Economic & Real Estate Outlook. Tax Reform. Michigan 4/26/18

Transcription

1 Economic & Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist, National Association of REALTORS Presentations at Michigan REALTORS Broker Summit Plymouth, MI April 25, 2018 Tax Reform Mortgage interest deduction?... $750,000 Property tax deduction? SALT at $10,000 Capital Gains Exemption? as before Standard Exemption? doubled 1031 Exchange? protected Business Income more deductions Michigan 98% of homeowners pay less than $10,000 in property taxes 99% of homeowners have less than $750,000 in mortgage 1

2 National Existing Home Sales in 2017 Best in 11 years 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Michigan Home Sales Source: Michigan Realtors National Pending Sales Index No Longer Rising (seasonally adjusted) Apr Jul Source: NAR Oct Apr Jul Oct Apr Jul Oct Jan Apr Jul Oct Apr Jul Oct Jan Apr Oct 2

3 Mortgage Rates 30-year Fixed Rate Mar May Jul Sep Nov Mar May Jul Sep Nov Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Mar May Jul Sep Nov Jan Mar May Sep Nov Mar Animal Spirit Revival of Consumers? Consumer Confidence Index Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan 50 NAR HOME Survey of Consumers % Strongly indicating Good Time to Buy Q Q Q Q Q Q Q Q Q1 3

4 Home Price Index (Constant Quality) Ann Arbor>Jackson>Detroit>Toledo Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Home Price Index (Constant Quality) Grand Rapids>Lansing>Flint>Saginaw Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Income Growth and Home Price Growth (from lows in 2011 to 2017) 60% 50% 40% 48% 30% 20% 10% 0% 15% Income Home Price 4

5 30% 20% Difficulty Saving for Downpayment 25% 26% 25% 23% 20% 16% 17% 17% 10% 5% 5% 7% 7% 7% 7% 6% 7% 0% First-time Buyers Repeat Buyers Profile of Home Buyers and Sellers Q Q Q Q Q1 Homeownership Rate Trying to Make a Comeback Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Wealth: From 2000 to 2016 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Renters Homeowners 5

6 Fewer Borrowers Defaulting and in Foreclosure (Serious Delinquency Rate) Michigan U.S Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 90 Is Owning still American Dream? Will you Buy in Future? Yes on Dream Yes on Future 6

7 70% 60% Shocking Homeownership Rate! Much Room for Improvement 63% 57% 50% 40% 30% 20% 10% 0% White HighSchool Dropout Black College Graduate Student Loan Debt Negatively Impacted Purchase a home Take a vacation Purchase a car Continue with education Rent solo or change living situation Purchase entertainment Purchase clothes Start a small business Purchase daily necessities Rent or own closer to work or school location Own a pet None of these 5% 21% 46% 40% 40% 38% 33% 76% 72% 65% 64% 58% % 20% 40% 60% 80% Inventory of Homes on Market Source: NAR Jan Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Jan Apr Jul Oct Apr Jul Oct Jan Apr Oct 7

8 12 Actual Tenure in Home is Elevated Profile of Home Buyers and Sellers Michigan Single-Family Permits Rent Growth Topping Off? Investors to Unload? % change from one year ago Apr Jul Oct Jan Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Jan Apr Jul Oct Apr Jul Oct Jan Apr Oct 8

9 1.6 Tightening Monetary Policy Fed Funds Rate from zero to Jan Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Jan Apr Jul Oct Apr Jul Oct Jan Apr Oct Federal Reserve Balance Sheet Pace and Impact of Unwinding? Slow but Uncertain 6 GDP Growth Rate 3% in Q2 and Q3 (and Q4) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 9

10 3000 Exports and Imports (Levels in $billion) Imports Exports Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 150, ,000 Jobs (8 million lost 17 million gained) 140, , , , , Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan Total Jobs in Grand Rapids (plus 9% growth vs plus 13% nationwide from 2000) Sep May Jan Sep May Sep May Jan Sep May Jan Sep May Sep May Sep May Sep May Sep May 10

11 Total Jobs in Lansing (plus 3% growth vs plus 13% nationwide from 2000) Sep May Jan Sep May Sep May Jan Sep May Jan Sep May Sep May Sep May Sep May Sep May Total Jobs in Ann Arbor (plus 9% growth vs plus 13% nationwide from 2000) Sep May Jan Sep May Sep May Jan Sep May Jan Sep May Sep May Sep May Sep May Sep May Total Jobs in Detroit Metro (minus 8% growth vs plus 13% nationwide from 2000) Sep May Jan Sep May Sep May Jan Sep May Jan Sep May Sep May Sep May Sep May Sep May 11

12 Vehicle Sales (seasonally adjusted annualized rate) Jul Jan Jul Jan Jul Jan Jul Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jul Jan Jul Jul Jul Jul Jan Jul Jul Jan Total Job Openings Jan Oct Jul Apr Oct Jul Apr Jan Oct Jul Apr Oct Jul Apr Oct Jul Apr Oct Weekly Initial Unemployment Insurance Filings Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Sep May Jan Sep May Jan Sep 12

13 Tight Labor Market Conditions? Unemployment Rate Jan Jan Jan Labor Force Participation Rate 25 to Jan Jan Jan Construction Workers Jul Jan Jul Jan Jul Jan Jul Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jul Jan Jul Jul Jul Jul Jan Jul Jul Jan Jobs in Truck Transportation Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Aug Mar Oct May Dec Feb 13

14 Commercial Real Estate Outlook Commercial Property Price (83% gain from bottom) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Source: Federal Reserve % 6.1 NCREIF Cap Rates Likely Already Hit Cyclical Low

15 Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over) Forecast Economic Forecast Forecast GDP Growth 2.9% 1.5% 2.5% 2.6% Job Growth +2.6 million +2.0 million +2.1 million +2.1 million CPI Inflation 0.3% 1.3% 2.0% 2.5% 15

16 Housing Forecast Forecast New Home Sales Existing Home Sales Median Price Growth 500, , , , million 5.4 million 5.5 million 5.6 million + 6.8% +5.1% +6.0% +4.0% 30-year Rate 3.9% 3.6% 4.0% 4.6% Rising Cap Rates and Commercial Real Estate Prices Fewer transactions as buyers and sellers face-off without budging on price (5% to 10% decline in unit sales) Steady prices in mid-tier markets Modest price correction in big cities and trophy properties (3% to 7% drop in 2018 after 90% increase) Thank You! 16