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Document Sample
Current and Future Real
Estate Trends
Prepared for:
Senate Banking, Housing and Urban Affairs’
Subcommittee on Housing & Transportation and
Subcommittee on Economic Policy
David A. Lereah
Senior Vice President and Chief Economist
National Association of REALTORS®
Phone: 202.383.1184
September 13, 2006
20
01
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5.5
6.5
7.5
5
6
7
an
20
01
-J
ul
20
02
-J
Source: NAR
an
20
02
In million units
-J
ul
20
03
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an
20
03
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ul
20
04
-J
an
20
04
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20
05
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an
Existing-Homes
20
05
-J
ul
20
Cooling National Sales:
06
-J
an
20
06
-J
ul
Housing Inventory
# total homes on the market
4,000,000
All-time High
3,000,000
2,000,000
1,000,000
an
an
an
an
an
an
an
an
-J
-J
-J
-J
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-J
-J
-J
99
00
01
02
03
04
05
06
19
20
20
20
20
20
20
20
Source: NAR
20
00
-J
12
15
18
0
3
6
9
an
20
00
-J
20 ul
01
-J
an
20
01
-J
Source: NAR
20 ul
02
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an
20
02
-J
20 ul
03
-J
an
20
03
-J
Percent change from a year ago
20 ul
04
-J
an
20
04
-J
Price Growth (vs year ago)
20 ul
05
-J
an
20
05
-J
20 ul
06
-J
an
Home Price Appreciation
Condo – Significant Price
Depreciation in West and South West South
40
Percent change from a year ago
30
20
10
0
ul
ul
ul
ul
an
an
an
an
an
-J
-J
-J
-J
-J
-J
-J
-J
-J
02
03
04
05
02
03
04
05
06
-10
20
20
20
20
20
20
20
20
20
-20
Source: NAR
Cooling Markets
(Existing-Home Sales: 2006 Q2 vs 2005 Q2)
30%
20%
10%
0%
-10%
-20%
-30%
a
a
a
na
da
id
ni
ni
o
a
or
i
or
rg
ev
riz
Fl
if
Vi
N
A
al
C
Source: NAR
Price Decelerations and Declines
(Existing Home Sales: 2006 Q2 vs 2005 Q2)
MSA 2005 Q2 2006 Q2
Boston 7% 1%
Cape Coral – Ft. Myers 45% 2%
Chicago 9% 5%
Detroit 0% -8%
Honolulu 28% 11%
Miami 32% 2%
Phoenix 47% 12%
San Diego 8% 1%
Washington DC 26% 3%
26 MSAs had price declines in 2006 Q2
Lengthening Days on Market
MSA June 2005 June 2006
Boston 58 108
Detroit 75 103
Las Vegas 46 55
Los Angeles 34 54
Miami 47 67
Phoenix 21 53
Washington DC 27 48
Source: NAR
Still, One-third of the Country
is Expanding
(Existing Home Sales: 2006 Q2 vs 2005 Q2)
50%
40%
30%
20%
10%
0%
-10%
-20%
-30% a
a
a
o
ka
t
ee
s
s
on
in
in
i
ic
a
xa
rg
s
ss
ns
ol
l
ex
rm
ro
la
Te
eo
ar
e
a
A
M
Ca
nn
rk
Ve
G
C
ew
A
Te
h
th
ut
N
or
So
N
Source: NAR
Price Accelerations and Recovery
(One-year gain in 2006 Q2 and 2005 Q2)
2005 Q2 2006 Q2
Baton Rouge 6% 27%
Birmingham 4% 9%
Charleston, SC 1% 10%
Houston 2% 7%
Portland 17% 19%
Raleigh 7% 12%
Salt Lake City 5% 12%
Shortening Days on Market
MSA June 2005 June 2006
Boise 57 43
Charleston, WV 96 74
Charlotte 95 82
Dallas 67 65
Raleigh 89 77
Source: NAR
A Divided Real Estate Nation
Red = Expanding (31% of the country by population)
Blue = Contracting (69%)
Source: NAR, Existing Home Sales
2006 Q2 vs 2005 Q2
What Happened?
• Boom ended August 2005
• Mortgage rates rose almost one point
• Affordability conditions deteriorated
• Speculative investors pulled out
• Homebuyer confidence plunged
• Resort buyers went to sidelines
• Trade-up buyers to sidelines
• First-time buyers priced out of market
The Aftermath
• Sellers’ market transitioning to buyers’ market
• Home sales plummet, prices lag, inventories
rise
• Cooling markets left with high percentage of
exotic loans
• Builders offering non-price incentives
• Days-on-market lengthening
• Residential construction activity slows
• Home prices beginning to soften
Income Not Keeping Pace
With Home Prices
Income Home Price
250
Income and Price set to Index of 100 in 1990
200
150
100
50
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5
1 99 199 199 199 199 199 199 199 199 199 200 200 200 200 200 200
Source: NAR
Metro Home Prices:
Moderate to Unsustainable
Widened Gap
600
500
Dallas
Chicago
400
NY
Bunched Together LA
300
Washington
Miami
200
100
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: NAR
19
83
-
-20
-10
0
10
20
30
40
50
1 9 Q2
%
84
-Q
19 4
86
-Q
19 2
87
Source: NAR
-
1 9 Q4
89
-Q
19 2
90
-
1 9 Q4
92
-Q
19 2
93
-
1 9 Q4
95
-
1 9 Q2
96
-Q
19 4
98
-
1 9 Q2
99
-Q
20 4
01
-
2 0 Q2
02
-Q
20 4
04
-
(Price growth minus historic average)
2 0 Q2
05
-Q
Las Vegas Price Growth Variability
4
In Buf
100
200
300
400
500
600
700
800
0
di f
an alo
a
C pol
in
Source: NAR
ci is
nn
a
D ti
al
la
A s
tl
C an t
ha a
rlo
tte
U
.S
.
