Real Estate Trends and Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at Associated Taxpayers of Idaho
Boise, ID
December 10, 2014
GDP Rebound
in 2014 Q2 and Q3
GDP Annualized Growth Rate
6
4
2
0
-2
-4
-6
-8
-10
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014
- Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3
142000
140000
138000
136000
134000
132000
130000
128000
126000
124000
122000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - May
2013 - Nov
2014 - May
2014 - Nov
Jobs
(8 million lost … 10 million gained)
In thousands
550
2000 - Jan
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 - Jan
2014 - Aug
Weekly New Unemployment Insurance Claims
600
In thousands
500
450
400
350
300
250
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Unemployment Rate
12
10
8
6
4
2
0
300
290
280
270
260
250
240
230
220
210
200
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Jobs in Boise Area
In thousands
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Jobs: U.S. vs Boise Area
135
130
125
120
115
110
105
100
95
90
Household Net Worth at All-Time High
85000
80000
75000
70000
65000
60000
55000
50000
45000
40000
$ billion
But Wait …
“I am not feeling it”
-2
-4
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
GDP Still not Robust …
Below 3% for 9 straight years
GDP Annual Growth Rate
10
8
6
4
2
0
Sluggish Growth + Gap after Great Recession
($1.5 trillion gap … $4,700 per person)
GDP in 2009 Dollars
18000
3% Growth Line
17000
16000
15000
2.2% Growth Line
14000
13000
12000
11000
10000
1998 - Q1
2000 - Q1
2002 - Q1
Real GDP
2004 - Q1
2006 - Q1
2008 - Q1
2010 - Q1
Real GDP W/O Recession
2012 - Q1
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Employment Rate
66
64
62
60
58
56
54
39,000
1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
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
41,000
Renter Households from 2010
(Increased by 4 million)
In thousands
37,000
35,000
33,000
31,000
29,000
27,000
25,000
80,000
1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
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
Homeowner Households from 2010
(Decreased by 1 million)
In thousands
75,000
70,000
65,000
60,000
55,000
50,000
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
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
Homeownership Rate
70
69
68
67
66
65
64
63
62
61
60
Household Net Worth
($5,500 vs. $195,500)
1998
2001
2004
2007
2010
2013
$250,000
$200,000
$150,000
$100,000
Homeowner net worth
ranges from 31 to 46
times that of renters
x31 x36 x46 x46 x34 x36
$50,000
$0
Renter
Source: Federal Reserve Survey of Consumer Finances
Homeowner
Median Home Price
(Near 20% gain in 2 years)
$240,000
$220,000
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
The Reason for Not Feeling It
• Very Slow Housing Market Recovery
• Very Slow Commercial Market Recovery
• Holds Back Economic Recovery
Existing Home Sales
20% cumulative increase over 2 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
Source: NAR
2014 - Sep
2014 - Jul
2014 - May
2014 - Mar
2014 - Jan
2013 - Nov
2013 - Sep
2013 - Jul
2013 - May
2013 - Mar
2013 - Jan
2012 - Nov
2012 - Sep
2012 - Jul
2012 - May
2012- Mar
2012 - Jan
2011 - Nov
2011 - Sep
2011 - July
2011 - May
2011 - Mar
2011 - Jan
Monthly Pending Sales Index …
Making Upward U-Turn
(Seasonally Adjusted)
115.0
110.0
105.0
100.0
95.0
90.0
85.0
80.0
75.0
70.0
Two and Out?
Or Multi-year Expansion?
(Single-Family Existing Home Sales Only)
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014 H11
0
Pent Up Demand
2000
2013
Existing Home Sales
5.2 m
5.1 m
New Home Sales
880 K
430 K
Mortgage Rates
8.0%
4.0%
Payroll Jobs
132.0 m
136.4 m
Population
282 m
316 m
3000
1970 - Jan
1972 - Jan
1974 - Jan
1976 - Jan
1978 - Jan
1980 - Jan
1982 - Jan
1984 - Jan
1986 - Jan
1988 - Jan
1990 - Jan
1992 - Jan
1994 - Jan
1996 - Jan
1998 - Jan
2000 - Jan
2002 - Jan
2004 - Jan
2006 - Jan
2008 - Jan
2010 - Jan
2012 - Jan
2014 - Jan
Housing Starts Rising … Too Slowly
Thousand units
2500
2000
1500
1000
500
0
Time to Sell a New Spec Home
(in months)
16
14
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Sluggish Recovery in Housing Starts
• Cost of Construction Rising Faster than CPI
• Labor Shortage for construction work
• Construction loan difficulty for small local
homebuilders … Dodd-Frank financial
regulations?
