Becoming the Local Real Estate Economist of Choice MAPS Agent Masterminds November 5, 2007 Austin, Texas Keller Williams Realty International

The New Mindset:  I am a knowledgeable, research-based real estate consultant.  I understand the big picture and I know which numbers really matter.  I constantly research the local market conditions and trends that will impact your plans and decisions.  I am the local real estate economist of choice.

 Macro –Economic Growth –Inflation –Interest Rates  Metro –Population –Employment –Household Income  Micro –Neighborhood Dynamics –Property Conditions –Home Prices What Impacts Affordability and Availability Local City National

Truth # 1: Real Estate Markets are Always Shifting.  What goes up must come down.  What comes down won’t stay there.

Source: NAR MonthsMillion Housing Inventory (left axis) Existing Home Sales – Single Family Homes (right axis) Buyers Market Sellers Market 19 Years of National Market Shifts

Truth # 2: The Economy is Consistently Growing.  Since 1970, the Gross Domestic Product (GDP) has increased an average of 7.2% per year.  GDP growth remains consistent over the past ten years.

Gross Domestic Product Source: Bureau of Economic Analysis

Gross Domestic Product Year to Year Change Source: Bureau of Economic Analysis

Gross Domestic Product Source: Bureau of Economic Analysis

Gross Domestic Product Year to Year Change

Truth #3: Inflation is consistent and steady – the sign of a healthy economy.  During the past 37 years ( ) the Consumer Price Index (CPI) has increased at an average annual rate of 4.6%.  For the past 10 years it has averaged only 2.4% per year.

Consumer Price Index Source: Bureau of Labor Statistics

Consumer Price Index Year to Year Change Source: Bureau of Labor Statistics

Consumer Price Index Source: Bureau of Labor Statistics

Consumer Price Index Year to Year Change Source: Bureau of Labor Statistics

Truth #4: Mortgage interest rates are low and stable.  Interest rates are near the lowest point they have ever been since  During the past 10 years the rates have been at or under 8%.  For the past 5 years they have stayed at or near 6% and show no signs of rising.

Mortgage Rates Fixed Rate - 30 Year Source: Freddie Mac

Mortgage Rates Fixed Rate - 30 Year Source: Freddie Mac

Truth #5: The workforce is increasing and unemployment is low.  Since 1982, unemployment has been on a steady downward trend.  During the past 5 years unemployment has decreased from 6% to under 5%.  Only Michigan has unemployment of over 7%.

Unemployment Rates Source: Bureau of Labor Statistics

Unemployment Rates Source: Bureau of Labor Statistics

% % % % % % Unemployment Rates (September, 2007) US = 4.7% Source: Bureau of Labor Statistics Data: September, 2007

Truth #6: Homeownership remains a fundamental part of the “American Dream.”  Since 1994, the percentage of Americans owning their own home has increased from 64% to over 68%.  The Government continues to institute policies and funding programs that encourage homeownership.

Homeownership Source: Census Bureau

Homeownership Source: Census Bureau

Truth # 7: Household incomes and median home prices both increase in a parallel manner.  Since 1981, household incomes have increased at an average annual rate of 3.9%.  During the same time period, median home prices have increased at 4.9% per year.

Median Home Price & Family Income Income (right axis) Home Price (left axis) Source: NAR

Annual Growth Rates Income and Price set to Index of Source: NAR

Comparison of Income to Home Price Income and Price set to Index of 100 in Source: NAR

Comparison of Income to Home Price Income and Price set to Index of 100 in Source: NAR

Truth #8: Affordability is, and always will be, the primary real estate issue.  When interest rates go up, affordability comes down.  When home prices rise, affordability drops.  When affordability drops too low or too fast, the number of home sales decrease and selling prices will ultimately drop.  The more dramatic the run-up in home appreciation, the steeper the decline in sales and prices.

Housing Affordability & Home Price Affordability (right axis) Median Home Price (left axis) Source: NAR

Housing Affordability & Home Price Affordability (right axis) Median Home Price (left axis) Source: NAR

Home Price Index Year to Year Change Source: OFHEO

Home Price Index Year to Year Change Source: OFHEO

Housing Opportunity Index (right axis) Median Home Price (left axis) Thousand Source: NAHB/Wells Fargo National Housing Affordability

Truth #9: Real estate is a local business. Affordability is always felt locally.  When the market shifts locally it usually shifts in a dramatic and rapid manner.  Local areas that have the greatest and fastest appreciation will deal with the most dramatic down shifts.  Affordability must be tracked in each metro and micro market – that is where sellers and buyers have to deal with the issues.

5 Year Annual Rate of Home Price Growth (2006 Q4) TX UT MT CA AZ ID NV OR IA CO KS WY NM MO MN NE OK SD WA AR ND LA IL OH FL GA AL WI VA IN MI MS KY TN PA NC SC WV NJ ME NY VT MD NH CT DE MA RI Source: OFHEO – House Price Index Growth as of 4 th quarter of % % % 5-year growth at an annual rate US = 7.6%

1 Year Home Price Growth ( Q4)

1 Year Home Price Growth ( Q2)

Truth #10: The Law of Supply and Demand has not been repealed – this is a great time to buy!  As affordability drops, the number of qualified buyers declines.  The decline in buyers mean a reduction in demand.  With the reduction in demand, the supply of homes for sale (inventory) will increase.  As the inventory grows and prices drop, some buyers become more reluctant to buy.  The smart buyers know this is the time to buy.  That’s why they call it “a buyer’s market” !!!

19 Years of Supply & Demand Shifts Source: NAR Buyers Market Sellers Market MonthsMillion

So, what’s going to happen during this period of affordability recovery?

A Pessimistic Look at Affordability Recovery: US Median Home Prices

A Realistic Look at the Recovery: Median Sales Price to at 6.4% Appreciation

A More Conservative Look at Recovery: Median Sales Price 1980 to 2020 at 4.3% Appreciation

While the biggest issue for sellers is the sales price they will be able to get the biggest issue for real estate agents is the number of sales and the amount of available commissions.

Housing Opportunity Index (right axis) Median Home Price (left axis) Thousand Source: NAHB/Wells Fargo Some markets have been hit hard. Las Vegas Housing Affordability

Housing Opportunity Index (right axis) Median Home Price (left axis) Thousand Source: NAHB/Wells Fargo Like really hard! San Diego Housing Affordability

Housing Opportunity Index (right axis) Median Home Price (left axis) Thousand Source: NAHB/Wells Fargo Really, Really Hard!!! NY Metro Housing Affordability

Annual Existing Home Sales Single Family Homes (In Millions) Source: NAR numbers are projected based on September numbers Million

Annual Existing Home Sales Single Family Homes (In Millions) Source: NAR

The Law of Equilibrium is Real

As thousands of agents leave the profession, the number of sales available to you is about to increase - IMMEDIATLY!