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2012 MID-YEAR MEETING Austin, Texas April 13, 2012. Economic and Real Estate Outlook. Dr. James P. Gaines Research Economist Real Estate Center at Texas A&M University. Bentley's First Law of Economics: “The only thing more dangerous than an economist is an amateur economist!” .
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Austin, Texas
April 13, 2012
Economic and Real Estate Outlook
Dr. James P. Gaines
Research Economist
Real Estate Center at Texas A&M University
Bentley's First Law of Economics: “The only thing more dangerous than an economist is an amateur economist!”
Bentley's Second Law of Economics : "The only thing more dangerous than an amateur economist is a professional economist."
Remember:
Amateurs built the Ark
Professionals built the Titanic
Economy is Trying to Recover, but Slow Going
- Employment
- Retail Sales and Consumption
- GDP
- Unsustainable Government deficits
- Corporate Earnings
- Housing
Projections for the next couple of years indicate substantive growth doesn’t occur until 2013-14
Percent Growth in Real GDP
The average rate of growth is 3.3% per quarter since 1947
Source: Bureau of Economic Analysis
Total National Debt Since 1929Amount and Percent of GDP
National Debt as a Percentage of Annual GDP (right scale)
Ended WWII $270B
Hit $1T in 1981 @ 32% GDP
Beginning FY2012 $14.8T @ 97% GDP and 55 times 1946 debt
Total National Debt (left scale)
Source: U.S. Treasury
Household Debt
Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University
Households Continue Way Over-LeveredTotal HH Debt as Percentage of GDP
Average 2000-2010 = 88%
Average 1985-1999 = 63%
Average 1945-1984 = 39%
Average 1945-2010 = 52.5%
Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”Ben BernankeJune 7, 2011, International Monetary Conference, Atlanta, Georgia
US Unemployment Rates
Source: BLS, Texas Workforce Commission; Real Estate Center at Texas A&M
2012+ Economic Outlook
- Most indicators positive – not robust
- Major business, investment and political decisions postponed
- Sluggish growth into the first quarter of 2013
- Interest rates stay low through 2014
- Housing cannot be counted on to help in 2012
- Over-leverage & credit dependency remain
- Limited government resources and spending
- International economy highly uncertain
- General UNCERTAINTY & Lack of CONFIDENCE
Consumer Confidence Index
Expansion
Recession
7 cycles since 1967:
Avg. during recession = 72
Avg. during an expansion = 102
Source: The Conference Board (1985=100)
U.S. Household Formation
Source: Current Population Survey, Census Bureau, Department of Commerce (The source of annual data is the Current Population Survey March Supplement. The quarterly data source is the monthly Current Population Survey/Housing Vacancy Survey.)
U.S. Population Groups 2011
millions
26.1%
24.3%
21.4%
15.9%
12.2%
Echo Boom (Gen Y)
Baby Boom
Millennials (Gen I)
Baby Bust (Gen X)
Silent/Greatest
Age
16-34
0-15
47-65
35-46
66+
Source: U.S. Census Bureau; 2009 National Population Projections (Supplemental)
Boomers Own - Gen Y Rents
Source: FNMA National Housing Survey, 4Q2010
Changing Face of Housing:Future Homebuyers and Sellers
Racial and Ethnic Composition of Texas 2010 and 2030
Asian
4.6%
Asian
7.7%
Black
11.5%
Black
10.5%
During the next two decades, minorities will account for approximately two-thirds of household growth … and half of all first-time homebuyers
Hispanic
38.8%
Anglo
30.9%
Anglo
45.1%
Hispanic
50.9%
Source: Social Science Data Analysis Network; NAR Forecast
How Bad Has the Housing Collapse Been?
- Home prices down ~33% since 2006 peak
- Around $7 trillion, >50% lost equity in housing
- ~20% households, 12 million, upside-down on mortgage – some states >50%
- Defaults, delinquencies and foreclosures at historic levels
- 2011 new home starts lowest in the past 60 years
- New household formations about 25% of historical rate
- Federal government programs have done little to help overall housing
(Percent)
Current rate is same as 3Q1998
1995-2005
Low interest rates and new mortgage products; Homeownership explodes from 64.1% to 69.1%
1970s
Baby Boomers enter market;
homeownership grows
Source: U.S. Census Bureau
Lost Wealth: Households’ Equity in Real Estate
$7 trillion or 53% in lost real estate equity
Source: Federal Reserve, Flow of Funds, B-100
Long-Term Real Home Price Index: 1890-2010
2000’s Boom
1946 to 1999 averaged 111.25
1915 to 1945 averaged 75.74
70’s
Boom
80’s
Boom
Great
Depression
WWII
WWI
1890 to 1914 averaged 100.16
2000 to 2010 averaged 156.01
Source: Robert J. Shiller, Irrational Exuberance, 2nd. Edition, Princeton University Press,2005, 2009, Broadway Books 2006, also Subprime Solution, 2008, as updated by author: http://www.econ.yale.edu/~shiller/data.htm
Monthly Foreclosure Filings
Source: RealtyTrac, Inc.
Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
Percent of Distressed Home Sales
Source: NAR
Percent of Loans in Foreclosure End of 4Q 2011
Judicial Foreclosure States
Non-Judicial Foreclosure States
US
Source: Mortgage Bankers Association, National Delinquency Survey
High Negative Equity Concentrated in a Small Number of States
6 states > 30%
13 states > 20%
21 states > 15%
14 states < 10%
Source: CoreLogic® , Negative Equity Report, 3Q2011
Seriously Delinquent Mortgages by Origination Year
8.1%
9.5%
7.9%
7.7%
9.1%
8.7%
8.6%
7.9%
0%
0%
9%
0%
0%
11%
0%
11%
1%
1%
11%
2%
12%
12%
14%
14%
72%
71%
71%
70%
69%
68%
65%
65%
19%
18%
19%
19%
19%
19%
20%
19%
Source: Mortgage Bankers Association, 4Q2011 National Delinquency Survey
New and Existing SF Home Sales U.S.
(Existing
000s)
(New
000s)
Existing Sales
(left axis)
New Sales
(right axis)
New SF sales are down 78% from 2005 peak
Annual Average Total Sales
1980-1989 3.55 million
1990-1999 4.7 million
2000-2007 7.1 million
2008-2010 5.5 million
Sources: US Census Bureau , NAR, SAAR
Rise in Employment Beginning to Show in Sales Volume
(Home Sales
000s)
(Employed
000s)
Employment
(right axis)
Total Existing Home Sales
(left axis)
Sources: BLS. US Census Bureau , NAR, SAAR
People Who Plan to Buy a Homein the Next Six Months
Average value 1977-2011 = 3.3%
US pop 2010 = 309 million; at average, 10.2 million people or 4.2 million households plan to buy a house in the next 6 months. At current rate, 5.7 million people or 2.3 million households plan to buy a house in the next 6 months.
Source: The Conference Board, Original Data
Vacant Housing Units
Vacant For Rent
Vacant For Sale
Vacant & Off the Market: Other
Source: US Census Bureau
U.S. Home Price Indexes(Y/Y Percent Change in Index)
FHFA Repeat
Sales Index
FHLMC HPI
NAR Median Price
Case-Shiller Comp 20 SA
Sources: NAR, FHFA, S&P Case-Shiller, FHLMC
(000, SAAR)
-77% 2005 Peak to Current
2011 less than half of “normal” level needed
-50% 1977 Peak to Trough
-28% 1986 Peak to Trough
-28% 1972 Peak to Trough
Source: US Census Bureau, NAHB, Real Estate Center
(000s SAAR)
2011 down 75% from 2005 peak and 628,000 fewer units than 1960-2002 average per year (1.06 million)
Source: US Census Bureau, Real Estate Center at Texas A&M University
Price Index of New Single-Family Houses Sold Including Value of Lot[2005 = 100 Index based on kinds of houses sold in 2005]
Source: US Census Bureau
Median Price of Existing SF Homes
Major declines in 2008 & 2009
2011 median down 25% from 2006 peak
Source: NAR
Median Existing SF Home Price
1968-1999 Trend Line
Source: NAR, Real Estate Center at Texas A&M University
National Housing Affordability Index
Increase of 107% from July 2006 to Oct. 2011
Average 1994-2003 = 132.4
Drop of 31.5% from April 2003 to July 2006
Source: NAR Composite Index
Median Home Prices as a Multiple of Median Household Income
New Homes
(‘75-’00 avg. = 3.82)
Existing Homes
(‘75-’00 avg. = 3.36)
Source: US Census Bureau, NAR, Real Estate Center at Texas A&M University
Divergent US Median HH Income and Median Home Prices
1990=100
Median Home Price
Median HH Income
Source: US Census Bureau, NAR
2010 Median Price/Median Household Income
Most Affordable States
3.0
4.0
Least Affordable States
Source: FHFA 2Q2010 Median Prices, 2010 American Community Survey, U.S. Census Bureau
Price-to-Rent Ratio Monthly FHFA P-O Index to BLS Owners’ Equivalent RentJanuary 1991 = 1.0
Equilibrium
Source: FHFA, BLS
Why Hasn’t the Housing Market Recovered?
- Employment uncertainty
- Tight Mortgage Credit
- Price pressure from foreclosures, distressed sales and “shadow inventory”
- Appraisals and the Home Valuation Code of Conduct – questionable automated valuations
- Confidence in the future
2012 Housing Outlook
Market Headwinds
Reasons for Optimism
- Distressed/Investor sales: ~1/3 U.S. market, ~10%-20% in Texas
- Tight lending & low appraisals 33% cancellation rate on new and existing contracts
- Confidence Crisis
- No feeling of “well being”
- Lost wealth: real estate & other assets
- Flat income (declining real income)
- Uncertain future: jobs, home values
- Inventory: new wave of foreclosures to hit market in 2012
- Move-up & move-over buyers can’t sell current home
- Move-out still renting can’t buy
- Political decisions, regulations and policies unknown & problematic
- Improvement in general economy
- Low interest rates but little impact
- Pent up demand by those who’ve postponed housing or doubled-up
- Markets bottomed will show statistical improvement
- Investors buoy sales but not prices
- Affordability: prices more in line with income
- Rent-Own “gap” closing
- Incentives on new homes substantial
- Population and household growth strong in Texas
“If we knew what we were doing, it wouldn't be called research, would it?”
Albert Einstein
Austin, Texas
April 13, 2012
Economic and Real Estate Outlook
Dr. James P. Gaines
Research Economist
Real Estate Center at Texas A&M University
