Presentation at NAR Leadership Summit Chicago, IL August 21, 2008 Presentation at NAR Leadership Summit Chicago, IL August 21, 2008 Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ®

Home Sales Starting to Recover from Improving Affordability Conditions Source: NAR % change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)

Home Price Trend Source: NAR

Sales Still Struggling Source: NAR % change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)

National Total Existing-Home Sales (Up markets + Down markets = Stable total) Stable

Housing Stimulus Package First-time Homebuyer Tax CreditFirst-time Homebuyer Tax Credit –Up to $7,500 (but with repayment requirement) –Helps unleash chain reaction for trade-up buyers Permanently higher Loan LimitPermanently higher Loan Limit –Up to $625,000 … covers most jumbo loans –Will lower “conforming jumbo” mortgage rates by 1% point (from say 7.5% to 6.5%) –Saving $4,000 in interest cost per year

FHA Market Share for Home Purchase Source: HMDA, NAR Estimate

Annual Existing-Home Sales at 1998 levels In thousand units

1998 vs 2008 Existing Home Sales stable but trending at 10 year ago levelsExisting Home Sales stable but trending at 10 year ago levels From 1998 to million more people25 million more people 13 million more jobs13 million more jobs Comparable affordability conditionsComparable affordability conditions Is it credit tightening?Is it credit tightening? Is it excessive pessimism?Is it excessive pessimism?

Location, Location, Location: Makes a Big Difference! All Real Estate is Very LocalAll Real Estate is Very Local Local Affordability and Local Job Market Conditions?Local Affordability and Local Job Market Conditions? Steepest price declines are concentrated in neighborhoods with high subprime loansSteepest price declines are concentrated in neighborhoods with high subprime loans Steep price declines attracting buyersSteep price declines attracting buyers

Delinquency Rates Subprime vs. Prime Delinquency Rates Subprime vs. Prime Data: Mortgage Bankers Association

Stresses are in Neighborhoods with Subprime Loans Yellow – Mostly Prime Conforming Loans Only (OFHEO) Orange – All Loans including subprime and jumbo loans (Case-Shiller) Red – Subprime Loans (NAR estimate based on weighted average) Price change from a year ago

One For Every 100 Households 100 households100 households 32 renters and 68 homeowners32 renters and 68 homeowners 22 have no mortgage 46 have mortgage 3 are delinquent 43 are current 1 gets foreclosed 2 work it out Historically only ½ gets foreclosed

Homeowners in Denial ? 62% of homeowners say no price decline62% of homeowners say no price decline Most U.S. Markets are experiencing price declineMost U.S. Markets are experiencing price decline Price info gleamed from transacted homes and not all homesPrice info gleamed from transacted homes and not all homes –More than usual number of transactions from REO-foreclosed, short-sales –90% of homes are not on the market Only 9% of homeowners have subprime loansOnly 9% of homeowners have subprime loans Homeowners have long-term viewHomeowners have long-term view Rural areas (land prices up 9%)Rural areas (land prices up 9%)

Strong Job Growth States (Yet, Falling Sales because of mortgage tightening and buyer hesitancy) Source: NAR % change in job growth from one year ago

Interest Rates (Long and Short)

U.S. Single-Family Housing Starts Source: Census In thousand units

Inventory of New Homes Fell Even as Sales Fell (Inventory will fall very fast if sales pick up) Source: Census

Home Price Forecast Falling inventory will help stabilize pricesFalling inventory will help stabilize prices Ben Bernanke’s view … ?Ben Bernanke’s view … ? Alan Greenspan’s view … early 2009Alan Greenspan’s view … early Economists view … Economists view … 2009 My view …My view … –Watch out for Denver and Houston on fundamentals –Watch out for CA, NV, AZ, and FL on multi- bids –Watch out for Pitt, Indy, Cincy once jobs come around

Economic Forecast Consumers are angryConsumers are angry Businesses are OKBusinesses are OK Exports boomingExports booming Net: Improving economy in the second half of 2008Net: Improving economy in the second half of will depend on persistent or dissipating consumer anger2009 will depend on persistent or dissipating consumer anger

GDP Growth % annualized growth rate Source: BEA

U.S. Job Changes 7 straight months of job cuts Source: BLS 12-month payroll job changes in thousands

Consumer Price Inflation Source: BLS

Consumer Sentiment Source: University of Michigan

Corporate Profits – Near Record High Source: BEA $ billion

Exports Growing $ billion (2000-chain $)

Commercial Real Estate Construction Spending $ billion (2000-chain $)

Commercial Fundamentals Vacancy Rates rising modestly … all acrossVacancy Rates rising modestly … all across Rent Growth slowing still positive in most markets and most property typesRent Growth slowing still positive in most markets and most property types Multifamily holding up betterMultifamily holding up better …Retail less so…Retail less so

Euro vs Dollar

Dollar Strength and Oil Price

Economic Outlook GDP2.0%1.7%1.5% CPI Inflation 2.9%4.1%2.6% Job Growth 1.1%0.1%0.2% Unemployment Rate 4.6%5.5%6.0%

What will Happen to Fannie and Freddie? SurviveSurvive –Able to raise capital –Default rate slows Do not Survive … become Bear StearnsDo not Survive … become Bear Stearns Treasury and Fed helps through the crisisTreasury and Fed helps through the crisis –Repay the government after crisis –Chrysler model NationalizationNationalization –Temporary government takeover –Re-privatize but with tighter regulation

Sharp or Modest Rebound? Depends on all of us in informing and educating consumersDepends on all of us in informing and educating consumers –Get the neighborhood information from local professionals –If ready financially, buy a home and get that special tax break –Mortgage rates off rock-bottom points but still historically favorable –Though no guarantee, buying a home has been a path to long-term wealth accumulation in vast number of cases –U.S. homes are on a big-time sale, own a piece of America