Ok, That’s Over. What’s Next?! Stanley F. Duobinis, Ph.D. Crystal Ball Economics, Inc. Stanley F. Duobinis, Ph.D. Crystal Ball Economics, Inc.

Is The Recession Over? There are clear indications that the economy is once again growing. BUT, employment is still falling. The unemployment rate is likely to continue to rise until early next year. Even the housing market is growing again! YES, we are in recovery mode.

What Caused the Turnaround? Adjustments happened as they always do. –Inventories were drawn down. –Saving increased (and borrowing declined). The Federal Reserve took many steps to help financial markets recover from what could have been a true financial disaster. While we still have a long way to go until these markets are normal again, we are headed in the correct direction.

What About Housing? The housing industry did experience the largest downturn it has seen since the Great Depression. –Housing Starts fell by 72.0 percent from 2005 to Single-family housing starts fell by 73.1%. While multifamily housing starts fell by 67.5%.

Is The Recession Over? Employment is still falling. The unemployment rate is likely to continue to rise until early next year. But this is normal. Employment growth and the unemployment rate are lagging indicators. Yes, the recession is over.

Total Payroll Employment Percent Change

Total Payroll Employment Percent Change

U.S. Unemployment Rate Percent

U.S. Unemployment Rate Percent

Real GDP Percent Change – 2005 Dollars 3.0

Real GDP Percent Change

Consumer Confidence Index 1985 = 100 Stock Market Tumbles September 11th The War in Iraq Hurricanes A Slowdown for Housing Oil Price Spikes

Consumer Confidence Index 1985 = 100 Current Situation Expectations

Housing Market Index Builder Confidence

Present Situation --- Expectations for the next 6 Months ---

Housing Market Index Builder Confidence Traffic of Prospective Buyers ---

First-time Homebuyer Tax Credit The tax credit is set to expire at the end of the year. Probably won’t be extended. It has helped both the existing home market and the new home market. It is directed at first-time home buyers – defined as someone who hasn’t owned a home during the three years prior to the purchase of the qualifying home. (Second homes don’t count.)

Federal Reserve Policy Will the Fed do more to help the housing market? The Federal Funds rate has been lowered from 5.25% in 2007 to its current 0.2%! This is a negative real rate! There has been no room to lower rates for some time. In fact, the next move is an increase in rates. So, the Fed will continue its alphabet soup of programs designed to firm up financial markets – TALF, CPFF, MMIFF, AMLF, etc.

Federal Funds Rate Target Percent

Mortgage Rates Percent Fixed Rate Adjustable Rate

Credit Is Still Hard to Get Interest rates are important, but a bank’s willingness to lend is also critical. The progressive tightening of lending standards in all major components of U.S. credit markets slowed the housing market. The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) documents a progressive tightening of lending standards during the past three years.Senior Loan Officer Opinion Survey BUT, the most recent SLOOS shows that that fewer lending institutions are tightening standards.

Credit Is Hard to Get The net percentage of lending institutions tightening standards on prime residential loans has fallen from a peak of 75% to 20% during the past year. Even for subprime the net percentage has fallen from 100% to just below 50%. At the same time, many institutions have stopped making subprime loans. Even with these improvements, almost 90% of respondents reported that standards were still tighter than long-term averages.

Home Prices What about falling home prices? Aren’t they still falling? Yes, in most markets. But, the rate of decline is becoming smaller.

U.S. Home Price Indices Percent Change Annual Rate

U.S. Home Price Indices Percent Change Annual Rate

Home Sales Millions

Single-Family Housing Starts Millions

New Home Inventory Thousands

Homeownership Rate Percent

Rental Vacancy Rates Percent All Rental Units

Rental Vacancy Rates Percent Buildings with 5 or More Units

Rental Vacancy Rates Percent Buildings with 5 or More Units Single-family

Multi-family Housing Starts Millions

Condo Share of Multi-family Housing Starts Percent

Total Housing Starts Millions

State-by-State Forecasts Looking across the country reveals a great variation in performance. This is true whether we look at single-family or multifamily housing starts. Unfortunately, the one thing that almost every state has in common this year is that single-family housing starts will show year over year declines. That means gains everywhere next year. Multifamily will experience a similar cycle.

Single-Family Housing Starts

Single-Family Housing Starts

Single-Family Housing Starts

Multifamily Housing Starts

Multifamily Housing Starts

Multifamily Housing Starts

Nonresidential Construction Billions of 2000 Dollars

Nonresidential Construction Billions of 2000 Dollars Other Commercial Retail Lodging Dining/Drinking

Data Access This presentation as well as all supporting data tables are available at:

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