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Real Estate Trends and Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at NAR Broker Summit Atlanta, GA August.

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Presentation on theme: "Real Estate Trends and Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at NAR Broker Summit Atlanta, GA August."— Presentation transcript:

1 Real Estate Trends and Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at NAR Broker Summit Atlanta, GA August 7, 2014

2 GDP Rebound … 4% !!! in 2014 Q2

3 But Still not Robust … Below 3%

4 Sluggish Growth + Gap after Great Recession ($1.5 trillion gap … $4,700 per person) 3% Growth Line 2.2% Growth Line

5 GDP Growth = Job Creations (8 million lost … 8+ million gained) In thousands

6 Unemployment Rate

7 Employment Rate

8 Job Market Comparisons by State Fast Growing States 1-year Growth Rate North Dakota4.5 Nevada3.7 Texas3.4 Florida2.9 Utah2.9 Colorado2.8 Oregon2.7 Delaware2.6 West Virginia2.5 California2.2 Slow Moving States 1-year Growth Rate Michigan0.7 Alabama0.6 Wyoming0.6 South Dakota0.3 Virginia0.3 New Jersey0.1 Illinois0.0 Alaska0.0 New Mexico-0.1 Vermont-0.2

9 Jobs in North Dakota In thousands

10 Jobs in Georgia In thousands

11 Jobs in New Jersey In thousands

12 Existing Home Sales 20% cumulative increase over 2 years

13 Monthly Pending Sales Index … Hits Speed Bump (Seasonally Adjusted) Source: NAR

14 Two and Out? Or Multi-year Expansion? (Single-Family Existing Home Sales Only)

15 Causes of Recent Sales Slowdown Bad winter – Only delayed sales not cancellation Home prices rose too fast in relation to income – Showing signs of slowing Lack of inventory – Steadily more inventory coming to market Mortgage rates jumped … then declined – Trouble ? Mortgage credit difficulties – New Qualified Mortgage Rules – Surely cannot get worse!

16 Mismatch Growth

17 Change in Home Price (% change from one year ago)

18 30-Year Fixed Rate Mortgage and 1-year Adjustable Rate Mortgage

19 Repeat Price Index (Des Moines and Las Vegas )

20 Inventory of Homes for Sale

21 Shadow Inventory

22 Shadow Inventory – AZ and CA

23 Shadow Inventory – NJ and NY

24 Forecast #1: Higher Inflation … Higher Interest Rates Federal Reserve “Quantitative Easing” finishes by the year end 2014 Fed Funds Rate … hike in 2015 Q1 Earlier Move to Tighten because of Inflation Pressure Long-term Steady State Rate (2016 onwards).. 10 year Treasury at 5.0%

25 Rising Renters’ and Homeowners’ Rent Growth (On the Way to 3%)

26 REALTOR® Rent Survey – Shows Rent Pressure

27 Economic Forecast forecast 2015 forecast GDP Growth1.9% 2.7% Job Growth1.7% 1.8% CPI Inflation1.4%2.5%3.5% Consumer Confidence year Treasury2.5%2.8%3.6%

28 Forecast #2 Multi-year Housing Expansion – Broadly Speaking Pent-Up Demand – Population Growth – Job Growth Some underperformance, however, from lock- in effect Inevitable Growth in housing starts add inventory Vacation home sales growth

29 U.S. Population

30 Pent Up Demand Existing Home Sales5.2 m5.1 m New Home Sales880 K430 K Mortgage Rates8.0%4.0% Payroll Jobs132.0 m136.4 m Population282 m316 m

31 Locked-in Effect of Low Rates? Housing cannot get back to normal in a hurry People move even in high interest rate environment Many unplanned landlords – Take advantage of rising rents while rates are low and fixed Potential future lock from longer holding period for capital gains tax exclusion

32 Reasons Why Sellers Move ReasonPercentage Home is too small or large29% Job relocation or closer to current job 20% Want to move closer to friends.. Better neighborhood 13% Neighborhood has become less desirable 10% Marriage, Divorce, Birth8% Moving due to retirement6% Upkeep is too difficult4% Cannot afford the mortgage and other expenses of owning 3%

33 Household Net Worth

34 Vacation Home Sales

35 Housing Starts Rising … More Inventory But Needs to Reach 1.5 million Thousand units (annualized) Long-term Average

36 Time to Sell a New Spec Homes (in months)

37 Sluggish Recovery in Housing Starts Cost of Construction Rising Faster than CPI Labor Shortage for construction work Construction loan difficulty for small local homebuilders … Dodd-Frank financial regulations?

