Real estate march 2012

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Real estate march 2012

  1. 1. Economic Trends & Implications for Treasure Valley Real Estate Presented by Brian Greber March 8, 2012© Brian J Greber 2012 1
  2. 2. INTRODUCTION Brian Greber, Ph.D. B.S. Forestry (WVU) M.S. (WVU), Ph.D.(VT) Resource Economics 19 years industry/executive experience (most recently VP Marketing & Technology in a Fortune 100 Forest Products Firm) 14 years teaching, research, policy experience at universities (VT, OSU, BSU) Lots of public policy work at the state & federal levels Have own business Live in Boise – avid fitness buff and enjoy most things outdoors Active with not-for-profits (Pres. The Arc Board) Great family – 2 kids and “lifelong best friend” © Brian J Greber 2012 2 5-2
  3. 3. © Brian J Greber 2012 3
  4. 4. The Business Cycle Peak PeakLevel of Real Output Peak Trough Trough Common link = Unexpected changes in spending that are often more psychological than structural Time © Brian J Greber 2012 4
  5. 5. US Economy In Perspective: Historic GDP Growth Real US GDP 1929-2011 (Billion 2005 Chain Weighted $s)14,000 1929-2010 3.63% 1950-2010 3.27%12,000 1970-2010 3.03% 1990-2010 2.89%10,000 8,000 6,000 4,000 2,000 0 Source:bea.gov 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 © Brian J Greber 2012 5
  6. 6. US GDP Growth through Q4 2011: Believe it or not, the economy is expanding at an OK pace! 10 Qtrs of growth Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product [Percent] Seasonally adjusted at annual rateswww.bea.gov © Brian J Greber 2012 6
  7. 7. US GDP Growth through Q4 2011 :Personal Consumption vs. Investment Volatility is in Investment! www.bea.gov © Brian J Greber 2012 7
  8. 8. US GDP Growth through Q4 2011 :Nonres Structures and Residential www.bea.gov © Brian J Greber 2012 8
  9. 9. US Economy In Perspective: Historic Unemployment US Unemployment Rate: January 1948-January 201212.0 1950-2012 5.810.0 1970-2012 6.3 1990-2012 6.0 2000-2012 6.2 8.0 2009-2012 9.2 6.0 4.0 2.0 0.0 1948 1949 1950 1951 1953 1954 1955 1956 1958 1959 1960 1961 1963 1964 1965 1966 1968 1969 1970 1971 1973 1974 1975 1976 1978 1979 1980 1981 1983 1984 1985 1986 1988 1989 1990 1991 1993 1994 1995 1996 1998 1999 2000 2001 2003 2004 2005 2006 2008 2009 2010 2011 Source:bls.gov © Brian J Greber 2012 9
  10. 10. US Economy In Perspective: Historic US Residential Construction US Housing Starts 1960-2012 (Thousands of New Privately Owned Units)3000 1960-2012 1478 1970-2012 1495 1990-2012 13742500 2000-2012 1376 2009-2012 586 Demographic Trend 13502000 That ‘s1500 encouraging!1000 That ‘s bad! 500 0 Source:stlouisfed.org 1960-01 1961-04 1962-07 1963-10 1965-01 1966-04 1967-07 1968-10 1970-01 1971-04 1972-07 1973-10 1975-01 1976-04 1977-07 1978-10 1980-01 1981-04 1982-07 1983-10 1985-01 1986-04 1987-07 1988-10 1990-01 1991-04 1992-07 1993-10 1995-01 1996-04 1997-07 1998-10 2000-01 2001-04 2002-07 2003-10 2005-01 2006-04 2007-07 2008-10 2010-01 2011-04 © Brian J Greber 2012 10
  11. 11. What Caused the Collapse?• Housing Bubble – Artificial, not real demand supported housing quantity and price appreciation. – Investment-based saturation of housing market in “sunshine states”• Investment stops; • Home price appreciation stops – Investors begin to “sell off positions” – “demand became supply” as the base of existing homes for sale grew, » Home prices fall • Investments on a downward spiral• Homes significant part of economic engine • Slow down in economy generates unemployment• “Creative” Mortgages come up for refinancing – Mortgages “upside down” – house is worth less than current note, can only refinance portion of pay-off amount.• Unemployment, upside down mortgages lead to foreclosures – Foreclosure sales expanded the case of existing homes for sale, again “demand became supply” » Home ownership on a downward spiral © Brian J Greber 2012
