1. 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.

2. 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.

3. 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.

4. 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 2009. Single-family housing starts fell by 73.1%. While multifamily housing starts fell by 67.5%.

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.

6. Total Payroll Employment Percent Change

7. Total Payroll Employment Percent Change

8. U.S. Unemployment Rate Percent

9. U.S. Unemployment Rate Percent

10. Real GDP Percent Change – 2005 Dollars 3.0

11. Real GDP Percent Change

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

13. Consumer Confidence Index 1985 = 100 Current Situation Expectations

14. Housing Market Index Builder Confidence

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

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

17. 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.)

18. 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.

19. Federal Funds Rate Target Percent

20. Mortgage Rates Percent Fixed Rate Adjustable Rate

21. 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.

22. 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.

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

24. U.S. Home Price Indices Percent Change Annual Rate

25. U.S. Home Price Indices Percent Change Annual Rate

26. Home Sales Millions

27. Single-Family Housing Starts Millions

28. New Home Inventory 120 112 40 570 272 Thousands

29. Homeownership Rate Percent

30. Rental Vacancy Rates Percent All Rental Units

31. Rental Vacancy Rates Percent Buildings with 5 or More Units

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

33. Multi-family Housing Starts Millions

34. Condo Share of Multi-family Housing Starts Percent

35. Total Housing Starts Millions

36. 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.

37. Single-Family Housing Starts 2008-2009

38. Single-Family Housing Starts 2009-2010

39. Single-Family Housing Starts 2010-2011

40. Multifamily Housing Starts 2008-2009

41. Multifamily Housing Starts 2009-2010

42. Multifamily Housing Starts 2010-2011

43. Nonresidential Construction Billions of 2000 Dollars

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

45. Data Access This presentation as well as all supporting data tables are available at: www.cbeconomics.com/bcmc

46. Open Forum Discussion Please participate by asking questions and offering comments so that everyone can learn from each other. (Remember to fill out your session evaluation form.)