Real Estate Trends and Outlook

Transcription

1 Real Estate Trends and Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS Presentation at NAR Region XII Conference Coeur d Alene, ID March 5, 2015

2 GDP Burst in 2014 Q2, Q3, Q4 6 GDP Annualized Growth Rate Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q

3 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jobs (8 million lost 12 million gained) In thousands

4 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Weekly New Unemployment Insurance Claims In thousands

5 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Unemployment Rate

6 Household Net Worth at All-Time High $ billion

7 But Wait I am not feeling it

8 GDP Still not Robust 10 Below 3% for 9 straight years GDP Annual Growth Rate

9 Sluggish Growth + Gap after Great Recession ($1.5 trillion gap $4,700 per person) GDP in 2009 Dollars % Growth Line % Growth Line Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Real GDP Real GDP W/O Recession

10 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Employment Rate

11 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 Q1 43,000 41,000 39,000 37,000 35,000 33,000 31,000 29,000 27,000 25,000 Renter Households over 10 years In thousands (Increased by 9 million)

12 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 Q1 80,000 75,000 Homeowner Households over 10 years (Decreased by 1 million) In thousands 70,000 65,000 60,000 55,000 50,000

13 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Homeownership Rate

14 Household Net Worth ($5,500 vs. $195,500) $250, $200,000 $150,000 $100,000 $50,000 Homeowner net worth ranges from 31 to 46 times that of renters x31 x36 x46 x46 x34 x36 $0 Renter Homeowner Source: Federal Reserve Survey of Consumer Finances

15 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Home Price Index Alaska Washington Oregon Idaho Montana

16 The Reason for Not Feeling It Very Slow Housing Market Recovery Very Slow Commercial Market Recovery Holds Back Economic Recovery

17 ,000,000 Two and Out? Or Multi-year Expansion? (Single-Family Existing Home Sales Only) 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0

18 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Housing Starts Rising Too Slowly 3000 Thousand units

19 Time to Sell a New Spec Home (in months) Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan - Jan

20 Sluggish Recovery in Housing Starts Cost of Construction Rising Faster than CPI Labor Shortage for construction work Construction loan difficulty for small local homebuilders Dodd-Frank financial regulations?

21 Pent Up Demand Existing Home Sales 5.2 m 4.9 m New Home Sales 880 K 440 K Mortgage Rates 8.0% 4.2% Payroll Jobs m m Population 282 m 319 m 37 million more people living in the country

22 Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory Record High Household Wealth

23 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jobs in Alaska In thousands

24 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jobs in Washington In thousands

25 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jobs in Oregon 1800 In thousands

26 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jobs in Idaho In thousands

27 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jobs in Montana In thousands

28 Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory Record High Household Wealth

29 6 % Monetary Policy by Federal Reserve (zero rate policy for 6 years!) Fed Funds

30 Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Federal Reserve Balance Sheet from $ million Quantitative Easing Total Asset Purchase

31 30-year Mortgage Rates

32 Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Non-worrisome CPI Inflation Yet COLA of 1.7% in

33 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Rising Renters and Homeowners Rent Growth (Above 3%) Owners' Equivalent Rent Renters' Rent 0-1

34 Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Mar Oct May Dec Jul Feb Sep Apr Nov Jun Jan Aug Oil Price

35 Supply and Demand: Oil in U.S

36 Monetary Policy Quantitative Easing Finished Fed Funds Rate hike in mid-2015 Earlier Move to Tighten because of Inflation Pressure Long-term Steady State Rate (2016 onwards).. 10 year Treasury at 5.0% Mortgage Rates reaching 6% by 2016

37 Erratic Credit Availability FICO New Method Mel Watt New overseer of Fannie/Freddie Lower down payment products Ridiculous FHA premiums should decline Historic low mortgage default rates on recent vintages ( )

38 Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory Record High Household Wealth

39 U.S. Population 350 In millions

40 Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory and Moderate Price Growth Record High Household Wealth

41 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Low Inventory of Homes for Sale 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0

42 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Shadow Inventory (% of mortgage in foreclosure process or seriously delinquent) AK WA OR ID MT

43 Alaska Housing Permits (year-to-date) Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

44 Washington Housing Permits (year-to-date) Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

45 Oregon Housing Permits (year-to-date) Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

46 Idaho Housing Permits (year-to-date) Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan- Jan

47 Montana Housing Permits (year-to-date) Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

48 Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory and Moderate Price Growth Record High Household Wealth

49 Vacation Home Sales 1,200 1,000 In thousands

50 Economic Forecast Likely 2015 Forecast 2016 Forecast GDP Growth 2.2% 2.6% 3.1% 3.0% Job Growth +2.3 million +3.0 million +2.5 million +2.7 million CPI Inflation 1.5% 1.2% 2.0% 3.2% Consumer Confidence 10-year Treasury % 2.5% 2.9% 4.2%

51 Housing Forecast Likely 2015 Forecast 2016 Forecast Housing Starts 925, , million 1.4 million New Home Sales Existing Home Sales Median Price Growth 430, , , , million 4.9 million 5.3 million 5.4 million % + 5.3% + 4% + 4% 30-year Rate 4.0% 4.2% 4.8% 5.8% Underwriting Standards Strict Strict Transition Normal

52 Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over) Commercial Sales in $Billions

53 REALTOR Markets & Deal Size (Not $2.5 million Properties) 2013 CRE Lending Survey: Value of most recent sales transaction > $10,000,000 2% $5,000,000 - $10,000,000 1% $2,000,000 - $5,000,000 12% $1,000,000 - $2,000,000 17% $500,000 - $1,000,000 26% $250,000 - $500,000 22% < $250,000 21% Source: NAR

54 Small Banks Important to REALTORS 1% 18% 4% Source: NAR Current sources of financing for commercial deals 3% 8% 11% 17% 25% 6% 7% National banks ( Big four ) Regional banks Local banks Credit unions Life insurance companies REITs Private investors Public companies Small Business Administration Other, please specify

55 Percent Change, year-over-year REALTORS Report Commercial Sales Increase Sales Volume Sales Volume 30% 20% 10% 0% -10% -20% -30% -40% -50% Source: National Association of Realtors

56 New Construction and Leasing Favorable

57 Sources: National Association of REALTORS / Reis, Inc. Commercial Real Estate Forecast OFFICE Vacancy Rate 16.2% 15.8% 15.6% Net Absorption ('000 sq. ft.) 36,192 50,678 57,782 Completions ('000 sq. ft.) 26,450 41,799 44,862 Rent Growth 2.6% 3.2% 3.6% INDUSTRIAL Vacancy Rate 8.9% 8.5% 8.1% Net Absorption ('000 sq. ft.) 107, , ,044 Completions ('000 sq. ft.) 83,424 68,755 61,720 Inventory ('000,000 sq. ft.) 8,468 8,537 8,598 Rent Growth 2.4% 2.8% 2.9% RETAIL Vacancy Rate 9.8% 9.7% 9.4% Net Absorption ('000 sq. ft.) 11,214 19,314 24,313 Completions ('000 sq. ft.) 7,275 12,196 16,342 Rent Growth 2.0% 2.4% 3.0% MULTI-FAMILY Vacancy Rate 4.0% 4.0% 4.2% Net Absorption (Units) 223, , ,128 Completions (Units) 191, , ,381 Rent Growth 4.0% 3.9% 3.5%

58 Commercial Market Forecast over the next 2 years Rising interest rates Cap rates rise somewhat (narrow the gap first) Increased occupancy and falling vacancy (new supply lacking) Rising rents can offset rising rates to support property values Overall improving business opportunities