the housing market report card · monthly pmt our energy efficient home older home electricity $22...

1 1

The Housing Market Report Card October 20, 2011

Tim Sullivan, Principal

2 2

The Housing Market Report Card For the School of Rock Hard Knocks

October 26, 2011 Tim Sullivan, Principal

3 3

1. Housing Market Performance

2. Behind the Scenes Factors

3. Apartment Insights

4. Consumer Snapshots

5. Phoenix Update

6. The Road to Recovery

Agenda

4 4

Diverse group of experts with industry wide knowledge

Nationwide team for coast to coast coverage

Firm has completed compliance and ethics training with Integrity Research

5 5

New home sales coming down from a disappointing Spring

Source: John Burns Real Estate Consulting, Housing From the Frontlines, October 2011

6 6

Resale sales volume slipping too

Source: John Burns Real Estate Consulting, U.S. Housing Analysis & Forecast, October 2011

7 7

New home prices have not increased


8 8

Discounting inconsistent across regions


9 9

Resale price corrections have varied a lot by market. Prices have corrected to…. “what year?”

Source: John Burns Real Estate Consulting, Regional Analysis and Forecast, October 2011

Atlanta Minn

Phx

Orlando LA DC Seattle

Texas

10 10

Prices to turn positive in late ‘12/early ‘13

Source: NAR; Economy.com MSA rollup; S&P/CS; John Burns Real Estate Consulting, U.S. Analysis & Forecast, October 2011

11 11

• 2015 volume will be 55% of 2005 peak • 193% increase in MF permits, 61% increase in SF

Construction will recover, but slowly

Source: John Burns Real Estate Consulting, U.S. Analysis & Forecast, October 2011

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160

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U.S. Consumer Confidence

Consumer Confidence Index Historical Average

Source : Conference Board, updated through Sep, 2011; 45.4

Consumer Confidence Index

13 13

Some markets reach equilibrium earlier

• 2012: Orange County, CA and San Antonio, TX • 2013: Washington D.C., Philadelphia, Dallas, Fort Worth,

Minneapolis, Baltimore, Portland, Boston • 2014: Seattle, San Diego, Phoenix, New York, Los Angeles,

Nassau NY, San Francisco, • 2015: Houston, Atlanta, Riverside-San Bernardino, Tampa, St.

Louis, Denver, Oakland, Ft. Lauderdale • 2016: Sacramento, Orlando, Miami, Chicago, Newark • 2017: Kansas City, Las Vegas • Thereafter: Indianapolis, Cleveland, Warren MI, Cincinnati,

Pittsburgh, Edison NJ, Columbus and Detroit

… and the best submarkets will recover even earlier

14 14

Price is about available supply and demand • Banks are NOT going to dump distressed (vacant) supply • Currently adding less to supply, while demand is growing

Best submarkets will recover earlier • Already seeing rising rents and stable prices in the best

neighborhoods = indicates falling vacancy and better demand

There will be opportunities • Equilibrium is when each metro will need new construction

again as a whole • Builders can find opportunities in the best submarkets that

have less vacancy, and where people want to live

The bottom line

15 15

Grade for Housing Market:

D (Demand) + A (Affordability) =

C

16 16





5. Phoenix Update


Agenda

17 17

• GDP growth grew in 2Q11 • Job growth still positive • Unemployment ticked up in Sept. • Inflation starting to show

Economic Growth Is Not Robust


18 18

• YOY job gains have now been positive for the past 13 months • Annual job losses continue in Government (-327K)

The economy added 103K jobs in Sept.


19 19

• Mortgage rates are still historically low

• Housing costs very low in relation to incomes

• Housing has never been this affordable in comparison to rents

… and affordability is amazing

20 20

• Construction averaging 1.03MM/yr through 2015 • Household growth averaging 1.46MM/yr through 2015

U.S. back to equilibrium in 2015

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

P

20

12

P

20

13

P

20

14

P

20

15

P

Excess Vacancy

Source: John Burns Real Estate Consulting, May 2011

21 21

Highest excess vacancy in NV, AZ, FL and GA

22 22

Return to normal by 2016 as: • Foreclosure starts continue to decline • Liquidation of shadow inventory continues at heightened pace

Shadow Inventory Declining

1.041.25 1.29 1.19

1.13 1.08 1.07

1.61

2.77

4.71 4.69 4.47

3.84

2.88

2.10

1.55

1.19

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P 2016P

Mil

lio

ns

Shadow Inventory

Source: John Burns Real Estate Consulting, April 2011

23 23

Based on our forecasts: • 50% of the Foreclosure Notices have been filed

9.3 MM of 17.8 MM total foreclosure notices have been filed • Only 30% of the distressed homes have been sold

4.3 MM of 13.8 MM total distressed sales have occurred

Is the worst behind us?

