The morning started at 8:00 a.m. with a breakfast meeting for state level president-elect members from across the country. This s a great networking opportunity. It gave us an opportunity to compare notes on our successes and challenges. Incoming officials spoke to us about the reorganization of NAR committees which were actually increased in number from ten to sixteen. The meeting was concluded after a question and answer segment.
Deciding on which educational segments to attend is a challenge as there are so many to choose from. Fortunately, the schedule is distributed well in advance and you have an opportunity to organize your selections in advance. NAR has provided a moble app so you can make adjustments on the fly.
Because my first event ran from 8:00 a.m. to 9:00 a.m. I could only catch a portion of the first class I wanted to attend which ran from 8:30 to 10:30 a.m., Economic Issues & Residential Real Estate Business trends Forums. The speakers were Buddy Dyer the Mayor of Orlando, Mark Vintner from Wells Fargo out of Charlotte North Carolina, Mr. Ratiu also spoke he is the Manger of Quantitative and Commercial Research, and Lawrence Yun, who is with he National Association of Realtors our of Washington, D.C. Lawrence Yun was the big draw for me, as I have heard him speak before at prior NAR conferences. The way to describe his listing to him is how he was introduced, "it is like trying to taking a drink of water from a fire hose". There is such a wealth of brilliant information that comes from him in such a short time it is amazing.
I will attempt to summarize the presentation:
In places like Florida and Arizona, the current market is like an after Christmas sale, most of the really good stuff (prime real estate) is gone but there is still some good things left. Those with the ability to purchase are cherry picking in the down market.
The upside of natural disasters like this storm on the East coast will initially slow sales in an area which normally is an expensive market area but it won't cause a third dip in the market. The recovery from the damages will actually create jobs and increase funds in the area for people to purchase homes.
Hopefully, with the election being over the push for bipartisanism will take hold and allow the government to work more efficiently.
Europe remains a serious problem, especially the Euro and the debt of the various countries. Mark Vitner did not see that changing until the the Euro is abolished. Pat of his rational was only Germany's economy is doing well and therefore they dominate the region and the other countries cannot compete.
Mr. Ratiu tied in the commercial side of real estate. His statistics came from polling NAR members. 2 to 4% of all Realtors handle commercial transactions which translates to some 200,000 to 400,000 members are doing commercial transactions. There is about a six month or more, lag in commercial real estate reflecting what is going on with residential real estate. The Commercial market swings are much greater but post recession there are spikes, the third quarter slowed down but the figures are trending in a positive direction. Office and apartment sales compose the bulk of the commercial market. Office and industrial trends have dipped but the apartments remain strong because of high demand.
It is the higher end of the market which is stronges being $2,000,000 and up. 32% of Realtors who work the $2,000,000 and under market have not had any sales in the past year. The recovery is trending upward but slowly.
The local economy drives commercial real estate trends. The main provider of financing has been local and regional banks, who have been hard hit by the tightening of lending requirement. There are issues with refinancing existing loans which indicates problems. There is significant growth in the secondary and third level mortgage markets, the returns are much better in these markets.
The volume of loans coming due are at their highest. The good news is that the resolution of loans are getting better.
Lawrence Yun made 5 forecasts
the first was that inflation by 2015 will be between 4 and 6%, well above the Fed's statement of 2%.
Rents are increasing as demand for rentals are increasing. One of the most influential barometers for the consumer price index is the owners equivalent rent. Which is an assumption, based on, if those who own homes were to rent them what would they rent for.
The Fed fund rate is being held at 0% and probably will remain there through 2015. The government is willing to tolerate inflation to bring down the jobless rate. There is "quantitative easing" which is the printing of money and pushing it into the economy which eventually creates inflation. America is the only country who can get away with this as we have a global currency status. Our currency is trusted the world over. dispite that fact this practice will eventually translate into inflation.
The third factor is the deficit. The more than $3 Trillion dollar deficit is unsustainable, there is no free lunch.
The impact on citizens is the size of the debt will push up the cost of borrowing. A change in the payroll tax will reduce the amount of funds people will have to spend.
Lawrence predicts the mortgage interest deduction will remain because we Realtors will not allow it to be lost.
Interst rates will revert to normal levels and generate some $3 Billion in extra interest expenses.
The increase in rents, the printing of money, and the high deficit all point to higher inflation resulting in 15% or more by 2015.
The second forcast was that there will be meaningfully higher home prices; accumulatively 15% price gain in the next 3 years.
One the positive effect of the increased value is that many of the homeowners who are underwater will regain a positive value in their homes.
Buyers interest has shot up and sellers interest has remained consistent.
There are more people with jobs today but we are still short of what it used to be. This trend should continue in a positive direction. Lawrence examined the employment rate rather than the unemployment rate as people argue the unemployment rate is skewed by many factors. Regardless of the angle you approach this topic it must keep pace with the growth in the population and there must be 250,00 new jobs created each month over the next 8 years to out distance the growth rate.
Looking at the supply of homes. the supply of homes is at a historic low and demand is increasing. New construction is at a 50 year low. Impacted by the unavailability of money to the small builder only the large builder who have access to other resources are able to build now.
There is a shadow inventory, which is the number of homes in serious trouble but have not yet foreclosed, but will eventually come into play. Even with this factor, if builders cannot respond to the increased demand the prices will increase at a faster pace. If funds are made available to builders, there will be more inventory and the prices will not increase as quickly or as much.
Larences' third prediction was that there will be a continuing gap in the distribution in wealth.
There is a continuing increase in renters, and they do not accumulate wealth. Whereas, home owners buld wealth, especially after buying homes at lower prices. The average net worth of renters is around $5000 whereas home owners on average are at about $200,000. The wealth is going to a smaller group of home owners as less people are able to purchase. The best time for moderate income people to buy is when prices are lowest.Like in the current market.
The 4th forcast addressed economic development around the world and in specific areas of the country. I don't have space to go into each of them. A quick synopsis is that there is a limited amount of prime real estate and there are international buyers who are scooping it up now.
The bottom line is the train has left the station, the longer you wait the farther away people will be from building real wealth.
The fiancial industry is flush with cash.
His final prediction is that the given there is no event that creates a double recession the recovery will be strong.
I won't go into the other sessions here, This is getting a little long. I did attend the the Luxury Homes presentation which was excellent. and the Hands-On Guide to going Paperless another mega information session. And then there was the opening of the EXPO!!
This is part of a series of blogs on the NAR coference
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