Economic & Real Estate Outlook

By Lawrence Yun, Ph.D.

Chief Economist, National Association of REALTORS®

Presentations at NAR Legislative Meetings

Washington, DC

May 17, 2018

Good Economy

Job Additions for 90 straight months

Unemployment Rate 3.9%
High Stock Market
High Net Worth
Wages picking up
Unemployment Rate

12

10

0
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018 -
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
Jobs (18 million gained from 2010)

In thousands
150,000

145,000

140,000

135,000

130,000

125,000

120,000
2000 - 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018 -
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
Recent Employment Growth (March 2017 to March
2018)
Oil Price – Bouncing Off Lows

West Texas Intermediate

120

100

80

60

40

20

0
Total Job Openings

6500
In thousands
6000
5500
5000
4500
4000
3500
3000
2500
2000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Job Openings = Job Seekers

In thousands
18000
16000
14000
12000
10000
8000
6000
4000
2000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
 40
45
50
55
60
65
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan
2011 - Apr
2011 - Jul

Source: ISM Institute

2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
2014 - Oct
2015 - Jan
2015 - Apr
2015 - Jul
2015 - Oct
2016 - Jan
Backlog of Orders: Breaking Higher

2016 - Apr
2016 - Jul
2016 - Oct
2017 - Jan
2017 - Apr
2017 - Jul
2017 - Oct
2018 - Jan
2018 - Apr
Home Sales Not Breaking Higher

Pending Contracts stable and neutral

Low Inventory
Weakening Affordability
Low Homeownership Rate
Low First-Time Buyers
Diminished Optimism of Home Buying
 60
70
80
90
100
110
120
Rising

2010 - May
2010 - Aug
2010 - Nov

Source: NAR
(seasonally adjusted)

2011 - Feb
2011 - May
2011 - Aug
2011 - Nov
2012 - Feb
2012 - May
2012 - Aug
2012 - Nov
2013 - Feb
2013 - May
2013 - Aug
2013 - Nov
2014 - Feb
2014 - May
2014 - Aug
2014 - Nov
2015 - Feb
2015 - May
2015 - Aug
2015 - Nov
2016 - Feb
2016 - May
2016 - Aug
2016 - Nov
2017 - Feb
2017 - May
2017 - Aug
2017 - Nov
2018 - Feb
National Pending Sales Index – No Longer
Is Tax Reform Preventing a Breakout?

Mortgage interest deduction?...

$750,000
Property tax deduction? … SALT at
$10,000
Capital Gains Exemption? … as before
Standard Exemption? … doubled
Business Income … more deductions
Missouri

99% of homeowners pay less than

$10,000 in property taxes

98% of homeowners have less than

$750,000 in mortgage
Connecticut – Highly Impacted

86% of homeowners pay less than

$10,000 in property taxes

91% of homeowners have less than

$750,000 in mortgage
Inventory of Homes on Market
(Lowest Inventory in a generation)

3500000

3000000

2500000

2000000

1500000

1000000

Source: NAR
Median Days On Market in March 2018
Affordability Index
(Based on Income, Mortgage Rate, Home Price)

250

200

150

100

50

Source: NAR
 100
150
200
250
300
400
450
500

350
1995 - Q1
1995 - Q4
1996 - Q3
1997 - Q2
1998 - Q1
1998 - Q4
1999 - Q3
2000 - Q2
2001 - Q1
2001 - Q4
2002 - Q3
2003 - Q2
2004 - Q1
2004 - Q4

Source: Federal Housing Finance Agency

2005 - Q3
2006 - Q2
2007 - Q1
2007 - Q4
2008 - Q3
2009 - Q2
2010 - Q1
2010 - Q4
2011 - Q3
Home Price Index (Constant Quality)

2012 - Q2
2013 - Q1
2013 - Q4
2014 - Q3
2015 - Q2
2016 - Q1
2016 - Q4
2017 - Q3
San Francisco

Minneapolis
Seattle

Phoenix
Denver
 100
150
200
250
350

300
1995 - Q1
1995 - Q4
1996 - Q3
1997 - Q2
1998 - Q1
1998 - Q4
1999 - Q3
2000 - Q2
2001 - Q1
2001 - Q4
2002 - Q3
2003 - Q2
2004 - Q1
2004 - Q4

Source: Federal Housing Finance Agency

2005 - Q3
2006 - Q2
2007 - Q1
2007 - Q4
2008 - Q3
2009 - Q2
2010 - Q1
2010 - Q4
2011 - Q3
Home Price Index (Constant Quality)

2012 - Q2
2013 - Q1
2013 - Q4
2014 - Q3
2015 - Q2
2016 - Q1
2016 - Q4
2017 - Q3
Cleveland
OKC
Boston
DC
Dallas
Income Growth and Home Price
Growth
(from lows in 2011 to 2017)

60%

50% 48%

40%

30%

20%
15%

10%

0%
Income Home Price
 0.00
0.20
0.40
0.80
1.00
1.20
1.40
1.60

0.60
2011 - Jan1.80
2011 - Mar
2011 - May
2011 - Jul
2011 - Sep
2011 - Nov
2012 - Jan
2012 - Mar
2012 - May
from zero to …