38 National Housing Forecast forecast 2015 forecast Housing Starts925, million1.4 million New Home Sales430,000Near 500,000Near 700,000 Existing Home Sales5.1 million4.9 million5.3 million Median Price Growth %+ 5% to 6%+ 3% to 5% 30-year Rate4.0%4.4%5.4%

39 First-time Buyer Share

40 Young Adult Homeownership Rate (under 35 years old)

41 Millennial Housing Demand Returns Austin Dallas-Ft. Worth Denver Des Moines Grand Rapids Minneapolis New Orleans Ogden Salt Lake City Settle-Tacoma

42 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

43 Renter Households In thousands

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

45 Wealth Distribution (Federal Reserve data on median net worth) 2014 Forecast by NAR Bubble Crash

46 What Homebuyers Want?

47 Slide 47 Slightly More Preference For Condo or Apartment Living Than In 2011 Housing Type Preference (2013): Housing Type Preference (2011): Right now, if you could choose, which of the following would you prefer to live in: 6% Single Family Attached

48 What Buyers Want Most From Their Agent

49 Where Clients Come From From Members: – 21 percent repeat business from past clients – 21 percent referrals from past clients – 3 percent off member website (of those with a website) From Buyers: – 54 percent use an agent that was referred to them or they had worked with before – 9 percent found agent online From Sellers: – 64 percent use an agent that was referred to them or they had worked with before – 4 percent found agent online 2/3rds of buyers/sellers only contact 1 agent

50 Commercial Market Activity

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

52 Green Street Price Index Charting New Highs

53 Price Increases Supported by Rising Rents and Low Interest Rates

54 Cap Rates and Treasuries: Large Gap

55 REALTOR® Markets & Deal Size (Not $2.5 million Properties)

56 Small Banks Important to REALTORS®

57 Prices Accelerate in REALTOR® Markets

58 REALTOR® CRE Markets Rebound

59 Commercial Forecast OFFICE 2013 I2013 II2013 III2013 IV2014 I Vacancy Rate 16.0%15.9%15.7%15.6% 15.9%15.7% Net Absorption ('000 sq. ft.) 10,2686,3108,9558,44013,12833,97342,349 Completions ('000 sq. ft.) 7,2207,2756,0305,4948,59826,01930,986 Rent Growth 0.6% 0.7% 2.6%2.8% INDUSTRIAL 2013 I2013 II2013 III2013 IV2014 I Vacancy Rate 9.6%9.5% 9.4%9.2%9.5%9.0% Net Absorption ('000 sq. ft.) 24,35421,91938,96636,53120,695121,770103,475 Completions ('000 sq. ft.) 12,64313,4488,7878,36218,84943,24164,467 Rent Growth 0.5%0.6%0.5%0.7%0.6%2.3%2.6% RETAIL 2013 I2013 II2013 III2013 IV2014 I Vacancy Rate 10.7%10.6% 10.5%10.4%10.6%10.1% Net Absorption ('000 sq. ft.) 4,2972,8651,9102,8655,89911,93516,387 Completions ('000 sq. ft.) 1,9811,7121,9231,9643,3287,58012,735 Rent Growth 0.2%0.3%0.5% 1.5%2.1% MULTI-FAMILY 2013 I2013 II2013 III2013 IV2014 I Vacancy Rate 4.0%3.9% 3.8%3.9% 4.0% Net Absorption (Units) 64,95467,66156,83581,19360,759270,643253,161 Completions (Units) 31,85140,45736,94539,20536,251148,458168,962 Rent Growth 1.0%1.1%1.2%1.3%1.2%4.6%4.7% Sources: National Association of REALTORS® / Reis, Inc.

60 Forecast over the next 2 years GDP Growth near 3% Net New Jobs about 2 million a year Rising interest rates … – 10-year Treasury to reach 4% by late 2015 Cap rates rise somewhat (narrow the gap first) Increased occupancy and falling vacancy (new supply lacking) Rising rents … can offset rising rates to support property values Overall … improving business opportunities

61 Washington Policy Watch on Commercial Real Estate Facilitate Covered Bonds to help credit flow Raise cap on holding of commercial RE loans by credit unions Preserve Like-Kind Exchanges Preserve Terrorism Insurance Preserve capital gains status on carried interest Depreciation Rules should match economic life Oppose lease-accounting changes

62 For Daily Update and Analysis Facebook – Key word search … NAR Research

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