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The Economy… Real Estate Outlook and Risks


          Federal Home Loan Bank of Chicago
            MPF Advisory Council Meeting
              Presentation, April 18, 2012
                  Four Seasons Hotel
                120 East Delaware Place
                    Chicago, Illinois




                       Jed Smith
         Managing Director, Quantitative Research
            National Association of Realtors®
The Economy: Where and Why?
Looking At NAR’s Economic and Housing Outlook

•   Forecasting: Some Comments.
•   The Economic Outlook.
•   How Do We Reach Our Conclusions?
•   Forecast Risks and Uncertainties.
•   How Likely Are We Correct! WHY?
Forecasting: Some Comments
• Projections: Based on
  Economic
  Relationships, Best
  Available Data.
• Assumptions.
• Uncertainties.
• Risk Analysis.
• Black Swans! Unknown
  Unknowns.
ECONOMIC OUTLOOK
How We Got Here, Where We Are, Where We Are Headed
The Economy—How We Got Here!
         Excessive Spending, Leverage, Permissive Financial Behavior Great Recession, Slow Recovery
       Key Issues: Credit, Balance Sheets, Confidence, Jobs, Nasty Disagreements, Grid Lock




May       Jun              July              Aug                 Sep                          2009
2008      2008             2008              2008                2008
Economic Outlook: A Gradual Recovery
    Much Slower and Weaker than Other Recessions
$ Billions




   -13000
                                                                                            12000
                                                                                                                        17000




                                                           7000



                                          2000




               -8000
                            -3000
                        1947 - Q1
                        1948 - Q3
                        1950 - Q1



                                                                                                                    1949
                        1951 - Q3
                        1953 - Q1
                        1954 - Q3


                                                                                                       1953-54
                        1956 - Q1
                        1957 - Q3
                        1959 - Q1
                        1960 - Q3                                                      1957-58
                        1962 - Q1
                        1963 - Q3                                         1960
                        1965 - Q1
                        1966 - Q3
                        1968 - Q1
                        1969 - Q3
                        1971 - Q1
                        1972 - Q3
                                                                                                 1969-70




                        1974 - Q1
                        1975 - Q3
                                                                                  1973-75




                        1977 - Q1
                        1978 - Q3
                        1980 - Q1
                        1981 - Q3
                                                                                                                 1980




                        1983 - Q1
                                                                                                                                GDP, Annualized % Growth




                                                                        1981-82




                        1984 - Q3
                        1986 - Q1
                        1987 - Q3
                        1989 - Q1
                                                                                                                                                                                                 A Slow Recovery




                        1990 - Q3
                        1992 - Q1
                                                     1990-91




                        1993 - Q3
                        1995 - Q1
                                                                                                                                Real GDP




                        1996 - Q3
                        1998 - Q1
                        1999 - Q3
                                                                                                                                                           Economic Activity – Post Recessions




                        2001 - Q1
                        2002 - Q3
                                                                 2001




                        2004 - Q1
                        2005 - Q3
                        2007 - Q1
                        2008 - Q3
Source: BEA
                                                       2008-09




                        2010 - Q1
                                    0
                                                 5




                       -5
                                                                  10
                                                                                                                        20


                                                                                                 15




   -15
              -10




                                    Percentage
Economic Outlook, Home Sales: Actual and Forecast
           Market Appears to be Recovering
Median Prices: Expected to Stabilize
Prices Recovering from the Great Recession
HOW DO WE REACH OUR CONCLUSIONS?
   Problems in a Variety of Sectors: Look at the Drivers.
20
                00
               20 - J
                 0 a




                             125000
                                      135000
                                               145000
              20 0 - n
                01 Ju
               20 - J l
                 0 a
              20 1 - n
                02 Ju
               20 - J l
                 0 a
              20 2 - n
                03 Ju
               20 - J l
                 0 a
              20 3 - n
                04 Ju
                                                                                                                                                 The Economy:




               20 - J l
                 0 a
              20 4 - n
                05 Ju
               20 - J l
                 0 a
              20 5 - n
                06 Ju
               20 - J l
                 0 a
              20 6 - n
                07 Ju
               20 - J l
                 0 a
              20 7 - n
                08 Ju
                         l
                20 - Ja
                        n
              20 08-
                 09 Ju
                    - l
                20 -Ja
                   0 n
                                                                                                        Recession is Over. Where are the Jobs?
                                                        Projected Time for Jobs Recovery: Four Years?