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P 2016P

Mill

ion

s

Foreclosure Starts

Distressed Sales

Foreclosure Starts & Distressed Sales

Source: John Burns Real Estate Consulting, April 2011

24 24

Driven by: • Continued decline in HO rate in the younger age groups • Unprecedented number displaced by foreclosure • Majority of new households formed as renters

Homeownership back to 62% by 2015


2004 Peak – 70.1%

Current – 65.9%

64%

62%

25 25

• 3 MM current owners will lose their homes to foreclosure (alone brings HO rate down)

• New households will have to overcome poor credit, lack of down payment and tight mortgage underwriting to become owners

Homeownership increases with age

• 1.5 MM more young adults living with parents than in 2000

• They will be renters first

26 26

Grade for Behind the Scenes Factors

(Foreclosures, Shadow Inventory, Economic Growth)

F Last Year

D This Year

27 27

Election 2012: Barrier to Action?

28 28





5. Phoenix Update


Agenda

29 29

Demand is flooding into apartments and not into for-sale housing.

For-Sale Rental

30 30

Apartment demand is booming and will vastly outstrip supply

We are projecting 6.3 million new renter households from 2010-2015 as a result of the falling homeownership rate and changing demographics. This is almost four times the level of multi-family construction we are projecting for 2011-2015.

Source: Census Bureau; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

31 31

Vacancies are improving in almost every metro area

Source: REIS; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

32 32

It starts with the economy; jobs and apartments are tightly correlated

• While the economy has definitely slowed, year-over-year non-seasonally adjusted employment growth remains positive. Through August, nonfarm payroll has grown by 1.0% YOY, with 1.28 million jobs added in the last 12 months.

Source: BLS; REIS; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

33 33

Long-term apartment fundamentals are fantastic

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1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

(mil

lio

ns)

US Population Age 25-34

Sources: John Burns Real Estate Consulting, US Census Bureau

25-34 year-olds projected to increase by 2.6 million people over the next 5 years.

This age segment has a higher propensity to rent.

Source: Census Bureau; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

34 34

Current rent growth is positive in most metro markets

Source: REIS; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

35 35

Cap rates have started to rise slightly across the apartment sector

Source: RCA; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

36 36

Strong Growth Outlook for Multi-Family Sector

Source: RCA; John Burns Real Estate Consulting, Apartment Analysis & Forecast, Sept. 2011

37 37

Grade for Apartment Market:

A (Demand Characteristics) + B (Bubble) =

A-

38 38





5. Phoenix Update


Agenda

39

Study Methodology & Sample Size:JBREC National Consumer Survey

• E-mail Survey: We invited nearly1 million consumers to participate in a

comprehensive 54-question survey about

their next home.

• Partners: Almost 30 builders and developers joined in the effort by helping write the

questions and sending the e-mail to their

lists.

• Sample Size: Nearly 10,000 participated. 3,254 of these respondents were Boomers.

2011 #1 Finding: Design Matters. Home Design and Personalization are As Important As

Price. Most have responded to price. Design is the opportunity.

Price and location are still important, but our major finding for the study is that

the “emotional power” behind personalizing the home is the driving factor to

buy.

There are many findings throughout this report. We are excited to see you

put these findings to great use in 2012+.

41

Consumers demand that new home

construction be state-of-the-art.

From a consumer’s perspective:

• Latest and Greatest Expected: With all new products,

consumers expect the best technology. The same goes for their home if they are buying new.

• Better Absorption: Premiums for better technology are tough to achieve. However, builders with better technology are likely to get better sales.

• Green = Cash: Green technology is not about saving the environment, and it is not a generational trend. In fact, Gen Y is the least likely group to pay $5,000 more for an energy-efficient home.

