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									Sharp or Modest Rebound?

         Lawrence Yun, Ph.D.
           Chief Economist
NATIONAL ASSOCIATION OF REALTORS®

 Presentation at St. Paul Association of REALTORS ®
                   St. Paul, MN

                October 23, 2008
     Home Sales Starting to Recover
 from Improving Affordability Conditions
  % change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)




Source: NAR
              Home Price Trend




Source: NAR
              Sales Still Struggling

% change in existing home sales from 2008 Q1 to 2008 Q2 (seasonally adjusted)




Source: NAR
National Total Existing-Home Sales
   (Up markets + Down markets = Stable total)




                                                Stable
Minnesota Existing-Home Sales

 In thousand units
Minneapolis - St. Paul MSA
    Home Price Trend
  Housing Stimulus Package
• First-time Homebuyer Tax Credit
   – Up to $7,500 (but with repayment
     requirement)
   – Helps unleash chain reaction for trade-up
     buyers
• Permanently higher Loan Limit
   – Up to $625,000 … covers most jumbo
     loans
   – Will lower “conforming jumbo” mortgage
     rates by 1% point (from say 7.5% to 6.5%)
   – Saving $4,000 in interest cost per year
FHA Market Share for Home Purchase




  Source: HMDA, NAR Estimate
National Existing-Home Sales
        at 1998 levels
 In thousand units
      10 Year Ago: 1998 vs 2008
• Existing Home Sales stable but trending at 10
  year ago levels

  From 1998 to 2008
    • 25 million more people
    • 13 million more jobs
    • Comparable affordability conditions
    • Is it credit tightening?
    • Is it excessive pessimism?
  Location, Location, Location:
    Makes a Big Difference!
• All Real Estate is Very Local

• Local Affordability and Local Job Market Conditions?

• Steepest price declines are concentrated in
  neighborhoods with high subprime loans

• Steep price declines attracting buyers
               Delinquency Rates
               Subprime vs. Prime




Data: Mortgage Bankers Association
Stresses are in Neighborhoods with
         Subprime Loans




    Price change from a year ago

Yellow – Mostly Prime Conforming Loans Only (OFHEO)
Orange – All Loans including subprime and jumbo loans (Case-Shiller)
Red – Subprime Loans (NAR estimate based on weighted average)
    One For Every 100 Households
• 100 households
      • 32 renters and 68 homeowners



     22 have no mortgage      46 have mortgage

                 3 are delinquent       43 are current



    1 gets foreclosed   2 work it out

  Historically only ½ gets foreclosed
Interest Rates
(Long and Short)
         U.S. Single-Family
          Housing Starts
  In thousand units




Source: Census
Inventory of New Homes Fell
     Even as Sales Fell
   (Inventory will fall very fast if sales pick up)




 Source: Census
 Minnesota Single-Family
     Housing Starts
  In thousand units




Source: Census
          Home Price Forecast
•   Falling inventory will help stabilize prices
•   Ben Bernanke’s view … ?
•   Alan Greenspan’s view … early 2009
•   800 Economists view … 2009
•   My view …
     – Watch out for Denver and Houston on
        fundamentals
     – Watch out for CA, NV, AZ, and FL on multi-bids
     – Watch out for Pitt, Indy, Cincy, Upstate NY once
        jobs come around
     – St. Paul ??? Positive Growth in 2009, but not top
        tier
             Economic Forecast
•   Consumers are angry
•   Businesses are OK
•   Exports booming
•   Net: Improving economy in the second half of
    2008

• 2009 will depend on persistent or dissipating
  consumer anger
                      GDP Growth

  % annualized growth rate




Source: BEA
              U.S. Job Changes
     8 straight months of job cuts
 12-month payroll job changes in thousands




Source: BLS
     M-St.Paul Job Changes
 12-month payroll job changes in thousands




Source: BLS
    Consumer Price Inflation




Source: BLS
        Consumer Sentiment




Source: University of Michigan
            Corporate Profits –
            Near Record High
$ billion




Source: BEA
                 Exports Growing
$ billion (2000-chain $)
        Commercial Real Estate
        Construction Spending
$ billion (2000-chain $)
  Commercial Fundamentals

• Vacancy Rates rising modestly … all across

• Rent Growth slowing still positive in most
  markets and most property types

• Multifamily holding up better

• Retail less so
Euro vs Dollar
Dollar Strength and Oil Price
                Economic Outlook

                       2007   2008   2009

GDP                   2.0%    1.5%   0.4%

CPI Inflation         2.9%    4.1%   2.0%

Unemployment Rate     4.6%    5.7%   6.6%
What will Happen to
Fannie and Freddie?
• Treasury Takeover
   – More Mortgage purchases and lowering
     rates
   – But after 2010, fewer mortgages will be
     purchased
   – NAR will lobby to assure plentiful
     supply of mortgage funds and active
     secondary mortgage market.
  Sharp or Modest Rebound?
• Depends on all of us in informing and educating
  consumers
   – Get the neighborhood information from local
     professionals
   – If ready financially, buy a home and get that
     special tax break
   – Mortgage rates off rock-bottom points but still
     historically favorable
   – Though no guarantee, buying a home has been a
     path to long-term wealth accumulation in vast
     number of cases
   – U.S. homes are on a big-time sale, own a piece of
     America

								
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