Housing Market and Economic Outlook

Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Annual Conference Residential Real Estate Forum San Francisco, CA November 8, 2013

Existing Home Sales
20% cumulative increase over 2 years
8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000

2,000,000
1,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Median Home Price 18% cumulative increase over 2 years
$240,000 $220,000

$200,000
$180,000 $160,000

$140,000
$120,000 $100,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Income Trends
2% to 4% cumulative increase over 2 years
$70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Household Income Family Income Disposable Income per person

100

150

200

250

50

0 1971 - Jan 1973 - Jan 1975 - Jan 1977 - Jan 1979 - Jan 1981 - Jan 1983 - Jan 1985 - Jan

1987 - Jan
1989 - Jan 1991 - Jan 1993 - Jan 1995 - Jan 1997 - Jan 1999 - Jan

2001 - Jan
2003 - Jan 2005 - Jan 2007 - Jan 2009 - Jan 2011 - Jan 2013 - Jan

Falling Affordability to 5-year Low But still 5th best in 40 years

3

4

5

6

7

8

9%

Inevitable Rise in Mortgage Rates will further hurt Affordability
(30-yr rate have been below 6% for 5 years)

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

10000

12000

2000

4000

8000

6000

Jan 14 2000 Jul 14 2000 Jan 12 2001 Jul 13 2001 Jan 11 2002 Jul 12 2002 Jan 10 2003 Jul 11 2003 Jan 9 2004 Jul 9 2004 Jan 7 2005 Jul 8 2005 Jan 6 2006 Jul 7 2006 Jan 5 2007 Jul 6 2007 Jan 4 2008 Jul 4 2008 Jan 2 2009 Jul 3 2009 Jan 1 2010 Jul 2 2010 Dec 31 2010 Jul 1 2011 Dec 30 2011 Jun 29 2012 Dec 28 2012 Jun 28 2013

0

Refinances will Collapse in 2014 (to at least 15-year low)

10%

15%

20%

30%

35%

40%

25%

0% 2008 - Oct 2009 - Jan 2009 - Apr 2009 - Jul 2009 - Oct 2010 - Jan 2010 - Apr 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct

5%

2012 - Jan 2012 - Apr 2012 - Jul 2012 - Oct 2013 - Jan 2013 - Apr 2013 - Jul
Normal Range

All-Cash Buyers Stayed High … even when mortgages were cheap
(Cash share as % of total home sales)

-200 100 200 300 400 500

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
$ billion

-100

Financial Industry Profits from Low Rates and Refis

0

Now What … Boost Purchase Apps?

100

200

400

500

600

300

0

No Increase in Mortgages for Home Purchases during 2-year Recovery; Will Rise in 2014?

Jan 7 2000 Jul 7 2000 Jan 5 2001 Jul 6 2001 Jan 4 2002 Jul 5 2002 Jan 3 2003 Jul 4 2003 Jan 2 2004 Jul 2 2004 Dec 31 2004 Jul 1 2005 Dec 30 2005 Jun 30 2006 Dec 29 2006 Jun 29 2007 Dec 28 2007 Jun 27 2008 Dec 26 2008 Jun 26 2009 Dec 25 2009 Jun 25 2010 Dec 24 2010 Jun 24 2011 Dec 23 2011 Jun 22 2012 Dec 21 2012 Jun 21 2013

But Will Washington Allow It?
• Washington Policies so far … Too Restrictive
– Rising g-fees and FHA insurance premiums? – Uncertainty about QRM down payment requirement? … Dodd-Frank? – Too many Lawsuits? … Runaway DOJ?

• Mortgages Have Performed Outstandingly
– Not because of Washington policies – But because of home price increases

• New Restriction with PATH?

What is PATH? … Hensarling’s Ideology
(Protecting American Taxpayers and Homeowners?)
• For-profit Fannie and Freddie were Arrogant • Today’s Fannie and Freddie have had reforms under government control • Remove Government Guarantee on Mortgages
• 30-yr Fixed Rate Mortgages … Hard to get and higher rates

• Large Banks will do Securitization … Small Banks at Risk • Market becomes excessively pro-cyclical • Large Banks have FDIC … taxpayer risk … vulnerable to nationalization and, if so, government credit allocation
• Global capital could decide to go elsewhere rather than the U.S. …. Other countries grow faster than the U.S.

Latest Market Trends

Pending Sales (Contracts, not Closings)
(Seasonally Adjusted)
130 120

110
100 90

80
70 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

Source: NAR

80 70 60 50 40 30 20 10 0

How Much from Gov’t Shutdown and Dysfunction?