Ada County Housing Statistics
• Home Sales down 1% year-to-date October
• 2013 up 14%
• 2012 up 1%
• 2011 up 9%
• Average Price up 10%
• 2013 up 17%
• 2012 up 13%
• 2011 down 9%
Boise Area Housing Permits
(year-to-date)
14000
12000
10000
8000
6000
4000
2000
0
200020012002200320042005200620072008200920102011201220132014
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Multiyear Recovery Likely
• More Jobs
• Manageable Mortgage Rates
• Population Pent-Up Demand
• More Inventory
• Record High Household Wealth
2,500
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
“Take This Job and Shove It …
I ain’t working here no more”
3,500
3,000
Quit Rate in thousands
2,000
1,500
1,000
500
0
Multiyear Recovery Likely
• More Jobs
• Manageable Mortgage Rates
• Population Pent-Up Demand
• More Inventory
• Record High Household Wealth
Monetary Policy by Federal Reserve
(zero rate policy for 6 years!)
%
Fed Funds
6
5
4
3
2
1
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
2011 - Sep
2012 - Feb
2012 - Jul
2012 - Dec
2013 - May
Federal Reserve Balance Sheet from
Quantitative Easing
Total Asset Purchase
$ million
30-year Mortgage Rates
9
8
7
6
5
4
3
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
-1
-2
-3
2000 - Jan
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 - Jan
2014 - Aug
Non-worrisome CPI Inflation – Yet
COLA of 1.7% in 2015
6
5
4
3
2
1
0
-1
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Rising Renters’ and Homeowners’ Rent Growth
(Above 3%)
Owners' Equivalent Rent
Renters' Rent
5
4
3
2
1
0
2014 - Jun
2014 - Apr
2014 - Feb
2013 - Dec
2013 - Oct
2013 - Aug
2013 - Jun
2013 - Apr
2013 - Feb
2012 - Dec
Falling
2012 - Oct
2012 - Aug
2012 - Jun
2012 - Apr
2012 - Feb
2011 - Dec
2011 - Oct
2011 - Aug
2011 - Jun
2011 - Apr
2011 - Feb
2010 - Dec
REALTOR® Rent Survey –
Shows Rent Pressure
Rising
60
50
40
30
20
10
0
2000 - Jan
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 - Jan
2014 - Aug
Oil Price
160
140
120
100
80
60
40
20
0
Monetary Policy
• Quantitative Easing … Finished
• Fed Funds Rate … hike in 2015 Q2
• Earlier Move to Tighten because of Inflation
Pressure
• Long-term Steady State Rate (2016 onwards) ..
10 year Treasury at 5.0%
• Mortgage Rates reaching 6% by 2016
Erratic Credit Availability
• FICO New Method
• Mel Watt – New overseer of Fannie/Freddie
• Consumer Financial Protection Bureau’s
– Lawsuits … Bleeding Big Banks
– Other 2000-page shuffling of Dodd-Frank … Squeezing
Small Banks
• Ridiculous FHA premiums … should decline
• Historic low mortgage default rates on recent
vintages (2010-2014)
Multiyear Recovery Likely
• More Jobs
• Manageable Mortgage Rates
• Population Pent-Up Demand
• More Inventory
• Record High Household Wealth
U.S. Population
350
In millions
300
250
200
150
100
50
0
1968
1973
1978
1983
1988
1993
1998
2003
2008
2013
Multiyear Recovery Likely
• More Jobs
• Manageable Mortgage Rates
• Population Pent-Up Demand
• More Inventory and Moderate Price Growth
• Record High Household Wealth
2007 - Jan
2007 - May
2007 - Sep
2008 - Jan
2008 - May
2008 - Sep
2009 - Jan
2009 - May
2009 - Sep
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
2014 - Jan
2014 - May
Inventory of Homes for Sale
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Maryland inventory up 18% in July
Shadow Inventory in Idaho
% of mortgages in foreclosure process or seriously delinquent
8
7
6
5
4
3
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1
Multiyear Recovery Likely
• More Jobs
• Manageable Mortgage Rates
• Population Pent-Up Demand
• More Inventory and Moderate Price Growth
• Record High Household Wealth
Vacation Home Sales
1,200
1,000
In thousands
800
600
400
200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Economic Forecast
