Get documents about "The Economy and Real Estate Markets - St. Louis Association of
Document Sample
Outlook: The Economy and Real Estate
Markets
Jed Smith
g g Q
Managing Director for Quantitative Research
NATIONAL ASSOCIATION OF REALTORS®
Buying and Selling Real Estate 2009
St. Louis Association of REALTORS®
12777 Olive Boulevard, St. Louis, MO 63141
March 19, 2009
y
Section 1: The Economy
Financial Sectors AND Manufacturing/Services Sectors
May‐‐ Jun July Sep
2009
2008 2008 2008 2008
A Major Recession
Symptoms and Problems
• Contracting Economy: Unemployment Rising, Jobs
Vanishing, Housing, GDP, Autos, Retail,
M f t i C C fid
Manufacturing, Consumer Confidence.
Markets—
• Residential Credit Markets—lending standards.
Markets— limited.
• Commercial Credit Markets—Extremely limited
Banks—
• Banks—Issues of liquidity and Solvency.
j Concerns--Money y
• Personal Finances: Major Concerns--Money Market
Funds, Credit Cards, Continued Employment, 401Ks.
• Impact on Consumer Spending: Declining Household
Wealth-- Market, Values.
Wealth-- Stock Market Home Values A Negative
$300B/yr.
How Did We Get Here?
Leverage, Consumer, Financial and Goods Sectors Out of Sync
• Highly leveraged economy: prime and subprime loans, credit
cards, auto loans, student loans, home equity loans.
• Consumers: Unrealistic expectations of wants as needs
needs.
sheets—
• Consumer balance sheets—weaker.
piggy-
• Consumer spending: using home as a piggy-bank.
Permissive Financial Behavior.
• P i i Fi i lB h i
Alt-
– Subprime, Alt-A, Mortgage Backed Securities.
– Weakened financial institutions.
– Excessive Risk: Leveraged Buyouts, Speculation.
Sectors—
• Economic Sectors—weak/uncompetitive, obsolete.
Automobiles, housing, profits, employment.
– Automobiles housing manufacturing: profits employment
– Stock market sends a message.
Consumer Confidence
Discussion: Huddled Around the Cyber Cracker Barrel
Confer ence Boar d: Consumer Confidence
SA, 1985=100
150 150
125 125
100 100
75 75
50 50
25 25
80 85 90 95 00 05
Sour ce: The Confer ence Boar d /Haver Analytics 03/02/09
20
00
-
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
20 Ja
00 n
20 - J
01 ul
-
20 Ja
01 n
20 - J
02 ul
-
Source: BLS
20 Ja
02 n
20 - J
03 ul
-
20 Ja
E t bli h
03 n
20 - J
04 ul
-
20 Ja
04 n
tD t
20 - J
05 ul
-
20 Ja
05 n
20 - J
06 ul
-
20 Ja
06 n
20 - J
M th Ch
07 ul
-
12-month YOY payroll job changes in thousands
20 Ja
07 n
Establishment Data, 12 Month Change
20 - J
08 ul
U.S. Job Gains – Now Negative
-J
20 an
08
20 -Ju
09 l
--J
an
Interest Rates
1 Yr. Arm 30 Yr Fixed
6.8
6.3
5.8
5.3
4.8
4.3
r r l t r r t t
an Feb Ma Ap MayJun Ju AugSep Oc Nov Dec Jan Feb Ma Ap MayJun uly ug ep Oc Nov Dec Jan
- J - - - - - 7 - - - - - - - - 8- 8- 8- 8- 8-J 8-A -S 8- 8- 8- 9-
07 007 007 007007 007 00 007 007 007007 007 008 008 200 200200 200 00 00 008 200200 200 200
20 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Source: Freddie Mac
ob e s o pt g eg s at o
Problems Prompting Legislation
System—
• Financial System—Crash of the Shadow Banking System.
Fannie and Freddie.
– F i d F ddi
– Bank solvency, liquidity, profitability.
– Residential Credit Availability: Tightened lending
standards, underwriting restrictions, paperwork.
– Processes for short sales, banks’ real estate owned
properties—slow.
properties—slow
• Real Estate Markets.
– Residential: Price, Foreclosures, Inventory, Losses.
– Upside Down Loans/Negative Equity, Refinancing.
