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Premium member Presentation Transcript Slide1: Presentation at REOMAC Conference Indian Wells, CA April 16, 2007 Lawrence Yun, Ph.D. Senior Economist NATIONAL ASSOCIATION OF REALTORS® Market Trends and ForecastCurrent 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 ForeclosuresSlide3: GDP Growth Dragged Down By Housing Slump Source: BEA % point contribution to GDPConstruction Jobs Now Falling: Construction Jobs Now Falling Source: NARExisting Homes: Existing Homes In million units Source: NAR18-Month Housing Recession – Over?: 18-Month Housing Recession – Over? In million units Source: NARNew Home Sales: New Home Sales Source: Census In thousand unitsPending Existing Home Sales: Pending Existing Home Sales Source: NAR IndexExisting Housing Inventory: Existing Housing Inventory Source: NARNew-Home Inventory: New-Home Inventory Source: CensusMonths Supply: Months Supply Source: NAR, CensusNew Single-Family Construction: New Single-Family Construction Source: Census Year-over-year % change Builders drastically cutting production is a sure sign for inventory reductionMortgage Purchase Applications : Mortgage Purchase Applications Source: MBA IndexPrice Correction : Price Correction Source: NAR Percent change from a year agoPrice 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: NARSlide17: Mortgage Delinquencies Source: MBA Job Losses Housing Boom Housing SlumpSlide18: Mortgage Loan Foreclosures: All Action in the Subprimes Source: MBASlide19: Loan Quality Change: Stronger Rise in Delinquency portends rising Foreclosures Ahead Source: MBA % point change from a year agoNear $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: FHFBUnique 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 scareCompare Housing Cycles: Compare Housing CyclesAll 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 MarketsVery 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 supplySlide26: Previously Hot are now Cold (Existing Home Sales: 2006 Q4 vs 2005 Q4) Source: NARSlide27: Rapid Change in Prices (1-year Home Price Growth) Source: NARRegional 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: NARMortgage Obligation to Income Very High in Some Markets: Mortgage Obligation to Income Very High in Some Markets San Diego 45% !!! Source: NARMortgage Obligation to Income Historical High in Some Markets: Mortgage Obligation to Income Historical High in Some Markets Miami Way Above Historical Local Norm Source: NARMortgage Obligation to Income Manageable in Denver: Mortgage Obligation to Income Manageable in Denver Source: NARMortgage Obligation to Income Suggests Underpricing in places like Lexington, KY: Source: NAR Mortgage Obligation to Income Suggests Underpricing in places like Lexington, KYRenters 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: HMDASlide38: Second-Home Originations during the Boom … Subject to Quick Sale (2004 and 2005) Source: HMDA High Low Too Expensive for Second HomesSlide39: High Delinquencies Source: MBA Katrina Effect Job TroublesSlide40: High Foreclosures Source: MBASlide41: Rising Foreclosures Source: MBA States with Marked Price Deceleration/DeclinesSlide42: Falling Foreclosures Source: MBA Mostly Strong Job Growth and Price Appreciating StatesSolid Equity Gains Even with Price Declines: Solid Equity Gains Even with Price DeclinesFalling ARMS in “Vulnerable” Markets: Falling ARMS in “Vulnerable” Markets Source: FHFB % Markets carrying more risk from interest rate changesFundamentals Are Improving: Fundamentals Are ImprovingStable Mortgage Rates: Stable Mortgage Rates Source: Freddie MacRates -- 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 Gains2 Million in Past 12 months : Steady Job Gains 2 Million in Past 12 months Source: BLS Payroll job changes in thousandsUnemployment … At or Below Natural Rate : Unemployment … At or Below Natural Rate % Source: BLSWage Growth Picking Up: Wage Growth Picking Up % Source: BLSDow JonesIndustrial Average: Dow Jones Industrial Average % Source: NYSERecord Household Wealth: Record Household Wealth $ trillion Source: Federal ReserveNegative 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 GrowIn 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 EnvironmentFed is Neutral : Fed is Neutral Economic Outlook : Economic Outlook The Fed cuts rate in early 2008National Housing Outlook: National Housing Outlook You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.