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Housing Market Trends and Forecast by ghsi90336

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									Housing Market Trends
    and Forecast

         Economic Summit
Dulles Area Association of Realtors®


                           Robert Barr
                     VP, NAR Research
                     November 2, 2006
               Cooling National Sales:
                  Existing-Homes
      In millions of units
7.5


7.0


6.5


6.0


5.5


5.0
 Jan '01       Jan '02       Jan '03   Jan '04   Jan '05   Jan '06

 Source: NAR
                      Housing Inventory
 4,000,000




 3,000,000




 2,000,000




 1,000,000
         Jan '99   Jan '00   Jan '01   Jan '02   Jan '03   Jan '04   Jan '05   Jan '06

Source: NAR
                 Home Price Appreciation
     Percent change from a year ago
18
     Single-Family
15

12

 9

 6

 3

 0

-3
Jan '00       Jan '01   Jan '02   Jan '03   Jan '04   Jan '05   Jan '06

          Source: NAR
Economic Backdrop
               Decent Economic Growth

  8
       Annual Percent Chg, Real GDP

  6


  4


  2


  0


 -2
      '00 q1    '01 q1   '02 q1       '03 q1   '04 q1   '05 q1   '06 q1
Source: BEA
               Decent Economic Growth
                    -- But Slowing
  8
       Annual Percent Chg, Real GDP

  6


  4


  2


  0


 -2
      '00 q1    '01 q1   '02 q1       '03 q1   '04 q1   '05 q1   '06 q1
Source: BEA
        Consumer Spending Still Healthy
      %
 6
         Percent Chg, Year-Ago

 5

 4

 3

 2

 1

 0
     '00 q1     '01 q1    '02 q1   '03 q1   '04 q1   '05 q1   '06 q1
Source: BEA
                         Steady Job Gains
                    3.9 Million in Past 24 months
       Change in Payrolls (000s)
400

300

200

100

  0

-100

-200

-300
   Jan '03     Jul '03   Jan '04   Jul '04   Jan '05   Jul '05   Jan '06   Jul '06

 Source: BLS
                          Oil Prices
       $ per barrel
$80
                                                Brent Crude
$60


$40


$20


 $0
   Jan '96      Jan '98   Jan '00   Jan '02   Jan '04   Jan '06
Source: WSJ
           Core Inflation still Worrisome
                                  Core      Overall CPI
      % change from a year ago
 5


 4


 3


 2


 1


 0
 Jan '00      Jan '01   Jan '02   Jan '03       Jan '04   Jan '05   Jan '06

Source: BLS
          Fed Finished with Rate Hikes
7
                                              Fed Funds Target Rate (%)
6

5

4

3

2

1

0
Jan '00    Jan '01   Jan '02   Jan '03   Jan '04   Jan '05   Jan '06
Back to Housing. . .
                         Cooling Markets
                   (Existing-Home Sales: 2006 Q2 vs 2005 Q2)
10%



 0%
          Nevada       Virginia    California   Florida        Arizona


-10%



-20%



-30%
  Source: NAR
    Price Decelerations and Declines
            (Existing Home Sales: 2006 Q2 vs 2005 Q2)


                                 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%
         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
   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%
                Metro Home Prices:
              Moderate to Unsustainable
$600            Dallas                               Widening Gap
                Chicago
$500
                NY
                LA
$400
                Washington
$300            Miami


$200

$100
                Bunched Together
    $0
          '90     '92      '94     '96   '98   '00    '02     '04
Source: NAR
                        B




                                                100
                                                      200
                                                            300
                                                                  400
                                                                        500
                                                                              600
                                                                                    700
                                                                                          800




                                            0
                            uf
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                          n   ap
                                   ol




Source: NAR
                  C                   is
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                                                                                                (2006 Q2)




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                                                                                                            Home Price Distribution




                   H
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                      an
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                                o
            Income Required to Purchase
                  a Typical Home
                               @ 6.6% mortgage rate and 20% down payment

$200,000


$150,000


$100,000


 $50,000


      $0




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Source: NAR
               Interest-Only Mortgages
30%
  %




20%




10%




 0%
              2002         2003   2004   2005
Source: Loan Performance
          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


                                                                                 o




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                                                                                     as
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                                                                                     W
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 Source: FHFB
                         Mortgage Rates
7.0



6.5



6.0



5.5



5.0
   Jan '05    Apr '05   Jul '05   Oct '05   Jan '06   Apr '06   Jul '06   Oct '06
Source: Freddie Mac
Still, Highly Favorable Mortgage Rates
20
         1970s               1980s               1990s           2000s
        9% average          13% average        8% average      6.5% average


