Economic and Housing

Outlook

By Lawrence Yun, Ph.D.

Chief Economist, National Association of REALTORS
Presentation at NAR Annual Meetings

San Diego, CA
November 13, 2015

1990 - Q1
1991 - Q2
1992 - Q3
1993 - Q4
1995 - Q1
1996 - Q2
1997 - Q3
1998 - Q4
2000 - Q1
2001 - Q2
2002 - Q3
2003 - Q4
2005 - Q1
2006 - Q2
2007 - Q3
2008 - Q4
2010 - Q1
2011 - Q2
2012 - Q3
2013 - Q4
2015 - Q1

Lifetime Wealth at All-Time High

90000
80000
70000
60000
50000
40000
30000
20000
10000
0

2009 - Jan
2009 - May
2009 - Sep
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
2014 - Jan
2014 - May
2014 - Sep
2015 - Jan
2015 - May
2015 - Sep

Dow Jones Industrial Average

(Doubling since 2009)

20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0

Median Household Income

(Inflation Adjusted)
$59,000
$58,000
$57,000
$56,000
$55,000
$54,000
$53,000
$52,000
$51,000
$50,000
2000

2002

2004

2006

2008

2010

2012

2014

GDP Growth
Inconsistent with 2.2% average since 2014
Annualized Growth Rate
6
4
2
0
-2
-4
-6
-8
-10

2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015
- Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3

Sluggish Growth + Gap after

Recession
($1.7 trillionGDP
gap
$5,000
in 2009
Dollars per person)
18000

3% Growth Line

17000

16000
15000

2.2% Growth Line

14000
13000
12000
11000
10000
1998 - Q1

2000 - Q1

2002 - Q1

Real GDP

2004 - Q1

2006 - Q1

2008 - Q1

2010 - Q1

Real GDP W/O Recession

2012 - Q1

GDP Component on
Residential Construction and
Sales
40
30
20
10
0
-10
-20
-30
-40

More consistent with 6.6% average since 2014

63
2015 - Q2

2014 - Q3

2013 - Q4

2013 - Q1

2012 - Q2

2011 - Q3

2010 - Q4

2010 - Q1

2009 - Q2

2008 - Q3

2007 - Q4

2007 - Q1

2006 - Q2

2005 - Q3

2004 - Q4

2004 - Q1

2003 - Q2

2002 - Q3

2001 - Q4

2001 - Q1

2000 - Q2

1999 - Q3

1998 - Q4

1998 - Q1

1997 - Q2

1996 - Q3

1995 - Q4

1995 - Q1

Homeownership Rate

(seasonally adjusted 50-year low)

70

69

68

67

66

65

64

2015 - Q1

2014 - Q1

2013 - Q1

2012 - Q1

2011 - Q1

2010 - Q1

2009 - Q1

2008 - Q1

2007 - Q1

2006 - Q1

2005 - Q1

2004 - Q1

2003 - Q1

2002 - Q1

2001 - Q1

2000 - Q1

1999 - Q1

1998 - Q1

1997 - Q1

1996 - Q1

1995 - Q1

Young People: Under 35 years old

Historic Low Homeownership Rate

45

43

41

39

37

35

33

First-time collapse why?

Lowest in nearly 30 years since 1987
60%
50%

50%
40%
30%

30%

33% 32%

20%
10%
1981
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Difficulty Facing First-time Buyers

Student loan debt, even among successful firsttime home buyers:
41% have student loan debt and typical amount is
$25,000

No affordable inventory:
51% hardest task is finding the right property

Competition from vacation buyers and investors

Buying similar priced/size homes and paying all cash

2015 - Q3

2015 - Q1

2014 - Q3

2014 - Q1

2013 - Q3

2013 - Q1

2012 - Q3

2012 - Q1

2011 - Q3

2011 - Q1

2010 - Q3

2010 - Q1

2009 - Q3

2009 - Q1

2008 - Q3

2008 - Q1

2007 - Q3

2007 - Q1

2006 - Q3

2006 - Q1

Student Loan
(in $billion)

