From the Roulette Table to the Closing Table Lessons for Serious Buyers Economic Issues and Residential Real Estate Business Trends Forum Las Vegas – Nov.

From the Roulette Table to the Closing TableFrom the Roulette Table to the Closing TableLessons for Serious BuyersLessons for Serious Buyers

Economic Issues and ResidentialReal Estate Business Trends Forum

Las Vegas – Nov. 13, 2007

Economic Issues and ResidentialReal Estate Business Trends Forum

Las Vegas – Nov. 13, 2007

Dr. Lawrence YunChief Economist

NATIONAL ASSOCIATION OF REALTORS®

Dr. Lawrence YunChief Economist

NATIONAL ASSOCIATION OF REALTORS®

2007 – Year of Challenge2007 – Year of Challenge

• First national price decline since the Great Depression• Sharply lower home sales• Sharply lower new home construction• Job cuts in construction and lending• Painful revaluation--mortgage-backed securities• Souring loan performance• Rising foreclosures• Families losing homes

• First national price decline since the Great Depression• Sharply lower home sales• Sharply lower new home construction• Job cuts in construction and lending• Painful revaluation--mortgage-backed securities• Souring loan performance• Rising foreclosures• Families losing homes

2008 – Year of Opportunity2008 – Year of Opportunity

• All real estate is local– Robust local markets– Recovering local markets– Under-priced local markets

• Favorable economic backdrop• Unleashing of pent-up housing demand• Declining inventories • Wall Street coming clean• Plentiful mortgage funding • Safer and affordable mortgage products• REALTORS® building communities

• All real estate is local– Robust local markets– Recovering local markets– Under-priced local markets

• Favorable economic backdrop• Unleashing of pent-up housing demand• Declining inventories • Wall Street coming clean• Plentiful mortgage funding • Safer and affordable mortgage products• REALTORS® building communities

Housing Recession in 2007

Year of Challenge

Housing Recession in 2007

Year of Challenge

National Home Price GrowthNational Home Price Growth

-3

0

3

6

9

12

15

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

est

Source: NARSource: NAR

% change from a year ago

Monthly Existing-Home Sales(from over 7 million in peak to 5 million now)

Monthly Existing-Home Sales(from over 7 million in peak to 5 million now)

4,000

5,000

6,000

7,000

8,000

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

Source: NARSource: NAR

In thousand unitsPeak

Annual Existing-Home Sales and ForecastAnnual Existing-Home Sales and Forecast

0

2,000

4,000

6,000

8,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: NARSource: NAR

In thousand units

DNA match with 5th Best Year

Single-Family Housing Starts(Major fall – but, good trend to control inventory)

Single-Family Housing Starts(Major fall – but, good trend to control inventory)

0

500

1,000

1,500

2,000

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

Source: CensusSource: Census

In thousand units

Construction Jobs FallingConstruction Jobs Falling

-200

-100

0

100

200

300

400

2005

- Ja

n

2005

- Apr

2005

- Ju

l

2005

- Oct

2006

- Ja

n

2006

- Apr

2006

- Ju

l

2006

- Oct

2007

- Ja

n

2007

- Apr

2007

- Ju

l

2007

- Oct

Residential Construction

Source: BLS, *residential construction and contractorsSource: BLS, *residential construction and contractors

In thousands

Mortgage Lending Jobs FallingMortgage Lending Jobs Falling

-50

0

50

100

2005

- Ja

n

2005

- Apr

2005

- Ju

l

2005

- Oct

2006

- Ja

n

2006

- Apr

2006

- Ju

l

2006

- Oct

2007

- Ja

n

2007

- Apr

2007

- Ju

l

2007

- Oct

Mortgage Lending

Source: BLS, *credit intermediationSource: BLS, *credit intermediation

In thousands

REALTOR® MembershipREALTOR® Membership

• Essentially Unchanged at 1.36 million

• Good or Bad News?

• Fiercely Competitive

• Essentially Unchanged at 1.36 million

• Good or Bad News?