W Bos
as t o
hi n
(2006 Q2)
n
N gto
e
Lo w Y n
s
An ork
S a g el
n es
Median Price in $ thousands
Di
H ego
on
o
A lulu
Sa n
n ah
F r ei
an m
ci
Home Price Distribution
sc
o
B
uf
$50,000
$100,000
$150,000
$200,000
$0
In fa
d ia lo
n ap
C ol
Source: NAR
in is
c in
n at
i
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al
la
s
A
tla
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ha a
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tte
U
.S
B .
W os
as ton
hi
ng
N to
ew n
Lo Yo
s
An rk
g
Typical Home
Sa ele
n s
Di
eg
H
on o
ol
@ 6.6% mortgage rate and 20% downpayment
ul
A u
Sa na
n h
Fr eim
an
Income Required to Buy a
ci
sc
o
19
89
10
20
30
40
-J
an
19
%
90
-J
an
19
91
-J
an
19
92
-J
an
19
93
-J
Source: NAR
an
19
94
-J
an
19
95
South
-J
an
19
96
-J
an
19
97
-J
West
an
19
98
-J
an
19
99
-J
an
20
00
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an
20
Northeast
01
-J
an
20
02
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an
20
03
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an
20
04
Worrisome in the West
Midwest
-J
an
20
05
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an
20
06
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an
Mortgage Obligation to Income –
Mortgage Obligation to Income
Very High in Some Markets
debt service to buy a median priced home by a middle income family
50%
45% !!!
San Diego
40%
30%
20%
1990 1995 2000 2005
Source: NAR
Mortgage Obligation to Income
Historical High in Some Markets
debt service to buy a median priced home by a middle income family
30%
Way Above Historical Local Norm
Miami
20%
10%
1990 1995 2000 2005
Source: NAR
Some Markets Experiencing Very
High or Rising ARMS
2005 Q2 2006 Q2
%
100
Markets carrying more risk from interest rate changes
80
60
40
20
0 s
.
tle
o
go
do
s
.S
le
ga
sc
at
U
ie
n
e
ci
Ve
rla
ng
Se
D
an
O
n
A
s
Sa
Fr
La
s
Lo
n
Source: FHFB Sa
Disappearing Affordable Homes -
FHA Participation in California
2000 2001 2002 2003 2004
20%
15%
10%
5%
0%
ty
ra
LA
SD
SF
C
ba
e
ar
ng
B
ra
a
O
nt
Sa
Source: HMDA
What Will Happen?
• 2006 corrections different from previous real
estate corrections
• Cooling markets have healthy local
economies
• Seller-to-buyer transitions almost complete
• Prices expected to fall for remainder of year
• Price fall will be limited due to Pent-up
Demand at Lower Prices
• Some Local Markets are Fragile and
Vulnerable to Rate Rise
• Soft Landing
Risks of Over-tightening
• Sluggish Economy (Recession?)
• Tumbling Housing Sector
• Leading to rising delinquencies and
foreclosures
• Wary Consumers (from home equity losses)
Scenarios/Probability of Popping
Home Sales Home Price
Mortgage Rate
Change in 2007 Growth in 2007
6.9% (baseline) -1.7% 2.2%
7.3% -7.0% 0.2%
7.8% -16.0% -2.5%
Past Notable Price Declines
(mostly in the late 80s or early 90s)
Time required to
Peak to Trough
Duration climb back to
Decline original peak
Boston 25% 5 years 9 years
New York 10.0% 7 years 11 years
Los Angeles 21.4% 7 years 9 years
San Francisco 3.8% 4 years 7 years
Houston 23.1% 5 years 9 years
Honolulu 24% 9 years 13 years
Economic Outlook
2005 2006 2007
GDP 3.2% 3.4% 2.9%
Unemployment Rate 5.1% 4.8% 4.9%
CPI Inflation 3.4% 3.5% 2.4%
3-month Treasury 3.1% 4.8% 4.8%
10-year Treasury 4.3% 4.8% 5.1%
Housing Outlook
2005 2006 2007
Existing-Home Sales 7.1 million 6.5 million 6.4 million
New Home Sales 1.3 million 1.1 million 1.0 million
Housing Starts 2.1 million 1.9 million 1.7 million
30-Year FRM 5.9% 6.5% 6.9%
1-Year ARM 4.5% 5.6% 5.7%
Existing-Home Price
12.4% 2.8% 2.2%
Growth
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