Market Facts in Uncertain Times

NAR Research September 2010

Economic and Market Facts
• • • • • Informed consumers make smarter decisions. The economy is soft and consumer confidence remains low. Housing affordability is at a generational high. Home values in many markets have returned to historically justifiable levels. Most economists expect home values to rise in upcoming years, though not at a fast pace. • Bad loans are nearly always made in good times. But recently originated loans are performing very well. • Patient homeowners over the long-term do much better than renters in attaining wealth.

Fact 1: The Economy is Growing, though Slowly
GDP annualized % growth rate

Fact 2: The Private Sector is Finally Creating Some Jobs
(Government jobs were not included since many could be temporary from stimulus measures)
Monthly Net Private Payroll Job Changes in Thousands

Fact 3: Consumer Confidence Remains Low, though Clearly Off Bottom
Index by The Conference Board

Fact 4: The 30-year Mortgage Rate is at Generational Lows
(A very accommodative Federal Reserve monetary policy helping, but for how long?)

Fact 5: National Median Home Price Stabilizing
(Combination of price change and type of homes that are selling)

Fact 6: Other Home Price Measurements Are Also Showing Price Stabilization

Fact 7: Home Price-to-Income Ratio Have Returned to Fundamentally Justifiable Levels
3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0

Source: NAR

Fact 8: Economists Expect Price Increases in Upcoming Years
• Macromarkets, a firm associated with Professor Robert Shiller, surveys about 100 economists on their outlook on home prices. • The consensus forecast as of August 2010 (which can be found at Macromarkets or via news media stories such as the Wall Street Journal) is as follows: • 0.78% price increase in 2011 • 2.43% price increase in 2012 • 3.20% price increase in 2013 • 3.69% price increase in 2014 • No forecast for 2015 and beyond

Fact 9: Delinquencies Are High but Recent Loan Originations Performing Well
• •

• • •

Due to Past Lending Mistakes the Bad Loans are still working through the system Banker’s Afterthought is nearly always that “Bad Loans are made in Bubble Times.” However, the Mortgage Delinquency Rate may have peaked. According to the Mortgage Bankers Association, mortgage delinquencies fell to 9.85 percent in second quarter 2010 from 10.1 percent in the first quarter. Various reports suggest good loan performance on recently originated mortgages (see government reports on loan performance of government backed mortgages). One-third of homeowners own their homes free-and-clear. They are not included in mortgage delinquency statistics. Loan approval is more difficult, which explains better recent loan performance. There is a better approval chance if the borrower stays well within their budget.

Fact 10: Long-Term Path to Self Reliance may be Helped from Long-Term Housing Wealth Gains
(2010 data to be published in 2012 by the Federal Reserve)

Median Family Net Worth



Source:: Federal Reserve

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