• Fiercely Competitive

0.0

3.0

6.0

9.0

12.0

15.0

Q1-

1998

Q3-

1998

Q1-

1999

Q3-

1999

Q1-

2000

Q3-

2000

Q1-

2001

Q3-

2001

Q1-

2002

Q3-

2002

Q1-

2003

Q3-

2003

Q1-

2004

Q3-

2004

Q1-

2005

Q3-

2005

Q1-

2006

Q3-

2006

Q1-

2007

Prime Subprime

0.0

3.0

6.0

9.0

12.0

15.0

Q1-

1998

Q3-

1998

Q1-

1999

Q3-

1999

Q1-

2000

Q3-

2000

Q1-

2001

Q3-

2001

Q1-

2002

Q3-

2002

Q1-

2003

Q3-

2003

Q1-

2004

Q3-

2004

Q1-

2005

Q3-

2005

Q1-

2006

Q3-

2006

Q1-

2007

Prime Subprime

Souring Loan Performance(Big swings for subprime; no real change in prime) Souring Loan Performance(Big swings for subprime; no real change in prime)

Job losses push up delinquency

Housing boom permitsre-financing and lowers delinquency

StagnantPrices

Data: MBA

Subprime Loan ExposureSubprime Loan Exposure

Prime50%

FHA+VA6%Sub-

prime9%

Free + Clear Homes35%

Source: NAR Estimate

Foreclosed HomesForeclosed Homes

Prime

33%

FHA+

VA

14%

Sub-

prime

53%

Source: NAR Estimate

0.0

2.0

4.0

6.0

8.0

10.0

Prime VA FHA Sub-primeFixed

Sub-primeARM

0.0

2.0

4.0

6.0

8.0

10.0

Prime VA FHA Sub-primeFixed

Sub-primeARM

Foreclosure Rates by Loan Type 2007 Q2Foreclosure Rates by Loan Type 2007 Q2

Data: MBAData: MBA

%

0%

100%

200%

300%

400%

0%

100%

200%

300%

400%

Rising Foreclosures Rising Foreclosures

States with Marked Price Deceleration/DeclinesUndergoing rising Foreclosures

Percent change in foreclosure rate in 2006 Q2 vs 2007 Q2

41% Jump41% Jump

0.0

1.0

2.0

3.0

4.0

0.0

1.0

2.0

3.0

4.0

Foreclosure Rate Comparisons(2007 Q2) Foreclosure Rate Comparisons(2007 Q2)

Data: MBAData: MBA

CA and FL still near U.S.average even with increase

%

Gamble Did Not Pay:Wall Street Re-valuationGamble Did Not Pay:Wall Street Re-valuation

0

20

40

60

80

100

Countrywide Citi IndyMac MerrillLynch

Wells Fargo

January November

Source: Wall Street JournalSource: Wall Street Journal

Stock Price

Families Losing HomesFamilies Losing Homes

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Foreclosed Homes

2006 Q2 2007 Q2

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Foreclosed Homes

2006 Q2 2007 Q2

Data: NAR analysis of MBA dataData: NAR analysis of MBA data

Important Factorsfor 2008

Year of Opportunity

Important Factorsfor 2008

Year of Opportunity

All Real Estate is Local

All Real Estate is Local

National vs. Local Information

• National data are important– Quick casual glance– Economic impact and monetary policy

• Local data are important– Home purchase is a serious decision – Huge local variations

• National data -- not meaningful

0.0

5.0

10.0

15.0

20.0

25.0

Salt LakeCity

Salem, OR Allentown-Bethlehem

Seattle Raleigh Albuquerque Buffalo San Antonio

0.0

5.0

10.0

15.0

20.0

25.0

Salt LakeCity

Salem, OR Allentown-Bethlehem

Seattle Raleigh Albuquerque Buffalo San Antonio

Robust Home Price Appreciation(2007 Q2 vs 2006 Q2) Robust Home Price Appreciation(2007 Q2 vs 2006 Q2)

Data: NARData: NAR

Recovering Markets in the Northeast(First region to undergo a slump – but now already into a respectable recovery)

Recovering Markets in the Northeast(First region to undergo a slump – but now already into a respectable recovery)