42

Consumers expect new home

construction to be energy efficient.

• There was overwhelming agreement

(96%) that new home construction

should be energy efficient (EE) at no

additional cost.

• 74% did say they will pay $5,000

more for a home with EE features than for a home without, but this is

captured in the new home

premium. Use this as a reasonable

guideline for what you expect to

recover.

• Only 50% said that EE features were

more important than designer

features such as wood floors and

granite counters. Don’t force them to

trade!

43

Consumers need education on

monthly savings.

93% are willing to purchase EE products for savings. It’s up to you to educate your consumer!

MONTHLY PMT OUR ENERGY

EFFICIENT HOME

OLDER HOME

Electricity $22 $60

Water $20 $35

Mortgage $1,220 $1,220

Total $1,262 $1,315

1. 93% said HVAC was an important consideration of their home purchase when we told them that it accounts for 50% of their energy bills.

2. Only 42% will pay for green products that don’t save them money. Many took a neutral position, perhaps because they don’t understand the cost/value of green products. There is

an opportunity to educate and influence while their minds are not made up.

3. Do the math for the buyer. Show them the savings if you expect them

to value the product.

44

Generation Silent

Boomers X Y Ages:

25 to 30

Y Ages:

11 to 30

Years Born 1925-

1945

1946-

1964

1965-

1979

1980*-

2000

1980*-2000

Age Range

Year 2011

Year 2015

66 to 86

70 to 90

47 to 65

51 to 69

32 to 46

36 to 50

25+ only

26 to 31

25 to 35

11 to 31

Population 29M 75M 63M 44M 87M

Opportunity

2015

Silent

#4

Boomers

#1 X

#2

Y

#3

Boomers are Opportunity #1 Today. Beginning January 1st, 2011,

every single day more than 10,000 Baby Boomers will reach the age of 65. This will continue every day for the next 19 years.

45

The 55+ population growth over the next five years is projected for the Southwest, Southeast, Texas, and Florida markets.

0%

5%

10%

15%

20%

25%

Rale

igh-C

ary

, N

C

Las V

eg

as, N

V

Pho

enix

, A

Z

Fo

rt W

ort

h, TX

Dalla

s, TX

San A

nto

nio

, TX

Ho

usto

n, TX

Atlanta

, G

A

Tam

pa,

FL

Mia

mi, F

L

Min

neap

olis

, M

N-W

I

Sacra

mento

, C

A

San D

ieg

o, C

A

Riv

ers

ide-S

an B

ern

, C

A

Ora

ng

e C

ounty

, C

A

Lo

s A

ng

ele

s, C

A

Oakla

nd

, C

A

Ed

iso

n, N

J

Denver,

CO

Seatt

le, W

A

St.

Lo

uis

, M

O-IL

Washin

gto

n, D

.C

New

ark

-Unio

n,

NJ-P

A

Chic

ag

o, IL

Cin

cin

nati,

OH

Po

rtla

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, O

R-W

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Phila

delp

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, P

A

New

Yo

rk, N

Y-N

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Baltim

ore

, M

D

Pitts

burg

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A

Detr

oit-W

arr

en,

MI

Five-Year Change in Population: Ages 55-64, 2010-2015

Source: Economy.com

Customer research may be more

important than market research –

but far more difficult.

-Peter Drucker

47 47

Grade for Consumer

A (For those looking) + D (For Those on the Sideline) =

C+

48 48





5. Phoenix Update


Agenda

49 49

Source: John Burns Real Estate Consulting, Metro Analysis and Forecast, October 2011

Building permits at lowest level in 30 years

Peak 2005 Total Permits – 69,230 2011P Total Permits – 8,700

50 50

The “Driver” is Back: Jobs

-150,000

-125,000

-100,000

-75,000

-50,000

-25,000

0

25,000

50,000

75,000

100,000

125,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Nu

meri

cal

Gro

wth

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Perc

en

t C

han

ge

Numerical Growth Percent Change

Last 12 Mos. +38,700 jobs

Previous 12 Mos. -17,400 jobs

Source: BLS; John Burns Real Estate Consulting, Metro Analysis and Forecast, October 2011

