1. Real Estate Market Trends & Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation to Greater Boston Associations of REALTORS® February 1, 2010

2. Housing Stimulus Impact Tax Credit and Higher Loan Limit 2 million 1 st -time buyers could claim to date Additional 2.4 million buyers (1 st time and many repeat buyers) by end of June 2010 –Existing Home Sales gets 15% boost –Home Price gets 3% to 5% boost Preservation of Middle-Class Wealth

3. Recent Pending Home Sales Recovery pre-dominantly in lower-end and taking longer to close in recent months Source: NAR

4. Bifurcated Recovery $ thousand Homes priced under $100K Homes priced above $500K % change from one year ago Source: NAR

5. Aggregate Months Supply Source: NAR In thousand units

6. National Existing Home Sales Pre-boom sales

7. Massachusetts Existing Home Sales Thousand units

8. Boston Single-Family Home Sales

9. Boston Condo Sales

10. First-Time Buyers Used Up or Pent-Up Demand ? In year 2000 (pre-boom) –11 million renters with qualifying income to buy a median priced home In 2009 –16 million renters with qualifying income to buy a median priced home Most renters are not qualified and should not be homeowners

11. First-Time Buyers Used Up or Pent-Up Demand ? 2000 (pre-boom) 2009 (3 months prior to tax credit) 2009 (recent 3 months with tax credit) Existing Home Sales5.2 m4.6 m5.3 m New Home Sales880 K364 K418 K Payroll Jobs131.8 m135.0 m131.4 m Household Jobs136.9 m143.2 m140.0 m Median Home Price$143,600$173,600$177,900 Mortgage Rates8.1%5.5%5.2% Underwriting Standard + FHA %Normal (not loose) FHA about 10% About Normal FHA 24% About Normal FHA 15% to 20% with higher credit score Household Income$41,990$50,303 # renters that could buy a median priced home (assume no tax credit) 11.5 million16.2 million16.1 million Change in Pool of Potential 1 st Time Buyers (without tax credit) N/A4.7 million4.6 million Change in Pool of Potential 1 st Time Buyers (with tax credit) N/A/4.7 million5.4 million Fear Factor Impact (Waiting to buy later at a lower price) N/AHard to Measure

12. Household Formation Household Formation (2-year moving average)

13. Preservation of Middle Class Wealth $8000 Price Drop or $8000 Tax Credit ? No difference from buyer’s perspective Major differences on market impact $8,000 or 4% decline value means $730 billion in housing wealth destruction Consumer wealth effects Consumer’s rational postponement of purchase

14. Financial Wealth Rising $ billion Source: Federal Reserve Source: Federal Reserve, NAR estimate

15. Housing Wealth to Rise ($4 trillion wealth loss in housing from peak) If additional $8,000 price decline … $700 billion further loss $ billion Source: Federal Reserve Source: Federal Reserve, NAR estimate

16. Metro Median Home Price $ thousand Riverside Kansas City Source: NAR Boston

17. National Existing Home Price

18. Overcorrection Needs to be Halted (Home Price to Income Ratio) Stay within Budget and all will be OK ! Source: NAR

19. Mortgage Payment to Income (by middle income person buying a median priced home) Stay within Budget and all will be OK ! Source: NAR

20. Latest Monthly Home Price Trend % change from one year ago NAR in blue bar (Northeast) FHFA in Red (New England) Case-Shiller in Green (Boston)

21. Housing Starts: Too Much to Too Little New Units Needed 3 million more people each year … 1 to 1.4 million household formation … need to account for 300,000 demolitions …. need 1.3 to 1.7 new units

22. Boston Housing Permits In thousand units

23. Serious Delinquency Rate (90+ days late or foreclosure) % Subprime FHA Reserve Fund depleting … Bailout ??? Fannie-Freddie … future reform without private profit and taxpayer loss Veterans Affairs backed mortgages … slight rise … even though a zero-down product … stay within budget and all will be OK! VA (purple) FHA Prime (green)

24. Economy Recovering GDP annualized growth rate Source: BEA Forecast

25. Total Payroll Jobs in U.S. Source: BLS In thousands Job Changes in U.S. (one year change)

26. Total Payroll Jobs in U.S. Source: BLS In thousands Temp Hire Job Changes in U.S. (one year change)

27. Source: BLS In thousands Job Changes in Boston

28. Source: BLS In thousands Total Payroll Jobs in Boston

29. Source: BLS In thousands Total Payroll Jobs in Michigan

30. Source: BLS; (12-month moving average) In thousands Total Payroll Jobs in Washington D.C. Metro

31. Federal Budget Deficit Source: Congressional Budget Office Projections Source: CBO, NAR estimate

32. Federal Housing Policy Tax Favoritism –Mortgage interest deduction –Capital gains tax exclusion –Property tax deduction –But who pays taxes? Ownership and Positive Externalities –Student test scores, teen pregnancy, juvenile delinquency What is the proper homeownership rate? Any Ownership vs Successful Ownership

33. Economic Outlook 20082009 2010 forecast GDP0.4%-2.5%2.8% CPI Inflation3.8%-0.2%1.3% Unemployment Rate5.8%9.3%9.9% 10-year Treasury3.7%3.3%3.8% Unemployment Rate Peak at 10.5% in few months before going down consistently

34. Housing Outlook 20082009 2010 forecast Existing Home Sales 4.9 m5.2 m5.7 m New Home Sales485 k380 k530 k Home Price Growth-10%-13%4% Mortgage Rate6.1%5.1%5.5% Price Fear Factor??None

35. Index = 100 in 1990 Case-Shiller Residential MIT Commercial 2009 data is for Q2 Commercial and Residential Property Prices

36. Who Is Buying?

37. Credit Crisis 2008: Libor vs. Fed Funds Rate Subprime acting up Bear Stearns Lehman Brothers belly up

38. Credit Crunch Ending? Libor Rates improving Junk Bond yields becoming less wild Banks making profit … but are they getting too big again (75% of assets controlled by 10 banks) Federal Reserve lending at zero (though not to consumers) Not Yet … Need to see –Lower rate on jumbo mortgages –Lower rate on second home purchases –Lower rate on condo purchases –Lower rate on commercial real estate loans

39. Office Market Fundamentals

40. Office Rent Growth

41. Commercial Market Outlook 2008 to 2009 –Net absorption turns negative –Rising Vacancy Rates and Stagnant Rent –Markedly Fewer Transactions –Property Prices Falling –Distress Rising 2010 –Economic recovery Local market recovery –Commercial recovery with lag time –Modestly Positive net absorption –Rent struggles to move positive

42. Right Tools Right Now Many Free Products –Relocation Reports –REALTOR Member Profile –Home Buyer and Home Seller Survey –Daily Forecast Update www.realtors.org –Then click Research