1400

1200

1000

800

600

400

200

Sales Change by Price Points

(% change from one year ago in September)
25
20
15

10
5
0
up to $100K

-5
-10

$100K to $250K $250K to $500K $500K to $750

$750K to $1 M

Over $1 M

H.O.M.E. Survey
(Housing Opportunity and Market
Experience)

Desire to own remains strong and

is strengthening:
87 percent of Americans believe
homeownership is part of their
personal American Dream

HIGHER for 18-24 year olds at 91

percent

H.O.M.E. Survey
(Housing Opportunity and Market
Experience)

Psychological reasons, but also

financial
Americans want to own for a place to
raise a family and own a place of their
own, but also a nest egg for retirement
Recent buyers bought for to start a
family but also because owning is
cheaper than renting

H.O.M.E. Survey
(Housing Opportunity and Market
Experience)

83 percent of Americans
believe buying is a good
financial decision

90
80
70
60
50
40
30
20
10
0

Younger Buyers Have

OptimismView Home as
Good Financial Investment
84%

12
30

42

34 and younger

Better than stocks

82%
13

77%

12

77%
12

72%
15

30

26

26

39

40

39

38

35 to 49

50 to 59

60 to 68

69 to 89

About as good as stocks

2015 Profile of Generational Trends

20

Not as good as stocks

Homeownership Rate Fall Further

why?
Net New
Renters
In thousands

Net New
Homeowners
In thousands

Homeownership Rate
only among the New
People

2008

482

-67

0%

2009

713

-90

0%

2010

771

-194

0%

2011

974

-421

0%

2012

1120

-193

0%

2013

599

55.5

9%

2014

-89
200

0%

2015 forecast

1112
800

30%

2016 forecast

600

600

50%

2017 forecast

500

700

58%

Even with Falling ownership

rate, Home Sales to Rise Further
9000000
8000000
7000000
6000000
5000000

New
Existing

4000000
3000000
2000000
1000000
2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

Housing Forecast made in

November 2014
2015
Forecast
(made one
year ago)

2015
Likely

Housing Starts

1.3 million
Was Too high

1.1 million

New Home Sales

620,000
Was Little high

570,000

Existing Home Sales

5.3 million
Was Right On

5.3 million

Median Price Growth

+ 4%
Was Too Low

+ 6%

Housing Forecast Good for 2016

2013

2014

2015
Likely

2016
Forecast

Housing Starts

925,000

1 million

1.1 million

1.4 million

New Home
Sales

430,000

437,000

570,000

720,000

Existing Home
Sales

5.1 million

4.9 million

5.3 million

5.4 to 5.5
million

Median Price
Growth

+ 11.5%

+ 5.7%

+ 6%

+5%

30-year Rate

4.0%

4.2%

3.8%

4.5%

Monthly Pending Sales Index

Losing Momentum
(Seasonally Adjusted)
115.0
110.0
105.0
100.0

95.0
90.0
85.0

80.0
75.0
70.0
2011 - 2011 - 2011 - 2012 - 2012 - 2012 - 2013 - 2013 - 2013 - 2014 - 2014 - 2014 - 2015 - 2015 - 2015 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep

Source: NAR

-5

-10

-15

-20

-25

-30
2015 - Jul

2015 - Apr

2015 - Jan

2014 - Oct

2014 - Jul

2014 - Apr

2014 - Jan

2013 - Oct

2013 - Jul

2013 - Apr

2013 - Jan

2012 - Oct

2012 - Jul

2012 - Apr

2012 - Jan

2011 - Oct

2011 - Jul

2011 - Apr

2011 - Jan

Momentum in Pending Contract

(% change from one year ago)
20

15

10

2015 - Oct

2015 - Jul

2015 - Apr

2015 - Jan

2014 - Oct

2014 - Jul

2014 - Apr

2014 - Jan

2013 - Oct

2013 - Jul

2013 - Apr

2013 - Jan

2012 - Oct

2012 - Jul

2012 - Apr

2012 - Jan

2011 - Oct

2011 - Jul

2011 - Apr

2011 - Jan

Trigger? Jump in Mortgage Rate

5.50

5.00

4.50

4.00

3.50

3.00

Fed Rate Hike in

December?

