Housing Market Trends

1
Housing Market Trends Outlook

• Lawrence Yun, Ph.D.
• Chief Economist
• NATIONAL ASSOCIATION OF REALTORS
• Presentation at International Real Estate
  Congress
• At REALTOR Association of Greater Miami and the
  Beaches in Coral Gables, FL
• June 11, 2009

2
Existing Home Sales
3
Vacation Home Sales
In thousand units
Source NAR
4
Pending Home Sales Index
Taking a bit longer to close In recent months
5
Florida Existing Home Sales
In thousand units
6
Florida Existing Home Sales Recent Quarters
In thousand units
7
Miami Home Sales

• Condo Sales up 70 in April from one year ago
• Single Family Sales up 98 in April from one year
  ago

8
National Existing Home Price (of transacted
homes and not listed homes)
First-time buyers attracted to deeply discounted
distressed sale properties.
9
Miami Median Home Price
thousand
Source NAR
10
MiamiCase-Shiller Home Price Index
thousand
11
MiamiFHFA (Government) Home Price Index
thousand
12
Months Supply of Single-Family Homes
First-time buyers attracted to deeply discounted
distressed sale properties.
13
Vacant Homes
In thousand units
Source Census
14
Homebuilders Down and Out
In thousand units
Source Census
15
New Home Inventory for Sale
In thousand units
In thousands
Source Census
16
Housing Starts Too Much to Too Little
New Units Needed
3 million more people each year 1 to 1.4
million household formation need to account
for 300,000 demolitions . need 1.3 to 1.7 new
units
17
Miami Ft. LauderdaleSingle-Family Housing
Permits
In thousand units
Source Census
18
Miami Ft. LauderdaleMultifamily Housing Permits
In thousand units
Source Census
19
National Foreclosure Inventory will Risebut will
they get cleared off quickly
In thousand units
Subprime
All Mortgages

• FHA Reserve Fund depleting may need funds to
  implement a countercyclical policy
• Fannie-Freddie will need funds future reform of
  the secondary mortgage market
• What is going on in Denmark ?

20
Prices based on Transaction Only

• About half of all recent transactions have been
  distressed sales
• 15 to 20 short sales
• 30 to 35 foreclosures
• Market price is based on transaction
• What about non-transacted homes that is not on
  market?
• Can we extrapolate market price to other
  non-listed homes?
• Estimates of 25 or 33 of all homeowners are
  UNDERWATER True?

21
Housing Affordability Index(Higher numbers mean
more people can afford to buy a home)
ALL-TIME HIGH on conforming loans if people
need to stay within budget
22
Lowest Rate since President Eisenhower Days, but
not on Jumbo Mortgages
23
High-end Existing Home Sales(Homes priced above
750,000)
4.4
3.7
2.3
Source NAR
2009 figures are annualized from January and
February sales.
24
California Existing Home Sales Tipping Point
In thousand units
Source CAR
25
Home Price Bid Up in West
thousand

• February price from January according FHFA Home
  Price Index
• Measure price change only of those homes with
  Fannie-Freddie mortgage using repeat transaction
  methodology

26
Economy Falls but Recovers from Stimulus Package
GDP annualized growth rate
Latest Data
Forecast
Source BEA
27
Job Changes in U.S.
One-month payroll job changes in thousands
Source BLS
28
Job Changes in Miami
One-year payroll job changes in thousands
Source BLS
29
Federal Budget Deficit
million
30
Credit Crunch Ending?

• Libor Rates improving
• Junk Bond yields becoming less wild
• Banks making profit but are they getting too
  big again (75 of assets controlled by 10 banks)
• Federal Reserve lending at zero (though not to
  consumers)
• True Test of credit easing
• Lower rate on jumbo mortgages
• Lower rate on second home purchases
• Lower rate on condo purchases
• Lower rate on commercial real estate loans

31
Rental Occupied Units
In thousand units
Dip and Revival
Source Census
32
College Town Rental Boom to 2050?
20 to 24 year olds
In thousand units
Boom and Boom
Boom and Bust
33
Economic Outlook
Strength of GDP recovery dependent on home price
growth - Consumer spending improves from housing
wealth effect - Bank balance sheet improves
eases credit crunch - Foreclosure pressure
lessens
34
Housing Forecast

• Stimulus and falling inventory will help
  stabilize prices
• Nationwide Existing Home Sales bump of 10 to 20
  in the second half of 2009 vs. second half of
  2008
• CA now seeing 100 jump in home sales from trough
  Is CA setting trends for others?
• Builders may not see a recovery till 2010
• Local Price Forecasts all over the map
• Sharp downward overshooting is susceptible to
  sharper price rebound

35
Inflation or Deflation in 2011 ?

• Inflation Print money and there goes the
  inflation
• Deflation Excess capacity and high unemployment
  rate keeps prices in check.
• Feds exit strategy to reclaim printed money
• Which one is more dangerous?
• Which one will occur? Watch the energy price
  as the catalyst for both scenarios
• If Inflation winners will be property owners
  who locked-in low rate
• If deflation losers will be responsible
  homeowners with mortgages

36
Recession Impact on Housing Market

• Mid-1970s Recession
• Little Change in Home Sales
• Early 1980s Recession
• Deep Cuts in Home Sales
• Early 1990s Recession
• Moderate Cuts in Home Sales
• Early 2000s Recession
• Rise in Home Sales

37
Credit Crisis 2008 Libor vs. Fed Funds Rate
Lehman Brothers belly up
Subprime acting up
Bear Stearns
38
Lowest Rate since President Eisenhower Days, but
not on Jumbo Mortgages
39
High-Income Families contribute heavily in taxes,
yet getting punished on mortgage rates
Source IRS
40
Tax Cut (or no increase) for 95 of Families

• What about the 5?
• Mortgage Interest Deduction tweaks for 5, but
  will impact nearly all homeowners in terms of
  housing equity destruction
• Will 5 become acutely cognizant of state income
  taxes paid?
• Will people migrate to FL, NV, AK, SD, WA, WY, TX?

