After the Storm
Lawrence Yun, Ph.D.
Senior Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Leadership Summit
Chicago, IL
August 17, 2007
Subprime Loan Implosion
• Homeowners facing higher resetting rates
and foreclosures
• Wall Street reassessing risk
• Sub-prime brokers desperate for Wall Street
funding
• Potential homebuyers left out in the cold
Subprime Loan Exposure
FHA+
VA
Subprime
9%
6%
Free +
Clear
Homes
35%
Prime
50%
Source: NAR Estimate
Foreclosure Rates by Loan Type
2007 Q1
8.0
6.0
4.0
2.0
0.0
Prime
Data: MBA
VA
FHA
Sub-prime Sub-prime
Fixed
ARM
Foreclosed Homes
FHA+
VA
14%
Prime
33%
Subprime
53%
Source: NAR Estimate
National Mortgage Delinquencies
(Big swings for subprime; no real change in prime)
Prime
Subprime
15.0
12.0
9.0
Job Losses pushes up
delinquency
6.0
Stagnant
Prices
Housing boom
permits
re-financing and
lowers delinquency
3.0
Data: MBA
20
07
Q
1-
20
06
Q
3-
20
06
Q
1-
20
05
Q
3-
20
05
Q
1-
20
04
Q
3-
20
04
Q
1-
20
03
Q
3-
20
03
Q
1-
20
02
Q
3-
20
02
Q
1-
20
01
Q
3-
20
01
Q
1-
20
00
Q
3-
20
00
Q
1-
19
99
Q
3-
19
99
Q
1-
19
98
Q
3-
Q
1-
19
98
0.0
Rising Foreclosures
Percent change in foreclosure rate in 2005 Q1 vs 2006 Q4
200%
150%
100%
States with Marked Price Deceleration/Declines
Undergoing rising Foreclosures
50%
Fl
or
id
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lif
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0%
Data: MBA
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High Foreclosure States
(2007 Q1)
4.0
3.0
2.0
1.0
0.0
Delinquency to Foreclosure
(Latest Foreclosure/Delinquency ratio)
60%
40%
Better Loss Mitigation
Programs for VA and FHA
20%
0%
Prime
VA
FHA
Sub-prime
Not All Markets are Suffering …
States with Falling Foreclosures
Percent change in foreclosure rate in 2005 Q1 vs 2006 Q4
Wyoming
Montana
Maryland
SouthCarolina
West Virginia
Washington
Oregon
New Mexico
-25%
Idaho
Utah
0%
-50%
Mostly Strong Job Growth and Price Appreciating States
-75%
Healthier Future Market
• Job growth leads to accumulating and releasing of
pent-up housing demand
• Cut back in new home construction thins out
inventory and strengthen home prices
• Shift to “traditional” products
– Reckless lenders going belly up
– Wall Street tightening
– FHA revival
– Higher prevalence of fixed-rate mortgages
• Short-term Pain from lower home sales
• Long-term Gain from lower defaults
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07
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00
Steady U.S. Job Gains
Near 2 Million in Past 12 months
4
12-month payroll job changes in millions
3
2
1
0
-1
-2
-3
Source: BLS
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03
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04
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05
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06
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20
06
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07
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20
07
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20
00
Wage Growth Picking Up
% change from a year ago
5%
4
3
2
1
Source: BLS
Source: BEA
20
07
20
06
20
06
20
05
20
05
20
04
20
04
20
03
20
03
20
02
20
02
20
01
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
7,000
20
01
20
00
20
00
Aggregate U.S. Wages and
Salary Disbursement
$ billion
6,000
5,000
4,000
Source: BEA
20
07
20
06
20
06
20
05
20
05
20
04
20
04
20
03
20
03
20
02
20
02
20
01
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
-Q
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
2,000
20
01
20
00
20
00
Corporate Profits – Record High
$ billion
1,500
1,000
500
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06
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20
06
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07
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20
07
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20
00
S&P 500 Index
1600
Profit = $800 billion
Source: NYSE
Profit = $1,600 billion
1400
1200
1000
800
-3.0
2007 - Q1
2006 - Q1
2005 - Q1
2004 - Q1
2003 - Q1
2002 - Q1
2001 - Q1
9.0
2000 - Q1
Economic Growth
% annualized growth rate
6.0
3.0
0.0
-3.0
2007 - Q1
2006 - Q1
2005 - Q1
2004 - Q1
2003 - Q1
2002 - Q1
2001 - Q1
9.0
2000 - Q1
Consumer Spending
% annualized growth rate
6.0
3.0
0.0
-5.0
-10.0
-15.0
2007 - Q1
2006 - Q1
2005 - Q1
2004 - Q1
2003 - Q1
2002 - Q1
2001 - Q1
15.0
2000 - Q1
Business Spending
% annualized growth rate
10.0
5.0
0.0
2007 - Q1
2006 - Q1
2005 - Q1
2004 - Q1
