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October 8, 2007 NAR Research Market Update. Why Buy Now? Time of “crisis” often turns out to have been a time of opportunity in hindsightTime of “crisis”

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Presentation on theme: "October 8, 2007 NAR Research Market Update. Why Buy Now? Time of “crisis” often turns out to have been a time of opportunity in hindsightTime of “crisis”"— Presentation transcript:

1 October 8, 2007 NAR Research Market Update

2 Why Buy Now? Time of “crisis” often turns out to have been a time of opportunity in hindsightTime of “crisis” often turns out to have been a time of opportunity in hindsight Wide selection of housing inventoryWide selection of housing inventory Favorable mortgage ratesFavorable mortgage rates Prime borrowers – low favorable conforming rate loansPrime borrowers – low favorable conforming rate loans Jumbo borrowers – rates coming down after August credit crunchJumbo borrowers – rates coming down after August credit crunch Non-prime borrowers – moving away from the risky subprime loans into safer FHA loans (Major reform in FHA program taking place)Non-prime borrowers – moving away from the risky subprime loans into safer FHA loans (Major reform in FHA program taking place) Worst in credit crunch is over – Alan GreenspanWorst in credit crunch is over – Alan Greenspan More jobs, more income, more wealth --- significant pent-up demand --- buy before others doMore jobs, more income, more wealth --- significant pent-up demand --- buy before others do Homeowners in it for the long-term nearly always come out ahead in building wealthHomeowners in it for the long-term nearly always come out ahead in building wealth

3 Latest Key Data Indicator Trend from a year ago Comment Existing Home Sales Down 13% Impact of August credit crunch Home Price Up 0.2% First increase in 13 months Single-family Housing Starts Down 27% Good news to thin out inventory Existing home inventory Up 19% A lot of choices for buyers Mortgage Rates 6.3% Historically favorable Net New Jobs 1.6 million Pent-up demand accumulating Aggregate Income Up 7% Plenty of financial wherewithal

4 Monthly Existing-Home Sales (from 7 million in peak to 5.5 million now) Source: NAR In thousand units Peak

5 Annual Existing-Home Sales and Forecast (5 th best year in 2007 and recovery in 2008) Source: NAR In thousand units

6 Existing Home Inventory (From 2 million to 4.5 million) Source: NAR

7 New Home Inventory (Already Topped Out) Source: Census

8 Single-Family Housing Starts (Major fall – but, good trend to control inventory) Source: Census

9 Home Price Change (1st rise in 13 months) Source: NAR

10 Home Price Change in the Northeast (First region to undergo a slump – but now already into a respectable recovery) Source: NAR Positive Gains

11 Interest Rates (Another Fed rate cut likely before year end) Source: Freddie Mac, Federal Reserve

12 Jumbo Loan Rate Spread (August panic over – but still not back to norm) Source: Freddie Mac Basis Points

13 U.S. Job Gains- Less Strong (Still 4 million new jobs in past 24 months – time period when sales were falling …. points to Accumulating pent-up demand) Source: BLS 12-month payroll job changes in millions

14 Resetting Mortgage Burden There are $450 billion in resetting mortgages over the next 12 months (about 2 million loans)There are $450 billion in resetting mortgages over the next 12 months (about 2 million loans) –If all reset (without any refis) to rates 4 to 5 percentage points higher, then $18 to $22 billion in additional mortgage payments –About 10% to 20% (worst case scenario) of subprimes will default … 200,000 to 400,000 additional inventory Personal Income (aggregate) to rise by $700 billion in 2007Personal Income (aggregate) to rise by $700 billion in 2007 Resets are burdensome and will raise foreclosures. But the impact to the economy is small in relation to the positive income gains... and the impact on overall inventory is about 5% to 10% to the current inventory.Resets are burdensome and will raise foreclosures. But the impact to the economy is small in relation to the positive income gains... and the impact on overall inventory is about 5% to 10% to the current inventory. There are $450 billion in resetting mortgages over the next 12 months (about 2 million loans)There are $450 billion in resetting mortgages over the next 12 months (about 2 million loans) –If all reset (without any refis) to rates 4 to 5 percentage points higher, then $18 to $22 billion in additional mortgage payments –About 10% to 20% (worst case scenario) of subprimes will default … 200,000 to 400,000 additional inventory Personal Income (aggregate) to rise by $700 billion in 2007Personal Income (aggregate) to rise by $700 billion in 2007 Resets are burdensome and will raise foreclosures. But the impact to the economy is small in relation to the positive income gains... and the impact on overall inventory is about 5% to 10% to the current inventory.Resets are burdensome and will raise foreclosures. But the impact to the economy is small in relation to the positive income gains... and the impact on overall inventory is about 5% to 10% to the current inventory.