               20 9-J
                  10 ul
                20 -Ja
                   1 n
               20 0-J
                  11 ul
                20 -Ja
                   1 n
               20 1-J
                  12 ul
                     -J
                                                                                                                                                 Total Jobs: Non-Farm, Establishment Data




                       an
Source: BLS
Home Inventories: Approaching 6 Months
      The Shadow: Potentially 5 Million Homes
  Some Areas Experiencing Low Inventories—Could Sell More
Household Wealth: Impact of Great Recession
                                            Lost Approximately $14 Trillion in Assets


Financial Assets: Recovering.                                                      Real Estate: Recovery Still to Come.


          Households & Nonprofit Org: Total Financial Assets                      Households & Nonprofit Org: Assets: Total Owner-occupied Real Estate
                                        NSA, Bil.$                                                                        NSA,Bil.$
60000                                                                     60000   24000                                                                    24000

50000                                                                     50000   20000                                                                    20000

40000                                                                     40000   16000                                                                    16000

30000                                                                     30000   12000                                                                    12000

20000                                                                     20000    8000                                                                    8000

10000                                                                     10000    4000                                                                    4000

    0                                                                     0           0                                                                    0
        80         85         90           95        00   05      10                      80         85         90          95        00   05      10
        Source: Federal Reserve Board                          01/13/12                   Source: Federal Reserve Board                         02/08/12
Unemployment
                                          Need an Additional 11 Million Jobs

Number Unemployed: Unprecedented.                                               Time to find a job: Unprecedented.



                   Unemployed, 16 Years & Over: 16 yr +                                        Average {Mean} Duration of Unemployment
                                       SA, Thous                                                                      SA, Weeks
16000                                                                   16000   45.0                                                                   45.0

14000                                                                   14000   37.5                                                                   37.5

12000                                                                   12000
                                                                                30.0                                                                   30.0
10000                                                                   10000
                                                                                22.5                                                                   22.5
 8000                                                                   8000

                                                                                15.0                                                                   15.0
 6000                                                                   6000

 4000                                                                   4000     7.5                                                                    7.5
        80        85         90            95      00   05     10                      80        85         90            95      00   05     10
        Source: Bureau of Labor Statistics                   02/08/12                  Source: Bureau of Labor Statistics                   02/08/12
Distressed Sales: 30% to 40% of Transactions
    Major Impact--Price and Consumer Confidence
Percent of Homes Underwater by State
          Source: Fannie Mae/Core Logic
Mortgages Past Due
Shadow Inventory Includes Foreclosures, Short Sales, and Some Percentage of Past Due
FORECAST RISKS AND UNCERTAINTIES



     Does An Economist EVER Reach A Conclusion?
           A Comment from Harry Truman
The Good
• Home Prices: Seem to be Stabilizing.
  Emotional, psychological, confidence issues. Price to
  Income Ratios favorable.
• Affordability: Very High.
• Interest Rates: Low IF you can get the mortgage.
• Stress Tests.
• Pent Up Demand: Possibly 500,000 or more per year.
• Demographics: Millennial Generation is large;
  favorable attitudes towards housing; delayed
  household formation.
Residential Markets: The Outlook
        Indications that Recovery is Underway

• A Recovery is Underway—Short Term Issues.
   – Highly Dependent on Economic Policy.
   – Many Uncertainties, Black Swans, and Potential
     Surprises.
   – Confidence, Attitudes.
• A Recovery is Underway—Longer Term.
   – Significant Division of Opinions Concerning
     Entitlements, Spending, and the American Dream.
   – Competitive Position, Economic Trends.
Residential Markets Showing Modest Signs of Recovery

                  REALTOR Confidence in Market Outlook
60.0



50.0



40.0



30.0



20.0



10.0



 0.0
               Apr08
                       Jul08



                                               Apr09
                                                       Jul09



                                                                               Apr10
                                                                                       Jul10



                                                                                                               Apr11
                                                                                                                       Jul11
       Jan08




                                       Jan09




                                                                       Jan10




                                                                                                       Jan11




                                                                                                                                       Jan12
                               Oct08




                                                               Oct09




                                                                                               Oct10




                                                                                                                               Oct11




                       Single Family                              Townhouses                                   Condos
Investor Activity And Pent-Up Demand
Challenges and Opportunities