51 51


Phoenix’s Job Base Sets the Stage

52 52


Prices of New and Resale Homes No Longer Close

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000 1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cu

rre

nt

Price

Resale Price New Price

September 2011

New - $189,700

Resale - $117,000

53 53

And it is Now Cheaper to Own Than to Rent in Phoenix Monthly After-Tax Housing Cost of Owning Versus Renting

$400

$600

$800

$1,000

$1,200

$1,400

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Curr

ent

2011P

2012P

2013P

Monthly After-Tax Housing Costs Average Asking Rent

Source: Realfacts (100+ units); John Burns Real Estate Consulting, Metro Analysis and Forecast, October 2011

54 54

Source: John Burns Real Estate Consulting, Apartment Analysis and Forecast, September 2011

Many reasons to own: In Phoenix, the monthly cost of owning is

usually 35% more expensive than renting. Today, it is 17% cheaper. 35

%

82%

60%

17%

4%

91%

1%

26%

27%

74%

16%

36%

12%

13% 19

%

30%

23%

22%

18%

-17%

34%

23%

-20%

-33%

61%

-28%

-4%

1%

51%

-6%

22%

0%

6%

13%

26%

19% 24

%

21%

-40%

-20%

0%

20%

40%

60%

80%

100%

Phoe

nix

San

Die

go

Los

Ang

eles

Min

neap

olis

Atl

anta

Ora

nge

Coun

ty

Tam

pa

Chic

ago

Was

h D

.C.

Seat

tle

Bost

on

Den

ver

New

Yor

k, (M

Div

)

Fort

Wor

th

Dal

las

Phila

delp

hia

Hou

ston

Aus

tin

San

Ant

onio

Historical Own/Rent Difference vs. Current DifferenceSorted by Biggest Variance from Historical

Historical Average Current (2Q11)

55 55

Total Transactions Back to Late 90s Levels

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

New Existing

2011P = ±106,100 (+9% YOY)

Source: Dataquick; John Burns Real Estate Consulting, Metro Analysis and Forecast, October 2011

56 56

Quarterly JBREC Affordability IndexTM shows Record Affordability


57 57

And this is Supported by Median Housing Costs to Median Income Ratio

10%

15%

20%

25%

30%

35%

40%

45%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cu

rre

nt

2011P

2012P

2013P


2011P = 17%

58 58

Unfortunately, Lost Equity and a Lack of a Down Payment Holds the Market Back

-$150,000

-$100,000

-$50,000

$0

$50,000

$100,000

$150,000

$200,0001998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cu

rre

nt

2011P

2012P

2013P

3-year owner 7-year owner 10-year owner 15-year owner


59 59

So Apartment Occupancies are Now on the Rise

86%87%88%89%90%91%92%93%94%95%96%97%98%99%

100%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Cu

rre

nt

Peak 1999 = 95%

Current = 91%

Source: Realfacts; John Burns Real Estate Consulting, Metro Analysis and Forecast, October 2011

60 60

Pre-Foreclosure Notices Have Fallen in Phoenix


61 61

There is a 3.4-Month Supply of Resale Units (Based on Sept. 2011 Sales) in Phoenix

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Ja

n-0

4

Ju

n

No

v

Apr

Sep

Fe

b

Ju

l

De

c

Ma

y

Oct

Ma

r

Aug

Ja

n-0

9

Ju

n

No

v

Apr

Sep

Fe

b

Ju

l

Lis

tin

gs

0

2,000

4,000

6,000

8,000

10,000

12,000

To

tal

Ex

isti

ng

Sa

les

Listings Total Existing Sales

Sept. Inventory 26,950

Sept. Sales 7,892

= 3.4 Mos.

