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Commercial Forum Presentation: Economic Outlook in Uncertain Times

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A look at the commercial market and the outlook.

A look at the commercial market and the outlook.

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    Commercial Forum Presentation: Economic Outlook in Uncertain Times Commercial Forum Presentation: Economic Outlook in Uncertain Times Presentation Transcript

    • Economic Outlook in Uncertain Times
      Lawrence Yun, Ph.D.
      Chief Economist
      NATIONAL ASSOCIATION OF REALTORS®
      Presentation at NAR Annual Meeting
      New Orleans, LA
      November 5, 2010
    • Federal Reserve FOMC
      • Ben Bernanke (Chairman):
      • “Outlook remains unusually uncertain”
      • Alan Greenspan (former Chairman):
      • “If home prices start falling again, we could be facing a double-dip recession”
      • James Bullard (St. Louis Fed):
      • “The U.S. is closer to a Japanese-style deflationary outcome”
      • Thomas Hoenig(Kansas City Fed):
      • “Too rapid money creation results in eventual high inflation”
    • U.S. Private Sector Job Gains(863,000 from Jan. to Sep. 2010)
      Month-to-month job gains in thousands
    • Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)
    • How Many Years to Get Job Market Back to Normal?
    • GDP Growing, but Decelerating
      annualized % growth rate
    • Consumer Expenditure (Inflation adjusted in GDP accounting)
      $ billion
    • Personal Income(Inflation adjusted, with and without government transfer payments)
      $ billion
    • Savings Rate
    • Corporate Profits and Business Spending
      $ billion
    • U.S. Private Sector Job Gains(763,000 from Jan. to Aug. 2010)
      Month-to-month job gains in thousands
    • Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)
    • How Many Years to Get Job Market Back to Normal?
    • Local Job Market Differences
    • Total Payroll Jobs in Michigan
      In thousands
      Source: BLS
    • Total Payroll Jobs in Washington D.C. Metro
      In thousands
      Source: BLS)
    • Weekly 1st time Unemployment Claims: Need to Fall Further
      In thousands
    • Real Estate Price
      Residential: Case-Shiller
      Commercial: MIT
    • Imports and Exports
      $ billion
    • U.S. Dollar Strength
      Federal Reserve Board’s Trade Weighted Exchange Value of $
    • Retail Sales(Raw nominal dollar figures)
      $ million
    • Retail Sales (adjusted for inflation)
      5% higher
      From 2000
    • Homeownership Rate
    • REALTORS® Commercial Activity: 2010.Q2
    • 2010.Q3:
      UP 115% Y-o-Y
    • REALTORS® Commercial Activity: 2010.Q2
    • 10-Year Treasury impacted by Inflationary Expectations
    • Inflationary Pressure ?
    • U.S. Budget Deficit
      Source: CBO, NAR estimate
    • Baseline Outlook
      • Moderate GDP Expansion 2 to 2.5% in the next 2 years (historical average is 3%)
      • 1.5 million annual job additions in the next 2 years
      • Unemployment rate of 8% in 2012 … and normal 6% in 2015
    • Baseline Outlook Cont.
      • Commercial lending to steadily improve … because of record high bank profits
      • Net absorption steadily improve … because of recovering job market
      • Rents stabilize (but no meaningful increase) … because of very low newly built inventory
      • Cap rate falls … price floor established and because of improved investor confidence (to move money out of low yielding Treasuries)
    • Alternative Outlooks
      • High inflation … people desire tangible investment like real estate, but interest rate will be higher
      • Deflation … investors hold back for better price … holds back economy
      • Budget deficit tipping point … higher interest rate and sharp cut back in standard of living
      • Sharp 4% to 5% GDP growth … business spending returns in line with profits … faster job creation … faster commercial market recovery