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
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 1,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 140000 135000 130000 125000 120000 115000 110000 105000 100000 Michigan Home Sales 2012 2013 2014 2015 2016 2017 Source: Michigan Realtors National Pending Sales Index No Longer Rising (seasonally adjusted) 115 110 105 100 95 90 85 80 2012 - Apr 2012 - Jul Source: NAR 2012 - Oct 2013 - Apr 2013 - Jul 2013 - Oct 2014 - Apr 2014 - Jul 2014 - Oct 2015 - Jan 2015 - Apr 2015 - Jul 2015 - Oct 2016 - Apr 2016 - Jul 2016 - Oct 2017 - Jan 2017 - Apr 2017 - Oct 2
5.0 4.5 4.0 3.5 3.0 Mortgage Rates 30-year Fixed Rate 2012 - Mar 2012 - May 2012 - Jul 2012 - Sep 2012 - Nov 2013 - Mar 2013 - May 2013 - Jul 2013 - Sep 2013 - Nov 2014 - Mar 2014 - May 2014 - Jul 2014 - Sep 2014 - Nov 2015 - Jan 2015 - Mar 2015 - May 2015 - Jul 2015 - Sep 2015 - Nov 2016 - Mar 2016 - May 2016 - Jul 2016 - Sep 2016 - Nov 2017 - Jan 2017 - Mar 2017 - May 2017 - Sep 2017 - Nov 2018 - Mar Animal Spirit Revival of Consumers? Consumer Confidence Index 140 120 100 80 2016 - Jan 2016 - Mar 2016 - May 2016 - Jul 2016 - Sep 2016 - Nov 2017 - Jan 2017 - Mar 2017 - May 2017 - Jul 2017 - Sep 2017-2018 - Nov Jan 50 NAR HOME Survey of Consumers % Strongly indicating Good Time to Buy 45 40 35 30 2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q1 2017 - Q2 2017 - Q3 2017 - Q4 2018 - Q1 3
Home Price Index (Constant Quality) Ann Arbor>Jackson>Detroit>Toledo 220 200 180 160 140 120 100 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1 2014 - Q1 2015 - Q1 2016 - Q1 2017 - Q1 Home Price Index (Constant Quality) Grand Rapids>Lansing>Flint>Saginaw 220 200 180 160 140 120 100 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1 2014 - Q1 2015 - Q1 2016 - Q1 2017 - 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
30% 20% Difficulty Saving for Downpayment 25% 26% 25% 23% 20% 16% 17% 17% 10% 5% 5% 7% 7% 7% 7% 6% 7% 0% 2010 2011 2012 2013 2014 2015 2016 2017 First-time Buyers Repeat Buyers Profile of Home Buyers and Sellers 70 68 66 64 62 60 1965 - Q1 1967 - Q1 1969 - Q1 1971 - Q1 1973 - Q1 Homeownership Rate Trying to Make a Comeback 1975 - Q1 1977 - Q1 1979 - Q1 1981 - Q1 1983 - Q1 1985 - Q1 1987 - Q1 1989 - Q1 1991 - Q1 1993 - Q1 1995 - Q1 1997 - Q1 1999 - Q1 2001 - Q1 2003 - Q1 2005 - Q1 2007 - Q1 2009 - Q1 2011 - Q1 2013 - Q1 2015 - Q1 2017 - Q1 Wealth: From 2000 to 2016 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Renters Homeowners 5
12.0 10.0 8.0 6.0 4.0 2.0 0.0 Fewer Borrowers Defaulting and in Foreclosure (Serious Delinquency Rate) Michigan U.S. 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1 2012 - Q3 2013 - Q1 2013 - Q3 2014 - Q1 2014 - Q3 2015 - Q1 2015 - Q3 2016 - Q1 2016 - Q3 2017 - Q1 2017 - Q3 90 Is Owning still American Dream? Will you Buy in Future? 80 70 60 50 Yes on Dream Yes on Future 6