Rents                 Appraisal Problems Down Slightly
The Bad
Credit Availability and Financial Issues, Consumer Confidence, Jobs Situation


FICO and Mortgages: Unrealistic         Some Major Issues

                                        • Jobs: Lack of demand or
                                          technological change? How
                                          long and how much?
                                        • Wages: Intense pressure for a
                                          lot of people.
                                        • Downsizing the Dream:
                                          Car, House, Job, Life.
                                        • Financial Issues: Stress
                                          Tests, Liquidity, Portfolio
                                          Problems, Liquidity Issues.
Consumer Confidence
                           Continues at Mediocre Level


                         Conference Board: Consumer Confidence

                                      SA, 1985=100

150



125



100



 75



 50



 25
              85            90        95             00      05    10
      Source: The Conference Board                                03/30/12
Government Spending and Tax Receipts
                            Major Area of Controversy!!!
       $ billion
4200
                                                              Government Outlays
3700

3200

2700

2200

1700                                                         Government Receipts

1200

700

200
         2001      2002   2003   2004   2005   2006   2007   2008   2009   2010   2011
Problems of Major Concern!
              “DUDE--Where’s My Raise, My Job?”
                    Major Jobs Problems

    Median Usual Wkly Earnings: Full Time Wage & Salary Wkrs
                               SA, 1982-84 CPI-U Adj$
                           Full Time Wage and Salary Workers
                                        SA, Thous
345.0                                                                          112500


337.5
                                                                               105000

                                                                               97500
330.0

                                                                               90000
322.5
                                                                               82500

315.0
                                                                               75000

307.5                                                                          67500
        80        85         90            95       00         05     10
        Source: Bureau of Labor Statistics                          02/07/12
The Ugly: Uncertainties and the Outlook

•   Longer Term Issues and Problems--Affecting Jobs.
     –   Competitive Position
     –   Tax and Incentive Structures
     –   Possible Structural Problem.
     –   U.S. International Competitiveness.
•   Short Term Issues and Problems.
     –   Recovering from Great Recession
     –   Government Spending and Taxing.
     –   Deficits.
     –   International Financial and Governmental Actions and Policies.
•   People Issues.
     – Consumer Moods: Confidence, Personal Wealth, Lingering Effects of Recession.
     – Basic Disagreements: The American Future, Who Pays Taxes, Role of Government.
•   Economic Uncertainties
     – Foreclosures, Short Sales, Upside Down Homeowners, Down Payments, Credit
       Availability, Mortgage Interest Deductions, GSE Reform, Proposed Regulations, European
       Credit Markets, Oil Prices, Risk Aversion.
Washington Policy Impacts
                 Opinions, Uncertainties, and Ill Will
•   Housing Proposals.
     – Raise down payment to 20%: Currently approximately 2/3 of buyers obtaining a mortgage
       put down less than 20 percent.
     – Mortgage Interest Deduction: high income/second homes?
     – Conforming Loan Limits.
     – Refinancing/Upside Down/Distressed.
•   Government Sponsored Enterprises.
     – Issues for resolution.
     – Mortgages: Fannie and Freddie model was flawed (private profit/taxpayer loss).
•   Washington Now Focused on Jobs and Economy.
     –   Potential for many bad outcomes!
     –   Creating a Job Climate vs. Creating Jobs.
     –   Concern over economic circumstances.
     –   Oil Prices, International economic developments—may have major impact.
     –   Taxes, Benefits, Spending, Mortgages, and Uncertainties.
     –   Who Pays Income Taxes?
     –   Who Receives Entitlements?
     –   Higher Taxes vs. Decreased Spending vs. What?
     –   Concern Over Deductions.
Commercial Sector
Forecasting a Modest Recovery
U.S. Commercial Fundamentals
                                           OFFICE                          2011        2012     2013
                                                             Vacancy Rate 16.6%       16.3%    15.9%
                                              Net Absorption ('000 sq. ft.) 20,178    31,700   53,000
                                                Completions ('000 sq. ft.) 11,659     25,474   37,847
                                                            Rent Growth 1.4%           1.7%     2.4%
• Commercial Real Estate.
                                           INDUSTRIAL                      2011         2012    2013
        – Stabilization of fundamentals.                     Vacancy Rate 12.4%        11.9%   11.1%
        – Demand turns positive.              Net Absorption ('000 sq. ft.) 61,957    41,249   59,855
                                                Completions ('000 sq. ft.) 20,462     26,947   54,881
        – Vacancy Rates elevated but                        Rent Growth -0.5%          1.8%     2.3%
          declining.
        – Rent Growth edging up.           RETAIL                          2011        2012     2013
                                                             Vacancy Rate 12.9%       12.2%    11.0%
                                              Net Absorption ('000 sq. ft.)   1,238   13,547   23,330
Source: NAR / REIS                              Completions ('000 sq. ft.)    4,207   12,677   19,878
                                                            Rent Growth       -0.2%    0.7%     1.4%

