Clapp HousConf2008

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					  CONNECTICUT HOUSING
Challenges and Opportunities in
            2008
 click: http://www.business.uconn.edu/RealEstate

                       Center for Real Estate
                      University of Connecticut
                     2008 Housing Conference
                        Thursday, May 8, 2008
          Topics for my talk
1. Trends in Connecticut’s residential markets.
2. Major drivers behind these changes.
3. Risk management: living in the present
   moment – and planning for a range of future
   outcomes.
1. Trends in Connecticut’s
residential markets.
                                                       Connecticut Single Family House Prices:
                                                            Declining for Last 1.5 Years



                  10.00
% Chanage Yr-Yr




                   5.00




                   0.00
                                                                             SFR High

                                                                             SFR Low

                   -5.00



                                             From first quarter of 2000.

                  -10.00
                           2000.1


                                    2000.3


                                              2001.1


                                                       2001.3


                                                                2002.1


                                                                         2002.3


                                                                                  2003.1


                                                                                           2003.3


                                                                                                    2004.1


                                                                                                             2004.3


                                                                                                                      2005.1


                                                                                                                               2005.3


                                                                                                                                        2006.1


                                                                                                                                                 2006.3


                                                                                                                                                          2007.1


                                                                                                                                                                   2007.3


                                                                                                                                                                            2008.1
                                                Single Family Price Change:
                                    Bridgeport, Danbury, New Haven & Stamford LMA's


                 20



                 15



                 10



                  5
% change Yr-Yr




                  0

                                                BRIDGEPORT                     DANBURY

                  -5


                                                NEW-HAVEN                      STAMFORD
                 -10



                 -15
                       2000.1 2000.3 2001.1 2001.3 2002.1 2002.3 2003.1 2003.3 2004.1 2004.3 2005.1 2005.3 2006.1 2006.3 2007.1 2007.3 2008.1
                            % change Yr-Yr




                                                 10
                                                      15
                                                           20




         -15
                     -10
                                         0
                                             5




                            -5
2000.1


2000.3


2001.1


2001.3


2002.1




                            HARTFORD
2002.3




               NEW-LONDON
2003.1


2003.3


2004.1
                            TORRINGTON




2004.3


2005.1


2005.3
                                                                      Single Family Price Change:




2006.1
                                                                Hartford, Torrington & New London LMA's




2006.3


2007.1


2007.3


2008.1
2. Major drivers behind
these changes.
     What Are the Major Drivers
      Behind Declining Prices?
•The US is very likely in recession. CT economy relatively
good. Total employment grows slowly, but the unemployment
rate is now over 5% in Connecticut and the US.
•Higher mortgage default rates, particularly for those with low
down payments, high payments as a ratio to income and
adjustable rate (teaser) mortgages, have made most lenders
and borrowers more cautious. This reduces the amount
buyers are willing to pay.
•Speculative money – those buying in anticipation of future
price increases – has dried up. Similarly, first time home
buyers are now more likely to wait and see what happens.
Evidence here is anecdotal, but important nonetheless.
Major Structural Changes Behind
        Declining Prices
• Low US savings rate. Business and government
  are spending more than their income.
• Too much borrowed money thru 2007– e.g.:
   – equity lines in real estate allow households to
     spend more than their income
   – leveraged buyouts fuel the rise in stock
     prices. Commercial RE: Macklowe.
   – US government runs up large deficits over
     many years
• Most asset classes have high risk & higher risk
  premiums. So, mortgage rates go up, 10 year
  treasuries down. Risk premium up to 3%.
Good News: Some Drivers Push
 the Economy and Housing Up
• Lower house prices stimulate demand –
  e.g., first time home buyers find housing
  more affordable.
• Worldwide, there is a lot of money looking
  for investment.
• The Euro is very high relative to the $.
  This attracts equity to US.
• The US has political stability and “Yankee
  ingenuity.”
3. Risk management:
living in the present moment –
and planning for a range of future
outcomes.
Strategies for Taking Advantage of
  these Opportunities: Overview
• Adjust business model to get into foreclosure
  financing, short sales and workouts.
• Invest long term in real estate
  – Bottom fishing
  – form an investment fund
  – Tap international money
• Investment consulting.
• Property management will be a big growing
  area. Cap rates likely to be higher!
                 Conclusions
• Long term structural changes are likely to
  dominate the recession/recovery cycle.
• Most Americans are likely to be consuming
  less for a while.
• Opportunities abound, but they require
  changing the way we do business. E.g., tap
  international equity money.
• Difficult times, but let’s enjoy the experience!
experience!

				
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