– Commercial: Financing Issues.
Federal Initiatives
• Troubled Assets Relief Program: Providing capital to
banks through issuance of preferred stock.
• Stimulus Bill: The $787 billion dollar American
Recovery and Reinvestment Act of 2009.
$8000.
– Home buyer tax credit: $8000
– Conforming and FHA loan limits at $729,750.
– Tax Cuts.
– Infrastructure Spending.
– Other Spending.
– Impact: Some expenditure impact immediate,
some delayed.
Federal Initiatives, Continued
• The Home Affordable Refinance Program.
– Refinance current conforming loans, LTVs above 80 percent, less
than 105 percent.
p
4-
– Potential Impact: 4-5 million homeowners.
• Home Affordable Modification Program.
Lender, servicer investor, incentives.
– Lender servicer, investor borrower incentives
– Focus on homeowners at risk/in default.
3-
– Impact: 3-4 million homeowners.
• Increased support for GSEs: doubling potential Treasury
investment from $100 billion to $200 billion for each GSE.
• Term Asset Backed Securities Loan Facility (TALF): liquidity for
autos credit cards and support for commercial mortgage-
autos, cards, mortgage-
backed securities.
Issues Still To Be Addressed
• Upside down mortgages.
equity—
– 23% near negative equity—helped by programs.
equity—
– 18 %, negative equity—programs not applicable.
Fannie/Freddie—
– Mortgages not Fannie/Freddie—not applicable.
Stimulating H i D
• Sti l ti Housing Demand. d
credits—
– Additional tax credits—for everyone?
– Lower interest rates?
• Removing Toxic Assets from Balance Sheets.
write-
– Valuation issues in write-offs.
– Mark to Market Issues.
Economic Outlook
Government Actions: Major Impact on End of
Recession--Discussion of Timing
2007 2008 2009 2010
Annual Growth Rate
Real GDP 2.0 1.1
25
-2.5 1.7
17
Nonfarm Payroll
1.1 -0.4
Employment -3.0 0.1
Consumer Prices 2.9 3.8
0.0 1.2
R l Disposable Income
Real Di bl I 2.8
28 1.3
13
1.6 1.9
Consumer Confidence 103 58
38 53
Unemployment Pct. 4.6 5.8
8.7 9.2
Housing Indicators--000
Existing Home Sales* 5,652 4,912
4927 5,211
New Single-Family Sales 775 482
291 391
Housing Starts 1,355 904
549 653
Existing Home Prices $--
219.0 198.6
000 188.8 196.2
New Home Prices 247.9 230.6
223.6 233.0
Section 2: Real Estate Markets
Residential: Ch ll i M k t
R id ti l Challenging Markets
Sales—
• National Sales—Existing Homes.
peak.
– Down 38% as of January 09 from Sept 05 peak
– Down 8.6% 12 mo ending January 09.
Prices—
• National Prices—Existing Homes.
– Median Down 26% as of January 09 from July 2006 peak.
– Median Down 14.8% 12 mo ending January 09.
Sales—
• Sales—New Single Family Homes.
at o a o o Octobe 005 peak of January
– National Down 77 % from October 2005 pea as o Ja ua y 09 .
– National Down 48 % for 12 mo ending January 09.
• Real Estate Trends: Has Been A Weak Market.
– Foreclosures--30%; Sales--15%.
Distressed Sales: Foreclosures--30%; Short Sales--15%.
– Negative Equity: 30% of homes bought in last 5 years.
– Homes Sold at loss: 30 % in past year.
– Prospective Buyer traffic: Up; Prospective Seller traffic: Down.
– REALTOR® Survey y
– Sales Expectations Down
– Approximately 53% see price decline for next year.