15 Bottom Line Home sales weak and growing inventoryHome sales weak and growing inventory The national median home price – interestingly - remains flatThe national median home price – interestingly - remains flat Local price trends vary – Northeast showing good appreciationLocal price trends vary – Northeast showing good appreciation –Seattle, Austin, Raleigh, and 2/3 of the country with price gains Job gains evidently supporting pricesJob gains evidently supporting prices Plenty of wealth -- solid income gains and record high stock marketPlenty of wealth -- solid income gains and record high stock market Pent-up demand accumulatingPent-up demand accumulating Few more months of “bad” press coverageFew more months of “bad” press coverage Media coverage to become positive in 2008Media coverage to become positive in 2008 Forecast: 2008 will be better than 2007; 2009 to improve furtherForecast: 2008 will be better than 2007; 2009 to improve further Home sales weak and growing inventoryHome sales weak and growing inventory The national median home price – interestingly - remains flatThe national median home price – interestingly - remains flat Local price trends vary – Northeast showing good appreciationLocal price trends vary – Northeast showing good appreciation –Seattle, Austin, Raleigh, and 2/3 of the country with price gains Job gains evidently supporting pricesJob gains evidently supporting prices Plenty of wealth -- solid income gains and record high stock marketPlenty of wealth -- solid income gains and record high stock market Pent-up demand accumulatingPent-up demand accumulating Few more months of “bad” press coverageFew more months of “bad” press coverage Media coverage to become positive in 2008Media coverage to become positive in 2008 Forecast: 2008 will be better than 2007; 2009 to improve furtherForecast: 2008 will be better than 2007; 2009 to improve further

16 Consumer Messages

17 Something appears Out of Whack! (If viewing solely by home price and income, but … next page) Income and Price set to Index of 100 in 1990 Source: NAR

18 Rates: Near 45-Year Lows (Low rate permit people to take out a larger loan with less burden) Source: Freddie Mac 1970s 9% average 1980s 13% average 1990s 8% average 2000s 6.5% average

19 Mortgage Obligation to Income (better indicator of to assess “bubble” and it is not out of whack) Manageable and not out of Whack Source: NAR %

20 Apartment Rents (Rising rents force some renters to about ownership) Source: Torto-Wheaton Research %

21 Subprime Loan Exposure (subprime makes up less than 10% of homeowners) Source: NAR Estimate

22 Foreclosed Homes (less than 10% of subprime owners make up more than ½ of foreclosures) Source: NAR Estimate

23 Foreclosure Rates by Loan Type 2007 Q2 (Problem is principally the resetting subprime loans) Data: MBA

24 Foreclosure Probability once becoming Delinquent (Latest Foreclosure/Delinquency ratio) Better Loss Mitigation Programs for VA and FHA

25 FHA Loan Impact FHA had been the choice for first-time homebuyers and for those with blemished credit in the pastFHA had been the choice for first-time homebuyers and for those with blemished credit in the past FHA dramatically lost market share to subprime loans in the past 5 yearsFHA dramatically lost market share to subprime loans in the past 5 years FHA interest rates are much more favorable than APR of subprime loans (after considering resets)FHA interest rates are much more favorable than APR of subprime loans (after considering resets) Major FHA reform will better help first time homebuyers to enter the marketMajor FHA reform will better help first time homebuyers to enter the market

26 FHA Market Share for Home Purchase Source: HMDA,NAR estimate

27 U.S. Job Gains (Still 4 million new jobs in past 24 months – time period when sales were falling …. points to Accumulating pent-up demand) Source: BLS 12-month payroll job changes in millions

28 Wage Growth Rising Strongly % Source: BLS

29 Total U.S. Wages and Salary Disbursement Rising Strongly Source: BEA $ billion

30 Corporate Profits – at near Record High Source: BEA $ billion

31 Stock Market at Record High S&P 500 Index Source: NYSE

32 Best Evidence: Household Wealth Accumulation Source: Federal Reserve Median Net Worth $184,400 $4,000

33 Wealth Accumulation – The Power of Leverage for Homeowners ($10,000 down payment on a $200,000 home) 10% appreciations15% appreciations5% appreciations

34 Why Buy Now? – Repeat the Mantra Time of “crisis” often turns out to have been a time of opportunity in hindsightTime of “crisis” often turns out to have been a time of opportunity in hindsight Wide selection of housing inventoryWide selection of housing inventory Favorable mortgage ratesFavorable mortgage rates Prime borrowers – low favorable conforming rate loansPrime borrowers – low favorable conforming rate loans Jumbo borrowers – rates coming down after August credit crunchJumbo borrowers – rates coming down after August credit crunch Non-prime borrowers – moving away from the risky subprime loans into safer FHA loans (Major reform in FHA program taking place)Non-prime borrowers – moving away from the risky subprime loans into safer FHA loans (Major reform in FHA program taking place) Worst in credit crunch is over – Alan GreenspanWorst in credit crunch is over – Alan Greenspan More jobs, more income, more wealth --- significant pent-up demand --- buy before others doMore jobs, more income, more wealth --- significant pent-up demand --- buy before others do Homeowners in it for the long-term nearly always come out ahead in building wealthHomeowners in it for the long-term nearly always come out ahead in building wealth


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