Market Update from Dr. Lawrence Yun

Slide 1: 

Presentation at RAMB’s Real Estate Congress and Expo Miami, FL June 12, 2008 Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® After the Clean Up

Subprime Loan Origination : 

Subprime Loan Origination Source: U.S. Treasury Department, WSJ Market Data Group, Inside Mortgage Finance $ billion

Slide 3: 

Delinquency Rates Subprime vs. Prime Data: Mortgage Bankers Association

Slide 4: 

Source: NAR Estimate Foreclosed Homes

Slide 5: 

Source: NAR Estimate Subprime Loan Exposure

Foreclosure Rate on All Mortgages in U.S. : 

Foreclosure Rate on All Mortgages in U.S. Source: NAR Analysis of MBA data - Today’s foreclosures are double the historic average due to sour performance of subprime loans - Foreclosure rates from all homes would be 1/3 lower because no risks from free & clear homes.

High Subprime Mortgage Originations : 

High Subprime Mortgage Originations Source: HMDA 2006 These markets are experiencing double-digit price declines

Low Subprime Mortgages : 

Low Subprime Mortgages Source: HMDA 2006 These markets are experiencing respectable price gains

Home Price Trends in Down Markets: Big Declines in Subprime Neighborhoods : 

Home Price Trends in Down Markets: Big Declines in Subprime Neighborhoods Yellow – Conforming Loans Only (OFHEO) Orange – All Loans including subprime and jumbo loans (Case-Shiller) Red – Subprime Loans (NAR estimate based on subprime weight)

Home Price Trend in Miami : 

Home Price Trend in Miami % change from a year ago

Location, Location, Location:Makes a Big Difference! : 

Location, Location, Location:Makes a Big Difference! All Real Estate is Very Local Price declines are concentrated in metro markets with high subprime loans Price declines are further concentrated in neighborhoods with high subprime loans 91% of homeowners do not have subprime loans 77% of homeowners say no price decline

Wall Street Write-Downs : 

Wall Street Write-Downs Mortgage Loan losses associated with subprime losses $200 to $300 billion write-down Mark-to-Market write-downs based on assumed pessimistic default rate Actual losses could be considerably more or less More if price declines continue sharply Less if prices stabilizes Less if real estate speculators have already defaulted Less as ARM Resets become less burdensome even as more are scheduled to reset

Subprime Problem Peaking? : 

Subprime Problem Peaking? New homebuyers are not exposed Resetting burden dissipating FHA becoming more prominent (and refinancing out of subprimes) “Conforming jumbo” rates improving (and refinancing out of subprimes) Have most real estate speculators already defaulted? (Keys are in the Mail)

Fed Funds Rate : 

Fed Funds Rate

Resetting Payment Shock : 

Resetting Payment Shock NAR Estimate

FHA Market Share for Home Purchase : 

FHA Market Share for Home Purchase Source: HMDA, NAR Estimate

Slide 17: 

Fannie Mae announces plan to purchase conforming jumbo loans and traditional pricing Jumbo Loan Spread above Traditional Conforming Rate Percentage Points

Latest Housing Market Activity : 

Latest Housing Market Activity Existing Home Sales stable but trending at 10 year ago levels From 1998 to 2008 25 million more people 13 million more jobs Higher home prices but lower mortgage rate New home construction and new home sales falling Inventory peaking Speedy price declines in markets with heavy subprime loan exposure

Slide 19: 

From mid-May Fannie Mae purchases conforming jumbo loans and traditional pricing Jumbo Loan Spread above Traditional Conforming Rate Percentage Points

Latest Housing Market Activity : 

Latest Housing Market Activity Existing Home Sales stable but trending at 10 year ago levels From 1998 to 2008 25 million more people 13 million more jobs Comparable affordability conditions Is it excessive pessimism? New home construction and new home sales falling Speedy price declines in markets with heavy subprime loan exposure Rising sales in distressed markets

Annual Existing-Home Sales : 

Annual Existing-Home Sales In thousand units

Monthly National Existing-Home Sales : 

