Presentation Transcript

1. Housing Trends ReportTuesday Morning, March 5, 2013Presentation to REALTOR® RallyWings Over the Rockies MuseumJed Smithjsmith@realtors.orgManaging Director, Quantitative ResearchNational Association of REALTORS®
2. Some Preliminary CommentsThe Economy: The Best and Worst of Times Why Do Economists Have Jobs? Economy and WHAT IF: Choices, Alternatives, and Scarcity. Can Economists Forecast? Where We Have Been. Relationships Among Economic Drivers. Can Discuss Possibilities, Trends, Outlook----BUT Uncertainties. Forecasts: Based on Assumptions About …. Complex Issues: Quantum Mechanics/Economic Outlook. The Budget—Taxes, Expenditures, Entitlements, Expectations. Consumer and Investor Behavior. Major Issues Confronting Us Today. Slow Growth. The Budget: Taxes, Expenditures, Entitlements, Expectations. Employment: Drives Real Estate. Personal Incomes: Education, Stagnation, and Change. Uncertainties and Incentives.
3. Index of Uncertainties: A Major IssueThree Components: Newspaper coverage, Number of federal tax code provisions set to expire in future years, and Disagreement among economic forecasters Source: Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com Normal Level—107 Level 2011-13--170 L—Banking Crisis J—Lehman H--2nd Gulf War
4. Overall--Outlook for 2013 is Positive! Rising Sales: Projected gain of 9 percent. Rising Prices: Projected increase of 5+ percent. Declining Distressed Sales. Increased Employment: An additional 2.2 million jobs. Favorable Interest Rates: Projected at 4 percent. Economic Growth: 2.2 percent GDP Growth. For Potential Homeowners—Good Time to Buy. Local conditions will vary.
5. Economics and Real EstateSome Ideas for Consideration Real Estate: Not Risky, BUT Some Behavior Has Been Risky. Why are You Buying a House? Housing as a Lifestyle. Investment Aspects: Slow Accumulation of Wealth. Is This a Good Time to Buy a House? Interest Rates, Prices. When to Buy. Uncertainties: Largely Irrelevant—Buyers typically hold a house for many years. A prudent purchase sets a base for family life, place in community, stability. The REALTOR®: Information Sources to Address Client Concerns. Social Benefits of Housing: http://economistsoutlook.blogs.realtor.org/2012/03/27/social-benefits-of-homeownership-and-stable-housing/ Existing Home Sales: http://www.realtor.org/topics/existing-home-sales REALTORS® Confidence Index: http://www.realtor.org/reports/realtors-confidence-index NAR Forecast: http://www.realtor.org/sites/default/files/reports/2013/embargoes/phs-1-28-did/february-2013-outlook-2013-01-28.pdf
6. Where we have been Economic And Housing Issues
7. Where We Have Been GDP—Below Trend And Expectations
8. Where We Have Been: Total Jobs8.7 Million Jobs Lost. 5.5 Million Jobs Recovered12.3 Million Currently Unemployed PLUS 8 Million Part Time
9. Where We Have BeenUnemployment: Need an Additional 11 Million JobsA number that is very uncertain! Number Unemployed Highest Since the 80’s. Duration Unprecedented.
10. Where We Have Been: Household WealthLasting Impacts from the Great Recession Financial Assets Financial Assets From $52.7 T in Q3 2007 to $41.3 T in Q1 2009 (low) $53.6 T in Q3 2012 Owner-Occupied Real Estate From $22.7 T in Q1 2006 to $ 16.1 Q4 2011 (low) $17.2 T in Q3 2012
11. Looking Forward at the RecoverySlow But The Fundamentals are There
12. Good News: The Recovery Wealth Starting To Recover: Billions of Dollars
13. The Recovery Consumer Confidence: Recovering But Still Mediocre
14. Good News: Distressed Sales Down
15. Good News: Housing RecoveringBank Owned—400,000, Potential Foreclosures—2.7 million to 3.3 MillionAll numbers subject to error!
