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After the BOOM

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56 diapositives · 922 Views · Jan 05, 2011

After the BOOM. David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC -- May 2006. Five-Year Boom … Something to Remember. Memories,

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  1. After the BOOM David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC -- May 2006

  2. Five-Year Boom … Something to Remember Memories, Like the corners of my mind Misty water-colored memories Of the Way We Were…

  3. Five Straight Record Years:Existing-Home Sales In million units Source: NAR

  4. Five Straight Record Years:New-Home Sales In thousand units Source: Census

  5. Extraordinary Home Price Appreciation Source: NAR

  6. Hot Markets in Past Five Years (2000 to 2005) Source: NAR

  7. Rates Near Historic Lows 1970s 9% average 1980s 13% average 1990s 8% average 2000s 6.5% average Source: Freddie Mac

  8. Lean Housing Inventory Source: NAR

  9. NAR Membership in thousands 499,000 gain in 5 years Source: NAR

  10. Real Estate Employment Surges % * Construction jobs in the residential sector. ** Lending jobs in credit intermediation but not commercial banking. Source: NAR, BLS

  11. Residential Real Estate Industry Revenue Surges GDP excluding residential real estate Source: BEA

  12. Overconfidence and Rising Rates Emptied the Punch Bowl

  13. Rising Mortgage Rates Source: Freddie Mac

  14. Income Not Keeping Pace With Home Prices Income and Price set to Index of 100 in 1990 Source: NAR

  15. Mortgage Debt Obligation to Income High in Some Markets San Diego Source: NAR

  16. Mortgage Debt Obligation to Income High in Some Markets Miami Source: NAR

  17. Too Much Speculation • Flipping • Pre-construction purchases / sales • Long lines at sales offices and lottery purchases • Long distance purchases (without seeing property) • Interest-only and/or adjustable loans dominate some markets • Interest-Only stretched household income

  18. Adjustable Mortgages(2005 Q4) % Source: FHFB

  19. Interest-Only Mortgages % Source: Loan Performance

  20. Interest-Only Loans Stretched Payment • Stretching to get a 40% larger loan • $250,000 traditional loan at 6% rate equals $1,499 per month • $350,000 interest-only loan at 5% rate equals $1,458 per month • Minimum Payment – Option ARMS Loans • Even more stretching

  21. Even Muhammad Ali Had Limits • Successive Record Years Not Sustainable • Double-digit Price Gains Not Healthy or Sustainable • Inevitable Rate Rise from Generational Low Mortgage Rates

  22. But Roof Not Caving • No Bust – Just Deceleration • Boom Winding Down to Expansion • Inventory Building, but not Excess • Price Appreciation Slowing • Sales Take a Dip – but only for a year • A Needed Cleansing

  23. Housing Inventory All-time High Source: NAR

  24. Housing Inventory Months Supply Source: NAR

  25. Home Price Appreciation Percent Change Source: NAR

  26. Lower Existing-Home Sales In million units Source: NAR

  27. Declining Mortgage Applications for Home Purchase Source: Mortgage Bankers Association

  28. Real-Time Housing Market TickerLive Information

  29. Tale of Two Cities • Boom Cities Adjusting from Seller to Buyer Market • Non-Boom Cities showing Booming Tendencies • Common Thread for Both Markets – Job Gains and Income Growth (excluding Michigan) • Healthy Local Economy assures boom cities to land softly • Healthy Local Economy assures non-boom cities to grow

  30. Days on Market Lengthening in Boom Markets

  31. Days on Market Shortening in Non-Boom Markets

  32. Existing-Home Sales(2006 Q1 vs 2005 Q1) Source: NAR

  33. Cooling Markets Booming in Jobs

  34. Non-Boom Markets With Strong Job Growth One-year Job Growth Rate % Source: BLS

  35. Cool ’06 and Rise ‘07 • Solid fundamentals: Low Historic Rates, Favorable Demographics, Healthy Economy • Speculators Out • Exotic Mortgages Out

  36. Economic Backdrop

  37. Sound Economy % Source: BEA

  38. Consumer Spending Still Healthy % Source: BEA

  39. Business Spending Rebounding % Source: BEA

  40. Government SpendingProviding Support % Source: BEA

  41. Imports and Exports Remain at High Levels % Source: BEA

  42. Corporate Profits are Strong … Will Boost Business Spending Source: BEA

  43. Stock Market Near All-time High

  44. Steady Job Gains2 Million in Past 12 months Payroll job changes in thousands Weakness from Katrina Source: BLS

  45. Inflation Building % change from a year ago Source: BLS

  46. Fed Rate Hikes

  47. Risks – Three Dark Clouds • Oil • Interest Rates • Housing

  48. Oil Prices Inhibiting Growth and Exerting Inflationary Pressure Price per barrel

  49. $100 Per Barrel Oil • 400,000 job gain rather than 2 million • Inflation to 4.4% rather than 3.4% • Mortgage to 8% rather than 6.7% • Home sales – double digit percentage declines • Home prices – possibly turn negative

  50. Interest Rates – 4-year high % Forecast