Powerpoint slides that accompanied the video played at FCBR's November 2010 membership meeting. To view the presentation visit http://link.brightcove.com/services/player/bcpid663859696001?bclid=643064958001&bctid=661851442001
Dr Lawrence Yun's Recovery to Normalcy Presentation
1. Recovery to NormalcyRecovery to NormalcyRecovery to NormalcyRecovery to Normalcy
Lawrence Yun, Ph.D.Lawrence Yun, Ph.D.
Chief EconomistChief Economist
NATIONAL ASSOCIATION OF REALTORS®NATIONAL ASSOCIATION OF REALTORS®
Presentation to or at ???Presentation to or at ???
City, StateCity, Statey,y,
November ??, 2010November ??, 2010
2. Federal Reserve FOMC Federal Reserve FOMC
•• Ben Bernanke Ben Bernanke (Chairman): (Chairman):
•• “Outlook remains unusually uncertain”“Outlook remains unusually uncertain”yy
•• Alan Greenspan Alan Greenspan (former Chairman):(former Chairman):
•• “If home prices start falling again, we could be facing a double“If home prices start falling again, we could be facing a double‐‐dipdipIf home prices start falling again, we could be facing a doubleIf home prices start falling again, we could be facing a double dip dip
recession” recession”
•• James Bullard James Bullard (St. Louis Fed)(St. Louis Fed): :
•• “The U.S. is closer to a Japanese“The U.S. is closer to a Japanese‐‐style deflationary outcome”style deflationary outcome”
•• Thomas Thomas HoenigHoenig (Kansas City Fed)(Kansas City Fed): : gg ( y )( y )
•• “Too rapid money creation results in eventual high inflation”“Too rapid money creation results in eventual high inflation”
3. Consumer Confidence about Consumer Confidence about
P t C diti A f lP t C diti A f lPresent Conditions: AwfulPresent Conditions: Awful
200
100
150
0
50
980 ‐Jan
981 ‐Apr
1982 ‐Jul
983 ‐Oct
985 ‐Jan
986 ‐Apr
1987 ‐Jul
988 ‐Oct
990 ‐Jan
991 ‐Apr
1992 ‐Jul
993 ‐Oct
995 ‐Jan
996 ‐Apr
1997 ‐Jul
998 ‐Oct
000 ‐Jan
001 ‐Apr
2002 ‐Jul
003 ‐Oct
005 ‐Jan
006 ‐Apr
2007 ‐Jul
008 ‐Oct
010 ‐Jan
19
19
1
19
19
19
1
19
19
19
1
19
19
19
1
19
20
20
2
20
20
20
2
20
20
4. Consumer Confidence about Consumer Confidence about
Future ConditionsFuture Conditions Not good but not as badNot good but not as badFuture Conditions Future Conditions –– Not good but not as badNot good but not as bad
120
140
60
80
100
120
0
20
40
9.6% unemployment rate,
but different confidence level
980 ‐Jan
981 ‐Apr
1982 ‐Jul
983 ‐Oct
985 ‐Jan
986 ‐Apr
1987 ‐Jul
988 ‐Oct
990 ‐Jan
991 ‐Apr
1992 ‐Jul
993 ‐Oct
995 ‐Jan
996 ‐Apr
1997 ‐Jul
998 ‐Oct
000 ‐Jan
001 ‐Apr
2002 ‐Jul
003 ‐Oct
005 ‐Jan
006 ‐Apr
2007 ‐Jul
008 ‐Oct
010 ‐Jan
19
19
1
19
19
19
1
19
19
19
1
19
19
19
1
19
20
20
2
20
20
20
2
20
20
5. Business Spending shows weak confidence Business Spending shows weak confidence
in relation to profitsin relation to profitsin relation to profitsin relation to profits
2200
2700
Business InvestmentBusiness Investment
$ billion$ billion
1200
1700
2200 Business Investment Business Investment
200
700
1200
Corporate ProfitsCorporate Profits
200
000 ‐Q2
000 ‐Q4
001 ‐Q2
001 ‐Q4
002 ‐Q2
002 ‐Q4
003 ‐Q2
003 ‐Q4
004 ‐Q2
004 ‐Q4
005 ‐Q2
005 ‐Q4
006 ‐Q2
006 ‐Q4
007 ‐Q2
007 ‐Q4
008 ‐Q2
008 ‐Q4
009 ‐Q2
009 ‐Q4
010 ‐Q2
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Business Investment = private fixed investment in GDP accountingBusiness Investment = private fixed investment in GDP accounting
10. U.S. U.S. PrivatePrivate Sector Job GainsSector Job Gains
(863 000 f J t S 2010)(863 000 f J t S 2010)(863,000 from Jan. to Sep. 2010)(863,000 from Jan. to Sep. 2010)
1500
MonthMonth‐‐toto‐‐month job gains in thousandsmonth job gains in thousands
1000
0
500
‐500
0
80 ‐Jan
81 ‐Apr
82 ‐Jul
83 ‐Oct
85 ‐Jan
86 ‐Apr
87 ‐Jul
88 ‐Oct
90 ‐Jan
91 ‐Apr
92 ‐Jul
93 ‐Oct
95 ‐Jan
96 ‐Apr
97 ‐Jul
98 ‐Oct
00 ‐Jan
01 ‐Apr
02 ‐Jul
03 ‐Oct
05 ‐Jan
06 ‐Apr
07 ‐Jul
08 ‐Oct
10 ‐Jan
‐1000
198
198
19
198
198
198
19
198
199
199
19
199
199
199
19
199
200
200
20
200
200
200
20
200
201
11. Total Payroll Jobs in the U.S. Total Payroll Jobs in the U.S.
( i 2000 b t ith 30 illi l )( i 2000 b t ith 30 illi l )(same as in 2000, but with 30 million more people)(same as in 2000, but with 30 million more people)
138000
140000
132000
134000
136000
138000
126000
128000
130000
132000
124000
126000
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
‐Jan
‐Jul
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
12. How Many Years to Get Job Market
B k t N l?Back to Normal?
Jobs added per month Assumed new jobs needed
for growing population per
month
How many years?
100,000 100,000 Treading water and
never back to normal
200,000 100,000 6.3 years
300,000 100,000 3.2 years
400,000 100,000 2.1 years
22. Distressed Loans and Shadow Inventory
6,000
7,000
Mortgage Payments
Past Due 30‐59 Days
Bad loans are nearly always made in goodBad loans are nearly always made in good
times. But recently originated loans aretimes. But recently originated loans are
f i llf i ll
4,000
5,000
Thousands
Mortgage Payments
Past Due 90+ Days
performing very well.performing very well.
2,000
3,000
Past Due 90+ Days
Mortgage
0
1,000
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
g g
Foreclosures Started
2006/Q
2006/Q
2006/Q
2006/Q
2007/Q
2007/Q
2007/Q
2007/Q
2008/Q
2008/Q
2008/Q
2008/Q
2009/Q
2009/Q
2009/Q
2009/Q
Mortgage
Foreclosure Inventory
34. Credit Bubble DeadCredit Bubble Dead
Subprime AltSubprime Alt‐‐A Home Equity Mortgage OriginationA Home Equity Mortgage OriginationSubprime, AltSubprime, Alt A, Home Equity Mortgage OriginationA, Home Equity Mortgage Origination
1 400
1,600
$ billion$ billion
1,000
1,200
1,400
400
600
800
0
200
400
2003 2005-2006 2009-2010
Source: NAR estimate based on Inside Mortgage Finance dataSource: NAR estimate based on Inside Mortgage Finance data
35. Long Standing Housing Policy
• Mortgage Interest Deduction
– If eliminated about 15% hit to home valuesIf eliminated, about 15% hit to home values
– Massive wealth destruction on property owners who have
saved and saved (in many cases to pass it on to the nextsaved and saved (in many cases to pass it on to the next
generation)
• FHA
– Self‐financing without ever needing taxpayer funds (as of
yet)
• Fannie and Freddie
– Made mistakes and need to be restructured
39. CPICPI‐‐Housing Rent InflationHousing Rent Inflation
( f b f / )( f b f / )(Home price is not part of CPI because of asset/investment aspect)(Home price is not part of CPI because of asset/investment aspect)
5 %
3
4
fl
1
2
Housing Rent Inflation
0
1
an
Apr
Jul
Oct
an
Apr
Jul
Oct
an
Apr
Jul
Oct
an
Apr
Jul
Oct
an
Apr
Jul
Oct
an
Apr
Jul
‐1
2005 ‐Ja
2005 ‐A
2005 ‐J
2005 ‐O
2006 ‐Ja
2006 ‐A
2006 ‐J
2006 ‐O
2007 ‐Ja
2007 ‐A
2007 ‐J
2007 ‐O
2008 ‐Ja
2008 ‐A
2008 ‐J
2008 ‐O
2009 ‐Ja
2009 ‐A
2009 ‐J
2009 ‐O
2010 ‐Ja
2010 ‐A
2010 ‐J
48. Baseline Outlook Cont.Baseline Outlook Cont.
•• Mortgage Rates rising to 5.0% in 2011 and 5.9% in 2012 Mortgage Rates rising to 5.0% in 2011 and 5.9% in 2012
•• People fussing about home value could miss out on low ratesPeople fussing about home value could miss out on low rates
•• Home values Home values –– no meaningful change in the national price in the no meaningful change in the national price in the
next 2 yearsnext 2 years
•• Home sales to be choppy but overall improving in line with job Home sales to be choppy but overall improving in line with job
growth … 5.2 million in 2011 (up from 4.8 m in 2010, but same as in growth … 5.2 million in 2011 (up from 4.8 m in 2010, but same as in
2000)2000)2000)2000)
•• Affordability conditions are too compellingAffordability conditions are too compelling
•• There maybe a pentThere maybe a pent‐‐up demand 30 million additional people from 2000 butup demand 30 million additional people from 2000 but•• There maybe a pentThere maybe a pent‐‐up demand. 30 million additional people from 2000 but up demand. 30 million additional people from 2000 but
same home sales as in 2000.same home sales as in 2000.
51. Virtuous or Vicious Cycle?
• Home values stabilizing scenario
– Foreclosures steadily fall
– Strategic default lessens and underwater homeowners become
hopeful
FHA and Fannie/Freddie finances improve (will need less– FHA and Fannie/Freddie finances improve (will need less
taxpayer funds)
– Consumer spending opens upConsumer spending opens up
– Home value stabilize further or even begin to rise …
– Self‐sustaining normal growth rates in sales and pricesg g p
• Home values fall meaningfully … ugly scenario