41
Commercial Credit Freeze
42
Bailouts and Too Big to Fail

• AIG, Bear Sterns, Lehman Brothers, TARP, and
  Fannie/Freddie
• inter-linkages and systemic risks
• Chrysler
• Make it small and let it fail
• Managerial Hubris Want to run big companies
• Acquiring companies lose stock value
• Acquired companies get immediate stock boost
  (windfall gain)
• Too big to manage and diseconomies of scale
• Is the Government becoming too big to manage? It
  cannot fail and difficult to fire federal
  employees

43
Credit Crunch Ending?

• Libor Rates improving
• Junk Bond yields becoming less wild
• Banks making profit but are they getting too
  big again (75 of assets controlled by 10 banks)
• Federal Reserve lending at zero (though not to
  consumers)
• True Test of credit easing
• Lower rate on jumbo mortgages
• Lower rate on second home purchases
• Lower rate on condo purchases
• Lower rate on commercial real estate loans

44
Commercial Market Forecast

• 2008 to 2009
• Net absorption turns negative
• Rising Vacancy Rates and Stagnant Rent
• Markedly Fewer Transactions
• Property Prices Falling providing opportunities
  for parked cash
• Apartments holding up better
• 2010
• Economic recovery
• Commercial recovery with lag time
• Pent-up and delayed transactions
• Modestly Positive net absorption and rising rents

45
The Next Baby Boomers(Recent Births matching the
post-War Baby Boomer numbers)
Number of Live Birth Each Year
Baby Bust Impact Ending ?
Boomers
Next Boomers
46
The Next Middle Class

• Global Economy is here to stay
• U.S. population 300 million
• BRIC countries nearly 10 times the U.S.
  population
• Brazil 190 million
• Russia 140 million
• India 1.1 billion
• China 1.3 billion
• Potentially 30 million new middle class each year
  from just 1 upward shift
• How many will want a property in the U.S.?

47
Top World Economies
trillion
Source IMF
48
Typical Economic Expansion Rates

49
World Economies in 30 years (in 2037)
trillion
Source NAR
50
U.S. Population Projection 2000 to 2050
milliion
2050
2000
Source U.S. Census
51
Rapid Population Growth in Developing Countries
2000 to 2050
milliion
2050
2000
Source The Economist
52
Stagnant or Declining Population 2000 to 2050
milliion
2000
2050
Source U.S. Census, Brugesgroup, The Economist
53
Most Expensive Cities

• 6. Osaka
• 7. Geneva
• 8. Copenhagen
• 9. Zurich
• 10. Oslo
• 10. New York

1. Moscow 2. Seoul 3. Tokyo 4. Hong Kong 5.
London
Where is Miami ?
Source Mercer Consulting
54
International Home Price Growth(1997 to 2009)

• U.S. price growth 50 to 85
• -----------------------------
• Switzerland 26
• Germany flat
• Japan -35

• U.S. price growth 50 to 85
• -----------------------------
• Spain 175
• U.K. 158
• Ireland 182
• France 133
• Australia 156

55
U.S. International Trade

Import Export in relation to GDP
Source BEA
56
International Buyers Destination in the U.S. in
2007
Source NAR
57
International Homebuyer Trend in Florida in
2008(versus 5 years ago)
58
International Buyers Origin by Country in Florida
Source NAR
59
Top Florida Destination
Source NAR
60
Why Florida?

• Desirable location 72
• Profitable Investment 16
• Secure Investment 6
• Other 6

61
International Buyer Prospects Non-Purchase
Source NAR
62
Commercial Foreign Direct Investment Position in
U.S.
Top Investing Countries in 2007

• Latin America 15
• Australia 14
• Germany 13
• Japan 10
• United Kingdom 8
• Canada 4
• Netherlands 1
• Other 34

63
U.S. Citizens Living Abroad

• Mexico 1,036,300
• Canada 687,000
• UK 224,000
• Germany 210,000
• Italy 168,000
• Philippines 105,000
• Australia 102,000
• France 101,000
• Spain 94,000
• Israel 94,000
• All other countries 1,247,705

• Total 4.1 million

64
High Immigration
million
Projected
Source Census Bureau, NAR Forecast
65
Where do theForeign-born Live?
Top 10 states account for ¾ of all foreign-born
in U.S.
U.S. Census Bureau
66
Foreign-Born Population on the Rise Inevitable
Rise in International Inbound/Outbound Purchases

2000
1980
Source U.S. Census
67
Positive Trends in Global Real Estate

• Private Property Movement
• Better market information
• Thailand 1997 Crisis from lack of reliable Real
  Estate Information
• Foreign MLSs?
• Mortgage Market Innovations in other countries
• ARMs in U.K.
• Few mortgages in Russia
• Large down payments in South Korea
• Nascent Mortgage Backed Securities outside U.S.
• Deeper Information and Liquidity lower
  borrowing cost and more transactions

68
Local Real Estate in Global World

• Location, Location, Location
• Non-movable asset
• Local specialists needed
• Only the clients will no longer be locals

69
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