2012 - Jul
2012 - Sep
2012 - Nov
2013 - Jan
2013 - Mar
2013 - May
2013 - Jul
2013 - Sep
2013 - Nov
2014 - Jan
2014 - Mar
2014 - May
2014 - Jul
2014 - Sep
2014 - Nov
2015 - Jan
2015 - Mar
2015 - May
2015 - Jul
2015 - Sep
2015 - Nov
2016 - Jan
2016 - Mar
2016 - May
2016 - Jul
2016 - Sep
2016 - Nov
2017 - Jan
2017 - Mar
2017 - May
2017 - Jul
2017 - Sep
2017 - Nov
2018 - Jan
2018 - Mar
Tightening Monetary Policy Fed Funds Rate …
Consumer Inflation Slowly Moving Up
(year over year % growth)

CPI

4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
 in $ billion

$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000

$2,000,000
$6,000,000
$8,000,000

$0
$4,000,000
2001 - Jan
2001 - Jun
2001 - Nov
2002 - Apr
2002 - Sep
2003 - Feb
National Debt

2003 - Jul
2003 - Dec
2004 - May
2004 - Oct
2005 - Mar
2005 - Aug
2006 - Jan
2006 - Jun
2006 - Nov
2007 - Apr
2007 - Sep
2008 - Feb
2008 - Jul
2008 - Dec
2009 - May
2009 - Oct
2010 - Mar
2010 - Aug
2011 - Jan
2011 - Jun
2011 - Nov
2012 - Apr
2012 - Sep
2013 - Feb
2013 - Jul
2013 - Dec
2014 - May
2014 - Oct
2015 - Mar
2015 - Aug
2016 - Jan
2016 - Jun
2016 - Nov
2017 - Apr
2017 - Sep
2018 - Feb
Real World Game of Thrones: Phillip II versus
Elizabeth I

20% 5%
 0
1
2
3
4
5
6
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan
2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
(around 170 basis points spread above 10 year Treasury)

2014 - Oct
2015 - Jan
2015 - Apr
2015 - Jul
2015 - Oct
2016 - Jan
2016 - Apr
2016 - Jul
2016 - Oct
2017 - Jan
Mortgage Rates to Rise Permanently

2017 - Apr
2017 - Jul
2017 - Oct
2018 - Jan
2018 - Apr
 61
62
63
64
65
66
67
68
69

60
70
1965 - Q1
1966 - Q1
1967 - Q1
1968 - Q1
1969 - Q1
1970 - Q1
1971 - Q1
1972 - Q1
1973 - Q1
1974 - Q1
1975 - Q1
1976 - Q1
1977 - Q1
1978 - Q1
1979 - Q1
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
2014 - Q1
2015 - Q1
2016 - Q1
2017 - Q1
2018 - Q1
Homeownership Rate: Trying to Make a Comeback
Renters’ Desire to Own in Future? Strong Among
Young Adults
Wealth: From 2000 to 2016

$250,000

$200,000

$150,000

$100,000

$50,000

$0

Renters Homeowners
America’s Superpower Status Tested after Spunik
Launch
Shocking Homeownership Rate! … Much Room for
Improvement

70%
63%
60% 57%
50%

40%

30%

20%

10%

0%

White HighSchool Dropout Black College Graduate

Diminished Optimism NAR Survey of Consumers % Strongly indicating
Good Time to Buy

50

45

40

35

30
2016 - Q1 2016 - Q2 2016 - Q3 2016 - Q4 2017 - Q1 2017 - Q2 2017 - Q3 2017 - Q4 2018 - Q1
Gallup Survey of Consumers: % indicating Good Time
to Buy

80

75

70

65

60

55

50
2014 2015 2016 2017 2018
 55
60
70
75
80

50
65
to Buy

2011 - Jan
2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
2014 - Oct
2015 - Jan
2015 - Apr
2015 - Jul
2015 - Oct
2016 - Jan
2016 - Apr
2016 - Jul
2016 - Oct
2017 - Jan
2017 - Apr
2017 - Jul
2017 - Oct
2018 - Jan
2018 - Apr
Fannie Mae Housing Survey: % Indicating Good Time
Home Price Expectation

Rise Fall
90
80
70
60
50
40
30
20
10
0
Gallup Fannie NAR Consumers NAR Realtors®
Googling What?
From 2012 to 2017
Foot Traffic according to Realtors®

Seller Traffic Buyer Traffic

80

70

60

50

40

30

20

10

0
Diminished Optimism Because of Lack of Supply Need to Boost Single-Family
Housing Starts

2000
In thousand units
1800
1600
1400
1200
1000
800
600
400
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
How to Boost Home Construction

Provide Regulatory Relief to

Community Banks
Remove Tariff on Lumber and Building
Materials
Don’t be Too Stringent on Zoning Land
Use
Rework Condominium Defect Laws
Train New Workers for Construction
Industry
Forecast
National Existing Home Sales
Inching Higher 4% 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
Median Home Price
Rising 8% over 2 years

300,000

250,000

200,000

150,000

100,000

50,000

0
20002001200220032004200520062007200820092010201120122013201420152016201720182019
Thank You !

Thank You !