                                           MULTI-FAMILY                        2011    2012    2013
                                                            Vacancy Rate       5.4%    4.6%    4.5%
                                                    Net Absorption (Units)    238,398 126,621 102,687
                                                      Completions (Units)     38,014 88,839 93,706
                                                             Rent Growth       2.5%    3.5%    3.8%
U.S. Commercial Markets
                                                                                        U.S. Sales Volume
           $160                                       Apartment                     Hotel               Industrial                 Office               Retail
Billions




           $140


           $120


           $100


           $80


           $60


           $40


           $20


            $0
                                       05Q4




                                                                                                                    08Q3




                                                                                                                                                                                                 11Q2
                  05Q1
                         05Q2
                                05Q3


                                              06Q1
                                                     06Q2
                                                            06Q3
                                                                   06Q4
                                                                          07Q1
                                                                                 07Q2
                                                                                        07Q3
                                                                                               07Q4
                                                                                                      08Q1
                                                                                                             08Q2


                                                                                                                           08Q4
                                                                                                                                  09Q1
                                                                                                                                         09Q2
                                                                                                                                                09Q3
                                                                                                                                                       09Q4
                                                                                                                                                              10Q1
                                                                                                                                                                     10Q2
                                                                                                                                                                            10Q3
                                                                                                                                                                                   10Q4
                                                                                                                                                                                          11Q1


                                                                                                                                                                                                        11Q3
                                                                                                                                                                                                               11Q4
                                                                                                                                                                             Source: Real Capital Analytics
How Likely Are We To Be Correct?
                  There Are Major Risks
• A Recovery is Underway—Short Term Issues.
   – Highly Dependent on Economic Policy.
   – Many Uncertainties, Black Swans, and Potential
     Surprises.
   – Confidence, Financial Issues, Attitudes.
• Short Term—Favorable Outlook.
   –   Residential Prices Probably At or Near Bottom.
   –   A substantial market appears to be headed up.
   –   Homeownership Still the American Dream.
   –   Affordability and Prudence
   –   Current Market Developments at www.Realtors.org
How Likely Are We To Be Correct?
              There Are Major Risks
• A Recovery is Underway—Longer Term.
   – Significant Division of Opinions Concerning
     Entitlements, Spending, and the American Dream.
   – Competitive Position, Economic Trends.
• Risks: Short Term and Longer Term.
   – Some major issues with major risks—unresolved.
   – Political Risks, Expectations, Foreign Economies, Financial
     Sectors.
• My “ONE ARM” Assessment
   – We are in recovery and should see expansion for the next
     several years.
NAR: A Source for Housing Information
                    www.realtor.org
For More Information

•   Profile of Home Buyers and Sellers
      –   National Survey

•   Statistics: http://www.realtor.org/

•   Information Sources
      –   Facebook: http://www.facebook.com/narresearchgroup
      –   Twitter: http://twitter.com/#!/NAR_Research

National Association of Realtors:
     – http://www.realtor.org/research/index.html
• Economists Outlook
      •   http://economistsoutlook.blogs.realtor.org/
•    Metro Analysis:
     – http://www.realtor.org/research.nsf/pages/MetroHomePriceAnalysisReports