g
Sales—Existing Homes
Includes Single Family, Condos, Coops
In
8 000
8,000 thousand units
EXCESSIVE BOOM
6,000
4,000
2,000
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
Source: NAR
National Home Price Growth
Total Homes, Median Sales Price
g y g
% change from a year ago
13
10
7
4
1
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1990
1991
1992
-2
-5
-8
-11
-14
Source: NAR
19
90
-
10
15
20
25
19 Jan
91
P
30 %
-
19 Jan
92
-
19 Jan
93
-
19 Jan
94
-
Source: NAR
19 Jan
95
-
19 Jan
96
-
19 Jan
97
-
19 Jan
98
-
19 Jan
99
-
20 Ja
t (Principle d I t
00 n
-
Current
20 Jan
01
-
20 Jan
t)
02
-
20 Jan
03
-
Payment (P i i l and Interest) as P
20 Jan
Average
04
-
20 Jan
05
-
20 Jan
06
-
20 Jan
07
t fI
-J
20 an
08
-J
an
Good News--Affordability: U.S. Median Mortgage
Percent of Income
Housing Affordability Index
Income/Qualifying
(Median Income/Q alif ing Income) * 100
150
125
100
75
50
25
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Source: NAR
Existing Home Sales—Outlook
• Existing Home Sales At rate of 11 years ago. From 1998
to 2009.
illi l illi dditi l l
– 29 million more people, 8 million additional employedd
workers.
– Lower interest rates, improved affordability, higher
GSE Loan Limits, Lower Inventories of New Homes.
– GDP that is over 28% higher in real terms.
Recovery—
• Recovery—Depends on several important issues:
Demand—
– Demand—confidence, credit, mortgage rates.
– The economy, response to government stimulus.
– Inventory of unsold homes.
– Foreclosures.
Looking for the Economic Upturn
Risks d P ibiliti
Ri k and Possibilities
Economy—
• The Economy—What About Recovery?
freefall—
– Dismal economic data: currently in freefall—first
j t i i i (a key
major monetary crisis since 1907 ( k year f for
financials).
– Monetary Side: Clear that Federal agencies working
to stabilize the financial side of the economy.
Monetary—
– Monetary—to be resolved: toxic assets, derivatives,
credit availability.
– Goods Side (GDP and all that): should move from -5%
contraction to +1.5% growth in mid 2009.
Sti l d th ill h effect—but
– Stimulus and other programs will have an effect—b tff t
are really too little/too late to have full impact in 2009.
Conclusions
• Housing Outlook: Mediocre for 2009.
months—
– May get worse for a few months—uncertainties about tax credits,
g p g , ,
government programs, stock market concerns, and economic
horror stories told around the cyber cracker barrel confusing
potential buyers.
– As the economy gains starts to recover in the second part of the
/
year, real estate should start to stabilize/pick up.
• Addressing Consumer Confidence
– Changes in buyer perceptions and attitudes/long term investment.
home--not
– Focus on value: home--not a house, lifestyle not a “flip”, realistic
expectations—
prices and expectations—not a speculation.
– The ECONOMY does not determine whether you should buy a
home— circumstances,
home—that’s up to your personal circumstances which may be
much better than the national news.
Section 3—The St. Louis Economy
Outlook Similar to the Overall U.S. Experience
Employment--similar
• Employment--similar to national employment.
– Higher focus on education, health, professional/business services,
leisure/hospitality
leisure/hospitality.
– Unemployment/job loss trends slightly above national trends
• Existing Homes Sales
– Price down 14.8%, Sales down 11.4% 2007Q4/2008Q4.
– January down 14% YOY.
– Residential construction permits down 43%, YOY.
– Credit standards for residential mortgages continue tight.
• Commercial
– Construction slow.
– Industrial and office vacancy rates up.
– Tighter credit standards for loans.
p oy e t St ou s ac s at o a e ds
Employment--St. Louis Tracks National Trends
All Employees: Total Nonfar m
NSA, Thous
All Employees: Total Nonfar m, St Louis MO-IL
Thous
Th
140000 1380
136000 1360
132000 1340
128000 1320
124000 1300
120000 1280
98 99 00 01 02 03 04 05 06 07 08
Sour ce: Bur eau of Labor Statistics /Haver Analytics 03/05/09
Missouri Clearly in a Recession
Phil FRB: Coincident Economic Activity Index, Missour i
July 1992=100
150 150
140 140
130 130
120 120
110 110
100 100
90 90
90 95 00 05
Sour ce: Feder al Reser ve Bank of Philadelphia /Haver Analytics 03/05/09
St. Louis, Housing Permits Down
Per mits: New Pvt Housing Units, St. Louis MO-IL
SA, Thous. $
240000 240000
200000 200000
160000 160000
120000 120000
80000 80000
40000 40000
90 95 00 05
Sour ce: Bur eau of the Census/Haver Analytics 03/05/09
Mortgages Past Due: Significantly Up
All Mor tgages Past Due: Missour i
NSA, %
9 9
8 8
7 7
6 6
5 5
4 4
3 3
90 95 00 05
Sour ce: Mor tgage Banker s Association /Haver Analytics 03/05/09
St. Louis
Unemployment R t H d d U
U l t Rate Headed Up
Unemployment Rate, St Louis MO-IL
%
10 10
8 8
6 6
4 4
2 2
85 90 95 00 05
Sour ce: Bur eau of Labor Statistics /Haver Analytics 03/11/09
U.S. Commercial Markets
• Commercial Real Estate – in a slowdown.
– Demand is decreasing – Lower level of transactions. Supply
has been increasing from new construction.
markets
– Vacancy Rates rising across all markets. Rent Growth
slowing, still positive in most markets and most property
types.
g g j
– Financing becoming a major issue.
– Seller financing of increased importance.
– Wall Street financing ended.
– Limited and expensive financing options.
– Project Refinancing an issue.
properties--remains
– Investment in new properties--remains well below levels of
last two years.
Retail Market Fundamentals
Completions Net Absorption
sq. ft.
In thousand sq ft
10,000
8,000
6,000
6 000
4,000
2,000
0
-2,000
2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3
-4,000
-6,000
-8,000
-10,000
Source: NAR/TWR
Retail Vacancy Rate
14.0%
14 0%
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
Source: NAR/TWR
Retail Rent Growth
National Rent Growth
6.0%
4.0%
2.0%
0.0%
2003 2004 2005 2006 2007 2008 2009
-2.0%
4.0%
-4 0%
-6.0%
8 0%
-8.0%
Source: NAR/TWR
Retail Investment Market
Retail Sales Volume
Mall & Other Strip
25
Billions
20
15
10
5
0
06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4*
Source: Real Capital Analytics, November 2008
Office Market Fundamentals
Completions Net Absorption
25,000
In thousand sq. ft.
20,000
15,000
10,000
5,000
0
2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3
-5,000
-10,000
-15,000
-20,000
Source: NAR/TWR
Office Vacancy Rate
National Vacancy Rate
18.0%
18 0%
17.0%
16.0%
16 0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
Source: NAR/TWR
Office Rent Growth
National Rent Growth
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
2 0%
0.0%
2003 2004 2005 2006 2007 2008 2009
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
Source: NAR/TWR
Office Investment Market
Office Sales Volume
Office - CBD Office - Sub
80
Billions
70
60
50
40
30
20
10
0
06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4*
Source: Real Capital Analytics, November 2008
Industrial Market Fundamentals
Completions Net Absorption
80,000
sq ft.
in thousand sq. ft
60,000
40,000
20,000
0
2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 2009.1 2009.2 2009.3
-20,000
20 000
-40,000
-60,000
Source: NAR/TWR
Industrial Vacancy Rate
National Vacancy Rate
12.5%
12.0%
11.5%
11.0%
10.5%
10.0%
9.5%
9.0%
8.5%
8.0%
Source; NAR/TWR
Industrial Rent Growth
National Rent Growth
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
1 0%
0.0%
2003 2004 2005 2006 2007 2008 2009
-1.0%
-2.0%
-3.0%
4.0%
-4 0%
-5.0%
Source: NAR/TWR
Industrial Investment Market
Industrial Sales Volume
Flex Warehouse
16
Billions
14
12
10
8
6
4
2
0
06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4*
Source: Real Capital Analytics, November 2008
Multifamily Vacancy Rate
National Vacancy Rate
8.0%
8 0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
Source: NAR/TWR
Multifamily Rent Growth
National Rent Growth
5 0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
0 0%
2003 2004 2005 2006 2007 2008 2009
-1.0%
-2.0%
Source: NAR/TWR
Multifamily Investment Market
Multi-family Sales Volume
Garden Mid/highrise
40
Billions
35
30
25
20
15
10
5
0
06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4*
Source: Real Capital Analytics, November 2008
5.0%
6 0%
6.0%
7.0%
8.0%
9 0%
9.0%
10.0%
11.0%
Q1
01Q
01Q
Q2
Q3
01Q
01Q
Q4
02Q
Q1
02Q
Q2
02Q
Q3
02Q
Q4
03Q
Q1
Q2
03Q
Apartment
03Q
Q3
Q4
03Q
04Q
Q1
04Q
Q2
04Q
Q3
Industrial
04Q
Q4
05Q
Q1
05Q
Q2
Q3
05Q
Office
05Q
Q4
Q1
06Q
06Q
Q2
Retail
06Q
Q3
06Q
Q4
07Q
Q1
07Q
Q2
07Q
Q3
Q4
07Q
08Q
Q1
Cap Rates by Property Type
Q2
08Q
08Q
Q3
Source: Real Capital Analytics, November 2008
08Q44*
Louis—Commercial
St. Louis Commercial Outlook
• Will tend to follow national trends.
