The Economy… Real Estate Outlook and Risks Federal Home Loan Bank of Chicago MPF Advisory Council Meeting Presentation, April 18, 2012 Four Seasons Hotel 120 East Delaware Place Chicago, Illinois Jed Smith Managing Director, Quantitative Research National Association of Realtors®
Federal Home Loan Bank of Chicago MPF Advisory Council Meeting Presentation Jed Smith
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
The Economy… Real Estate Outlook and Risks
Federal Home Loan Bank of Chicago MPF Advisory Council Meeting
Presentation, April 18, 2012Four Seasons Hotel
120 East Delaware PlaceChicago, Illinois
Jed SmithManaging Director, Quantitative Research
National Association of Realtors®
The Economy: Where and Why?Looking At NAR’s Economic and Housing Outlook
• Forecasting: Some Comments.• The Economic Outlook.• How Do We Reach Our Conclusions?• Forecast Risks and Uncertainties.• How Likely Are We Correct! WHY?
Forecasting: Some Comments
• Projections: Based on Economic Relationships, Best Available Data.
• Assumptions.• Uncertainties.• Risk Analysis.• Black Swans! Unknown
Unknowns.
ECONOMIC OUTLOOK How We Got Here, Where We Are, Where We Are Headed
The Economy—How We Got Here!Excessive Spending, Leverage, Permissive Financial Behavior Great Recession, Slow Recovery
Economic Outlook, Home Sales: Actual and ForecastMarket Appears to be Recovering
Median Prices: Expected to Stabilize Prices Recovering from the Great Recession
HOW DO WE REACH OUR CONCLUSIONS?
Problems in a Variety of Sectors: Look at the Drivers.
The Economy: Total Jobs: Non-Farm, Establishment DataRecession is Over. Where are the Jobs?
Projected Time for Jobs Recovery: Four Years?
125000
135000
145000
Source: BLSSource: BLS
Home Inventories: Approaching 6 MonthsThe Shadow: Potentially 5 Million Homes
Some Areas Experiencing Low Inventories—Could Sell More
Household Wealth: Impact of Great RecessionLost Approximately $14 Trillion in Assets
Financial Assets: Recovering. Real Estate: Recovery Still to Come.
Households & Nonprofit Org: Total Financial AssetsNSA, Bil.$
10050095908580Source: Federal Reserve Board 01/13/12
60000
50000
40000
30000
20000
10000
0
60000
50000
40000
30000
20000
10000
0
Households & Nonprofit Org: Assets: Total Owner-occupied Real EstateNSA,Bil.$
10050095908580Source: Federal Reserve Board 02/08/12
24000
20000
16000
12000
8000
4000
0
24000
20000
16000
12000
8000
4000
0
UnemploymentNeed an Additional 11 Million Jobs
Number Unemployed: Unprecedented. Time to find a job: Unprecedented.
Unemployed, 16 Years & Over: 16 yr +SA, Thous
10050095908580Source: Bureau of Labor Statistics 02/08/12
16000
14000
12000
10000
8000
6000
4000
16000
14000
12000
10000
8000
6000
4000
Average {Mean} Duration of UnemploymentSA, Weeks
10050095908580Source: Bureau of Labor Statistics 02/08/12
45.0
37.5
30.0
22.5
15.0
7.5
45.0
37.5
30.0
22.5
15.0
7.5
Distressed Sales: 30% to 40% of Transactions Major Impact--Price and Consumer Confidence
Percent of Homes Underwater by StateSource: Fannie Mae/Core Logic
Mortgages Past DueShadow Inventory Includes Foreclosures, Short Sales, and Some Percentage of Past
Due
FORECAST RISKS AND UNCERTAINTIES
Does An Economist EVER Reach A Conclusion?A Comment from Harry Truman
The Good
• Home Prices: Seem to be Stabilizing. Emotional, psychological, confidence issues. Price to Income Ratios favorable.
