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Lunchbox Economics
 

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Powerpoint presentation by Jed Smith, speaker. 2012 Winter Conference, Lunbox Economics program

Powerpoint presentation by Jed Smith, speaker. 2012 Winter Conference, Lunbox Economics program

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    Lunchbox Economics Lunchbox Economics Presentation Transcript

    • The Economic Outlook: What and Why Economic Issues & Trends Forum OAR 2012 Winter Conference January 23rd 2012 Hilton Columbus at Easton 3900 Chagrin Drive Columbus, Ohio Jed Smith Managing Director, Quantitative Research National Association of REALTORS®
    • Economic Outlook: What, How, and Why?• What is Forecasting?• What Is The Economic Outlook?• Why Do We Reach the Conclusions?• OAR Information: Comparing Ohio to the National Outlook.• What are the Risks, Uncertainties?• Could It Be Different?• What Do We Do? Implications and Conclusions.
    • The Economic Outlook U.S. and Ohio
    • What is Forecasting? The Outlook: Black SwansMajor Risks: Unknown Unknowns/Unanticipated Risks
    • What is Forecasting? Best of Times and Worst of Times Wisdom, Foolishness, Belief, Incredulity, Light, Darkness, Hope, Despair• The Outlook—Subject to MANY Major Risks and Uncertainties.• Longer Term Issues and Problems--Affecting Jobs. – State of the Economy. – Possible Structural Problem. – U.S. International Competitiveness.• Short Term Issues and Problems: U.S. Government Actions and Policies. – Spending and Taxing. – Deficits. – Emergencies.• Foreign Government Actions and Policies.• People Issues. – Changing Consumer Moods: Confidence, Personal Wealth, Lingering Effects of Recession. – Basic Disagreements: The American Future.• Economic Uncertainties – Foreclosures, Short Sales, Upside Down Homeowners, Down Payments, Credit Availability, Mortgage Interest Deductions, GSE Reform, Proposed Regulations, European Credit Markets, Oil Prices, Risk Aversion.
    • Outlook--Government Spending and Tax Receipts Major Area of Controversy!!! $ billion4200 Government Outlays37003200270022001700 Government Receipts1200700200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
    • The Forecast• 2011 2012 2013• Existing Home Sales 4.25 million 4.45 million 4.68 million• New Home Sales 303,000 352,000 540,000• Housing Starts 595,000 705,000 980,000• Existing Home Price $165,200 $168,500 $171,800• New Home Price $222,800 $227,000 $234,500• GDP Growth +1.7% +2.5% +3.1%• Payroll Job Gains +1.8 million +1.9 million +2.3 million Fed• Funds Rate 0.1% 0.1% 0.5%• 30-yr Mortgage 4.5% 4.3% 4.9%• Overall: A Continued Slow Recovery.• BUT• Subject to MANY Uncertainties.
    • The Economy—How We Got Here! Excessive Spending, Leverage, Permissive Financial Behavior Great Recession, Slow Recovery Key Issues: Credit, Balance Sheets, Confidence, Jobs, Nasty Disagreements, Grid LockMay Jun July Aug Sep 20092008 2008 2008 2008 2008
    • 20 00 20 - J 0 a 125000 135000 145000 20 0 - n 01 Ju 20 - J l 0 a 20 1 - n 02 Ju 20 - J l 0 a 20 2 - n 03 Ju 20 - J l 0 a 20 3 - n 04 Ju 20 - J l 0 a 20 4 - n 05 Ju 20 - J l 0 a 20 5 - n 06 Ju 20 - J l 0 a 20 6 - n 07 Ju 20 - J l 0 a 20 7 - n 08 Ju - l The Economy 20 Ja n 20 08- 09 Ju - l 20 -Ja 0 n Projected Time for Jobs Recovery: Four Years? 20 9-J 10 ul 20 -Ja 1 n 20 0-J Total U.S. Jobs: Non-Farm, Establishment Data 11 ul 20 -Ja 11 n -J ulSource: BLS