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 3500000 3000000 2500000 2000000 1500000 1000000 Source: NAR 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct 2012 - Apr 2012 - Jul 2012 - Oct 2013 - Apr 2013 - Jul 2013 - Oct 2014 - Apr 2014 - Jul 2014 - Oct 2015 - Jan 2015 - Apr 2015 - Jul 2015 - Oct 2016 - Apr 2016 - Jul 2016 - Oct 2017 - Jan 2017 - Apr 2017 - Oct 7
12 Actual Tenure in Home is Elevated 10 8 4 5 1985 1987 1989 1991 1993 1995 1997 2000 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Profile of Home Buyers and Sellers Michigan Single-Family Permits 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0-0.5 Rent Growth Topping Off? Investors to Unload? % change from one year ago 2010 - Apr 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct 2012 - Apr 2012 - Jul 2012 - Oct 2013 - Apr 2013 - Jul 2013 - Oct 2014 - Apr 2014 - Jul 2014 - Oct 2015 - Jan 2015 - Apr 2015 - Jul 2015 - Oct 2016 - Apr 2016 - Jul 2016 - Oct 2017 - Jan 2017 - Apr 2017 - Oct 8
1.6 Tightening Monetary Policy Fed Funds Rate from zero to 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2011 - Jan 2011 - Apr 2011 - Jul 2011 - Oct 2012 - Apr 2012 - Jul 2012 - Oct 2013 - Apr 2013 - Jul 2013 - Oct 2014 - Apr 2014 - Jul 2014 - Oct 2015 - Jan 2015 - Apr 2015 - Jul 2015 - Oct 2016 - Apr 2016 - Jul 2016 - Oct 2017 - Jan 2017 - Apr 2017 - Oct Federal Reserve Balance Sheet Pace and Impact of Unwinding? Slow but Uncertain 6 GDP Growth Rate 3% in Q2 and Q3 (and Q4) 4 2 0-2 -4-6 -8-10 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4 2009 - Q1 2009 - Q2 2009 - Q3 2009 - Q4 2010 - Q1 2010 - Q2 2010 - Q3 2010 - Q4 2011 - Q1 2011 - Q2 2011 - Q3 2011 - Q4 2012 - Q1 2012 - Q2 2012 - Q3 2012 - Q4 2013 - Q1 2013 - Q2 2013 - Q3 2013 - Q4 2014 - Q1 2014 - Q2 2014 - Q3 2014 - Q4 2015 - Q1 2015 - Q2 2015 - Q3 2015 - Q4 2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q1 2017 - Q2 2017 - Q3 2017 - Q4 9
3000 Exports and Imports (Levels in $billion) 2500 2000 1500 Imports Exports 1000 2000 - Q1 2000 - Q4 2001 - Q3 2002 - Q2 2003 - Q1 2003 - Q4 2004 - Q3 2005 - Q2 2006 - Q1 2006 - Q4 2007 - Q3 2008 - Q2 2009 - Q1 2009 - Q4 2010 - Q3 2011 - Q2 2012 - Q1 2012 - Q4 2013 - Q3 2014 - Q2 2015 - Q1 2015 - Q4 2016 - Q3 2017 - Q2 150,000 145,000 Jobs (8 million lost 17 million gained) 140,000 135,000 130,000 125,000 120,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan 580 560 540 520 500 480 460 440 420 400 Total Jobs in Grand Rapids (plus 9% growth vs plus 13% nationwide from 2000) 2000 - Sep 2001 - May 2002 - Jan 2002 - Sep 2003 - May 2004 - Sep 2005 - May 2006 - Jan 2006 - Sep 2007 - May 2008 - Jan 2008 - Sep 2009 - May 2010 - Sep 2011 - May 2012 - Sep 2013 - May 2014 - Sep 2015 - May 2016 - Sep 2017 - May 10
250 240 230 220 210 200 Total Jobs in Lansing (plus 3% growth vs plus 13% nationwide from 2000) 2000 - Sep 2001 - May 2002 - Jan 2002 - Sep 2003 - May 2004 - Sep 2005 - May 2006 - Jan 2006 - Sep 2007 - May 2008 - Jan 2008 - Sep 2009 - May 2010 - Sep 2011 - May 2012 - Sep 2013 - May 2014 - Sep 2015 - May 2016 - Sep 2017 - May 240 230 220 210 200 190 180 170 160 150 Total Jobs in Ann Arbor (plus 9% growth vs plus 13% nationwide from 2000) 2000 - Sep 2001 - May 2002 - Jan 2002 - Sep 2003 - May 2004 - Sep 2005 - May 2006 - Jan 2006 - Sep 2007 - May 2008 - Jan 2008 - Sep 2009 - May 2010 - Sep 2011 - May 2012 - Sep 2013 - May 2014 - Sep 2015 - May 2016 - Sep 2017 - May 2500 2300 2100 1900 1700 1500 1300 1100 900 Total Jobs in Detroit Metro (minus 8% growth vs plus 13% nationwide from 2000) 2000 - Sep 2001 - May 2002 - Jan 2002 - Sep 2003 - May 2004 - Sep 2005 - May 2006 - Jan 2006 - Sep 2007 - May 2008 - Jan 2008 - Sep 2009 - May 2010 - Sep 2011 - May 2012 - Sep 2013 - May 2014 - Sep 2015 - May 2016 - Sep 2017 - May 11
Vehicle Sales (seasonally adjusted annualized rate) 25 20 15 10 5 0 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jul 2013 - Jul 2014 - Jul 2015 - Jan 2015 - Jul 2016 - Jul 2017 - Jan 7000 6000 5000 4000 3000 2000 Total Job Openings 2001 - Jan 2001 - Oct 2002 - Jul 2003 - Apr 2004 - Oct 2005 - Jul 2006 - Apr 2007 - Jan 2007 - Oct 2008 - Jul 2009 - Apr 2010 - Oct 2011 - Jul 2012 - Apr 2013 - Oct 2014 - Jul 2015 - Apr 2016 - Oct 700 600 500 400 300 200 Weekly Initial Unemployment Insurance Filings 2001 - Jan 2001 - Sep 2002 - May 2003 - Jan 2003 - Sep 2004 - May 2005 - Jan 2005 - Sep 2006 - May 2007 - Jan 2007 - Sep 2008 - May 2009 - Jan 2009 - Sep 2010 - May 2011 - Jan 2011 - Sep 2012 - May 2013 - Sep 2014 - May 2015 - Jan 2015 - Sep 2016 - May 2017 - Jan 2017 - Sep 12
Tight Labor Market Conditions? 12 10 8 6 4 2 0 Unemployment Rate 2002 - Jan 2006 - Jan 2008 - Jan 86 84 82 80 78 Labor Force Participation Rate 25 to 54 2002 - Jan 2006 - Jan 2008 - Jan Construction Workers 8000 7500 7000 6500 6000 5500 5000 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jul 2013 - Jul 2014 - Jul 2015 - Jan 2015 - Jul 2016 - Jul 2017 - Jan Jobs in Truck Transportation 1500 1450 1400 1350 1300 1250 1200 1150 1100 2000 - Aug 2001 - Mar 2001 - Oct 2002 - May 2002 - Dec 2003 - Jul 2004 - Feb 2004 - Sep 2005 - Apr 2005 - Nov 2006 - Jun 2007 - Jan 2007 - Aug 2008 - Mar 2008 - Oct 2009 - May 2009 - Dec 2010 - Jul 2011 - Feb 2011 - Sep 2012 - Apr 2012 - Nov 2013 - Jun 2014 - Aug 2015 - Mar 2015 - Oct 2016 - May 2016 - Dec 2018 - Feb 13
Commercial Real Estate Outlook 300 250 200 150 100 Commercial Property Price (83% gain from bottom) 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1 2012 - Q3 2013 - Q1 2013 - Q3 2014 - Q1 2014 - Q3 2015 - Q1 2015 - Q3 2016 - Q1 2016 - Q3 2017 - Q1 2017 - Q3 Source: Federal Reserve 8 7 6 5 4 3 2 1 0 % 6.1 NCREIF Cap Rates Likely Already Hit Cyclical Low 5.7 5.6 6.0 6.9 6.3 6.0 5.9 5.7 5.5 5.1 5.1 5.1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 14
Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over) 212 130 423 362 571 547 424 470 489 450 299 355 233 174 147 67 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Forecast Economic Forecast 2015 2016 2017 2018 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
Housing Forecast 2015 2016 2017 2018 Forecast New Home Sales Existing Home Sales Median Price Growth 500,000 560,000 600,000 700,000 5.3 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