Title: The Real Story About Todays Real Estate Boom
1The Real Story About Todays Real Estate Boom
- David Lereah, Ph.D., Chief Economist
- NATIONAL ASSOCIATION OF REALTORS
- August 2005
2Painting the Boom
- Booming Prices
- Record Home Sales
- Second Home Buying Frenzy
- Stretching Credit
- Media Frenzy
- Doom/Gloom Predictions
3Hot Markets in the Past 3 Years(2005 Q2 vs 2002
Q2)
Source NAR
4Cool Markets in the Past 3 Years(2005 Q1 vs 2002
Q1)
Under the Radar
Source NAR
5Home Price Distribution(2005 Q2)
Source NAR
6Real Home Price Growth
All-time High
Recession Impacts
Source NAR
7Record Existing-Home Sales
In million units
Source NAR
8Record New Home Sales
In thousand units
Source Census
9Second-Home Buying on the Rise
Source NAR
10Stretching Credit
- ARMS (33 of all loans in 2005)
- Interest-Only Share (23 of all loans in 2004)
- Low Documentation Loans
- Low Down Payment Loans
- Stretching to get a 40 larger loan
- 250,000 traditional loan at 6 rate equals
1,499 per month - 350,000 interest-only loan at 5 rate equals
1,458 per month
11Media Frenzy
- The Economist After the Fall (from the biggest
bubble in history) - Fortune Real Estate Gold Rush
- Businessweek After the Housing Boom
- Newsweek Real Estate Gone Wild
- Money Are Home Prices Really So Crazy?
- Kiplingers The 13 Riskiest Housing Markets
- The Wall Street Journal - Crash Test Does A
Housing Bust Hurt More Than A Stock Collapse?
12Chicken Littles Sky is Falling
- Robert Shiller (Yale) predicts 50 decline in
real prices in the next decade - Dean Baker (Center for Economic and Policy
Research) claims Bushs House of Card - PMI Group 6 markets with greater than 50
chance of price decline in the next 12 months
13The Real Story
- Strong Demand
- Historic low rates
- Second home demand
- Job additions
- Lean Supply
- Demographic Shifts
- Little Overstretching
- Favorable Affordability
14Seismic Population Shifts
- Baby boomers nearing retirement seeking
retirement destinations - Faster job creations in low cost business-
friendly regions - Faster job creation in new high-tech industries
- Immigration concentrated in few markets
15U.S. Migration Trend2000 to 2003
Net Domestic Migration (in thousands)
State
541
Florida
194
Arizona
146
Nevada
140
Georgia
108
North Carolina
-102
Massachusetts
-103
Ohio
-238
Illinois
-277
California
Source Census
-551
New York
16Doubling of Florida
- Florida population growing twice as fast as the
U.S. - Population to double by 2040
- Adding more than 17 million people
- Equivalent to adding everyone currently in
Pennsylvania and Maryland
Source NAR
17Doubling of Nevada
- Nevada (Las Vegas) population growing the fastest
nearly four times as fast as the U.S. - Population to double by 2023
- Adding more than 2 million people
- Equivalent to adding a Seattle or Tampa-St.
Petersburg
Source NAR
18Baby Boomer Retirement
- Northeasterners (with huge housing equity) move
to Florida - FL markets may experience affordability pressures
- Northeast home prices supported by minimal new
home construction - Midwesterners (with minimal housing equity)
forced to look outside FL or just stay put - Net outflow and active building keeps prices low
in the Midwest - Californians head to nearby low tax states of AZ,
NV, and WA - These markets may soon experience affordability
pressures - California home prices supported by minimal new
home construction
19Months Supply of Inventory
Source NAR
20Low Interest Rate Decade
1970s 9 average
2000s 6.5 average
1980s 13 average
1990s 8 average
Source Freddie Mac
21Loan-to-Value Suggests Manageable Household
Balance Sheet
Source Federal Housing Finance Board
22Adjustable Rate Mortgages High but Trending Down
Source Federal Housing Finance Board
23Typical Homebuyers Mortgage Payment
Source NAR
24Housing Affordability Still High
Rates have to rise to 7.2 to bring Affordability
to 100
Source NAR
25Why a Bubble is not a Bubble
- Fundamentals
- Market Analysis
- Influencing Factors
- Stress Test
26Fundamentals
- Local Economic Conditions (jobs, diverse economy)
- Population/Migration Trends
- Supply Conditions
- Affordability
- Investor Share
- Mortgage Composition
27Market Analysis
- Jobs
- Construction Activity
- Local vs. National Prices
- Mortgage Debt/Median Income
- Affordability Analysis
28Influencing Factors
- Demographic Trends
- Population Growth
- Building Growth Restrictions
29Stress Test
- Flat Rates
- Rising Rates
- Job Losses
- Price Increases
30Sample Metro Market AnalysisWashington, D.C.