    • Household Wealth Major Impact from the Great RecessionFinancial Assets Recovering. Less Recovery in Real Estate. Households & Nonprofit Org: Total Financial Assets Households & Nonprofit Org: Assets: Total Owner-occupied Real Estate NSA, Bil.$ NSA,Bil.$60000 60000 24000 2400050000 50000 20000 2000040000 40000 16000 1600030000 30000 12000 1200020000 20000 8000 800010000 10000 4000 4000 0 0 0 0 80 85 90 95 00 05 10 80 85 90 95 00 05 10 Source: Federal Reserve Board 01/13/12 Source: Federal Reserve Board 01/13/12
    • Unemployment Need an Additional 11 Million JobsNumber Unemployed Unprecedented. Duration Unprecedented. Unemployed, 16 Years & Over: 16 yr + Average {Mean} Duration of Unemployment SA, Thous SA, Weeks16000 16000 45.0 45.014000 14000 37.5 37.512000 12000 30.0 30.010000 10000 22.5 22.5 8000 8000 15.0 15.0 6000 6000 4000 4000 7.5 7.5 75 80 85 90 95 00 05 10 75 80 85 90 95 00 05 10 Source: Bureau of Labor Statistics 01/10/12 Source: Bureau of Labor Statistics 01/10/12
    • A Unique RecessionDeep Dip In GDP, Jobs, Financial Assets, Consumer Confidence Real Gross Domestic Product % Change - Year to Year SAAR, Bil.Chn.2005$ 12 12 8 8 4 4 0 0 -4 -4 -8 -8 75 80 85 90 95 00 05 10 Source: Bureau of Economic Analysis 01/10/12
    • $ Billions -13000 12000 17000 7000 2000 -8000 -3000 1947 - Q1 1948 - Q3 1950 - Q1 1949 1951 - Q3 1953 - Q1 1954 - Q3 1953-54 1956 - Q1 1957 - Q3 1959 - Q1 1960 - Q3 1957-58 1962 - Q1 1963 - Q3 1960 1965 - Q1 1966 - Q3 1968 - Q1 1969 - Q3 1971 - Q1 1972 - Q3 1969-70 1974 - Q1 1975 - Q3 1973-75 1977 - Q1 1978 - Q3 1980 - Q1 1981 - Q3 1980 1983 - Q1 GDP, Annualized % Growth 1981-82 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1990-91 1993 - Q3 1995 - Q1 Real GDP 1996 - Q3 1998 - Q1 1999 - Q3 2001 - Q1 2002 - Q3 2001 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 Economic Activity – Post RecessionsSource: BEA 2008-09 2010 - Q1 0 5 -5 10 20 15 -15 -10 Percentage
    • Economic Recession Impact Change in Value - Real GDP ($ Bil.) 0 -29.5 -26.8 -31.2 -45.1-100 -62.7 -79 -109.4 -137.3 -131.9 -139.3-200-300-400-500-600 -553.5 Source: BEA, NAR
    • Consumer Spending: A Real Hit Real Personal Consumption Expenditures % Change - Year to Year SAAR, Bil.Chn.2005$8 86 64 42 20 0-2 -2-4 -4 75 80 85 90 95 00 05 10 Source: Bureau of Economic Analysis 01/10/12
    • Construction: Down Significantly Quasi Good News for Residential Total Construction: Nonresidential SAAR, Mil.$ Total Construction: Residential SAAR, Mil.$750000 700000675000 600000600000 500000525000 400000450000 300000375000 200000 02 03 04 05 06 07 08 09 10 11 Source: Census Bureau 01/10/12
    • Corporate Profits: Up Corporate Profits with IVA and CCAdj SAAR, Bil.$2000 20001600 16001200 1200 800 800 400 400 0 0 85 90 95 00 05 10 Source: Bureau of Economic Analysis 01/10/12
    • Problem of Major Concern “Where’s My Raise?” Average Weekly Earnings of All Employees: Total Private SA, 1982-84$/Week Average Weekly Earnings: Total Private Industries SA, $/Week360 800356 780 760352 740348 720344 700340 680 06 07 08 09 10 11 Source: Bureau of Labor Statistics 01/10/12
    • An International World Imports: Goods and Services, BOP Basis SA, Mil.$ Exports: Goods and Services, BOP Basis SA, Mil.$240000 200000200000 175000 150000160000 125000120000 100000 80000 75000 40000 50000 95 00 05 10 Source: Census Bureau 01/10/12
    • SA, Thousands 0 100 200 300 400 500 600 700 2000 - Jan 2000 - Apr 2000 - Jul 2000 - Oct 2001 - Jan 2001 - Apr 2001 - Jul 2001 - Oct 2002 - Jan 2002 - Apr 2002 - Jul 2002 - Oct 2003 - Jan 2003 - Apr 2003 - Jul 2003 - Oct 2004 - Jan 2004 - Apr 2004 - Jul 2004 - Oct 2005 - Jan 2005 - Apr 2005 - Jul Unemployment Ins Claims 2005 - Oct 2006 - Jan 2010 Avg: 4.5 million Insured Unemployed: 2009 Avg: 5.8 million 2011 YTD: 3.8 million 2006 - Apr 2006 - Jul 2006 - Oct 2007 - Jan 2007 - Apr 2007 - Jul 2007 - Oct 2008 - Jan 2008 - Apr 2008 - Jul 2008 - Oct 2009 - Jan 2009 - Apr 2009 - Jul Unemployment Rate 2009 - Oct 2010 - Jan 2010 - Apr 2010 - Jul 2010 - Oct 2011 - Jan 2011 - Apr 2011 - Jul Unemployment Remains Elevated 0 2 4 6 8 10 12 SA, PercentageSource: DoL, BLS
    • The Economy: Consumer Confidence Mediocre Conference Board: Consumer Confidence SA, 1985=100150 150125 125100 100 75 75 50 50 25 25 80 85 90 95 00 05 10 Source: The Conference Board 01/10/12
    • Washington Policy Impacts Tremendous Divisions of Opinions, Uncertainties, and Ill Will• Housing Proposals. – Raise down payment to 20%: Currently approximately 2/3 of buyers obtaining a mortgage put down less than 20 percent. – Limit mortgage interest deduction: high income/second homes? – Conforming Loan Limits.• Government Sponsored Enterprises. – Issues for resolution.• Washington Now Focused on Jobs and Economy. – Potential for many bad outcomes! – Creating a Job Climate vs. Creating Jobs. – Concern over economic circumstances. – Occupy ……….• Taxes, Benefits, Spending, Mortgages, and Uncertainties. – Who Pays Income Taxes? – Who Receives Entitlements? – Proposals for higher taxes vs. Decreased Spending. – Concern Over Deductions. – Mortgages: Fannie and Freddie model was flawed (private profit/taxpayer loss) and need a fundamental restructuring.
    • Economic Outlook: National and Ohio Tends to Track National Experience
    • Economic Outlook: National and Ohio Unemployment Rates Have Converged
    • Economic Outlook: National and OhioTracking National Experience but Slightly Below
    • Economic Outlook: National and Ohio Potential Shadow Inventory Higher
    • Economic Outlook: National and Ohio Employment Has Lagged—And Jobs are Key
    • Factors Impacting Real Estate Markets J.P. Morgan: “It will fluctuate, young man. It will fluctuate.”• Employment: Jobs Jobs Jobs Jobs Jobs Jobs.• Outlook. – Positive—Lending Opens Up, Uncertainties Resolved. – Negative—Adverse Washington Policies.• Interest Rates.• Household Wealth.• Value of the Dollar.• Inflation Expectations.• Credit Standards.• Consumer Confidence.
    • Residential MarketsModest Recovery Seems To Be In Sight Slowly Recovering Economy
    • 0% 20% 30% 40% 50% 60% 10% 200810 200811 200812 200901 200902 200903 200904 200905 200906 200907 200908 200909 200910 200911 200912 201001 201002 201003Foreclosed 201004 201005 201006 Distressed Property 201007Short Sale 201008 201009 201010 201011 201012 Currently at 32 Percent of Total Existing Home Sales 201101 201102 201103 201104 201105 201106 Major Impact--Price and Consumer Confidence 201107 201108 201109 201110 201111 Distressed Sales: 30% to 40% of Transactions 201112
    • Monthly Existing Home Sales Compare to Ten Years Ago: Any Upscale Potential?• Have Fluctuated For Three Years, but Essentially Flat.• Market Drivers. – Jobs the key issue. – Unemployment a problem. – Credit requirements. – Consumer Confidence an Issue. – Expectations an Issue. – Family formations.• All Markets are Local.• Rules of Thumb. – Existing Home Sales. • Two Sales = One Job. – New Construction. • Two Sales = Four Jobs.
    • Residential Markets Showing Modest Signs of Recovery Realtor Confidence Up Buyer and Seller Traffic Up Single Family Market Conditions Single Family Homes50.0 70.045.0 60.040.035.0 50.030.0 40.025.0 30.020.015.0 20.010.0 10.0 5.0 0.0 0.0 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 201104 201107 201110 Apr08 Apr09 Apr10 Apr11 Jan08 Oct08 Jan09 Oct09 Jan10 Oct10 Jan11 Oct11 Jul08 Jul09 Jul10 Jul11 Current Confidence SF Confidence in Oulook--SF Buyer Traffic Seller Traffic
    • 10% 15% 20% 25% 0% 5% 201009 201010 201011 201012 201101 201102Investor 201103 201104 201105 201106Second Home 201107 201108 Investors Continue to Find 201109 Residential Markets Attractive 201110 201111 201112 10% 20% 30% 40% 50% 60% 200810 0% 200812 Up Demand 200902 200904 200906 200908 200910 200912 201002 201004 201006First Time Buyer 201008 201010 First Time Buyer 201012 201102 201104 201106 201108 Investor Activity May be Creating Some Pent 201110 201112
    • Challenges and Opportunities Realtors Report Apartment Rents Rising Realtors Experienced Appraisal Problems in 35% Year-Over-Year of Contracts During Past Three Months60% 25%50% 20%40% 15%30% 10%20% 5%10% 0%0% 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 201103 201105 201106 201107 201108 201109 201110 201111 201112 201104e Higher Rents Lower Rents Contract Cancelled Contract Delayed Negotiated to Lower Price
    • Commercial SectorForecasting a Modest Recovery
    • U.S. Commercial Fundamentals OFFICE 2011 2012 2013 Vacancy Rate 16.6% 16.3% 15.9% Net Absorption (000 sq. ft.) 20,178 31,700 53,000 Completions (000 sq. ft.) 11,659 25,474 37,847 Rent Growth 1.4% 1.7% 2.4%• Commercial Real Estate. INDUSTRIAL 2011 2012 2013 – Stabilization of fundamentals. Vacancy Rate 12.4% 11.9% 11.1% – Demand turns positive. Net Absorption (000 sq. ft.) 61,957 41,249 59,855 Completions (000 sq. ft.) 20,462 26,947 54,881 – Vacancy Rates elevated but Rent Growth -0.5% 1.8% 2.3% declining. – Rent Growth edging up. RETAIL 2011 2012 2013 Vacancy Rate 12.9% 12.2% 11.0% Net Absorption (000 sq. ft.) 1,238 13,547 23,330Source: NAR / REIS Completions (000 sq. ft.) 4,207 12,677 19,878 Rent Growth -0.2% 0.7% 1.4% MULTI-FAMILY 2011 2012 2013 Vacancy Rate 5.4% 4.6% 4.5% Net Absorption (Units) 238,398 126,621 102,687 Completions (Units) 38,014 88,839 93,706 Rent Growth 2.5% 3.5% 3.8%
    • U.S. Commercial Markets U.S. Sales Volume $160 Apartment Hotel Industrial Office RetailBillions $140 $120 $100 $80 $60 $40 $20 $0 05Q4 08Q3 11Q2 05Q1 05Q2 05Q3 06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q3 11Q4 Source: Real Capital Analytics
    • 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2001.1 3 5 7 9 11 2002.1 3 5 7 9 11 2003.1 3 5 7 9 11 2004.1 3 5 7 9 11 2005.1 3 5 7 9 11 2006.1 3 5 7 MIT CPPI 9 11 2007.1 3 5 7 U.S. Prices 9 11 2008.1 3 5 7 9 11 2009.1 3 5 7 9 11 2010.1 3 5 7 9 11 from peak 2011.1 Down 41% 3 5 7Source: Real Capital Analytics, MIT
    • 90.00 110.00 130.00 150.00 170.00 190.00 210.00 2000Q4 2001Q1 2001Q2 2001Q3 2001Q4 2002Q1 2002Q2 2002Q3 2002Q4 National 2003Q1 Apartments 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 National Industrial 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 Commercial Property Price Index Office 2007Q4 National 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 U.S. Prices by Property 2009Q3 2009Q4 Retail 2010Q1 National 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2Source: Real Capital Analytics, Moodys
    • Foreign Investments: Modest Rebound Cross-border Investment in U.S. CRE $14 Apartment Industrial Office RetailBillions $12 $10 $8 $6 $4 $2 $- Source: Real Capital Analytics; *through 11/2011
    • Distress Moderates - Resolutions Improve Cummulative Distress $400 Troubled REO Restructured ResolvedBillions $350 $300 $250 $200 $150 $100 $50 $- J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N 2008 2009 2010 2011 Source: Real Capital Analytics
    • Commercial Real Estate Financing Public Equity Monthly US REIT Equity Issuance ($ Mil)14,00012,00010,000 8,000 6,000 4,000 2,000 - J 06M M J S N J 07M M J S N J 08M M J S N J 09M M J S N J 10M M J S N J 11M M J S N Source: NAREIT
    • Commercial Real Estate Financing Public Debt Monthly CMBS Issuance ($ Mil)50,00045,000 517940,000 4313 373435,000 3371 3181 295730,000 2694 2159 1704 1825 183025,000 1449 1492 120120,000 639 632 250 400 310 0 0 81 83 53151 15615,000 J J A S O N D J F MAM J J A S O N D J F MAM J J A S 10 1110,000 5,000 - J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S 06 07 08 09 10 11 Source: Commercial Mortgage Alert
    • Commercial Outlook Realtors® Commercial Market Survey Numbers are Flat Compared with Previous Quarters• REALTORS® Commercial Activity – 2011.Q3• Sales Volume Compared with Previous Quarter Down 6%• Sales Volume Compared with Previous Year Down 0.2%• Sales Prices Compared with Previous Quarter Down 8%• Sales Prices Compared with Previous Year Down 13%• Expected Inventory Availability for the Next 12 Months Up 6%• Expected Cap Rate Movement for the Next 12 Months Up 3 bps• Rental Volume Compared with Previous Quarter Down 2%• Rental Rates Compared with Previous Quarter Down 7%• Level of Rent Concessions Compared with Previous Quarter Up 2%• Business Opportunities Compared with Previous Quarter Down 3%• Volume of New Construction Compared with Previous Quarter Down 10%
    • Commercial Sector—Ohio Outlook: Will Probably Continue to Track U.S. Experience Rolling 12 Month Total Sales US vs. Columbus/Cleveland/Cincinnatti/Dayton300,000.0 3,500.0 3,000.0250,000.0 2,500.0200,000.0 2,000.0150,000.0 1,500.0100,000.0 1,000.0 50,000.0 500.0 0.0 0.0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 US Ohio
    • Focus on Outlook--Commercial• Recovery Expected to be Slow. – Class A properties—some improvement, at expense of other properties. – Terms still favorable for tenants, including concession packages, rental rates, prospective tenants slow to sign.• Substantial talk of market stabilizing, longer run reduced supply due to decreased building.• Focus on value.• Jobs Issue—Unfortunately we are not producing a lot of jobs.
    • Conclusions and Implications• Positive and Negative Outlooks—Highly Dependent on Economic Policy.• Many Uncertainties, Black Swans, and Potential Surprises.• U.S. A Substantial Economy, but Major Problems.• Significant Division of Opinions Concerning Entitlements, Spending, and the American Dream.• Continued Concern: Markets and Prices.• Major Issues: Confidence, Attitudes.
    • Conclusions and Implications• Business Outlook: 2012 Probably a Little Better than 2011.• Working with Clients. – Prices Probably at Bottom. – Still a substantial market—over 4 Million Sales. – Homeownership Still the Dream. – Affordability and Prudence Important. – Current Market Developments at Realtors.org.• Marketing Is Probably the Key. – Still a Big Market.
    • Conclusions and Implications Educating the Client: “Just The Facts”For More Information• Profile of Home Buyers and Sellers – National Survey – Ohio Survey• Statisticshttp://www.ohiorealtors.org/?page_id=952http://www.realtor.org/• Information Sources – Facebook: http://www.facebook.com/narresearchgroup – Twitter: http://twitter.com/#!/NAR_ResearchNational Association of Realtors: – http://www.realtor.org/research/index.html• State Sales and Metro Prices – http://www.realtor.org/research.nsf/pages/ehspage• Daily Commentary and Quick Take: – http://www.realtor.org/research/research_commentary.html• Metro and State Analysis: – http://www.realtor.org/research.nsf/pages/MetroHomePriceAnalysisReports