EMPLOYMENT: LEADING INDICATORS (YEAR-OVER-YEAR GROWTH) P:Big BookCurrent ChartsAdminEcon.xls Worksheet EmpIndicators Last Update 5/7/2010 9:13:55 AM Leading indicators - temp employment and hours worked - are sending strong positive signals of an employment rebound. Job growth of 162k in march set the stage for further gains this year. The forecast calls for 85k/month, but pent-up demand (up to 3 million) could drive stronger gains.
P:Big BookCurrent ChartsAdminEcon.xls Worksheet Exports&GDP Last Updated 5/4/2010 Created: 1/26/2010 One of the key lessons of the financial crisis is that Americans have lived beyond their means. Seduced by low interest rates and an abiding faith in the resilience of the U.S. economy, households piled on debt, driving a credit-fueled boom in housing and consumer spending. From an international perspective this resulted in a gaping current-account deficit: at its peak in 2006 we collectively consumed $800 billion (6% of GDP) more than we produced, financing most of the difference with foreign borrowing. Time to pay the piper. Whether by dint of will (due to the destruction of wealth) or necessity (due to a dearth of credit), Americans are saving more. Consumers might loosen their purse strings as financial conditions improve, but they are too indebted to drive the next growth cycle. That role will fall to exports, as stronger international economies fuel demand for U.S. products, possibly encouraged by a further depreciation of the dollar. Only by tightening our belts and sending more of our output abroad will we be able to repay our debts to the rest of the world.
FEDERAL DEBT HELD BY THE PUBLIC (% OF GDP) P:Big BookCurrent ChartsAdminEcon.xls Workbook Debt LastUpdate 5/4/2010 Created: 5/4/2010 The CBO’s “baseline” forecast predicts that debt held by the public will decline over the next 10 years. But as the CBO points out, this is predicated on several dubious assumptions, including that the Bush tax cuts will expire, the alternative minimum tax (AMT) will ensnare more taxpayers, and discretionary spending will grow by just 1.5% annually (it increased by 7.5% annually from 1999 to 2008). Under a more realistic (“alternate”) scenario, where the tax cuts are made permanent, the AMT is indexed to inflation, and discretionary spending keeps pace with the economy, the debt would climb to nearly 90% of GDP. This is not unprecedented: it reached 113% of GDP at the end of World War II. But whereas massive postwar spending cuts put the budget back on track, this recourse is not available today (defense spending was 37.5% of GDP in 1945 but only 4.6% of GDP in 2009). And decommissioning was hardly painless: GDP plunged 13% from 1945 to 1947 (it fell 3.8% in the “Great Recession” of 2008–09).
P:Big BookCurrent ChartsAdminApartment.xls P:Big BookCurrent ChartsAdminApartment.xls created 2008 TempID ID LastUpdate 5/3/2010
P:Big BookCurrent ChartsAdminApartment.xls LastUpdate 5/3/2010 Latest data available 09Q4. The percent of loans enter foreclosure dropped from 1.5% in 09Q2 to 1.1% in 09Q4 (b/c of federal pressure and HAMP). But the % of all loans past due continued to rise, reaching 9.5% in Q4, up from 7.9% in Q408. Historical avg % of all loans past due is 5%. Notes 5/6/10 KP
P:Big BookCurrent ChartsAdminApartment.xls P:Big BookCurrent ChartsAdminApartment.xls chart created in 2008 TempID NA-AP-97 LastUpdate 5/3/2010
P:Big BookCurrent ChartsApartmentAdmin5CoStar.xls P:Big BookCurrent ChartsApartmentAdmin5CoStar.xls created in 2009 LastUpdate 5/4/2010 Yes, cap rates seem to be stabilizing, but the transactional activity is skewed to core, coastal markets and well located, desirable assets. Meaning- high priced assets! That is not the entire market. Plus, since conditions have worsened and buyers are capping in place income, of course cap rates have fallen! With few high-quality, performing apartment assets for sale and an abundance of capital seeking to invest, some assets have seen dozens of bids. The competition is fierce and is driving pricing: national transaction-based apartment cap rates have dropped significantly, and the weighted average price per unit has risen. Notes still relevant 5/4/2010 KP
P:Big BookCurrent ChartsApartmentskewed apt volume.xls Updated 4/1/10 Created Q1 10 The market is not uniform; in fact, it is increasingly bifurcated, with prices of Class A coastal assets rising and those of lesser-quality buildings in markets like Orlando continuing to slump. Moreover, the national average is increasingly skewed towards the pricier metros: while sales activity in D.C., the New York tri-state area, and Southern California has historically constituted less than 40% of total PPR54 transaction volume, the proportion has jumped to almost 60% in recent months. The shifting composition of transaction activity distorts the national figures in two ways. First, since the average includes more expensive assets and fewer cheaper ones, it creates an illusion of appreciation. Second, it neglects value declines in non-traded assets and therefore over-weights gains in traded ones. Notes 5/7/10 KP
Mark Obrinsky at the Apartment Strategies Conference
Economic and Apartment Market Outlook May 2010
Road To Recovery <ul><li>Are We On The Cusp Of A Sustained Recovery? </li></ul><ul><li>Or Do Recent Indicators Reflect Only Temporary Strength? </li></ul>
The Recovery Appears Underway GDP Growth Source: Bureau of Economic Analysis; NMHC.