– Retail, industrial, office space: a market that is
slower than usual.
– New construction: Frozen credit markets,
turn
manufacturing down turn, and recession should
have a major impact.
y g y
– Vacancy rates will trend higher: more of a buyer’s
market.
– Depending on property type, St. Louis vacancy
rates could be one to two percent above national
rates.
Foreign Investment in U.S. Residential
Real E t t
R l Estate
• Over 25% or Realtors® had at least one foreign client in the
2007/2008 time frame.
– The region of origin was Canada (33%), Europe( 31%), Asia
(22%) and Latin America (10%).
Canada, UK Mexico
– The top six countries of origin were Canada UK, Mexico,
China, India, and Germany.
– The top four destination states were Arizona, California,
Florida, and Texas.
• Median price was $297,400, compared to a median price for all
U.S. real estate in 2007 of $217,900.
– Favorable currency rates were mentioned as one driver of
transactions according to a NAR survey.
• Overall, possibly as much as 10 percent of total Realtor® time
transactions
was spent on foreign transactions, suggesting that the foreign
market represents a significant opportunity for some realtors.
$60-
– In the range of $60-100 Billion per Year.
U.S. Commercial Real Estate
Buyer Composition Includes Foreign Purchasers
2007.Q4 2008.Q4
Crossborder
Equity Fund
Inst'l
Private
Public
User/other
Unknown
Source: Real Capital Analytics, February 2008
Global Commercial Real Estate
• Global Commercial Real Estate Market is Substantial.
– Sales drop 58% in 2008 due to lack of credit and uncertain pricing.
foreclosed. Globally,
– Distressed sales: $10B of assets already foreclosed Globally
$72B of property in bankruptcy or foreclosure. U.S. accounts for
56% of global distressed properties - $46B.
p p y yp
• Investments in all commercial property types decline in 2008
• Office: -60%
Industrial: -54%
Retail: -58%
Multi-
Multi-family: -55%
• Buyers fled emerging markets
y g g
• Perception of risk increased; domestic markets found more
attractive
Estate--Foreign
Commercial Real Estate--Foreign Investment
H Temporarily Declined
Has T il D li d
Foreign Acquisitions in U.S.
2007 td
2008* ytd
$16
Billions
*through Oct. 2008
$14
$12
$10
$8
$6
$4
$2
$-
Australia Germany MidEast United Canada Pacific Rim Europe Offshore -
Kingdom Other
Source: Real Capital Analytics, 11/08
From the Realtor® Perspective
Addressing Current Market Conditions
• Trusted Resource for Real Estate Information
– Professional Advice.
– Times
Coming off of Unusual Boom Times.
– Economy favorable, significant underlying demand.
– A three to five year horizon is appropriate.
• Adding Value
– Marketing: Realistic Pricing, targeting, segmentation,
demographics, defining needs.
Staging—
– Staging—How many times do you make a first impression?
• Innovator
– Implementation of Technologies.
Boomers GEN-X, GEN-Y.
– Customer communications: Boomers, GEN-X GEN-Y
From the Realtor® Perspective
Addressing Current Market Conditions
• NAR an advocate for homeownership.
long-
• Homeownership and long-term value.
• Lifestyle, long term investment.
• Building Community
– Establishing a presence/active in community
service.
– Part of the backbone/establishment.
Information for a Competitive Edge
g , g y
Right Tools, Right Now: A Variety of Publications
Many Are Free to Members—On Line, Right Now
