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

Jobs (8 million lost … 10 million gained) In thousands

Weekly New Unemployment Insurance Claims In thousands

Unemployment Rate

Jobs in Boise Area In thousands

Jobs: U.S. vs Boise Area

Household Net Worth at All-Time High

But Wait … “I am not feeling it”

GDP Still not Robust … Below 3% for 9 straight years

Sluggish Growth + Gap after Great Recession ($1.5 trillion gap … $4,700 per person) 3% Growth Line 2.2% Growth Line

Employment Rate

Renter Households from 2010 (Increased by 4 million) In thousands

Homeowner Households from 2010 (Decreased by 1 million) In thousands

Homeownership Rate

Household Net Worth ($5,500 vs. $195,500) Source: Federal Reserve Survey of Consumer Finances

Median Home Price (Near 20% gain in 2 years)

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

Monthly Pending Sales Index … Making Upward U-Turn (Seasonally Adjusted) Source: NAR

Two and Out? Or Multi-year Expansion? (Single-Family Existing Home Sales Only)

Pent Up Demand Existing Home Sales5.2 m5.1 m New Home Sales880 K430 K Mortgage Rates8.0%4.0% Payroll Jobs132.0 m136.4 m Population282 m316 m

Housing Starts Rising … Too Slowly Thousand units

Time to Sell a New Spec Home (in months)

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)

Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory Record High Household Wealth

“Take This Job and Shove It … I ain’t working here no more” Quit Rate in thousands

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!) %

Federal Reserve Balance Sheet from Quantitative Easing $ million

30-year Mortgage Rates

Non-worrisome CPI Inflation – Yet COLA of 1.7% in 2015

Rising Renters’ and Homeowners’ Rent Growth (Above 3%)

REALTOR ® Rent Survey – Shows Rent Pressure

Oil Price

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 ( )

Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory Record High Household Wealth

U.S. Population

Multiyear Recovery Likely More Jobs Manageable Mortgage Rates Population Pent-Up Demand More Inventory and Moderate Price Growth Record High Household Wealth

Inventory of Homes for Sale Maryland inventory up 18% in July

Shadow Inventory in Idaho

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

Economic Forecast Likely 2015 Forecast 2016 Forecast GDP Growth2.2% 2.7%2.9% Job Growth+2.3 million+2.5 million +2.6 million CPI Inflation1.5%1.6%2.7%3.3% Consumer Confidence year Treasury 2.5%2.6%3.2%4.3%

Housing Forecast Likely 2015 Forecast 2016 Forecast Housing Starts925, million1.3 million1.4 million New Home Sales 430,000440,000620,000700,000 Existing Home Sales 5.1 million4.9 million5.3 million5.4 million Median Price Growth %+ 5.3%+ 4% 30-year Rate4.0%4.2%4.9%6.0% Underwriting Standards Strict TransitionNormal

Commercial Real Estate

Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over)

Federal Reserve Commercial Property Price Index

REALTOR® Markets & Deal Size (Not $2.5 million Properties)

Small Banks Important to REALTORS®

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

OFFICE Vacancy Rate 16.2%15.8%15.6% Net Absorption ('000 sq. ft.) 36,19250,67857,782 Completions ('000 sq. ft.) 26,45041,79944,862 Rent Growth 2.6%3.2%3.6% INDUSTRIAL Vacancy Rate 8.9%8.5%8.1% Net Absorption ('000 sq. ft.) 107,580104,948105,044 Completions ('000 sq. ft.) 83,42468,75561,720 Inventory ('000,000 sq. ft.) 8,4688,5378,598 Rent Growth 2.4%2.8%2.9% RETAIL Vacancy Rate 9.8%9.7%9.4% Net Absorption ('000 sq. ft.) 11,21419,31424,313 Completions ('000 sq. ft.) 7,27512,19616,342 Rent Growth 2.0%2.4%3.0% MULTI-FAMILY Vacancy Rate 4.0% 4.2% Net Absorption (Units) 223,421170,065140,128 Completions (Units) 191,481146,461122,381 Rent Growth 4.0%3.9%3.5% Sources: National Association of REALTORS® / Reis, Inc. Commercial Real Estate Forecast

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® ?

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!