• Affordability: Very High.• Interest Rates: Low IF you can get the mortgage.• Stress Tests.• Pent Up Demand: Possibly 500,000 or more per year.• Demographics: Millennial Generation is large;
favorable attitudes towards housing; delayed household formation.
Residential Markets: The OutlookIndications that Recovery is Underway
• A Recovery is Underway—Short Term Issues.– Highly Dependent on Economic Policy.– Many Uncertainties, Black Swans, and Potential
Surprises. – Confidence, Attitudes.
• A Recovery is Underway—Longer Term.– Significant Division of Opinions Concerning
Entitlements, Spending, and the American Dream.– Competitive Position, Economic Trends.
Residential Markets Showing Modest Signs of Recovery
Problems of Major Concern!“DUDE--Where’s My Raise, My Job?”
Major Jobs Problems
Median Usual Wkly Earnings: Full Time Wage & Salary WkrsSA, 1982-84 CPI-U Adj$
Full Time Wage and Salary WorkersSA, Thous
10050095908580Source: Bureau of Labor Statistics 02/07/12
345.0
337.5
330.0
322.5
315.0
307.5
112500
105000
97500
90000
82500
75000
67500
The Ugly: Uncertainties and the Outlook
• Longer Term Issues and Problems--Affecting Jobs.– Competitive Position– Tax and Incentive Structures– Possible Structural Problem.– U.S. International Competitiveness.
• Short Term Issues and Problems.– Recovering from Great Recession– Government Spending and Taxing.– Deficits.– International Financial and Governmental Actions and Policies.
• People Issues.– Consumer Moods: Confidence, Personal Wealth, Lingering Effects of Recession.– Basic Disagreements: The American Future, Who Pays Taxes, Role of Government.
• Economic Uncertainties– Foreclosures, Short Sales, Upside Down Homeowners, Down Payments, Credit Availability,
Washington Policy ImpactsOpinions, Uncertainties, and Ill Will
• Housing Proposals.– Raise down payment to 20%: Currently approximately 2/3 of buyers obtaining a mortgage put
down less than 20 percent. – Mortgage Interest Deduction: high income/second homes?– Conforming Loan Limits.– Refinancing/Upside Down/Distressed.
• Government Sponsored Enterprises.– Issues for resolution. – Mortgages: Fannie and Freddie model was flawed (private profit/taxpayer loss).
• Washington Now Focused on Jobs and Economy.– Potential for many bad outcomes!– Creating a Job Climate vs. Creating Jobs.– Concern over economic circumstances.– Oil Prices, International economic developments—may have major impact. – Taxes, Benefits, Spending, Mortgages, and Uncertainties.– Who Pays Income Taxes?– Who Receives Entitlements?– Higher Taxes vs. Decreased Spending vs. What?– Concern Over Deductions.
Commercial SectorForecasting a Modest Recovery
U.S. Commercial Fundamentals
• Commercial Real Estate.– Stabilization of fundamentals.
• Short Term—Favorable Outlook. – Residential Prices Probably At or Near Bottom.– A substantial market appears to be headed up.– Homeownership Still the American Dream.– Affordability and Prudence– Current Market Developments at www.Realtors.org
How Likely Are We To Be Correct?There Are Major Risks
• A Recovery is Underway—Longer Term.– Significant Division of Opinions Concerning
Entitlements, Spending, and the American Dream.– Competitive Position, Economic Trends.
• Risks: Short Term and Longer Term.– Some major issues with major risks—unresolved. – Political Risks, Expectations, Foreign Economies, Financial
Sectors.• My “ONE ARM” Assessment
– We are in recovery and should see expansion for the next several years.
NAR: A Source for Housing Informationwww.realtor.org
For More Information
• Profile of Home Buyers and Sellers– National Survey
• Statistics: http://www.realtor.org/
• Information Sources– Facebook: http://www.facebook.com/narresearchgroup– Twitter: http://twitter.com/#!/NAR_Research
National Association of Realtors:– http://www.realtor.org/research/index.html