Economic and Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist, National Association of REALTORS® Presentation at Arkansas REALTORS® Association Eastern Arkansas REALTORS® Association Northwest Arkansas Board of REALTORS® April 6 and 7, 2016

Lifetime Wealth at near All-Time High

Consumer Confidence Index

Median Household Income (Inflation Adjusted)

Annual GDP … Below 3% for 11 straight years

Sluggish GDP and Gap after Recession ($2.5 trillion gap … $7,000 per person) 3% Growth Line Slow 2% Growth Line

Sluggish Business Spending Despite High Profit

Homeownership Rate (seasonally adjusted … near 50-year low)

First-time collapse … why? Lowest in nearly 30 years … since 1987

Student Loan (in $billion)

H.O.M.E. Survey (Housing Opportunity and Market Experience) 87 percent of Americans believe homeownership is part of their personal American Dream HIGHER for year olds at 91 percent

Even with Falling ownership rate, Home Sales Rising

Monthly Pending Sales Index - Steady (Seasonally Adjusted) Source: NAR

Monthly Pending Sales Index – What Triggered the Sustained Decline? (Seasonally Adjusted) Source: NAR

Jump in Mortgage Rate

Fed Rate Hike in December

Fed Rate Hike in December then again in May? then again in September? then again in …

Fed Policy and Mortgage 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)

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

U.S. Dollar Reversing the Decline … Stronger and Stronger

No CPI Inflation – Yet

Rents Rising at 7-year high

Rental Vacancy Rate (30-year low)

Multifamily Oversupply?

Rising Home Price is becoming Obstacle (Median National Existing Home Price)

New Home Price … Even Higher

Memphis and Little Rock Median Home Price – Very Affordable ! In $1000

Arkansas Home Price Index (Repeat Price Measurement by Federal Housing Finance Agency)

Would Home Sales Rise? Rising Mortgage Rates – Not Good Too Fast Rising Prices – Not Good Housing Equity for Pent-up Sellers – Good Credit Qualification Normalizes - Good Return Boomerang Buyers - Good Steadily increased supply - Good Job creation – Super Good

Pent-Up Home Sellers

Credit Box Opens? FICO New Method Fannie/Freddie – Lower down payment products FHA premiums … lowered Portfolio Lending … historic low mortgage default rates on recent vintages ( )

Trade-Up Opportunities from Housing Equity $ billion

Return Buyers

Housing Starts Thousand units

Arkansas Housing Permits

Time to Sell a New Spec Home (in months)

Jobs (8 million lost … 14 million gained) In thousands

Fresh Unemployment Insurance Claims In thousands

Unemployment Rate Falling Out-of-the-Labor Force Rising

Top and Bottom States for Jobs The Best% Gain in 12 months Idaho3.8 Utah3.5 Nevada3.4 Florida3.0 Washington3.0 California2.9 South Carolina2.9 Oregon2.7 Arizona2.3 The Worst% Gain in 12 months Wyoming0.2 Oklahoma0.1 Louisiana-0.4 West Virginia-1.8 North Dakota-2.0 Arkansas job growth rate of 1.6%, 24 nd rank

Jobs in Nashville and Memphis

Jobs in Little Rock and Fayetteville

Jobs in Mobile and Charleston SC

Jobs in Grand Rapids and Flint

FSBO collapse

Impossible Poker Face and Google Bump

Commercial Real Estate

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

Commercial Property Price Index Source: Federal Reserve

REALTOR ® Deal Size (Not $2.5 million Properties)

2/3 of Members used 1031 Like-Kind Exchanges

Economic Forecast Forecast GDP Growth2.6%2.1%1.3% Job Growth+3.0 million+2.6 million+1.5 million CPI Inflation1.6%0.3%2.5% 10-year Treasury2.6%2.1%2.7%

Housing Forecast (as of March 2016) Forecast New Home Sales437,000500,000560,000 Existing Home Sales4.9 million5.3 million5.4 million Median Price Growth+ 5.7%+ 6%+4% 30-year Rate4.2%3.9%4.1%

REALTORS ® CRE Outlook Commercial Real Estate Vacancy Forecast (%) 2014.Q32014.Q42015.Q12015.Q22015.Q32015.Q42016.Q12016.Q22016.Q32016.Q Office Industrial Retail Multifamily Source: NAR Commercial Property Price Indices Forecast NCREIF Green St. Advisors Sources: NAR, NCREIF, Green Street Advisors