Fed Rate Hike in December

then again in March

Fed Rate Hike in December

then again in March
then again in August
then again in

2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
2015 - Jan
2015 - Jul

Fed Policy and Mortgage Rate

Mortgage Rate
Fed Funds Rate

9
8
7
6
5
4
3
2
1
0

What Determines Bond Yields?

Federal Reserves short-term rate changes

Inflation and erosion of purchasing power
Foreign capital flow and demand for dollar
Savings rate
U.S. budget deficit
Printing of money

Federal Deficit - Shrinking

( $ million, 12 month total)
400000
200000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-200000 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

-400000
-600000
-800000
-1000000

-1200000
-1400000
-1600000

Federal Debt Cumulative

( $ million; debt held by public excluding intragovernmental holdings)
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000

2,000,000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

-1

-2

-3
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
2015 - Jan
2015 - Jul

No CPI Inflation Yet

-1
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
2015 - Jan
2015 - Jul

Rents Rising at 7-year high

Renters' Rent

5
2000 - Q1
2000 - Q3
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1

Rental Vacancy Rate

(30-year low)

12

11

10

Credit Box Opens?

FICO New Method
Fannie/Freddie
Lower down payment products

FHA premiums lowered

Portfolio Lending historic low
mortgage default rates on recent
vintages (2010-2014)

Fannie/Freddie G-fees for

Highways?

2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
2015 - Jan
2015 - Jul

Rising Home Price is becoming

Obstacle
(Median National Existing Home Price)

260,000

240,000

220,000

200,000

180,000

160,000

140,000

120,000

100,000

$100,000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
2015 - Jan
2015 - Jul

New Home Price Even Higher

$350,000

$300,000

$250,000

$200,000

New
Existing

$150,000

Condos Underperforming
(% change from 12 months ago in September)

Sales

Single-family
Condominium
Price Growth

10

12

Affordability Solution
Tiny Home Movement?

Tiny Home Movement?

Less than 1% of all homes

sold
perhaps much less than
1%

Real Solution to Affordability

More Supply

More Supply

Existing Homeowners List Homes

Shadow Inventory of Distressed
Homes
Newly Constructed Homes
More Rental Housing Can be
converted to Condominiums Later

Pent-Up Home Sellers

Median Years of Tenure Before Moving
12

10
8
6
4

2
0
2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

14

2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
2013 - Q3
2014 - Q2
2015 - Q1

Shadow Inventory

(% of mortgages in foreclosure or late

payment)

12

10

10%

NJ
AZ

2%

2015 - Q1

2014 - Q2

2013 - Q3

2012 - Q4

2012 - Q1

2011 - Q2

2010 - Q3

2009 - Q4

2009 - Q1

2008 - Q2

2007 - Q3

2006 - Q4

2006 - Q1

2005 - Q2

2004 - Q3

2003 - Q4

2003 - Q1

2002 - Q2

2001 - Q3

12

2000 - Q4

2000 - Q1

National Shadow Inventory

(% of mortgages in foreclosure or late
payment)

10

4%

Housing Starts
Thousand units

Multifamily

600
400
200
0
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan

2000

Single-family

1000
0
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan

Massive Housing Shortage

(from 2012 to 2015)
Metro

Job Creation

New Home
Construction

Ratio

San FranciscoOakland

234,000

30,000

7.8

Grand Rapids

46,000

6,000

7.8

San Jose

118,000

23,000

5.1

San Diego

101,000

21,000

4.9

Miami-Ft.
Lauderdale

191,000

48,000

3.9

Salt Lake City

57,000

15,000

3.9

New York City

400,000

114,000

3.5

Why Would Home Sales Rise?

Rising Mortgage Rates Not Good
Too Fast Rising Prices Not Good
Housing Equity for Pent-up Sellers
Good
Return Boomerang Buyers - Good
Steadily increased supply - Good
Job creation Super Good

20000

0
2000 - Q1
2000 - Q3
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1

Trade-Up Opportunities
from Housing Equity
Real Estate Value
Mortgage Debt

25000

$ billion

15000

10000

5000

Return Buyers

Time to Sell a New Spec Home

(in months)
16
14
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan