Economic and

Real Estate Market

Outlook
By Lawrence Yun, Ph.D.
Chief Economist, National Association of REALTORS

Presentation at NAR Legislative Meetings

Washington, DC

May 18, 2017

Existing Home Sales Mostly Rising in Recent Years
(Exceptions: when home buyer tax credit ended and
taper tantrum)
6,000,000

5,500,000

???
5,000,000

4,500,000

4,000,000

3,500,000

3,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016
Mortgage Rates
30-year Fixed Rate
5.0
4.5
4.0
3.5
3.0
Existing Home Sales Rising After Election
(% change from one year ago)
7
6
5
4
3
2
1
0
2016 - Dec 2017 - Jan 2017 - Feb 2017 - Mar
New Home Sales Rising After Election

20

15

10

0
2016 - Dec 2017 - Jan 2017 - Feb 2017 - Mar
NAR HOME Survey of Consumers
% Strongly indicating Good Time to Buy
48
47
46
45
44
43
42
41
40
2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q1
Stock Market: S&P 500 Index

2500
2400
2300
2200
2100
2000
1900
1800
Animal Spirit Revival of Consumers?
Consumer Confidence Index
130
125
120
115
110
105
100
95
90
85
80
20162016
- Jan
2016
- Feb
2016
- Mar
2016
- Apr2016
- May2016
- Jun
2016
- Jul2016
- Aug
2016
- Sep
2016
- Oct
2016
- Nov
2017
- Dec
2017
- Jan
2017
- Feb
2017
- Mar- Apr
Animal Spirit Revival of Businesses?
Small Business Optimism Index
110
105
100
95
90
85
80
20162016
- Jan
2016
- Feb
2016
- Mar
2016
- Apr2016
- May2016
- Jun
2016
- Jul2016
- Aug
2016
- Sep
2016
- Oct
2016
- Nov
2017
- Dec
2017
- Jan
2017
- Feb
2017
- Mar- Apr
NAR HOME Survey of Consumers
% Strongly indicating Good Time to Sell
41
39
37
35
33
31
29
27
25
2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q1
Contradiction?
More indicating Good Time to Buy and Good Time to Sell !!!

o Portia in the Merchant of Venice

Mercy is twice blessed

it blesseth him that gives and him
that takes

o Commercial exchange is twice

blessed not a zero-sum game
Benefits the buyer
Benefits the seller
Inventory of Homes Low Months Supply

10 Low Supply over the past 5 year

9
8
7 Home price grew by 41% 4 times faster than incom
6
5
4
3
2
1
0
Median Days on Market
34 days vs 47 days one year ago
120
100
80
60
40
20
0
Months to Sell a Newly Built Home

9
8
7
6
5
4
3
2
1
0
Single-family Housing Starts
(Cannot Ramp Up because of Lots, Labor, Lending, Lumber)
1500 Thousand units
1300
1100
900
700
500
300
100
-100
Median Home Price: New vs. Existing

350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
U.S. Home Price Index
(FHFA)
260
240
220
200
180
160
140
120
100
 FHFA Home Price Index: County and
Zip

ource: Dr. Doerner, FHFA

 Homeowners Equity in Real Estate
16000
$ billion
14000
12000
10000
8000
6000
4000
2000
0
 Borrowers Not Defaulting
(Serious Delinquency Rate)
12.0

10.0

8.0
FHA Mortgages
6.0 All Mortgages

4.0
Veterans Affairs Mortgages
2.0

0.0
FHA Insurance Premium -
High
Homeownership Rate
Still Near 50-year Lows
70
69
68
67
66
65
64
63
62
61
60
Homeownership Rate and Home Price
By Region

70
65
60
55
50
West Northeast South Midwest
$400,000
$300,000
$200,000
$100,000
$0
West Northeast South Midwest
California Affordability Distribution: Ownership
Rate of 55%
Indiana Affordability Distribution: Ownership Rate
of 70%
 Home Price Growth Expectations

REALTORS Consumers Economists Consumers Consumers

NY Fed Survey WSJ Panelists Fannie Mae NAR HOME
Survey

4.0% 5.1% 4.1% 53% prices will 51% prices will

rise rise
Next 12 months Next 12 months Next 12 months
8% prices will 7% price will fall
fall
NEW ERA OF HOMEOWNERSHIP CONFERENCE IN DC
June 1st at
Secretary Ben Carson HUD
Kevin Kane, Chief Market
Analyst at HUD

Jonathan Spader, Harvard

Joel Kan, Mortgage Bankers

Association

Christie Peale, NYC

Neighborhoods

Lawrence Yun, NAR

SUSTAINABLE HOMEOWNERSHIP CONFERENCE
JUNE 9TH AT BERKLEY STADIUM
Dr. Ken Rosen of UC Berkeley and
his team on research findings

Dr. Jim Gaines of Texas A&M

Joel Singer of California Assoc.

REALTORS

Former FHA Commissioners

Current Trump Administration

Official (invited)

Bill Brown and Lawrence Yun, NAR

REALTOR Buyer Traffic Index - Resilient
(% change from a year ago)
25

20

15

10

-5

-10
Mortgage Purchase Applications: Not Buckling
(% change from a year ago)
60
50
40
30
20
10
0
-10
-20
Mortgage Refinance Applications: Buckling
(% change from a year ago)
120
100
80
60
40
20
0
-20
-40
-60
Economy?

Growing with Job Creation

Pent-up Household Formation

 GDP Growth Rates
5

0
Reagan GHW Bush Clinton GW Bush Obama Trump Q1 Trump Q2
 Total Job Openings
6500
6000In thousands
5500
5000
4500
4000
3500
3000
2500
2000
Weekly Initial Unemployment Insurance Filings

700
In thousands
650
600
550
500
450
400
350
300
250
200
 Jobs
(8 million lost 16 million gained)
In thousands
150,000

145,000

140,000

135,000

130,000

125,000

120,000
Different Unemployment Rates
(Alternative Facts): Same Conclusion
18
16
14
12
10
8
6
4
2
0

U1 U3 U6
Change in Employment in March
2017
Jobs by Sector
Net Change over past 12 months (in thousands)
Information
Mining & Logging
Federal Govt
Manufacturing
Wholesale
Real Estate & Leasing
Retail Sales
Education
Financial & Insurance
State & Local Govt
Construction
Administrative Service
Hospitality
Professional & Tech Service
Health Care
-50 0 50 100 150 200 250 300 350 400 450
 Hourly Wage Rate by Sector

$37.96
40 $32.56
35 $28.55 $29.93 $31.62
30 $26.15 $26.57
25 $18.01
20 $15.40
15
10
5
0
REALTOR Gross Income Distribution

Median Income of $42,500

30%
25%
20%
15%
10%
5%
0%
Less than $10Kto $25K to $50K to $75K to $100K Over $100K
UNESCO World Heritage Site

Charlottesville, Virginia
Somethings Not Right about Not Wanting to
Move
Historic versus Modern Dorms

Dorms are randomly assigned

90% were glad they were assigned that dorm

Either A>B or B>A Cannot logically be both A and

B is much better than A and B

Heavy Inertia about not wanting to move

 living in a wrong house?

oRetiree living in San Francisco could be super-happy living in

Sedona
Bend
Ashville
Cape Cod
Sarasota
Traverse City
Lake home in Wisconsin

o Airline overbooked seats

More volunteers when offer made before boarding; not after seated
 Retiree Population Projection
(in thousands)
80000
70000
60000
50000
40000
30000
20000
10000
0
 Behavioral Economics Nudge People

Homebuyer Savings Account

Colorado
Mississippi
Montana
Virginia

On-Deck
Iowa
Missouri
Oklahoma
Forecast
 Economic Forecast
2015 2016 2017 2018
Forec Forec
ast ast
GDP 2.6% 1.6% 2.2% 2.4%
Growth

Job Growth +2.6 +2.0 +2.1 +2.4

million million million million

CPI Inflation 0.3% 1.3% 2.3% 2.2%

Monetary Policy
oFed Funds Rate: 2 more hikes in 2017

oUnwinding Bond and MBS Asset Holding:

Unlikely to buy more mortgages from MBS
proceeds (refis and full payment)
Gradual Gradual Gradual 20 year process
Without Fed Buying Fewer buyers of
Mortgages Mortgage rates will rise
 Actual versus projected Households
KC Federal Reserve estimate of 6.9 million missing households

130000
125000
120000
115000
110000
105000
100000
 Young Adults Living with Parents
% of those aged 25 to 34

17
15
13
11
9
7
5
 Softening Rental Demand
Investors slowly sell single-family rental homes?
Population in their 20s (in thousands)
50000

45000

40000

35000

30000
 Housing Forecast
2015 2016 2017 2018
Foreca Foreca
st st
New Home 500,000 560,000 620,000 670,000
Sales
Existing 5.3 5.4 5.6 5.8
Home Sales million million million million

Median Price + 6.8% +5.1% +5.0% +3.5%

Growth
30-year Rate 3.9% 3.6% 4.3% 5.0%
Existing Home Sales
7,500,000
7,000,000
6,500,000
6,000,000
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
New Home Sales
Thousand units
1,400

1,200

1,000

800

600

400

200

0
Trump Presidency
o Dodd-Frank?

o Fannie/Freddie and Mortgage Availability?

o Tax Simplification? and Mortgage Interest Deduction and

1031 exchange?

o International Trade? Viewing as Zero-Sum Game?

o EPA, land use, development fees?

REALTOR University Lecture Series
o Social Media impact on Buying Interest in LA zipcode
ask clients to post about the experience
correct misconception about down payment requirements
o FHA changes and Home Buying Impact

o Higher Future Earnings from Home Price Appreciations

o Immigrants impact on Real Estate

o CBOs long-term budget deficit projections very ugly!

buy real estate and other tangible asset