dr yun spring2007 present

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Slide1: 

Presentation at REOMAC Conference Indian Wells, CA April 16, 2007 Lawrence Yun, Ph.D. Senior Economist NATIONAL ASSOCIATION OF REALTORS® Market Trends and Forecast

Current Housing Market Situation: 

Current Housing Market Situation Housing – A Drag to the Economy 18-month Housing Recession Near Over Stabilizing Home Sales Home Inventories Falling - Modestly Builders Cutting Production Months Supply Topped Out Mortgage Applications Stabilized Mortgage Rates – Still Favorable Home Price Declines Attracting Buyers Housing Affordability Improving Lag Variables Rising – Delinquencies and Foreclosures

Slide3: 

GDP Growth Dragged Down By Housing Slump Source: BEA % point contribution to GDP

Construction Jobs Now Falling: 

Construction Jobs Now Falling Source: NAR

Existing Homes: 

Existing Homes In million units Source: NAR

18-Month Housing Recession – Over?: 

18-Month Housing Recession – Over? In million units Source: NAR

New Home Sales: 

New Home Sales Source: Census In thousand units

Pending Existing Home Sales: 

Pending Existing Home Sales Source: NAR Index

Existing Housing Inventory: 

Existing Housing Inventory Source: NAR

New-Home Inventory : 

New-Home Inventory Source: Census

Months Supply: 

Months Supply Source: NAR, Census

New Single-Family Construction: 

New Single-Family Construction Source: Census Year-over-year % change Builders drastically cutting production is a sure sign for inventory reduction

Mortgage Purchase Applications : 

Mortgage Purchase Applications Source: MBA Index

Price Correction : 

Price Correction Source: NAR Percent change from a year ago

Price Sensitivity (All other things equal): 

Price Sensitivity (All other things equal) Consumer psychology impact of price drop could more than double these numbers.

Housing Affordability : 

Housing Affordability Source: NAR

Slide17: 

Mortgage Delinquencies Source: MBA Job Losses Housing Boom Housing Slump

Slide18: 

Mortgage Loan Foreclosures: All Action in the Subprimes Source: MBA

Slide19: 

Loan Quality Change: Stronger Rise in Delinquency portends rising Foreclosures Ahead Source: MBA % point change from a year ago

Near $500 Billion in ARM Resets in ‘07 and ‘08 … out of $10 trillion Mortgage Market : 

Near $500 Billion in ARM Resets in ‘07 and ‘08 … out of $10 trillion Mortgage Market Source: JP Morgan Chase, Credit Suisse, LoanPerformance (October 2006), Freddie Mac Volume mortgages subject to a payment increase ($billions)

Declining Adjustable Rate Mortgage Originations: 

Declining Adjustable Rate Mortgage Originations % Source: FHFB

Unique Housing Cycle: 

Unique Housing Cycle Past declines associated with Job losses Very high double-digit mortgage rates Current declines occurring while Jobs being created Rates at near historic lows Good economic fundamental Current declines from Affordability problems in previously hot markets Investor flight Psychology/Media scare

Compare Housing Cycles: 

Compare Housing Cycles

All Real Estate is Local: 

All Real Estate is Local Local Demand and Supply Local Net Migration Local Employment Local Politics Local DNA Prices Go Up or Down in Local Markets

Very Hot to Very Cold Metros: 

Very Hot to Very Cold Metros California Southern Florida Arizona Nevada DC Region Favorable Fundamentals Will Minimize Downturn Low rates Very positive net migration Very strong job growth Limited new housing supply

Slide26: 

Previously Hot are now Cold (Existing Home Sales: 2006 Q4 vs 2005 Q4) Source: NAR

Slide27: 

Rapid Change in Prices (1-year Home Price Growth) Source: NAR

Regional Price Growth: 

Regional Price Growth Source: NAR % change from a year ago West becomes “unaffordable”

Regional Sales Change: 

Regional Sales Change Source: NAR % change from a year ago West pays in terms of reduced sales

Mortgage Obligation to Income – Worrisome in the West: 

Mortgage Obligation to Income – Worrisome in the West % Source: NAR

Mortgage Obligation to Income Very High in Some Markets: 

Mortgage Obligation to Income Very High in Some Markets San Diego 45% !!! Source: NAR

Mortgage Obligation to Income Historical High in Some Markets: 

Mortgage Obligation to Income Historical High in Some Markets Miami Way Above Historical Local Norm Source: NAR

Mortgage Obligation to Income Manageable in Denver: 

Mortgage Obligation to Income Manageable in Denver Source: NAR

Mortgage Obligation to Income Suggests Underpricing in places like Lexington, KY: 

Source: NAR Mortgage Obligation to Income Suggests Underpricing in places like Lexington, KY

Renters Beginning to Get Squeezed – U.S.: 

Renters Beginning to Get Squeezed – U.S. Source: Torto-Wheaton Research %

More so in Strong Jobs but Weak Housing Markets – like Phoenix: 

More so in Strong Jobs but Weak Housing Markets – like Phoenix Source: Torto-Wheaton Research %

Slide37: 

High Sub-prime Originations during the Boom (2004 and 2005) Source: HMDA

Slide38: 

Second-Home Originations during the Boom … Subject to Quick Sale (2004 and 2005) Source: HMDA High Low Too Expensive for Second Homes

Slide39: 

High Delinquencies Source: MBA Katrina Effect Job Troubles

Slide40: 

High Foreclosures Source: MBA

Slide41: 

Rising Foreclosures Source: MBA States with Marked Price Deceleration/Declines

Slide42: 

Falling Foreclosures Source: MBA Mostly Strong Job Growth and Price Appreciating States

Solid Equity Gains Even with Price Declines: 

Solid Equity Gains Even with Price Declines

Falling ARMS in “Vulnerable” Markets: 

Falling ARMS in “Vulnerable” Markets Source: FHFB % Markets carrying more risk from interest rate changes

Fundamentals Are Improving: 

Fundamentals Are Improving

Stable Mortgage Rates: 

Stable Mortgage Rates Source: Freddie Mac

Rates -- Near 45-year Lows: 

Rates -- Near 45-year Lows Source: Freddie Mac 1970s 9% average 1980s 13% average 1990s 8% average 2000s 6.5% average

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

Unemployment … At or Below Natural Rate : 

Unemployment … At or Below Natural Rate % Source: BLS

Wage Growth Picking Up: 

Wage Growth Picking Up % Source: BLS

Dow Jones Industrial Average: 

Dow Jones Industrial Average % Source: NYSE

Record Household Wealth: 

Record Household Wealth $ trillion Source: Federal Reserve

Negative Media !: 

Negative Media ! Bubbles Will Burst Balloons Will Pop Prices Will Fall 30% to 40% Housing Downturn Will Send Economy into Recession

Reasons Why Real Estate Will Expand & Prices Will Grow In Next 10 years: 

Reasons Why Real Estate Will Expand & Prices Will Grow In Next 10 years Baby Boomers Boomer Children Second largest population group Soon to be first-time homebuyers Projected Low Environment Birth Rate Above Death Rate Health Care Tech – Retirees Living Longer High Immigration Growth Projected Low Interest Rate Environment

Fed is Neutral : 

Fed is Neutral

Economic Outlook : 

Economic Outlook The Fed cuts rate in early 2008

National Housing Outlook: 

National Housing Outlook

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