16. Good News: The Recovery Residential Markets Continue to Show Signs of Recovery
17. Good News: The Recovery Residential Rents Continue to Increase
18. Good News: The Recovery Time On Market--Significant Decreases
19. Housing Inventories: Sales and Price Implications Pent Up Demand: Family Formations, Generation Y, Housing Starts
20. THE OUTLOOK
21. Slow Recovery Continues NAR Forecast as of Jan 2013.
22. Outlook: Recovery in Existing and New Home SalesNew Construction: Major Economic Driver
23. National Housing Markets
24. National Housing Markets Median Prices: Upward Momentum
25. Overall Market—Increase Sales and Revenue
26. Appraisals--A Continuing Problem
27. Housing Markets—Lenders with Excessive Risk AversionHome Sales Could be 10 to 15 Percent Higher
28. Longer Term ProblemsGovernment Spending, Tax Receipts, Confidence, and Student Loans FISCAL Cliff, Sequestration, Budget Cuts Psychological Impact—Negative. Sequestration: $85 B: Garbage Collection, National Parks, TSA—All for 3 Percent! Major National Disagreements. Taxes: Who Pays and How Much? Spending: Who Gets and How Much? Nasty Undertones: Impact on Confidence and Plans. Major Problem: Need to Resolve Taxes, Expenditures, Debt Ceiling, and Expectations. Economic Impacts—Short Term and Longer Term   What Do You Say to People Who Are Worried? How Much of an Impact on YOUR Personal Situation? WHY Are You Interested in Buying a House? Does Any of this Change Your Need? What are the Alternatives?
29. Longer Term Outlook Potentially Very Positive—Pent-Up DemandHomeowners: Projected Increase of 7 to 9 MillionHousing: Well Below the Traditional 1.5 Million Per Year Construction
30. Longer Term OutlookCommercial Sales: Recovering From Low Point Source: Real Capital Analytics
31. Commercial Markets—Outlook Nationally
32. Regulations Hit Small Banks Harder “Historically, the cost of regulatory compliance as a share of operating expenses is two and a half times greater for small banks than for large banks.” - Albert C. Kelly Jr. American Bankers Association
33. MAJOR ISSUEExample of Regulations--Qualified Commercial Real Estate (QCRE) Securitizers must hold 5% of CMBS issued unless the underlying mortgages meet stringent underwriting standards including: 65% loan-to-value. - 60% if cap rate < 10-year swap + 300bp. Debt service coverage ratio of 1.5x (stable history) to 1.7x or higher. Amortization period ≤ 20 years. 10-year minimum loan term. 80% of tenants must be pay rent + taxes + insurance + maintenance. Borrower credit and income verification along with 2-year forecast. Collateral restriction limits subordinate financing. Securitizer must buy back bad loans in order to retain QCRE status. Few CRE loans qualify: Just 0.4% of CMBS ever issued would qualify for first 3 stipulations.
34. IMPLICATIONS FOR COLORADOOUTLOOK Data Indicate that Colorado Doing Better than National Average. Economic Trends. Employment. Home Prices. Past Due Mortgages. Should Follow National Trends—But Performance May be a Little Better.
35. Colorado: Economic Activity Trends with U.S.
36. Employment Trends: U.S. and Colorado
37. Jobs Still the Major IssueRecovering, But Room for Improvement!
38. Colorado Home Price Trends
39. Colorado: Mortgage Trends More Favorable in Recent Quarters
40. Movement in Market is Up
41. ConclusionsThere Are Challenges: Black Swans and Uncertainties Forecasting Can Outline Market Drivers, Trends, Possible Outcomes. “Your Mileage May Vary”: Unknowns/Black Swans Can Influence the Outlook. Slow Growth Economy With Continued Housing Recovery. Market Drivers. Prices and Sales. Potential Shortages—Lack of New Construction, Buyer and Seller Traffic. Issues of Concern—and the Media Focus on Our Concerns JOBS, JOBS, JOBS—Skill Mix, Competitive Position of Economy , Competitive Position of People. Tax and Incentive Structures. Entitlements, Fiscal Problems, and the American Dream. Possible Structural Problem. Government Spending, Taking, and Deficits. International Financial and Governmental Actions and Policies/Strength of Global Economy. Basic Disagreements: The American Future, Who Pays Taxes, Role of Government. Lingering Effects of Great Recession. The Consumer: Confidence Still Low--Economic Uncertainties Foreclosures, Short Sales, Upside Down Homeowners, Down Payments, Credit Availability, Mortgage Interest Deductions, GSE Reform, Proposed Regulations, European Credit Markets, Oil Prices, Risk Aversion. A Measured Recovery and Cautious but Favorable Outlook.
42. Information From the National Association of Realtors® National Association of Realtors®: http://www.realtor.org/ Social Media Information Sources Facebook: http://www.facebook.com/narresearchgroup Twitter: http://twitter.com/#!/NAR_Research National Association of Realtors—Research Pages http://www.realtor.org/research/index.html Economists Outlook http://economistsoutlook.blogs.realtor.org/ Statistics: http://www.realtor.org/research/research/ehspage