31Key Market Facts
- Median Price 429,200
- 106 higher than national median
- 23 rise in 2004 and 108 rise in 5 years
- Solid Demand/Supply Fundamentals
- 110,000 net new jobs in the past two years easily
beats 57,000 new single-family home construction
32Home Price
Takeoff
No growth
33Residual-Hangover Impact(5-year job gains vs
5-year new housing units)
Accumulating demand over supply unleashed with
the fall in rates
Prices still couldnt get on positive traction
due to hangover effect
34Mortgage Servicing Cost to Per Capita Income
Worrisome forecast only if rates rise to 10
Not alarming, just at long-term historical average
35Current Mortgage Market Stress
36Washington, D.C.
- Prices can increase 8 to 12 without undue
stress if mortgage rates rise to 7 and job gains
continue at recent pace - Price can increase 15 to 20 without undue
stress if rate remain near 6 and job gains
continue at recent pace - If jobs suddenly stall, then prices can increase
by only 5 without undue stress
37Metro Market AnalysisSan Diego
38Key Market Facts
- Median Price 605,600
- Nearly 3 times the national average
- 20 appreciation in 2004
- Prices doubled in 4 years.
- Strong Demand/Supply Fundamentals
- Job creations throughout recession pace could
weaken due to affordability problems - Limited supply help support prices, but any
weakening in demand (job losses) could lead to
price softening - High percentage of risky loans
39San Diego - Home Price
Takeoff
Flat to Declining
40Demand/Supply Ratio(5-year job gains vs 5-year
new housing units)
Accumulated pent-up demand largely satisfied
with new housing
41Mortgage Servicing Cost to Per Capita Income
Already Near Historic Highs
Under 50, relatively low
42Mortgage Market Stress
43Stress Test
- Price appreciation could remain low or flat (air
coming out of balloon) for the next two years if
mortgage rates rise to 7 and job gains continue
at recent pace - Prices can increase 5 without undue stress if
rate remain near 6
44Preliminary Observations for Metro Markets
45The Rolling Boom
46Highest Price Growth by Metro(2005 Q2 vs 2004 Q2)
47Established and Growing(Job centers and
affordable)
- Low cost labor, favorable job creating climate,
low home price (for now) from active home
building - Dallas-Ft. Worth
- Charlotte
- Atlanta
- Orlando
- Houston
- Tampa-St. Petersburg
48Quality Job Centers but Declining Affordability
- High paying jobs with net positive migration
home prices getting expensive - Washington D.C.
- San Diego
- Orange County
- Nassau-Suffolk
49Desirable but Experiencing Affordability Issues
- High-paying jobs but net negative migration due
to high home prices - San Francisco
- New York
- Boston
50Young and Energetic
- Strong in-migration trends
- Boise
- Sarasota
- Ft. Myers
- Las Vegas
- Phoenix
- Jacksonville
51High-Tech Swing Cities
- Educated work force quality of living on the
rise - Net positive migration
- High-tech meltdown to high-tech resurgence
- Seattle
- Austin
- Raleigh-Durham
52Not yet on Radar(up and coming and little
noticed)
- Up and coming and little noticed ocean
destinations - Fewer baby boomers retirees able to go to pricey
South Florida
- Wilmington, NC
- Charleston, SC
- Myrtle Beach, SC
- Panama City, FL
- Pensacola, FL
- Port St. Lucie, FL
- Mobile, AL
- Virginia Beach, VA
53Growing Neighbors
- Affordable relative to its pricey neighbor
- Riding the high-tide of its neighbor
- Riverside-San Bernardino
- Baltimore
- Sacramento
- Providence
54Top Large Markets for Second-Home Purchases
Source 2003 HMDA
55Some Markets Accelerating
Source NAR
56More Acceleration
Source NAR
57Some Markets with Soft Landings
Source NAR
58More Soft Landing
Source NAR
59High IOs and ARMs but Low LTVs
- No foreclosure danger, but may get pinched from
rising rates
- Raleigh-Durham
- San Diego
- Seattle
- San Francisco
- Sacramento
- Boston
- Chicago
- Denver
- Las Vegas
- Los Angeles
- Portland
60Housing Outlook
61The True Story About Todays Real Estate Boom
- David Lereah, Ph.D., Chief Economist
- NATIONAL ASSOCIATION OF REALTORS
- August 2005