15


10


5


0
Jan '72 Jan '76 Jan '80 Jan '84 Jan '88 Jan '92 Jan '96 Jan '00 Jan '04

     Source: Freddie Mac
               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
           What Will Happen?
• 2006 corrections different from previous real
  estate corrections
• Cooling markets have healthy local
  economies
• Prices expected to fall until 2q 2007
• Price fall will be limited due to pent-up
  demand at lower prices
• At a national level, a soft landing
           Past Notable Price Declines
              (mostly in the late 80s or early 90s)
                   Peak to                       Time required
                   Trough        Duration        to climb back to
                   Decline                       original peak

Boston             25%           5 years         9 years

NY-NJ MSA          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
Local Indicators
Washington Metro Unemployment …
 %
     At or Below Natural Rate
8



6



4



2



0
Jan '80       Jan '84   Jan '88   Jan '92   Jan '96   Jan '00   Jan '04

    Source: BLS
              Elevated Existing Home Sales
                       in Virginia
  200
           In thousands of units



  150



  100



    50



     0




                                                                                                    f
      80

              82


                     84

                            86


                                   88

                                          90


                                                 92

                                                        94


                                                               96

                                                                      98


                                                                             00

                                                                                    02


                                                                                           04

                                                                                                  06
    19

            19


                   19

                          19


                                 19

                                        19


                                               19

                                                      19


                                                             19

                                                                    19


                                                                           20

                                                                                  20


                                                                                         20

                                                                                                20
Source: NAR
                  Da
                     n




                                               100
                                                     200
                                                           300
                                                                 400
                                                                       500
                                                                             600
                                                                                   700
                                                                                         800




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Source: NAR
                      Bu
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                                                                                               (2005 Q4)




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                                                                                                           Home Prices By Metro Area




                        lu
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                n         m
                  Fr
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           Washington Metro Home Prices
450
400
350
300
250
200
150
100
50
 0
 90

       91

              92

                   93

                        94

                             95

                                  96

                                       97

                                            98

                                                 99

                                                      00

                                                           01

                                                                02

                                                                     03

                                                                          04

                                                                               05
19

      19

           19

                19

                     19

                          19

                               19

                                    19

                                         19

                                              19

                                                   20

                                                        20

                                                             20

                                                                  20

                                                                       20

                                                                            20
Source: NAR
                VA Metro Home Prices
450
              Washington
400
              Richmond
350
              Virginia Beach
300
250
200
150
100
 50
   0
       1990 1992 1994 1996 1998 2000 2002 2004

Source: NAR
      Home Sales in Virginia
            August data from a year ago

• Virginia Statewide              down 25%

•   Prince William                down 54%
•   Dulles Area                   down 47%
•   Fredericksburg                down 39%
•   Northern VA                   down 35%
•   Hampton Roads                 down 12%
•   Richmond                      down 7%
•   Lynchburg                     down 6%
•   Charlottesville               up 2%
                   Favorable Local Job Growth
          12-month growth rate
6
            U.S.      VA    D.C. Metro
5

4

3

2

1

0

-1

-2

-3
Jan '91     Jan '93    Jan '95   Jan '97   Jan '99   Jan '01   Jan '03   Jan '05
           Favorable Migration Trend
                  (Top 5 vs. Bottom 5)

State            Net Migration from 2000 to 2005
Florida                        +1,057,000
Arizona                         +408,000
Nevada                          +270,000
Georgia                         +233,000
North Carolina                  +232,000
Virginia                        +104,000
New Jersey                      -194,000
Massachusetts                   -236,000
Illinois                        -391,000
California                      -664,000
New York                        -1,001,000

Source: Census
A Look Ahead . . .
                Economic Outlook

                      2005   2006   2007

GDP                   3.2%   3.3%   2.9%

Unemployment Rate     5.1%   4.7%   4.9%

CPI Inflation         3.4%   3.4%   2.1%

10-year Treasury      4.3%   4.8%   5.0%
        National 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%          6.7%

1-Year ARM              4.5%          5.6%          5.6%

Existing-Home Price
                        12.4%         1.6%          1.5%
Growth
           Local Area Forecast
• Downturn attributable to weak buyer confidenc
    --Waiting for the bottom before committing
• Fundamentals are good (i.e., solid job growth)
• Prolonged price declines unlikely because of job
  growth
• Confidence factor is difficult to forecast
• Best estimate is for steady rising (year-over-year)
  sales from 2007 Q2
• Prices will then begin to strengthen
• Expect no out-sized gains, just steady appreciation of
  2% to 4% for 2007.
   Housing Market Trends
       and Forecast

           Economic Summit
  Dulles Area Association of Realtors®


Realtor.org/research         Robert Barr
rbarr@realtors.org     VP, NAR Research
202.383.7575           November 2, 2006

								
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