vs 2005 Q1): 

Existing-Home Sales (2006 Q1 vs 2005 Q1) Source: NAR

Cooling Markets Booming in Jobs: 

Cooling Markets Booming in Jobs

Non-Boom Markets With Strong Job Growth: 

Non-Boom Markets With Strong Job Growth Source: BLS % One-year Job Growth Rate

Cool ’06 and Rise ‘07: 

Cool ’06 and Rise ‘07 Solid fundamentals: Low Historic Rates, Favorable Demographics, Healthy Economy Speculators Out Exotic Mortgages Out

Economic Backdrop: 

Economic Backdrop

Sound Economy: 

Sound Economy % Source: BEA

Consumer Spending Still Healthy: 

Consumer Spending Still Healthy % Source: BEA

Business Spending Rebounding: 

Business Spending Rebounding % Source: BEA

Government Spending Providing Support: 

Government Spending Providing Support % Source: BEA

Imports and Exports Remain at High Levels: 

Imports and Exports Remain at High Levels % Source: BEA

Corporate Profits are Strong … Will Boost Business Spending: 

Corporate Profits are Strong … Will Boost Business Spending Source: BEA

Stock Market Near All-time High: 

Stock Market Near All-time High

Steady Job Gains 2 Million in Past 12 months : 

Steady Job Gains 2 Million in Past 12 months Source: BLS Payroll job changes in thousands Weakness from Katrina

Inflation Building: 

Inflation Building % change from a year ago Source: BLS

Fed Rate Hikes : 

Fed Rate Hikes

Risks – Three Dark Clouds: 

Risks – Three Dark Clouds Oil Interest Rates Housing

Oil Prices Inhibiting Growth and Exerting Inflationary Pressure : 

Oil Prices Inhibiting Growth and Exerting Inflationary Pressure Price per barrel

$100 Per Barrel Oil: 

$100 Per Barrel Oil 400,000 job gain rather than 2 million Inflation to 4.4% rather than 3.4% Mortgage to 8% rather than 6.7% Home sales – double digit percentage declines Home prices – possibly turn negative

Interest Rates – 4-year high: 

Interest Rates – 4-year high % Forecast

Sluggish Housing Inhibits Economy: 

Sluggish Housing Inhibits Economy Wealth Effect Slows Unrealized Gains Slows Less Home Equity Borrowing Less Cash-out Refis Less Residential Investment Negative Multiplier/Secondary Spending Impact

Impact of Unlikely Sharp Correction in Housing: 

Impact of Unlikely Sharp Correction in Housing Wealth Effect Turns Negative Local Governments Run Budget Deficits GDP Growth Falls 2.5% to 3.5% points Economy Enters Recession

’07 and Beyond: 

’07 and Beyond Still Favorable Interest Rates Favorable Demographic Trends More Balanced Markets Back to Fundamentals

Economic Outlook: 

Economic Outlook

Housing Outlook: 

Housing Outlook

Slide56: 

David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC -- May 2006