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Fhlb presentation

  • 1. The Economy… Real Estate Outlook and Risks Federal Home Loan Bank of Chicago MPF Advisory Council Meeting Presentation, April 18, 2012 Four Seasons Hotel 120 East Delaware Place Chicago, Illinois Jed Smith Managing Director, Quantitative Research National Association of Realtors®
  • 2. The Economy: Where and Why? Looking At NAR’s Economic and Housing Outlook • Forecasting: Some Comments. • The Economic Outlook. • How Do We Reach Our Conclusions? • Forecast Risks and Uncertainties. • How Likely Are We Correct! WHY?
  • 3. Forecasting: Some Comments • Projections: Based on Economic Relationships, Best Available Data. • Assumptions. • Uncertainties. • Risk Analysis. • Black Swans! Unknown Unknowns.
  • 4. ECONOMIC OUTLOOK How We Got Here, Where We Are, Where We Are Headed
  • 5. The Economy—How We Got Here! Excessive Spending, Leverage, Permissive Financial Behavior Great Recession, Slow Recovery Key Issues: Credit, Balance Sheets, Confidence, Jobs, Nasty Disagreements, Grid Lock May Jun July Aug Sep 2009 2008 2008 2008 2008 2008
  • 6. Economic Outlook: A Gradual Recovery Much Slower and Weaker than Other Recessions
  • 7. $ Billions -13000 12000 17000 7000 2000 -8000 -3000 1947 - Q1 1948 - Q3 1950 - Q1 1949 1951 - Q3 1953 - Q1 1954 - Q3 1953-54 1956 - Q1 1957 - Q3 1959 - Q1 1960 - Q3 1957-58 1962 - Q1 1963 - Q3 1960 1965 - Q1 1966 - Q3 1968 - Q1 1969 - Q3 1971 - Q1 1972 - Q3 1969-70 1974 - Q1 1975 - Q3 1973-75 1977 - Q1 1978 - Q3 1980 - Q1 1981 - Q3 1980 1983 - Q1 GDP, Annualized % Growth 1981-82 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 A Slow Recovery 1990 - Q3 1992 - Q1 1990-91 1993 - Q3 1995 - Q1 Real GDP 1996 - Q3 1998 - Q1 1999 - Q3 Economic Activity – Post Recessions 2001 - Q1 2002 - Q3 2001 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 Source: BEA 2008-09 2010 - Q1 0 5 -5 10 20 15 -15 -10 Percentage
  • 8. Economic Outlook, Home Sales: Actual and Forecast Market Appears to be Recovering
  • 9. Median Prices: Expected to Stabilize Prices Recovering from the Great Recession
  • 10. HOW DO WE REACH OUR CONCLUSIONS? Problems in a Variety of Sectors: Look at the Drivers.
  • 11. 20 00 20 - J 0 a 125000 135000 145000 20 0 - n 01 Ju 20 - J l 0 a 20 1 - n 02 Ju 20 - J l 0 a 20 2 - n 03 Ju 20 - J l 0 a 20 3 - n 04 Ju The Economy: 20 - J l 0 a 20 4 - n 05 Ju 20 - J l 0 a 20 5 - n 06 Ju 20 - J l 0 a 20 6 - n 07 Ju 20 - J l 0 a 20 7 - n 08 Ju l 20 - Ja n 20 08- 09 Ju - l 20 -Ja 0 n Recession is Over. Where are the Jobs? Projected Time for Jobs Recovery: Four Years? 20 9-J 10 ul 20 -Ja 1 n 20 0-J 11 ul 20 -Ja 1 n 20 1-J 12 ul -J Total Jobs: Non-Farm, Establishment Data an Source: BLS
  • 12. Home Inventories: Approaching 6 Months The Shadow: Potentially 5 Million Homes Some Areas Experiencing Low Inventories—Could Sell More
  • 13. Household Wealth: Impact of Great Recession Lost Approximately $14 Trillion in Assets Financial Assets: Recovering. Real Estate: Recovery Still to Come. Households & Nonprofit Org: Total Financial Assets Households & Nonprofit Org: Assets: Total Owner-occupied Real Estate NSA, Bil.$ NSA,Bil.$ 60000 60000 24000 24000 50000 50000 20000 20000 40000 40000 16000 16000 30000 30000 12000 12000 20000 20000 8000 8000 10000 10000 4000 4000 0 0 0 0 80 85 90 95 00 05 10 80 85 90 95 00 05 10 Source: Federal Reserve Board 01/13/12 Source: Federal Reserve Board 02/08/12
  • 14. Unemployment Need an Additional 11 Million Jobs Number Unemployed: Unprecedented. Time to find a job: Unprecedented. Unemployed, 16 Years & Over: 16 yr + Average {Mean} Duration of Unemployment SA, Thous SA, Weeks 16000 16000 45.0 45.0 14000 14000 37.5 37.5 12000 12000 30.0 30.0 10000 10000 22.5 22.5 8000 8000 15.0 15.0 6000 6000 4000 4000 7.5 7.5 80 85 90 95 00 05 10 80 85 90 95 00 05 10 Source: Bureau of Labor Statistics 02/08/12 Source: Bureau of Labor Statistics 02/08/12
  • 15. Distressed Sales: 30% to 40% of Transactions Major Impact--Price and Consumer Confidence
  • 16. Percent of Homes Underwater by State Source: Fannie Mae/Core Logic
  • 17. Mortgages Past Due Shadow Inventory Includes Foreclosures, Short Sales, and Some Percentage of Past Due
  • 18. FORECAST RISKS AND UNCERTAINTIES Does An Economist EVER Reach A Conclusion? A Comment from Harry Truman
  • 19. The Good • Home Prices: Seem to be Stabilizing. Emotional, psychological, confidence issues. Price to Income Ratios favorable. • Affordability: Very High. • Interest Rates: Low IF you can get the mortgage. • Stress Tests. • Pent Up Demand: Possibly 500,000 or more per year. • Demographics: Millennial Generation is large; favorable attitudes towards housing; delayed household formation.
  • 20. Residential Markets: The Outlook Indications that Recovery is Underway • A Recovery is Underway—Short Term Issues. – Highly Dependent on Economic Policy. – Many Uncertainties, Black Swans, and Potential Surprises. – Confidence, Attitudes. • A Recovery is Underway—Longer Term. – Significant Division of Opinions Concerning Entitlements, Spending, and the American Dream. – Competitive Position, Economic Trends.
  • 21. Residential Markets Showing Modest Signs of Recovery REALTOR Confidence in Market Outlook 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Apr08 Jul08 Apr09 Jul09 Apr10 Jul10 Apr11 Jul11 Jan08 Jan09 Jan10 Jan11 Jan12 Oct08 Oct09 Oct10 Oct11 Single Family Townhouses Condos
  • 22. Investor Activity And Pent-Up Demand
  • 23. Challenges and Opportunities Rents Appraisal Problems Down Slightly
  • 24. The Bad Credit Availability and Financial Issues, Consumer Confidence, Jobs Situation FICO and Mortgages: Unrealistic Some Major Issues • Jobs: Lack of demand or technological change? How long and how much? • Wages: Intense pressure for a lot of people. • Downsizing the Dream: Car, House, Job, Life. • Financial Issues: Stress Tests, Liquidity, Portfolio Problems, Liquidity Issues.
  • 25. Consumer Confidence Continues at Mediocre Level Conference Board: Consumer Confidence SA, 1985=100 150 125 100 75 50 25 85 90 95 00 05 10 Source: The Conference Board 03/30/12
  • 26. Government Spending and Tax Receipts Major Area of Controversy!!! $ billion 4200 Government Outlays 3700 3200 2700 2200 1700 Government Receipts 1200 700 200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  • 27. Problems of Major Concern! “DUDE--Where’s My Raise, My Job?” Major Jobs Problems Median Usual Wkly Earnings: Full Time Wage & Salary Wkrs SA, 1982-84 CPI-U Adj$ Full Time Wage and Salary Workers SA, Thous 345.0 112500 337.5 105000 97500 330.0 90000 322.5 82500 315.0 75000 307.5 67500 80 85 90 95 00 05 10 Source: Bureau of Labor Statistics 02/07/12
  • 28. The Ugly: Uncertainties and the Outlook • Longer Term Issues and Problems--Affecting Jobs. – Competitive Position – Tax and Incentive Structures – Possible Structural Problem. – U.S. International Competitiveness. • Short Term Issues and Problems. – Recovering from Great Recession – Government Spending and Taxing. – Deficits. – International Financial and Governmental Actions and Policies. • People Issues. – Consumer Moods: Confidence, Personal Wealth, Lingering Effects of Recession. – Basic Disagreements: The American Future, Who Pays Taxes, Role of Government. • Economic Uncertainties – Foreclosures, Short Sales, Upside Down Homeowners, Down Payments, Credit Availability, Mortgage Interest Deductions, GSE Reform, Proposed Regulations, European Credit Markets, Oil Prices, Risk Aversion.
