By Lawrence Yun, Ph.D.Chief Economist, National Association of REALTORS®

Presentation at NAR Legislative MeetingsWashington, DC

May 18, 2017

Economic and Real Estate Market

Outlook

2008 2009 2010 2011 2012 2013 2014 2015 20163,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

???

Existing Home Sales – Mostly Rising in Recent Years(Exceptions: when home buyer tax credit ended and “taper tantrum”)

3.0

3.5

4.0

4.5

5.0

Mortgage Rates30-year Fixed Rate

2016 - Dec 2017 - Jan 2017 - Feb 2017 - Mar01234567

Existing Home Sales Rising After Election(% change from one year ago)

2016 - Dec 2017 - Jan 2017 - Feb 2017 - Mar0

5

10

15

20

New Home Sales Rising – After Election

2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q140

41

42

43

44

45

46

47

48

NAR HOME Survey of Consumers% Strongly indicating Good Time to Buy

1800

1900

2000

2100

2200

2300

2400

2500

Stock Market: S&P 500 Index

2016 - Jan2016 - Feb2016 - Mar2016 - Apr2016 - May2016 - Jun2016 - Jul2016 - Aug2016 - Sep2016 - Oct2016 - Nov2016 - Dec2017 - Jan2017 - Feb2017 - Mar2017 - Apr80859095

100105110115120125130

Animal Spirit Revival of Consumers? Consumer Confidence Index

2016 - Jan2016 - Feb2016 - Mar2016 - Apr2016 - May2016 - Jun2016 - Jul2016 - Aug2016 - Sep2016 - Oct2016 - Nov2016 - Dec2017 - Jan2017 - Feb2017 - Mar2017 - Apr80

85

90

95

100

105

110

Animal Spirit Revival of Businesses? Small Business Optimism Index

2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q125

27

29

31

33

35

37

39

41

NAR HOME Survey of Consumers% Strongly indicating Good Time to Sell

oPortia in the Merchant of Venice

“Mercy is twice blessed … it blesseth him that gives and him that takes”

oCommercial exchange is twice blessed … not a zero-sum game

• Benefits the buyer • Benefits the seller

Contradiction?More indicating Good Time to Buy and Good Time to Sell !!!

0123456789

10 Low Supply over the past 5 year

Home price grew by 41% … 4 times faster than income

Inventory of Homes – Low Months Supply

0

20

40

60

80

100

120

Median Days on Market34 days vs 47 days one year ago

0123456789

Months to Sell a Newly Built Home

Thousand units

-100

100

300

500

700

900

1100

1300

1500

Single-family Housing Starts(Cannot Ramp Up because of Lots, Labor, Lending, Lumber)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Median Home Price: New vs. Existing

100

120

140

160

180

200

220

240

260

U.S. Home Price Index(FHFA)

Source: Dr. Doerner, FHFA

FHFA Home Price Index: County and Zip

0

2000

4000

6000

8000

10000

12000

14000

16000$ billion

Homeowners Equity in Real Estate

Borrowers Not Defaulting(Serious Delinquency Rate)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Veterans Affairs Mortgages

All MortgagesFHA Mortgages

FHA Insurance Premium - High

6061626364656667686970

Homeownership RateStill Near 50-year Lows

Homeownership Rate and Home Price By Region

West Northeast South Midwest50

55

60

65

70

West Northeast South Midwest$0

$100,000

$200,000

$300,000

$400,000

California Affordability Distribution: Ownership Rate of 55%

Indiana Affordability Distribution: Ownership Rate of 70%

REALTORS® ConsumersNY Fed Survey

EconomistsWSJ Panelists

ConsumersFannie Mae

ConsumersNAR HOME Survey

4.0%

Next 12 months

5.1%

Next 12 months

4.1%

Next 12 months

53% prices will rise

8% prices will fall

51% prices will rise

7% price will fall

Home Price Growth Expectations

Secretary Ben Carson

Kevin Kane, Chief Market Analyst at HUD

Jonathan Spader, Harvard

Joel Kan, Mortgage Bankers Association

Christie Peale, NYC Neighborhoods

Lawrence Yun, NAR

June 1st at HUD

NEW ERA OF HOMEOWNERSHIP CONFERENCE IN DC

Dr. Ken Rosen of UC Berkeley and his team on research findings

Dr. Jim Gaines of Texas A&M

Joel Singer of California Assoc. REALTORS®

Former FHA Commissioners

Current Trump Administration Official (invited)

Bill Brown and Lawrence Yun, NAR

SUSTAINABLE HOMEOWNERSHIP CONFERENCE – JUNE 9TH AT BERKLEY STADIUM

-10

-5

0

5

10

15

20

25

REALTOR Buyer Traffic Index - Resilient(% change from a year ago)

-20

-10

0

10

20

30

40

50

60

Mortgage Purchase Applications: Not Buckling(% change from a year ago)

-60

-40

-20

0

20

40

60

80

100

120

Mortgage Refinance Applications: Buckling(% change from a year ago)

Economy?

