After the BOOM David Lereah, Ph.D., Chief Economist NATIONAL ASSOCIATION OF REALTORS® Economic Issues & Residential Real Estate Business Trends Forum Washington, DC - May 2006Slide 2
Five-Year Boom … Something to Remember Memories, Like the edges of my psyche Misty water-shaded recollections Of the Way We Were…Slide 3
Five Straight Record Years: Existing-Home Sales In million units Source: NARSlide 4
Five Straight Record Years: New-Home Sales In thousand units Source: CensusSlide 5
Extraordinary Home Price Appreciation Source: NARSlide 6
Hot Markets in Past Five Years (2000 to 2005) Source: NARSlide 7
Rates Near Historic Lows 1970s 9% normal 1980s 13% normal 1990s 8% normal 2000s 6.5% normal Source: Freddie MacSlide 8
Lean Housing Inventory Source: NARSlide 9
NAR Membership in thousands 499,000 addition in 5 years Source: NARSlide 10
Real Estate Employment Surges % * Construction occupations in the private division. ** Lending employments in credit intermediation yet not business managing an account . Source: NAR, BLSSlide 11
Residential Real Estate Industry Revenue Surges GDP barring private land Source: BEASlide 12
Overconfidence and Rising Rates Emptied the Punch BowlSlide 13
Rising Mortgage Rates Source: Freddie MacSlide 14
Income Not Keeping Pace With Home Prices Income and Price set to Index of 100 in 1990 Source: NARSlide 15
Mortgage Debt Obligation to Income High in Some Markets San Diego Source: NARSlide 16
Mortgage Debt Obligation to Income High in Some Markets Miami Source: NARSlide 17
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 salarySlide 18
Adjustable Mortgages (2005 Q4) % Source: FHFBSlide 19
Interest-Only Mortgages % Source: Loan PerformanceSlide 20
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 extendingSlide 21
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 RatesSlide 22
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 CleansingSlide 23
Housing Inventory All-time High Source: NARSlide 24
Housing Inventory Months Supply Source: NARSlide 25
Home Price Appreciation Percent Change Source: NARSlide 26
Lower Existing-Home Sales In million units Source: NARSlide 27
Declining Mortgage Applications for Home Purchase Source: Mortgage Bankers AssociationSlide 28
Real-Time Housing Market Ticker Live InformationSlide 29
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 developSlide 30
Days on Market Lengthening in Boom MarketsSlide 31
Days on Market Shortening in Non-Boom MarketsSlide 32
Existing-Home Sales (2006 Q1 versus 2005 Q1) Source: NARSlide 33
Cooling Markets Booming in JobsSlide 34
Non-Boom Markets With Strong Job Growth One-year Job Growth Rate % Source: BLSSlide 35
Cool \'06 and Rise \'07 Solid basics: Low Historic Rates, Favorable Demographics, Healthy Economy Speculators Out Exotic Mortgages OutSlide 36
Economic BackdropSlide 37
Sound Economy % Source: BEASlide 38
Consumer Spending Still Healthy % Source: BEASlide 39
Business Spending Rebounding % Source: BEASlide 40
Government Spending Providing Support % Source: BEASlide 41
Imports and Exports Remain at High Levels % Source: BEASlide 42
Corporate Profits are Strong … Will Boost Business Spending Source: BEASlide 43
Stock Market Near All-time HighSlide 44
Steady Job Gains 2 Million in Past 12 months Payroll work changes in thousands Weakness from Katrina Source: BLSSlide 45
Inflation Building % change from a year prior Source: BLSSlide 46
Fed Rate HikesSlide 47
Risks – Three Dark Clouds Oil Interest Rates HousingSlide 48
Oil Prices Inhibiting Growth and Exerting Inflationary Pressure Price per barrelSlide 49
$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 negativeSlide 50
Interest Rates – 4-year high % ForecastSlide 51
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 ImpactSlide 52
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 RecessionSlide 53
\'07 Beyond Still Favorable Interest Rates Favorable Demographic Trends More Balanced Markets Back to FundamentalsSlide 54
Economic OutlookSlide 55
Housing OutlookSlide 56
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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