  • 29. Washington Policy Impacts Opinions, Uncertainties, and Ill Will • Housing Proposals. – Raise down payment to 20%: Currently approximately 2/3 of buyers obtaining a mortgage put down less than 20 percent. – Mortgage Interest Deduction: high income/second homes? – Conforming Loan Limits. – Refinancing/Upside Down/Distressed. • Government Sponsored Enterprises. – Issues for resolution. – Mortgages: Fannie and Freddie model was flawed (private profit/taxpayer loss). • Washington Now Focused on Jobs and Economy. – Potential for many bad outcomes! – Creating a Job Climate vs. Creating Jobs. – Concern over economic circumstances. – Oil Prices, International economic developments—may have major impact. – Taxes, Benefits, Spending, Mortgages, and Uncertainties. – Who Pays Income Taxes? – Who Receives Entitlements? – Higher Taxes vs. Decreased Spending vs. What? – Concern Over Deductions.
  • 31. U.S. Commercial Fundamentals OFFICE 2011 2012 2013 Vacancy Rate 16.6% 16.3% 15.9% Net Absorption ('000 sq. ft.) 20,178 31,700 53,000 Completions ('000 sq. ft.) 11,659 25,474 37,847 Rent Growth 1.4% 1.7% 2.4% • Commercial Real Estate. INDUSTRIAL 2011 2012 2013 – Stabilization of fundamentals. Vacancy Rate 12.4% 11.9% 11.1% – Demand turns positive. Net Absorption ('000 sq. ft.) 61,957 41,249 59,855 Completions ('000 sq. ft.) 20,462 26,947 54,881 – Vacancy Rates elevated but Rent Growth -0.5% 1.8% 2.3% declining. – Rent Growth edging up. RETAIL 2011 2012 2013 Vacancy Rate 12.9% 12.2% 11.0% Net Absorption ('000 sq. ft.) 1,238 13,547 23,330 Source: NAR / REIS Completions ('000 sq. ft.) 4,207 12,677 19,878 Rent Growth -0.2% 0.7% 1.4% MULTI-FAMILY 2011 2012 2013 Vacancy Rate 5.4% 4.6% 4.5% Net Absorption (Units) 238,398 126,621 102,687 Completions (Units) 38,014 88,839 93,706 Rent Growth 2.5% 3.5% 3.8%
  • 32. U.S. Commercial Markets U.S. Sales Volume $160 Apartment Hotel Industrial Office Retail Billions $140 $120 $100 $80 $60 $40 $20 $0 05Q4 08Q3 11Q2 05Q1 05Q2 05Q3 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q3 11Q4 Source: Real Capital Analytics
  • 33. How Likely Are We To Be Correct? There Are Major Risks • A Recovery is Underway—Short Term Issues. – Highly Dependent on Economic Policy. – Many Uncertainties, Black Swans, and Potential Surprises. – Confidence, Financial Issues, Attitudes. • Short Term—Favorable Outlook. – Residential Prices Probably At or Near Bottom. – A substantial market appears to be headed up. – Homeownership Still the American Dream. – Affordability and Prudence – Current Market Developments at www.Realtors.org
  • 34. How Likely Are We To Be Correct? There Are Major Risks • A Recovery is Underway—Longer Term. – Significant Division of Opinions Concerning Entitlements, Spending, and the American Dream. – Competitive Position, Economic Trends. • Risks: Short Term and Longer Term. – Some major issues with major risks—unresolved. – Political Risks, Expectations, Foreign Economies, Financial Sectors. • My “ONE ARM” Assessment – We are in recovery and should see expansion for the next several years.
  • 35. NAR: A Source for Housing Information www.realtor.org For More Information • Profile of Home Buyers and Sellers – National Survey • Statistics: http://www.realtor.org/ • Information Sources – Facebook: http://www.facebook.com/narresearchgroup – Twitter: http://twitter.com/#!/NAR_Research National Association of Realtors: – http://www.realtor.org/research/index.html • Economists Outlook • http://economistsoutlook.blogs.realtor.org/ • Metro Analysis: – http://www.realtor.org/research.nsf/pages/MetroHomePriceAnalysisReports