After the Blast.


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Gross domestic product barring private land. Carelessness and Rising Rates ... Private Real Estate Business Trends Forum. Washington, DC - May 2006 ...
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Slide 1

After the BOOM David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC - May 2006

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Five-Year Boom … Something to Remember Memories, Like the edges of my psyche Misty water-shaded recollections Of the Way We Were…

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Five Straight Record Years: Existing-Home Sales In million units Source: NAR

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Five Straight Record Years: New-Home Sales In thousand units Source: Census

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Extraordinary Home Price Appreciation Source: NAR

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Hot Markets in Past Five Years (2000 to 2005) Source: NAR

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Rates Near Historic Lows 1970s 9% normal 1980s 13% normal 1990s 8% normal 2000s 6.5% normal Source: Freddie Mac

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Lean Housing Inventory Source: NAR

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NAR Membership in thousands 499,000 addition in 5 years Source: NAR

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Real Estate Employment Surges % * Construction occupations in the private division. ** Lending employments in credit intermediation yet not business managing an account . Source: NAR, BLS

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Residential Real Estate Industry Revenue Surges GDP barring private land Source: BEA

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Overconfidence and Rising Rates Emptied the Punch Bowl

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Rising Mortgage Rates Source: Freddie Mac

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Income Not Keeping Pace With Home Prices Income and Price set to Index of 100 in 1990 Source: NAR

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Mortgage Debt Obligation to Income High in Some Markets San Diego Source: NAR

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Mortgage Debt Obligation to Income High in Some Markets Miami Source: NAR

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Too Much Speculation Flipping Pre-development purchases/deals Long lines at deals workplaces and lottery buys Long separation buys (without seeing property) Interest-just and/or flexible advances rule a few markets Interest-Only extended family unit salary

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Adjustable Mortgages (2005 Q4) % Source: FHFB

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Interest-Only Mortgages % Source: Loan Performance

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Interest-Only Loans Stretched Payment Stretching to get a 40% bigger credit $250,000 conventional advance at 6% rate rises to $1,499 every month $350,000 premium just advance at 5% rate measures up to $1,458 every month Minimum Payment – Option ARMS Loans Even all the more extending

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Even Muhammad Ali Had Limits Successive Record Years Not Sustainable Double-digit Price Gains Not Healthy or Sustainable Inevitable Rate Rise from Generational Low Mortgage Rates

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But Roof Not Caving No Bust – Just Deceleration Boom Winding Down to Expansion Inventory Building, yet not Excess Price Appreciation Slowing Sales Take a Dip – yet just for a year A Needed Cleansing

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Housing Inventory All-time High Source: NAR

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Housing Inventory Months Supply Source: NAR

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Home Price Appreciation Percent Change Source: NAR

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Lower Existing-Home Sales In million units Source: NAR

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Declining Mortgage Applications for Home Purchase Source: Mortgage Bankers Association

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Real-Time Housing Market Ticker Live Information

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Tale of Two Cities Boom Cities Adjusting from Seller to Buyer Market Non-Boom Cities demonstrating Booming Tendencies Common Thread for Both Markets – Job Gains and Income Growth (barring Michigan) Healthy Local Economy guarantees boom urban areas to arrive delicately Healthy Local Economy guarantees non-blast urban communities to develop

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Days on Market Lengthening in Boom Markets

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Days on Market Shortening in Non-Boom Markets

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Existing-Home Sales (2006 Q1 versus 2005 Q1) Source: NAR

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Cooling Markets Booming in Jobs

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Non-Boom Markets With Strong Job Growth One-year Job Growth Rate % Source: BLS

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Cool \'06 and Rise \'07 Solid basics: Low Historic Rates, Favorable Demographics, Healthy Economy Speculators Out Exotic Mortgages Out

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Economic Backdrop

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Sound Economy % Source: BEA

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Consumer Spending Still Healthy % Source: BEA

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Business Spending Rebounding % Source: BEA

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Government Spending Providing Support % Source: BEA

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Imports and Exports Remain at High Levels % Source: BEA

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Corporate Profits are Strong … Will Boost Business Spending Source: BEA

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Stock Market Near All-time High

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Steady Job Gains 2 Million in Past 12 months Payroll work changes in thousands Weakness from Katrina Source: BLS

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Inflation Building % change from a year prior Source: BLS

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Fed Rate Hikes

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Risks – Three Dark Clouds Oil Interest Rates Housing

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Oil Prices Inhibiting Growth and Exerting Inflationary Pressure Price per barrel

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$100 Per Barrel Oil 400,000 occupation pick up as opposed to 2 million Inflation to 4.4% instead of 3.4% Mortgage to 8% as opposed to 6.7% Home deals – twofold digit rate decays Home costs – possibly turn negative

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Interest Rates – 4-year high % Forecast

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Sluggish Housing Inhibits Economy Wealth Effect Slows Unrealized Gains Slows Less Home Equity Borrowing Less Cash-out Refis Less Residential Investment Negative Multiplier/Secondary Spending Impact

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Impact of Unlikely Sharp Correction in Housing Wealth Effect Turns Negative Local Governments Run Budget Deficits GDP Growth Falls 2.5% to 3.5% focuses Economy Enters Recession

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\'07 Beyond Still Favorable Interest Rates Favorable Demographic Trends More Balanced Markets Back to Fundamentals

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Economic Outlook

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Housing Outlook

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After the BOOM David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC - May 2006

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