2003 - Q1
2002 - Q1
2001 - Q1
1500
2000 - Q1
Export Growth
$ billion
1000
500
Source: Wall Street Journal
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
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Worry Spot - Oil Price
$ per barrel
80
60
40
20
0
Economic Outlook
2006
2007
2008
GDP
3.3%
2.0%
2.8%
CPI Inflation
3.2%
2.6%
2.4%
Job Growth
1.9%
1.5%
1.5%
Unemployment Rate
4.6%
4.6%
4.7%
The Fed cuts rate in early 2008
U.S. Existing-Home Sales
EHS
8,000
In thousand units
15% Retreat from Peak
6,000
4,000
2,000
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
20 06
07
es
t
19
90
0
Source: NAR
U.S. New-Home Sales
NHS
1,500
In thousand units
34% Retreat from Peak
1,000
500
Source: NAR, Census
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
0
19 Ja
91 n
19 - Ja
92 n
19 Ja
93 n
19 Ja
94 n
19 - Ja
95 n
19 Ja
96 n
19 Ja
97 n
19 Ja
98 n
19 - Ja
99 n
20 Ja
00 n
20 Ja
01 n
20 - Ja
02 n
20 Ja
03 n
20 Ja
04 n
20 Ja
05 n
20 - Ja
06 n
20 Ja
07 n
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19
90
Inventory of Homes
Existing
Source: Census
New
12
10
8
6
4
2
0
Source: NAR
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
20
20 06
07
es
t
-3
19
95
19
94
19
93
19
92
15
19
91
19
90
Home Price Growth
% change from a year ago
12
9
6
3
0
Something appears Out of Whack!
Income
Home Price
250
Income and Price set to Index of 100 in 1990
200
150
100
50
90 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007
9
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
Source: NAR
Source: NAR
20
20
20
20
20
20
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
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U.S.
20
20
19
19
19
19
19
19
19
92
91
90
30
19
19
19
Mortgage Obligation to Income
Manageable
Average
%
25
20
15
10
20
02
20 .1
02
20 .2
02
20 .3
02
20 .4
03
20 .1
03
20 .2
03
20 .3
03
20 .4
04
20 .1
04
20 .2
04
20 .3
04
20 .4
05
20 .1
05
20 .2
05
20 .3
05
20 .4
06
20 .1
06
20 .2
06
20 .3
06
.4
Renters Getting Squeezed
%
Rent Growth
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
Source: Torto-Wheaton Research
Fed Controls on Short Rates Only
Mortgage Rate
Fed Funds Rate
%
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
04
0
2
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Ja
04
0
2
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05
0
2
-
n
Ja
05
0
2
-
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06
0
2
-
n
Ja
Source: Freddie Mac, Federal Reserve
06
0
2
-
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07
0
2
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Ja
07
0
2
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House prices 'to soar 40 percent
within next five years'
• News from National Housing Federation
in U.K. … August 2007
• U.K. home prices soared 156% past 10
years … twice as fast as U.S. home
prices
• Not building Enough Homes! Housing
Shortage!
U.S. New Single-Family
Construction
Starts
2,000,000
33% 2-year Tumble
1,500,000
1,000,000
500,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
0
Source: Census
Florida New Single-Family
Construction
Starts
250,000
70% 2-year Tumble
200,000
150,000
100,000
50,000
Source: Census
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
0
States with Sharp
Construction Contraction
0%
-20%
-40%
-60%
s
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(YTD May 2007 vs YTD May 2006)
Buyers Lining Up ?
2005
2007
Difference
Total Home
Sales
8.4 million
6.9 million
- 1.5 million
Subprime Loans
1.6 million
800,000 (?)
- 800,000
Jobs
133.7 million
138.0 million
+ 4.3 million
Wage + Salary
$5.7 trillion
$6.4 trillion
+ $700 billion
Household
Wealth
$52 trillion
$57 trillion
+ $5 trillion
Home Prices
$219,600
$219,300
- $300
Mortgage Rates
5.9%
6.5%
+ 0.6% points
FHA Market Share for Home Purchase
20%
15%
10%
5%
0%
2000
2001
2002
2003
Source: HMDA,NAR estimate
2004
2005
2006 2007
2008
est. forecast
National Housing Outlook
2006
2007
2008
Existing-Home Sales
6.48 million
6.04 million
6.38 million
New Home Sales
1.05 million
0.85 million
0.85 million
Housing Starts
1.80 million
1.43 million
1.40 million
30-Year FRM
6.4%
6.5%
6.6%
1-Year ARM
5.5%
5.5%
5.2%
Existing-Home Price
Growth
1.0%
-1.2%
2.0%
Median Home Price in Los Angeles
600.0
450.0
300.0
150.0
Source: NAR
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
19
79
0.0
Best Evidence:
Household Wealth Accumulation
$184,400
$200,000
2001 2004
Median Net Worth
$150,000
1998
1995
$100,000
$4,000
$50,000
1995 1998 2001 2004
$0
Renter
Source: Federal Reserve
Homeowner