-5

0

5

10

15

20

25

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

Source: NARSource: NAR

Positive GainsPositive Gains

Price growth in %

-25%

-20%

-15%

-10%

-5%

0%Utah

NewMexico

SouthCarolina

NorthCarolina Tennessee Arkansas

-25%

-20%

-15%

-10%

-5%

0%Utah

NewMexico

SouthCarolina

NorthCarolina Tennessee Arkansas

Falling Foreclosures Falling Foreclosures

Mostly Strong Job Growth and Price Appreciating States

Percent change in foreclosure rate in 2006 Q2 vs 2007 Q2

Mortgage Obligation to Income ManageableMortgage Obligation to Income Manageable

10

15

20

25

30

U.S. Average

Source: NARSource: NAR

%

Under-Priced MarketsWith Affordable Mortgage Obligation to IncomeUnder-Priced MarketsWith Affordable Mortgage Obligation to Income

0%

10%

20%

30%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Lexington Nashville Pittsburgh Denver

Source: NAR

U.S. Historic Average

Similar Trends in Vast Part of Middle America

Favorable Economy: 4 Million New Jobs in Past 24 months Favorable Economy: 4 Million New Jobs in Past 24 months

-2

-1

0

1

2

3

4

Source: BLSSource: BLS

12-month payroll job changes in millions

Wichita Strong Job Growth – Assures Good Market Wichita Strong Job Growth – Assures Good Market

-5

0

5

10

Wichita U.S.

Source: BLSSource: BLS

12-month job growth rate

Wage Growth Picking UpWage Growth Picking Up

1

2

3

4

5

2000

- Ja

n

2001

- Ja

n

2002

- Ja

n

2003

- Ja

n

2004

- Ja

n

2005

- Ja

n

2006

- Ja

n

2007

- Ja

n

% change from a year ago

%

Source: BLSSource: BLS

Aggregate U.S. Wages and Salary DisbursementAggregate U.S. Wages and Salary Disbursement

4,000

5,000

6,000

7,000

Source: BEASource: BEA

$ billion

Corporate Profits – Record HighCorporate Profits – Record High

500

1,000

1,500

2,000

2000

- Q

1

2000

- Q

3

2001

- Q

1

2001

- Q

3

2002

- Q

1

2002

- Q

3

2003

- Q

1

2003

- Q

3

2004

- Q

1

2004

- Q

3

2005

- Q

1

2005

- Q

3

2006

- Q

1

2006

- Q

3

2007

- Q

1

Source: BEASource: BEA

$ billion

Stock Market at Record HighS&P 500 Index

Stock Market at Record HighS&P 500 Index

800

1000

1200

1400

1600

Source: NYSESource: NYSE

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

Business Spending Business Spending

% year-over-year growth rate

$Dollar vs €Euro$Dollar vs €Euro

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

2000

- Ja

n

2000

- Ju

l

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

2000

- Ja

n

2000

- Ju

l

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

Source: BLSSource: BLS

U.S. homes are selling at a 30% to 40% discount for foreigners

500

1000

1500

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

500

1000

1500

2000 -

Q1

2001 -

Q1

2002 -

Q1

2003 -

Q1

2004 -

Q1

2005 -

Q1

2006 -

Q1

2007 -

Q1

Export Growth Export Growth

$ billion

25%

67%

8%

0%

20%

40%

60%

80%

100%

Increased About the Same Decreased

25%

67%

8%

0%

20%

40%

60%

80%

100%

Increased About the Same Decreased

International Homebuyer Trend in the U.S. in 2006(versus 5 years ago)

International Homebuyer Trend in the U.S. in 2006(versus 5 years ago)

International Buyers’ Origin by Country in the U.S.

5%

6%

11%

12%

13%

0 0.05 0.1 0.15

China

India

Canada

U.K.

Mexico

Source: NAR Source: NAR

International Buyers’ Destination in the U.S.