Source: ARMLS; John Burns Real Estate Consulting

62 62

Estimated # of Shadow Inventory4

Delinquent (based on liquidation probabilities)

Loans in Upside Base Downside

Category Metro2 Scenario1 Case1 Scenario1

In Foreclosure 36,806 29,445 33,125 36,806

90+ Days 34,334 25,751 29,184 33,991

60 Days 11,209 7,846 8,967 10,649

30 Days 26,126 13,063 15,676 18,288

Total 108,476 76,105 86,952 99,734

Less: Distressed Units already listed on MLS5 (9,023) (9,023) (9,023)

Shadow Inventory4 67,082 77,929 90,711

Plus: Current MLS Listings 26,190 26,190 26,190

Total Supply 93,272 104,119 116,901

Months of Supply - Shadow 8.7 10.1 11.8

Months of Supply - MLS 3.4 3.4 3.4

Total Months of Supply 12.1 13.5 15.2

Total Metro Mortgages3: 778,367

10-yr Avg Annual Metro Resale Sales: 92,334

Phoenix, AZ Shadow Inventory

• The 10 months of “shadow” inventory, or homes not currently on the market and in one form of distress that we believe will be eventually liquidated/sold, is over 3 times the number of homes currently listed on the market.

62

A high level of shadow inventory in the Phoenix market will continue to put downward pressure on prices in this market.

Shadow Inventory Summary

Footnotes

1 - Liquidation probability scenarios were based on a study of probabilities used by leading credit analysts and analysis of county records data

2 - Total Metro Mortgages X Estimated Metro Delinquency %

3 - Estimate of total mortgages, adjusted from the 2006-2008 American Community Survey (Census)

4 - # of currently distressed properties that will ultimately become supply

5 - Assumed that U.S. distressed listings as % of total listings was 32% (same as % distressed sales, then adjusted that % based on differential between metro total

mortgage delinquency and U.S. total mortgage delinquency) 2Q2011

63 63

Grade for Phoenix

Jobs? Supply? Affordability?

D Last Year

B- This Year

64 64





5. Phoenix Update


Agenda

65 65

Job growth is key. Texas, Seattle, Raleigh and Phoenix are growing.

Source: John Burns Real Estate Consulting, Regional Analysis and Forecast, October 2011

Region 1-Year Growth 1-Year Growth

Rate

S. California 35,800 0.4%

N. California 27,700 0.5%

CALIFORNIA 63,500 0.5%

N. Florida 19,000 0.5%

S. Florida 23,300 0.8%

FLORIDA 42,300 0.6%

Texas 187,400 2.0%

Midwest 207,600 0.8%

Northeast 170,200 0.6%

Northwest 56,600 1.1%

Southeast 36,100 0.2%

Southwest 58,500 0.9%

66 66


Employers are looking to hire Monster.com Employment Index and Employer Recruitment Activity

67 67


On a national level, affordability is exceptional

23% 39%

68 68


Personal Savings Rate is up and also paving way for future down payments

69 69

Value of Revolving Consumer Debt has fallen approximately 5.4% over last year


23% drop since 12/08

70 70

6.2 Months of new home supply but absolute number of unsold homes is lowest since 1963

164,000


71 71

Be very bullish long-term!

• Strong Demographics: Growth of 20-34 year old segment along with pent-up demand will fuel demand for apartments over the next five years.

• Housing Market Weakness: Lower income growth and credit issues will drive people to rent. Homeownership rate will fall.

• Modest Construction Pipeline: While multifamily permits are expected to double, they will remain below demand.

• Continue to Monitor Both Markets! Housing and apartments are related, and as the housing market recovers, it will take demand away from apartments.

• Phoenix is Adapting: Meritage and energy efficiency (Lyons Gate); Lennar-Multi-generational (Layton Lakes)

72 72

Some Comments on “Participation”

• A public builder – Will beat plan.

• Prominent MPC – Traffic is up 10%. Sales are up 30% over 2010.

• Some notable supply changes:

10/3/2010 10/3/2011 % Change

Active Listings 44,856 26,954 -40%

Sales Per Year 91,076 99,611 9%

Average Price/Year $173,894 $157,644 -9%

Lender Owned Active Listings 8,501 3,053 -64%

% Sales Lender Owned this Month 47% 37% -21%

Source: Cromford Report

What we hear in the field:

•Fewer open subdivisions/less competition. But Uncertainty reigns.

73 73

Final Report Card: Time for a Cool Change?

Housing Market Performance C

Behind the Scenes Factors D

Apartment Insights A-

Consumer Snapshots D

Phoenix Update B-

Grade Trend

Road to Recovery C

74 74

Make Great Decisions Using Great Analysis

[email protected]

(858) 558-8384

the housing market report card · monthly pmt our energy efficient home older home electricity $22...

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