  12. 12. “Can’t Lose …..” © Brian J Greber 2012 12
  13. 13. Let’s get creative …. Source: www.calculatedrisk.com © Brian J Greber 2012 13
  14. 14. Easy come, easy go …. © Brian J Greber 2012 14
  15. 15. 50.00 0.00 100.00 150.00 200.00 250.00 1987-01 1987-09 1988-05 1989-01 1989-09 1990-05 1991-01 1991-09 1992-05 1993-01 1993-09 1994-05 1995-01 1995-09 1996-05 1997-01 1997-09 1998-05 1999-01 1999-09 2000-05 2001-01 2001-09 2002-05 2003-01© Brian J Greber 2012 2003-09 2004-05 Copyright, 2011, Standard & Poors Financial Services LLC. Reprinted S&P -Case-Shiller 10 City Home Price Index 2005-01 Historic US Residential Prices 2005-09 2006-05 2007-01 2007-09 2008-05 2009-01 2009-09 House Prices Moderating: 2010-05 2011-01 2011-09 15 Source:stlouisfed.gov
  16. 16. May be even better than that… NAHB/Wells Fargo Housing Opportunity Index 1992-2011 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1992.3 1995.1 1996.1 1997.1 1998.3 1999.3 2000.3 2004.3 2005.3 2006.3 2009.1 2010.1 2011.1 1992.1 1993.1 1993.3 1994.1 1994.3 1995.3 1996.3 1997.3 1998.1 1999.1 2000.1 2001.1 2001.3 2004.1 2005.1 2006.1 2007.1 2007.3 2008.1 2008.3 2009.3 2010.3 2011.3 2002Source: www.nahb.org. Index = percentage of homes sold in a given area that are affordable to families earning that area’smedia income during a specific quarter. © Brian J Greber 2012 16
  17. 17. Signs of a Return to Normalcy: Home Ownership Rates © Brian J Greber 2012 17
  18. 18. A word of caution: Home Vacancy Rates © Brian J Greber 2012 18
  19. 19. Where are they living? © Brian J Greber 2012 19
  20. 20. Conclusion• Global economy is in doldrums• US economy is showing signs of recovery• Housing is lagging, – At the bottom? © Brian J Greber 2012 20
  21. 21. © Brian J Greber 2012 21
  22. 22. What drives Idaho economic growth? New Money!!!In a regional economy, if the activity does not bring in outside dollars, you are simply “redistributing the wealth” and the jobs. © Brian J Greber 2012 22
  23. 23. 3 key components of Idaho’s legacy growth1. Natural resources2. Scalable entrepreneurship • Focused on new money • Much of this focused on natural resources3. In-migration • Bringing with it personal wealth. © Brian J Greber 2012 23
  24. 24. In-migration: last decade contributed 1.06%/yr to population Idaho Housing Fundamentals 2010 2000 1990 1980Totals Population 1,567,582 1,293,955 1,006,734 943,935 Households 579,408 469,315 360,718 324,107 Housing Units 667,796 527,825 413,322 375,200Annual Change (Decade Prior) Population 27,363 28,722 6,280 Households 11,009 10,860 3,661 Housing Units 13,997 11,450 3,812Annual Average (Decade Prior) Housing Permits 12,475 10,693 3,944Annual "Gap" Change in Housing Units vs Households 2,988 591 151 Housing Permits vs Change in Households 1,466 (167) 283Decade "Gap" Change in Housing Units vs Households 29,878 5,906 1,511 Housing Permits vs Change in Households 14,658 (1,669) 2,826 Source: US Census Bureau www.census.gov © Brian J Greber 2012 24