Growing with Job Creation

Pent-up Household Formation

Reagan GHW Bush Clinton GW Bush Obama Trump Q1 Trump Q20

1

2

3

4

5

GDP Growth Rates

2000

2500

30003500

4000

4500

5000

5500

60006500

In thousands

Total Job Openings

200250300350400450500550600650700In thousands

Weekly Initial Unemployment Insurance Filings

Jobs(8 million lost … 16 million gained)

120,000

125,000

130,000

135,000

140,000

145,000

150,000

In thousands

02468

1012141618

U1 U3 U6

Different Unemployment Rates (Alternative Facts): Same Conclusion

Change in Employment in March 2017

Health CareProfessional & Tech Service

HospitalityAdministrative Service

ConstructionState & Local Govt

Financial & InsuranceEducation

Retail SalesReal Estate & Leasing

WholesaleManufacturing

Federal GovtMining & Logging

Information

-50 0 50 100 150 200 250 300 350 400 450

Jobs by Sector

Net Change over past 12 months (in thousands)

05

10152025303540

$15.40 $18.01

$26.15 $26.57 $28.55 $29.93 $31.62 $32.56$37.96

Hourly Wage Rate by Sector

Less than $10Kto $25K to $50K to $75K to $100K Over $100K0%

5%

10%

15%

20%

25%

30%

REALTOR® Gross Income Distribution

Median Income of $42,500

UNESCO World Heritage Site

Charlottesville, Virginia

Historic versus Modern Dorms

• Dorms are randomly assigned

• 90% were glad they were assigned that dorm

• Either A>B or B>A … Cannot logically be both A and B is much better than A and B

• Heavy Inertia about not wanting to move

Something’s Not Right about Not Wanting to Move

oRetiree living in San Francisco could be super-happy living in

• Sedona• Bend• Ashville• Cape Cod• Sarasota• Traverse City• Lake home in Wisconsin …

oAirline overbooked seats• More volunteers when offer made before boarding; not after seated

How many homeowners are happy living in a wrong house?

01000020000300004000050000600007000080000

(in thousands)

Retiree Population Projection

Homebuyer Savings Account• Colorado• Mississippi• Montana• Virginia

• On-Deck• Iowa • Missouri• Oklahoma

Behavioral Economics … Nudge People

Forecast

2015 2016 2017Forecast

2018 Forecast

GDP Growth

2.6% 1.6% 2.2% 2.4%

Job Growth +2.6 million

+2.0 million

+2.1 million

+2.4million

CPI Inflation 0.3% 1.3% 2.3% 2.2%

Economic Forecast

oFed Funds Rate: 2 more hikes in 2017

oUnwinding Bond and MBS Asset Holding:• Unlikely to buy more mortgages from MBS proceeds (refis and full payment)

• Gradual … Gradual … Gradual … 20 year process• Without Fed Buying … Fewer buyers of Mortgages … Mortgage rates will rise

Monetary Policy

100000

105000

110000

115000

120000

125000

130000

Actual versus projected HouseholdsKC Federal Reserve estimate of 6.9 million missing households

5

7

9

11

13

15

17

Young Adults Living with Parents% of those aged 25 to 34

30000

35000

40000

45000

50000

Population in their 20s (in thousands)

Softening Rental DemandInvestors slowly sell single-family rental homes?

Housing Forecast

2015 2016 2017 Foreca

st

2018 Foreca

stNew Home Sales

500,000 560,000 620,000 670,000

Existing Home Sales

5.3 million

5.4 million

5.6 million

5.8 million

Median Price Growth

+ 6.8% +5.1% +5.0% +3.5%

30-year Rate 3.9% 3.6% 4.3% 5.0%

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

7,000,000

7,500,000

Existing Home Sales

0

200

400

600

800

1,000

1,200

1,400Thousand units

New Home Sales

o Dodd-Frank?

o Fannie/Freddie and Mortgage Availability?

o Tax Simplification? and Mortgage Interest Deduction and 1031 exchange?

o International Trade? … Viewing as Zero-Sum Game?

o EPA, land use, development fees?

Trump Presidency

o Social Media impact on Buying Interest in LA zipcode• ask clients to post about the experience• correct misconception about down payment requirements

o FHA changes and Home Buying Impact

o Higher Future Earnings … from Home Price Appreciations

o Immigrants impact on Real Estate

o CBO’s long-term budget deficit projections … very ugly!• buy real estate and other tangible asset

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