26%

16%

10%6%

4%

3%

2%

2%2%

2%

0% 10% 20% 30%

FL

CA

TX

AZ

NY

CO

IL

OH

GA

NC

26%

16%

10%6%

4%

3%

2%

2%2%

2%

0% 10% 20% 30%

FL

CA

TX

AZ

NY

CO

IL

OH

GA

NC

Source: NAR Source: NAR

-3.0

0.0

3.0

6.0

20

00

- Q

1

20

01

- Q

1

20

02

- Q

1

20

03

- Q

1

20

04

- Q

1

20

05

- Q

1

20

06

- Q

1

20

07

- Q

1

-3.0

0.0

3.0

6.0

20

00

- Q

1

20

01

- Q

1

20

02

- Q

1

20

03

- Q

1

20

04

- Q

1

20

05

- Q

1

20

06

- Q

1

20

07

- Q

1

Consumer Spending Consumer Spending

% year-over-year growth rate

Worry Spot - Oil Prices Worry Spot - Oil Prices

0

20

40

60

80

100

1985

- Ja

n

1987

- Ja

n

1989

- Ja

n

1991

- Ja

n

1993

- Ja

n

1995

- Ja

n

1997

- Ja

n

1999

- Ja

n

2001

- Ja

n

2003

- Ja

n

2005

- Ja

n

2007

- Ja

n

0

20

40

60

80

100

1985

- Ja

n

1987

- Ja

n

1989

- Ja

n

1991

- Ja

n

1993

- Ja

n

1995

- Ja

n

1997

- Ja

n

1999

- Ja

n

2001

- Ja

n

2003

- Ja

n

2005

- Ja

n

2007

- Ja

n

Source: Wall Street JournalSource: Wall Street Journal

$ per barrel

Positive Economic Outlook Positive Economic Outlook

2006 2007 2008

GDP 3.3% 2.1% 2.8%

CPI Inflation 3.2% 2.8% 2.8%

Job Growth 1.9% 1.3% 1.1%

Unemployment Rate

4.6% 4.6% 4.9%

10-year Treasury 4.8% 4.7% 4.6%

Pent-Up Demand?Pent-Up Demand?2005 2007 Difference

Total Home Sales

8.4 million 6.5 million - 1.9 million

Subprime Loans

1.6 million 700,000 (?) - 900,000

Jobs

(in October)134.4 million

138.4 million

+ 4 million

Wage + Salary $5.7 trillion $6.4 trillion + $700 billion

Household Wealth

$52 trillion $58 trillion + $6 trillion

Home Prices $219,600 $218,200 - $1,400Mortgage Rates 5.9% 6.4% + 0.5% points

Unleashing of Pent-Up DemandUnleashing of Pent-Up Demand

The EvidenceThe Evidence

• More Jobs

• Higher Salary Payout

• Higher Net Worth

• Lower Home Prices

• Favorable Mortgage Rates

• Sales down more than subprime loans

• Pent-up Demand clearly exist

• Pent-up Demand ready to be unleashed … how fast?

• More Jobs

• Higher Salary Payout

• Higher Net Worth

• Lower Home Prices

• Favorable Mortgage Rates

• Sales down more than subprime loans

• Pent-up Demand clearly exist

• Pent-up Demand ready to be unleashed … how fast?

Existing-Home Inventory(From 2 million to 4.5 million; but most are owner-occupied)

Existing-Home Inventory(From 2 million to 4.5 million; but most are owner-occupied)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

Source: NARSource: NAR

New Home Inventory(Already Topped Out)

New Home Inventory(Already Topped Out)

200,000

300,000

400,000

500,000

600,000

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

Source: CensusSource: Census

Wall Street Comes CleanWall Street Comes Clean

The Truth on Wall StreetThe Truth on Wall Street

• Moody’s and Standard & Poor’s– Need to quickly downgrade bad debts– Come clean about conflict of interest

• Show us all of your bad cards– Merrill Lynch $8 billion in write-down– Citi $8 to $11 billion in write-down

• Global investors want transparency before re-entering the market

• Moody’s and Standard & Poor’s– Need to quickly downgrade bad debts– Come clean about conflict of interest

• Show us all of your bad cards– Merrill Lynch $8 billion in write-down– Citi $8 to $11 billion in write-down

• Global investors want transparency before re-entering the market

Stable Mortgage Rates withGSE and FHA Backing

6.0

6.5

7.0

Mortgage Rate

6.0

6.5

7.0

Mortgage Rate

Source: Freddie MacSource: Freddie Mac

Fed Rate CutFed Rate Cut

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Fed Funds Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Fed Funds Rate

Source: Freddie MacSource: Freddie Mac

0%

20%

40%

60%

From a quarter prior From a year prior

Home Purchase Refinance

0%

20%

40%

60%

From a quarter prior From a year prior

Home Purchase Refinance

FHA Endorsements Rising(2007 Q3) FHA Endorsements Rising(2007 Q3)

0%

20%

40%

60%

Prime VA FHA Sub-prime

0%

20%

40%

60%

Prime VA FHA Sub-prime

Delinquency to Foreclosure Probability (Latest Foreclosure/Delinquency ratio) Delinquency to Foreclosure Probability (Latest Foreclosure/Delinquency ratio)

Better Loss Mitigation Programs for VA and FHABetter Loss Mitigation Programs for VA and FHA

FHA Market Share for Home Purchase

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 est.

