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Real Estate Market Trends & Outlook

Real Estate Market Trends & Outlook

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Real Estate Market Trends & Outlook

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  1. Real Estate Market Trends & Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at San Diego Association ofREALTORS ® August 18, 2009

  2. National Existing Home Sales

  3. Recent Pending Home Sales Taking a bit longer to close In recent months

  4. California Existing Home Sales In thousand units 2009 forecast

  5. California Existing Home Sales – Recent Quarters In thousand units (annualized)

  6. San Diego Market • Sales up 11%, but price down 13% in June from one year ago • Prices rising on a month-to-month but read with caution • Median transaction price $362,000 • Sacramento … first to recover in sales, but sales now tapering off

  7. National Existing Home Price (of transacted homes and not listed homes) First-time buyers attracted to deeply discounted distressed sale properties.

  8. Dayton vs San DiegoHome Price $ thousand Source: NAR

  9. SF and LAMedian Home Price $ thousand Multiple- bidding

  10. Months Supply of Single-Family Homes First-time buyers attracted to deeply discounted distressed sale properties.

  11. Homebuilders Down and Out(Single Family Starts and New Home Sales) In thousand units Source: Census

  12. New Home Inventory for Sale In thousand units In thousands Source: Census

  13. Housing Starts: Too Much to Too Little New Units Needed 3 million more people each year … 1 to 1.4 million household formation … need to account for 300,000 demolitions …. need 1.3 to 1.7 new units

  14. CA Housing Permits In thousand units Source: Census

  15. San Diego Housing Permits In thousand units Source: Census

  16. National Foreclosure Inventory will rise,But will they get cleared off quickly? In thousand units Subprime All Mortgages • FHA Reserve Fund depleting … may need funds to implement a countercyclical policy • Fannie-Freddie will need funds … future reform of the secondary mortgage market

  17. Home Price Up in Select Regions • April to May according FHFA Home Price Index • Measure price change only of those homes with Fannie-Freddie mortgage using repeat transaction methodology $ thousand

  18. Prices based on Transaction Only • About half of all recent transactions have been distressed sales • 15% to 20% short sales • 30% to 35% foreclosures • Market price is based on transaction • What about non-transacted homes that is not on market? • Can we extrapolate market price to other non-listed homes? • Estimates of 25% of all homeowners are UNDERWATER … How Accurate?

  19. Housing Affordability Index(Higher numbers mean more people can afford to buy a home) ALL-TIME HIGH … on conforming loans …if people need to stay within budget

  20. Lowest Rate since President Eisenhower Days, but not on Jumbo Mortgages

  21. Economy to Recover Slowly GDP annualized growth rate Latest Data Forecast Source: BEA

  22. Job Changes in U.S. One-month payroll job changes in thousands Source: BLS

  23. Job Changes in California One-year payroll job changes in thousands Source: BLS

  24. Job Changes in San Diego Metro One-year payroll job changes in thousands Source: BLS

  25. Job Changes in Michigan(one million fewer workers from 2000) One-year payroll job changes in thousands Source: BLS

  26. Job Changes in CA(Construction) One-year payroll job changes in thousands Source: BLS

  27. Job Changes in CA(Professional Business Services) One-year payroll job changes in thousands Source: BLS

  28. Job Changes in CA(Health Care and Education) One-year payroll job changes in thousands Source: BLS

  29. Federal Budget Deficit $ million

  30. Credit Crunch Ending? • Libor Rates improving • Junk Bond yields becoming less wild • Banks making profit … but are they getting too big again (75% of assets controlled by 10 banks) • Federal Reserve lending at zero (though not to consumers) • True Test of credit easing • Lower rate on jumbo mortgages • Lower rate on second home purchases • Lower rate on condo purchases • Lower rate on commercial real estate loans

  31. Commercial Credit Freeze

  32. Commercial Property Price Index Source: MIT Center for Real Estate

  33. Commercial Real Estate Loan Delinquency Rate Source: Federal Reserve

  34. Retail Sales (year-over-year % change) Source: BEA

  35. Needed Commercial Stimulus? • NAR commercial stimulus advocacy • Relax mark-to-market accounting • Fed buys CMBS (via TALF and TARP) • Fed taking on credit risk • Future political independence or entanglement • Preserve low capital gains tax rate

  36. Rental Occupied Units In thousand units Dip and Revival Source: Census

  37. College Town Rental Boom to 2050? 20 to 24 year olds In thousand units Boom and Boom Boom and Bust

  38. Commercial Market Forecast • 2008 to 2009 • Net absorption turns negative • Rising Vacancy Rates and Stagnant Rent • Markedly Fewer Transactions • Property Prices Falling … providing opportunities for parked cash • Apartments holding up better • 2010 • Economic recovery • Commercial recovery with lag time • Pent-up and delayed transactions • Modestly Positive net absorption and rising rents

  39. Housing Forecast • Stimulus and falling inventory will help stabilize prices • Nationwide Existing Home Sales bump of 10% to 20% in the second half of 2009 vs. second half of 2008 • CA … many affordable homes, job market turnaround could be stronger in CA given the technology exposure • Builders may not see a recovery till 2010

  40. Economic Outlook Strength of GDP recovery dependent on home price growth - Consumer spending improves from housing wealth effect - Bank balance sheet improves … eases credit crunch - Foreclosure pressure lessens

  41. Inflation or Deflation in 2011 ? • Inflation: Print money and there goes the inflation • Deflation: Excess capacity and high unemployment rate keeps prices in check. • Fed’s exit strategy to reclaim printed money • Which one is more dangerous? • Which one will occur? … Watch the energy price as the catalyst for both scenarios • If Inflation … winners will be property owners who locked-in low rate • If deflation … losers will be responsible property owners with mortgages

  42. Right Tools Right Now • Many Free Products • Relocation Reports • REALTOR Member Profile • Home Buyer and Home Seller Survey • Daily Forecast Update • • click “Right Tools Right Now” • click Research