Buyer and Seller Traffic
Buyer Seller

2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan 2009 - Apr 2009 - Jul 2009 - Oct 2010 - Jan 2010 - Apr 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct 2012 - Jan 2012 - Apr 2012 - Jul 2012 - Oct 2013 - Jan 2013 - Apr 2013 - Jul

Government Shutdown Did Not Help
IRS Forms Along with FHA and USDA Closures
Purchase Apps Fell with Closures
20% 15% 10% 5% 0% -5% -10% -15% -20% Gov't Conv

Rates Rose with Treasuries
4.7% 4.6% 4.5% 4.4% 4.3% 4.2% 4.1% 4.0% 3.9% 3.8% 30-yr FRM

Percent Change From Prior Week

Déjà vu in January?…..February?

4500000 4000000 3500000 3000000 2500000 2000000 1500000 1000000 500000 0

Existing Home Inventory (Bouncing at 13-year lows)

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

100,000

300,000

400,000

500,000

600,000

700,000

200,000

(Newly Constructed Homes Inventory at near 50-year low)

0

New Home Inventory

1964 - Jan 1966 - Jan 1968 - Jan 1970 - Jan 1972 - Jan 1974 - Jan 1976 - Jan 1978 - Jan 1980 - Jan 1982 - Jan 1984 - Jan 1986 - Jan 1988 - Jan 1990 - Jan 1992 - Jan 1994 - Jan 1996 - Jan 1998 - Jan 2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan

10

12

0

4

6

8

2

Shadow Inventory (Mortgages Late 90+ day or in foreclosure process)
US

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

Housing Starts … Need to Reach 1.5 million soon or persistent housing shortage
multifamily
2500 Thousand units (annualized) 2000 Long-term Average 1500 1000 500 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

single-family

-25 10 15 20 0 5 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 -5

-20

-15

-10

Rising Home Prices Because of Lack of Inventory
(% change from one year ago)

Blue = NAR Median Price Red = Case-Shiller Index

GDP Growth … Unimpressive but no Fresh Recession
(Could be on the verge of recession if not for housing recovery)
% growth from one year ago
% growth from one year ago
4 2

0
-2 -4 -6

124000 In thousands

126000

128000

130000

132000

134000

136000

138000

140000

U.S. Total Payroll Jobs

(8 million lost … 7 million gained)

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 - May

150,000 140,000 130,000 120,000

Well Shy of Long Run Trend (6 to 8 million more jobs needed)
In thousands

110,000
100,000 90,000

80,000
70,000 60,000

States with Fast Job Growth
1 2 3 4 5 6 7 8 9 10
State North Dakota Utah Idaho Texas Colorado Minnesota Georgia Washington Arizona New Jersey Job Growth Rate 3.2% 2.7% 2.5% 2.4% 2.3% 2.3% 2.1% 2.1% 2.0% 2.0%

Forecast
Essentially Same as the one made last year in November 2012

Forecast #1 (in 2012):
Inflation will be Notably Higher by 2015
• No Threatening Inflation Signs for 2013
• But Inflation rises to 4% to 6% in 2015 • Well above Fed’s preferred rate of 2% • But not in double-digits as in 1970s

2000 - Jan 2000 - Aug 2001 - Mar 2001 - Oct 2002 - May 2002 - Dec 2003 - Jul 2004 - Feb 2004 - Sep 2005 - Apr 2005 - Nov 2006 - Jun 2007 - Jan 2007 - Aug 2008 - Mar 2008 - Oct 2009 - May 2009 - Dec 2010 - Jul 2011 - Feb 2011 - Sep 2012 - Apr 2012 - Nov 2013 - Jun

-1 0 2 3 4 5

1

(the biggest weight to Consumer Price Index) Owners' Equivalent Rent Renters' Rent

Rising Renters’ and Homeowners’ Rent Growth

Forecast #2 (in 2012): Meaningfully Higher Home Prices
• Demand is Up … Supply is Down
• 4% to 5% in 2012 (Case-Shiller, FHFA) … Too Low

• 5% to 7% in 2012 (Median Home Price)… Too Low
• Home price growth could slow or accelerate … all depends on housing starts • Probably 15% cumulative growth over 3 years

What If Scenarios on Housing Starts
Housing Starts in 2013 900,000 (15% increase) 1,000,000 (28% increase) 1,130,000 (45% increase) Case-Shiller Price Growth Forecast in 2013 8% 7% 5% … This was forecasted one year ago

