Presentation at RAMBs Real Estate Congress and Expo

1
After the Clean Up
Lawrence Yun, Ph.D. Chief Economist NATIONAL
ASSOCIATION OF REALTORS
Presentation at RAMBs Real Estate Congress and
Expo Miami, FL June 12, 2008
2
Subprime Loan Origination
billion
Source U.S. Treasury Department, WSJ Market Data
Group, Inside Mortgage Finance
3
Delinquency Rates Subprime vs. Prime
Data Mortgage Bankers Association
4
Foreclosed Homes
Source NAR Estimate
5
Subprime Loan Exposure
Source NAR Estimate
6
Foreclosure Rate on All Mortgages in U.S.
Source NAR Analysis of MBA data
- Todays foreclosures are double the historic
average due to sour performance of subprime
loans - Foreclosure rates from all homes would
be 1/3 lower because no risks from free clear
homes.
7
High Subprime Mortgage Originations
Source HMDA 2006
These markets are experiencing double-digit
price declines
8
Low Subprime Mortgages
Source HMDA 2006
These markets are experiencing respectable price
gains
9
Home Price Trends in Down Markets Big Declines
in Subprime Neighborhoods
Yellow Conforming Loans Only (OFHEO) Orange
All Loans including subprime and jumbo loans
(Case-Shiller) Red Subprime Loans (NAR estimate
based on subprime weight)
10
Home Price Trend in Miami
change from a year ago
11
Location, Location, LocationMakes a Big
Difference!

• All Real Estate is Very Local
• Price declines are concentrated in metro markets
  with high subprime loans
• Price declines are further concentrated in
  neighborhoods with high subprime loans
• 91 of homeowners do not have subprime loans
• 77 of homeowners say no price decline

12
Wall Street Write-Downs

• Mortgage Loan losses associated with subprime
  losses
• 200 to 300 billion write-down
• Mark-to-Market write-downs based on assumed
  pessimistic default rate
• Actual losses could be considerably more or less
• More if price declines continue sharply
• Less if prices stabilizes
• Less if real estate speculators have already
  defaulted
• Less as ARM Resets become less burdensome even as
  more are scheduled to reset

13
Subprime Problem Peaking?

• New homebuyers are not exposed
• Resetting burden dissipating
• FHA becoming more prominent (and refinancing out
  of subprimes)
• Conforming jumbo rates improving (and
  refinancing out of subprimes)
• Have most real estate speculators already
  defaulted? (Keys are in the Mail)

14
Fed Funds Rate
15
Resetting Payment Shock
NAR Estimate
16
FHA Market Share for Home Purchase
Source HMDA, NAR Estimate
17
Jumbo Loan Spread above Traditional Conforming
Rate
Percentage Points
Fannie Mae announces plan to purchase conforming
jumbo loans and traditional pricing
18
Latest Housing Market Activity

• Existing Home Sales stable but trending at 10
  year ago levels
• From 1998 to 2008
• 25 million more people
• 13 million more jobs
• Higher home prices but lower mortgage rate
• New home construction and new home sales falling
• Inventory peaking
• Speedy price declines in markets with heavy
  subprime loan exposure

19
Jumbo Loan Spread above Traditional Conforming
Rate
Percentage Points
From mid-May Fannie Mae purchases conforming
jumbo loans and traditional pricing
20
Latest Housing Market Activity

• Existing Home Sales stable but trending at 10
  year ago levels
• From 1998 to 2008
• 25 million more people
• 13 million more jobs
• Comparable affordability conditions
• Is it excessive pessimism?
• New home construction and new home sales falling
• Speedy price declines in markets with heavy
  subprime loan exposure
• Rising sales in distressed markets

21
Annual Existing-Home Sales
In thousand units
22
Monthly National Existing-Home Sales
Stable but at 10-year ago levels
23
Housing Affordability Index
Source NAR
24
Inventory Existing Homes
25
Inventory New Homes(Already Topped Out)
Source Census
26
U.S. Single-Family Housing Starts
In thousand units
Source Census
27
Florida Housing Starts
Source Census
28
Long-Term Housing Needs

• DEMAND
• 3 million more people each year
• 1.3 to 1.5 million household formation per year
• 1.4 million per year was the 30-year average

• SUPPLY
• 300,000 home demolition per year
• Need to build 1.6 to 1.8 million per year to keep
  up with population and replace demolition

29
Housing Starts
Could lead to housing shortage?
30
Speedy Price Declines This Time
31
Forecast Over 5-year Horizon
- Automobiles replaced horse-buggy and created
suburbs - Microsoft Google - Biotech Biofuel
Desalination More Amazing Innovations
99 of Markets will have higher values in 5-years
than today
32
Consumer Price Inflation
Source BLS
33
Consumer Confidence and Sentiment
Source The Conference Board University of
Michigan
34
Economic Forecast

• Consumers are angry
• Businesses are OK
• Exports booming
• Net Improving economy in the second half of 2008
• 2009 will depend on persistent or dissipating
  consumer anger

35
GDP Growth
annualized growth rate
Source BEA
36
U.S. Job Gains - Decelerating
12-month payroll job changes in thousands
Source BLS
37
Florida Job Gains
12-month payroll job changes in thousands
Source BLS
38
Food at home Inflation Constant Reminder of
Things Out of Whack
Energy Price much worse constant reminder of
things out of whack
Source BLS
39
Consumer Confidence and Sentiment
Source The Conference Board University of
Michigan
40
Corporate Profits Near Record High
billion
Source BEA
41
Stock MarketSP 500 Index
Source NYSE
42
Dow Jones Industrial Average
Big Crash in 1987
Source NYSE
43
Stock Market Valuationof SP 500 stocks
billion
NYSE
44
Homeowners Net Real Estate Equity
billion
Federal Reserve
45
Household Wealth Accumulation (2004)
Median Net Worth in thousand
Source Federal Reserve
46
Vacation Home Sales
In thousand units
Source NAR
47
Baby Boomers want to retiree in
Source NAR
48
Euro vs. Dollar (Weak currency another source
of consumer anger)
49
Exports Growing
billion (2000-chain )
50
U.S. Home Price in U.S.
NAR
51
U.S. Home Price in Euro
NAR
52
U.S. Home Price in Brazilian Real
NAR
53
Consumer Spending
year-over-year growth rate
54
Economic Outlook
No Recession but Slow Growth
55
National Housing Outlook
Huge Local Market Variations because of
location, location, and location
56
Local Forecast

• Property Tax ???
• Property Insurance ???
• Foreign Buyers
• Buyer Sentiment
• Stabilizing housing inventory
• 2008 Weak first half Better second half
• 2009 Rise in sales and prices
• 2013 Easily 20 higher home prices