Monthly National Existing-Home Sales Stable but at 10-year ago levels

Housing Affordability Index : 

Housing Affordability Index Source: NAR

Inventory: Existing Homes : 

Inventory: Existing Homes

Inventory New Homes(Already Topped Out) : 

Inventory New Homes(Already Topped Out) Source: Census

U.S. Single-Family Housing Starts : 

U.S. Single-Family Housing Starts Source: Census In thousand units

Florida Housing Starts : 

Florida Housing Starts Source: Census

Long-Term Housing Needs : 

Long-Term Housing Needs DEMAND 3 million more people each year 1.3 to 1.5 million household formation per year 1.4 million per year was the 30-year average SUPPLY 300,000 home demolition per year Need to build 1.6 to 1.8 million per year to keep up with population and replace demolition

Housing Starts : 

Housing Starts Could lead to housing shortage?

Speedy Price Declines This Time : 

Speedy Price Declines This Time

Forecast Over 5-year Horizon : 

Forecast Over 5-year Horizon - Automobiles replaced horse-buggy and created suburbs - Microsoft + Google - Biotech + Biofuel + Desalination + More Amazing Innovations 99% of Markets will have higher values in 5-years than today

Consumer Price Inflation : 

Consumer Price Inflation Source: BLS

Consumer Confidence and Sentiment : 

Consumer Confidence and Sentiment Source: The Conference Board; University of Michigan

Economic Forecast : 

Economic Forecast Consumers are angry Businesses are OK Exports booming Net: Improving economy in the second half of 2008 2009 will depend on persistent or dissipating consumer anger

Slide 35: 

GDP Growth % annualized growth rate Source: BEA

U.S. Job Gains - Decelerating : 

U.S. Job Gains - Decelerating Source: BLS 12-month payroll job changes in thousands

Florida Job Gains : 

Florida Job Gains Source: BLS 12-month payroll job changes in thousands

Food at home Inflation – Constant Reminder of Things Out of Whack : 

Food at home Inflation – Constant Reminder of Things Out of Whack Source: BLS Energy Price much worse – constant reminder of things out of whack

Consumer Confidence and Sentiment : 

Consumer Confidence and Sentiment Source: The Conference Board; University of Michigan

Corporate Profits – Near Record High : 

Corporate Profits – Near Record High Source: BEA $ billion

Stock MarketS&P 500 Index : 

Stock MarketS&P 500 Index Source: NYSE

Dow Jones Industrial Average : 

Dow Jones Industrial Average Source: NYSE Big Crash in 1987

Stock Market Valuationof S&P 500 stocks : 

Stock Market Valuationof S&P 500 stocks NYSE $ billion

Homeowners’ Net Real Estate Equity : 

Homeowners’ Net Real Estate Equity Federal Reserve $ billion

Slide 45: 

Household Wealth Accumulation (2004) Source: Federal Reserve Median Net Worth in $ thousand

Vacation Home Sales : 

Vacation Home Sales Source: NAR In thousand units

Baby Boomers want to retiree in … : 

Baby Boomers want to retiree in … Source: NAR

Euro vs. Dollar (Weak currency – another source of consumer anger) : 

Euro vs. Dollar (Weak currency – another source of consumer anger)

Slide 49: 

Exports Growing $ billion (2000-chain $)

U.S. Home Price in $U.S. : 

U.S. Home Price in $U.S. NAR

U.S. Home Price in Euro : 

U.S. Home Price in Euro NAR

U.S. Home Price in Brazilian Real : 

U.S. Home Price in Brazilian Real NAR

Slide 53: 

Consumer Spending % year-over-year growth rate

Economic Outlook : 

Economic Outlook No Recession but Slow Growth

National Housing Outlook : 

National Housing Outlook Huge Local Market Variations because of location, location, and location

Local Forecast : 

Local Forecast Property Tax ??? Property Insurance ??? Foreign Buyers Buyer Sentiment Stabilizing housing inventory 2008: Weak first half ; Better second half 2009: Rise in sales and prices 2013: Easily 20% higher home prices