1,200,000 (54% increase)
1,300,000 (67% increase) 1,400,000 (80% increase) 1,500,000 (92% increase)

4%
3% 2% 1%

What If Scenarios on Housing Starts
Housing Starts in 2013 900,000 (15% increase) 1,000,000 (28% increase) 1,130,000 (45% increase) 1,200,000 (54% increase) 1,300,000 (67% increase) 1,400,000 (80% increase) 1,500,000 (92% increase) Case-Shiller Price Growth Forecast in 2013 8 % … This is closer to actual 7% 5% 4% 3% 2% 1%

Home Price Forecast
by Wall Street Journal Economists Panel
Year 2014 WSJ Home Price Forecast 5%

Robert Shiller : “Homes are still affordable … we do not have extravagant mindset today”

Forecast
(Rising Mortgage Rates to 5.3% by end of 2014)
2013 forecast 11% 2014 forecast 0%

Existing Home Sales

Median Price
Dollar Volume Estimate

11%
+22%

6%
+6%

Forecast #3: More Unequal Wealth Distribution
• Renters do not accumulate wealth • Renter population rising • Homeowners build wealth after buying at low prices • Stagnant homeowner population • Tight Credit hinders ‘good’ renters from becoming homeowners • Investors becoming increasing share of property owners

25,000 In thousands

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000

Renter Households

1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1

50,000 In thousands

65,000

70,000

75,000

80,000

55,000

60,000

Homeowner Households has not Grown since 2006 … but Primed to Grow

1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1

Wealth Distribution
(Federal Reserve data on median net worth)
$300,000 Bubble Crash

$250,000
$200,000 $150,000 1998 2001 2004 2007

$100,000
$50,000 $0

• • • •

Dodd-Frank? PATH? Lawsuits? Legacy?

2010
2014

Renter
2014 Forecast by NAR

Owner

Top 10 Turnaround Markets in 2013
(Realtor.com Analysis)

• • • • •

Detroit Santa Barbara Reno Ft. Lauderdale Ann Arbor

• • • • •

Dallas West Palm Beach Boston Boulder Las Vegas

Top 10 Markets to Watch in 2014
(Forecast)

• • • • •

Salt Lake City Naples Tampa Atlanta Boise

• • • • •

Houston Charlotte Denver Seattle Tucson

What Homebuyers Want?

Slightly More Preference For Condo or Apartment Living Than In 2011
Housing Type Preference (2013): Housing Type Preference (2011):
Condo or Apt. 8%

14% Condo or Apt. 4% 6% Single Family Attached 76% Single Family Detached House

5% Single Family Attached 7%

80% Single Family Detached House

Right now, if you could choose, which of the following would you prefer to live in:

Slide 41

Privacy, Walkability, Schools Most Important in Deciding Where to Live
Most Important Factors in Deciding Where to Live:
Privacy from neighbors Sidewalks and places to take walks High-quality public schools Being within an easy walk of other places and things in the community Easy access to the highway Living in a community with people at all stages of life adults, families with children and older people An established neighborhood with older homes and mature trees Being within a short commute to work Public transportation within walking distance of your home 28% 23% 23% 21% 28% 25% 21% 46% 37% 45% 40% 44% 43% 44% 37% 34% 34% 40% 43% 29% 86% 80% 74% 69% 68% 66% 65% 65%

59%
55%

Living in a place that’s away from it all
Very Important Somewhat Important

0%

20%

40%

60%

80%

100%

In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important.

Slide 42

Walkability and Age-Diversity Gaining in Importance
Changes in Important Factors in Deciding Where to Live
50%

+1
46% 45%

+1
45% 44% +6

40%
30% 20% 10% 0%

37%
31%

+4 28% 24%

-8 36% 28% +8 23% +2 23% 21%

15%

Privacy from neighbors

High-quality public schools

Sidewalks and places to take walks

Being within an Being within a easy walk of short commute other places and to work things in the community

A community Easy access to the with people at highway all stages of life adults, families with children and older people

Very Important - 2013

Very Important - 2011

Q.47 In deciding where to live, indicate how important having each of the following would be to you: very important, somewhat important, not very important, or not at all important.

Slide 43

What Buyers Want Most From Their Agent
Determine what comparable homes were selling for, 8% Help with the price negotiations, 11% Help with paperwork, 7% Help find and arrange financing, 3%

Help buyer negotiate the terms of sale, 12%

Help find the right home to purchase, 53%

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