2008proj.

2009proj.

Source: HMDA, NAR Estimate

FHA Reform – Please EnactFHA Reform – Please Enact

• NAR has been lobbying for

– Higher Loan Limit

– Risk-based Pricing

– Lower Down-payment

– Greater Flexibility

• NAR has been lobbying for

– Higher Loan Limit

– Risk-based Pricing

– Lower Down-payment

– Greater Flexibility

Jumbo Loan Rate Spread(August panic over – but still not back to norm)

Jumbo Loan Rate Spread(August panic over – but still not back to norm)

0.0

25.0

50.0

75.0

100.0

1/5/

2007

1/19

/200

7

2/2/

2007

2/16

/200

7

3/2/

2007

3/16

/200

7

3/30

/200

7

4/13

/200

7

4/27

/200

7

5/11

/200

7

5/25

/200

7

6/8/

2007

6/22

/200

7

7/6/

2007

7/20

/200

7

8/3/

2007

8/17

/200

7

8/31

/200

7

9/14

/200

7

9/28

/200

7

10/1

2/20

07

0.0

25.0

50.0

75.0

100.0

1/5/

2007

1/19

/200

7

2/2/

2007

2/16

/200

7

3/2/

2007

3/16

/200

7

3/30

/200

7

4/13

/200

7

4/27

/200

7

5/11

/200

7

5/25

/200

7

6/8/

2007

6/22

/200

7

7/6/

2007

7/20

/200

7

8/3/

2007

8/17

/200

7

8/31

/200

7

9/14

/200

7

9/28

/200

7

10/1

2/20

07

Source: Freddie MacSource: Freddie Mac

Basis Points

NAR has been lobbying for higher GSE limits, which will lower rates by 60 basis points

REALTORS® Build CommunitiesREALTORS® Build Communities• 1.36 million members; 1 for every 100

working adults• REALTORS® live in and are rooted in every

community• They have incentives to build community• REALTORS® lobby for:

– Modernize FHA– Eliminate Tax Penalty for Mortgage Debt

Forgiveness– Increase Capital Available through Fannie and

Freddie

• REALTORS® distribute brochures about– Avoiding foreclosure– Avoiding predatory lending

• 1.36 million members; 1 for every 100 working adults

• REALTORS® live in and are rooted in every community

• They have incentives to build community• REALTORS® lobby for:

– Modernize FHA– Eliminate Tax Penalty for Mortgage Debt

Forgiveness– Increase Capital Available through Fannie and

Freddie

• REALTORS® distribute brochures about– Avoiding foreclosure– Avoiding predatory lending

National Housing OutlookNational Housing Outlook2006 2007 2008

Existing-Home Sales 6.48 million 5.67 million5.69

million

New Home Sales 1.05 million 0.80 million0.69

million

Housing Starts 1.80 million 1.35 million1.14

million

30-Year FRM 6.4% 6.4% 6.5%

1-Year ARM 5.5% 5.6% 5.1%

Existing-Home Price Growth 1.0% -1.7% 0.0%

REMEMBER: Not very meaningful for serious home buyers. Local information is key.

Consumer MessagesConsumer Messages

$296,000

$444,000$432,000

$648,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$200,000 home $300,000 home

4% annual price growth 8% annual price growth

$296,000

$444,000$432,000

$648,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$200,000 home $300,000 home

4% annual price growth 8% annual price growth

For Those Who Need to … Great Time to Trade-Up: Sell Low & Buy LowFor Those Who Need to … Great Time to Trade-Up: Sell Low & Buy Low

Home Value in 10 years under two scenarios

Source: NARSource: NAR

$10,000 $10,000 $10,000$23,600

$35,200

$110,300

$0

$50,000

$100,000

$150,000

Stock Market(normal market)

Stock Market(bull market)

Homeowner(normal market)

Now 10-years later

$10,000 $10,000 $10,000$23,600

$35,200

$110,300

$0

$50,000

$100,000

$150,000

Stock Market(normal market)