GDP Growth
Job Growth
2013
2014
Likely
2.2%
2.2%
2015
2016
Forecast Forecast
2.7%
2.9%
+2.3 million +2.5 million +2.5 million +2.6 million
CPI Inflation
1.5%
1.6%
2.7%
3.3%
Consumer
Confidence
73
87
95
98
2.5%
2.6%
3.2%
4.3%
10-year
Treasury
Housing Forecast
2013
2014
Likely
2015
2016
Forecast Forecast
Housing Starts
925,000
1.0 million
1.3 million
1.4 million
New Home
Sales
430,000
440,000
620,000
700,000
Existing Home
Sales
5.1 million
4.9 million
5.3 million
5.4 million
Median Price
Growth
+ 11.5%
+ 5.3%
+ 4%
+ 4%
30-year Rate
4.0%
4.2%
4.9%
6.0%
Underwriting
Standards
Strict
Strict
Transition
Normal
Commercial Real Estate
Commercial Investment Sales of Large Properties
(Properties valued at $2.5 million and over)
Commercial Sales in $Billions
571
430
400 420
423
362
355
299
212
130
233
174
147
67
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2013 - Q3
2012 - Q4
2012 - Q1
2011 - Q2
2010 - Q3
2009 - Q4
2009 - Q1
2008 - Q2
2007 - Q3
2006 - Q4
2006 - Q1
2005 - Q2
2004 - Q3
2003 - Q4
2003 - Q1
2002 - Q2
2001 - Q3
2000 - Q4
2000 - Q1
Federal Reserve Commercial Property
Price Index
300
250
200
150
100
50
0
REALTOR® Markets & Deal Size
(Not $2.5 million Properties)
2013 CRE Lending Survey: Value of most recent sales transaction
> $10,000,000
$5,000,000 - $10,000,000
$2,000,000 - $5,000,000
$1,000,000 - $2,000,000
2%
1%
12%
17%
$500,000 - $1,000,000
$250,000 - $500,000
< $250,000
26%
22%
21%
Source: NAR
Small Banks Important to REALTORS®
Current sources of financing for commercial deals
National banks (“Big four”)
3%
1%
8%
Regional banks
11%
Local banks
17%
Credit unions
Life insurance companies
REITs
18%
Private investors
Public companies
Small Business Administration
4%
25%
6%
7%
Source: NAR
Other, please specify
Forecast over the next 2 years
• Increased occupancy and falling vacancy (new
supply lacking)
• Rising rents … can offset rising rates to
support property values
• Overall … improving business opportunities
Commercial Real Estate Forecast
OFFICE
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Rent Growth
2014
16.2%
36,192
26,450
2.6%
2015
15.8%
50,678
41,799
3.2%
2016
15.6%
57,782
44,862
3.6%
INDUSTRIAL
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Inventory ('000,000 sq. ft.)
Rent Growth
2014
8.9%
107,580
83,424
8,468
2.4%
2015
8.5%
104,948
68,755
8,537
2.8%
2016
8.1%
105,044
61,720
8,598
2.9%
RETAIL
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Rent Growth
2014
9.8%
11,214
7,275
2.0%
2015
9.7%
19,314
12,196
2.4%
2016
9.4%
24,313
16,342
3.0%
2014
4.0%
223,421
191,481
4.0%
2015
4.0%
170,065
146,461
3.9%
2016
4.2%
140,128
122,381
3.5%
MULTI-FAMILY
Vacancy Rate
Net Absorption (Units)
Completions (Units)
Rent Growth
Sources: National Association of REALTORS® / Reis, Inc.
Washington Policy Watch on
Commercial Real Estate
• Facilitate Covered Bonds to help credit flow
• Raise cap on holding of commercial RE loans by
credit unions
• Preserve Like-Kind Exchanges
• Preserve Terrorism Insurance
• Preserve capital gains status on carried interest
• Depreciation Rules should match economic life
• Oppose lease-accounting changes
How Young Are REALTORS® ?
70
60
50
40
Retiree
30
Working Age
20
10
0
Under 30
In 30s
In 40s
In 50s
In 60s
Let’s Spin the Bottle !
Spin the Globe … Find the Source of
Improving Standard of Living
When, How, What, Why?
• British Glorious Revolution of 1688
–
–
–
–
William and Mary arrives to say …
Power not with King but with people via Parliament
No Taxation with Representation
Life, Liberty, and (Acquire) Property
• American Revolution of 1766
– Power resides not with King but with people
– No Taxation with Representation
– Life, Liberty, and the Pursuit of Happiness
Participants in Democracy to
Protect Property Rights!