Economic and Real Estate

Outlook
By Lawrence Yun, Ph.D.
Chief Economist, National Association of REALTORS®
Presentation at NAR Leadership Summit
Chicago, IL
August 10, 2015

Jobs
(8 million lost … 12 million gained)
145,000

140,000

135,000

130,000

125,000

120,000

In thousands

Top and Bottom States for
JobsThe
% Gain in
The Best % Gain in
12 months

Worst

12 months

Utah

4.0%

-0.7%

Florida

3.8%

West
Virginia

Oregon

3.4%

Washingto
n

3.4%

Maine

0.5%

Montana

0.6%

California

3.2%

Alaska

0.6%

Georgia

3.2%

North
Dakota

3.2%

Nevada

3.0%

Mississippi 0.5%

Too Hot
(jobs in thousands)

• Seattle
+200,000 from
2010
1650
1600
1550
1500
1450
1400
1350
1300
1250
1200

1450
1400
• 1350
Denver
1300
1250
+250,000
1200
1150
2010
1100
1050
1000

from

Lake Erie Resurgence

Buffalo Jobs – New Highs
(+30,000 net new jobs from 2010)
580
570
560
550
540
530
520
510
500

Detroit Jobs
(+300,000 net new jobs from 2010)
2300
2200
2100
2000
1900
1800
1700
1600
1500

Monthly Pending Sales Index
(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
2011
- 2011
Jan
- 2011
Feb
- 2011
Mar
- 2011
Apr
- 2011
May
- June
2011
- 2011
July
- 2011
Aug
- Sep
2012
- 2012
Oct
- Nov
2012- Dec
2012-Apr
- 2012
Jan
- 2012
Feb
Mar
2012
2012
- 2012
May
- June
2012
-2012
-Jul
2012
Aug
- Sep
2013
- 2013
Oct
- 2013
Nov
- 2013
Dec
- 2013
Jan
- 2013
Feb
- Mar
-2013
2013
Apr
- 2013
May
- 2013
Jun
-2013
-Jul
2013
Aug
- Sep
2014
- 2014
Oct
- 2014
Nov
- 2014
Dec
- 2014
Jan
- 2014
Feb
- Mar
-2014
2014
Apr
- 2014
May
- 2014
Jun
-2014
-Jul
2014
Aug
- Sep
2015
- 2015
Oct
- 2015
Nov
- 2015
Dec
- 2015
Jan
- 2015
Feb
- Mar
- Apr
- May
- Jun

Source: NAR

Sales Change by Price Points
(% change from one year ago)
30
25
20
15
10
5
0
-5

Distressed Sales
Foreclosure
60
50
40
30
20
10
0

Short-Sale

Median Home Price
260,000
240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000

Buyer Traffic Conditions

Trade-Up Opportunities
from Housing Equity
Real Estate Value
25000 $ billion
20000
15000
10000
5000
0

Mortgage Debt

Annual Home Sales
9000000
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0

New
Existing

New Price Bubble?
2005-2006 Bubble

2015

• 7.2 m existing home
sales

• 5.3 m existing home
sales

• 1.3 m new home sale

• 0.6 m new home sales

• Loose Credit
• 2.1 m housing starts

• Tight Credit and all-cash
• 1.1 m housing starts

Home Price Forecast for 2016 …
3% to 5%
First Scenario

Second Scenario

• New construction slowly
recover … housing shortage

• New construction robustly
recover … inventory relief

• Prices initially rise fast

• Home price grows 3% to 5%

• Chokes demand and sales fall

• Demand expands and sales rise

• Home price grows 3% to 5%

• Increase mobility and boost jobs

• Not Desirable

• Desirable

Housing Starts
Thousand units

Multifamily

600
400
200
0

Single-family
2000
1500
1000
500
0

Monetary Policy and
Forecast

Fed Policy and Mortgage
Rate
Mortgage Rate
9
8
7
6
5
4
3
2
1
0

Fed Funds Rate

What Determines Bond
Yields?
• Federal Reserve’s 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
-200000
-400000
-600000
-800000
-1000000
-1200000
-1400000
-1600000

Federal Debt … Cumulative
( $ million; debt held by public excluding intra-governmental holdings)

14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0

Louis XV
King of France
from 1715 to
1774
Great leaders do
not leave behind
deluge; rather
they build solid
foundations for
future prosperity.

U.S. Dollar
Reversing the Decline … Stronger and Stronger
Dollar Strength Index – Trade Weighted
140
130
120
110
100
90
80

Washington Risks
• TRID?
• Mortgage Availability?
• Tax Preference Changes?

State and Local Risks
• Foreclosure rules?
• Eminent Domain?
• Tax Preference Changes?

“Taylor Swift Tax” in Rhode
Island

Commercial Real Estate

Commercial Investment Sales of Large Properties
(Properties valued at $2.5 million and over)

571
424

423
362

355
299

212
130

233
174

147
67

470

500

1031 Like-Kind Exchanges
2/3 of Members Used
Number of 1031 Transactions from 2011-14

37%

5%
4% 14%

40%

1-3
4-6
7 - 12
More than 12
None

1031 and Economic Impact
Average Capital Investment in Property Improvements
(% of Property's Fair Market Value)
Less than 10%

16%

10% to 24%

55%

25% to 49%
50% to 100%

16%
5%

Greater than 100% 1%
Not applicable

7%