Stock Market(bull market)

Homeowner(normal market)

Now 10-years later

Wealth Accumulation The Power of Leverage for Homeowners

($10,000 down payment on a $200,000 home)

Wealth Accumulation The Power of Leverage for Homeowners

($10,000 down payment on a $200,000 home)

10% appreciation10% appreciation 15% appreciation15% appreciation 5% appreciation5% appreciationSource: NAR

-50%

-40%

-30%

-20%

-10%

0%

California Arizona Nevada Florida-50%

-40%

-30%

-20%

-10%

0%

California Arizona Nevada Florida

Investor-Heavy MarketsNow Taking a Hit (Existing-Home Sales: 2007 Q2 vs 2006 Q2)

Investor-Heavy MarketsNow Taking a Hit (Existing-Home Sales: 2007 Q2 vs 2006 Q2)

Source: NAR

Also had a large sales decline in last yearAlso had a large sales decline in last year

$127,400 $130,800$113,500

$154,200$172,200

$214,500

-$6,600 -$11,400 -$23,900

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Orlando Las Vegas Sacramento

2006 2003 2000

$127,400 $130,800$113,500

$154,200$172,200

$214,500

-$6,600 -$11,400 -$23,900

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Orlando Las Vegas Sacramento

2006 2003 2000

Ground Zero Markets: Short-Term Pain, Long-Term GainGround Zero Markets: Short-Term Pain, Long-Term Gain

Housing Equity Gain/Loss in 2007 from year of purchase

Source: NAR, based on second quarter figures at respective yearsSource: NAR, based on second quarter figures at respective years

$0

$50,000

$100,000

$150,000

$200,000

Renter Homeowner

1995 1998 2001 2004

$0

$50,000

$100,000

$150,000

$200,000

Renter Homeowner

1995 1998 2001 2004

Best Evidence:Household Wealth Accumulation

Best Evidence:Household Wealth Accumulation

Source: Federal ReserveSource: Federal Reserve

Median Net Worth

$184,400$184,400

$4,000

Social Benefits of OwnershipSocial Benefits of Ownership• Higher Student Test Scores• Higher Educational Attainment and

Lifetime Income• Lower Behavioral Problems at School• Higher Civic Participating (voting at local

elections)• Higher Self-Esteem and Perceived Self-

Control• Better Physical Health

• Higher Student Test Scores• Higher Educational Attainment and

Lifetime Income• Lower Behavioral Problems at School• Higher Civic Participating (voting at local

elections)• Higher Self-Esteem and Perceived Self-

Control• Better Physical Health

Serious Buyers – Take Heart

Serious Buyers – Take Heart

Great Time to BuyGreat Time to Buy• Time of “crisis” often turns out to have been a

time of opportunity in hindsight• Wide selection of housing inventory• Favorable mortgage rates

• Prime borrowers – low favorable conforming rate loans• Jumbo borrowers – rates coming down after August

credit crunch• Non-prime borrowers – moving away from the risky

subprime loans into safer FHA loans (Major reform in FHA program taking place)

• More jobs, more income, more wealth --- significant pent-up demand --- buy before others do

• Homeowners in it for the long-term nearly always come out ahead in building wealth

• Time of “crisis” often turns out to have been a time of opportunity in hindsight

• Wide selection of housing inventory• Favorable mortgage rates

• Prime borrowers – low favorable conforming rate loans• Jumbo borrowers – rates coming down after August

credit crunch• Non-prime borrowers – moving away from the risky

subprime loans into safer FHA loans (Major reform in FHA program taking place)

• More jobs, more income, more wealth --- significant pent-up demand --- buy before others do

• Homeowners in it for the long-term nearly always come out ahead in building wealth

From the Roulette Table to the Closing TableFrom the Roulette Table to the Closing TableLessons for Serious BuyersLessons for Serious Buyers

Economic Issues and ResidentialReal Estate Business Trends Forum

Las Vegas – Nov. 13, 2007

Economic Issues and ResidentialReal Estate Business Trends Forum

Las Vegas – Nov. 13, 2007

Dr. Lawrence YunChief Economist

NATIONAL ASSOCIATION OF REALTORS®

Dr. Lawrence YunChief Economist

NATIONAL ASSOCIATION OF REALTORS®