  25. 25. Idaho Building Permits January2001- January2012Idaho Chips Away at the Overhang….. 2500 Total Units Units in Single-Family Structures Single Family Average 84% 2000 Peak in 2005, 20,256 units 1500 1000 Trough in 2011, 3.253 units 500 0 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 2009 2010 2011 2011 2001 2001 2001 2002 2002 2003 2003 2003 2004 2004 2005 2005 2005 2006 2006 2007 2007 2007 2008 2008 2009 2009 2010 2010 2010 2011 2011 2012 Source: US HUD (huduser.org) © Brian J Greber 2012 25
  26. 26. Ada/Canyon County Building Permits January2001- January201250% of Activity in Treasure Valley….. 1400 Total Units Units in Single-Family Structures 1200 Single Family Average 87% 1000 Peak in 2005, 11,163 units 800 600 400 Trough in 2010, 1,647 units 200 0 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 2009 2010 2011 2011 2001 2001 2001 2002 2002 2003 2003 2003 2004 2004 2005 2005 2005 2006 2006 2007 2007 2007 2008 2008 2009 2009 2010 2010 2010 2011 2011 2012 Source: US HUD (huduser.org) © Brian J Greber 2012 26
  27. 27. Keys to Idaho Housing Recovery• National housing market recovery – In-migration spurred by housing liquidity in other states • Influences retirement, second homes, business relocation• Local employment strength – Drives household formation – Ownership rates – Stems foreclosures• “Devouring the Inventory Overhang” – 1+ years worth of housing activity – Could take as much as 4 years to absorb (clock started in 2011) © Brian J Greber 2012 27
  28. 28. Idaho Recovery: dependent on new money• Idaho will lag the U.S. out of the economic doldrums. Two national waves must roll in to lift the Idaho economic boat.• The first wave is an increase in U.S. business investment. • As U.S. businesses sense a looming recovery, they will invest in Americas neglected industrial infrastructure to better serve the recovery. • This will ripple back to Idaho businesses directly serving this activity, such as electronics and engineering/business services.• The second wave is national housing recovery. • This will help natural resource and building products sectors, but the more significant impact is • Make it affordable to EXIT other regions to restart in-migration (which has fallen from 1.87% in 2007 to 0.44% in 2010! © Brian J Greber 2012 28
  29. 29. Despite Housing: Idaho Is RecoveringObjective BSUs Idaho Leading Index vs Historic GDP: Jun 2012 Real GDP Index 53,500 110 108 52,500 106 51,500 GDP in Million Chain Weigted 2005 Dollars 104 BSUs Idaho Leading Index 50,500 102 49,500 100 98 48,500 96 47,500 94 46,500 92 2011 and 2012 GDP estimated using the Governors Personal Income Increase Forecasts 45,500 90 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 www.cobe.boisestate.edu/businessresources © Brian J Greber 2012 29
  30. 30. Idaho Is Recovering: Employment LagsObjective 670 BSUs Idaho Leading Index vs Historic Employment: Jan 2012 Actual Employment Index 115 650 110 630 105 Idaho Employment in Thousands BSUs Idaho Leading Index 610 100 590 95 570 90 550 85 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 www.cobe.boisestate.edu/businessresources © Brian J Greber 2012 30
  31. 31. © Brian J Greber 2012 31
  32. 32. Conclusions• The economy, national and regional, is poised for growth in 2012-2013 – In fact, the economy has been expanding over the past 2+ years• Business investment will precede residential, nationally and regionally.• The Idaho residential construction market will lag the national recovery with a significant lag.• Visit our website: http://cobe.boisestate.edu/businessresources/ © Brian J Greber 2012 32

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