JOB GROWTH IS KICKING INTO GEAR EMPLOYMENT: LEADING INDICATORS (YEAR-OVER-YEAR GROWTH)
Employment Growth is Expected to Gain Momentum in 2011 and 2012 – Could It Surprise to the Upside? Sources: Marcus & Millichap Research Services, BLS Change Historical Avg. Emp Growth ** Based on employment for the 12 months after the contraction period ***Based on employment for the 2 nd and 3 rd years after the contraction period * Forecast
Job Growth is Critical to Renter Household Formation and Apartment Occupancies – Where Will It Come From? Apartment Vacancy Rate Unemployment Rate * Through 1Q Sources: Marcus & Millichap Research Services, BLS, Reis
Yield Curve Signals Stronger Economic Expansion Than Most Forecasts Spread between 10yr Note and 3mth Bill * Through April Recessions * Through April Sources: Marcus & Millichap Research Services, Federal Reserve
U.S. Household Debt as a Percent of GDP Source: Federal Reserve Board; NMHC.
PUBLIC DEBT POSES LONG-TERM RISKS FEDERAL DEBT HELD BY THE PUBLIC (% OF GDP)
The For-Sale Housing Market What Kind Of A Recovery? And When?
Homeownership Well Below The Peak Source: Census Bureau.
5% 10% 15% 20% Percentage Ratio of Median Home Price to HH Income Mortgage Rate YOY Change in Median Home Price HOME OWNERSHIP IS MUCH MORE AFFORDABLE As of: 10Q1 Sources: Freddie Mac, Moody’s Economy.com, NAR 0 1 2 3 4 5 6 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Ratio (20%) (15%) (10%) (5%) 0%
87 89 91 93 95 97 99 01 03 05 07 09 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Past Due 30 Days Past Due 60 Days Past Due 90 Days Percent of All Loans Started Foreclosure Percent of Loans Past Due (SA) Foreclosures Started as Percent of All Loans FORECLOSURE ACTIVITY ISN'T OVER Sources: MBA, Moody’s Economy.com As of: 09Q4 0 2 4 6 8 10 12 79 81 83 85
Homeowner Vacancy and Renter Occupied Housing Source: Census Bureau; NMHC.
ANYONE WANNA BUY A SINGLE FAMILY HOUSE? As of: 10Q1
The Apartment Market Will Too Little Supply Give Way To Too Little Demand? When?
“ Shadow” Market a Significant Factor in High Vacancies – More in Select Metros Total Vacant Units (in 000s) Sources: Marcus & Millichap Research Services, U.S. Census Bureau
Beyond Stabilization in 2010, Apartments Will Likely Enter Rapid Recovery Number of Units (000s) Average Vacancy Rate * Forecast Sources: Marcus & Millichap Research Services, Reis
Trends in Young Adults Living at Home Point to Significant Pent-Up Renter Demand Living with Parents (millions) Note: Unmarried college students living in dormitories are counted as living in their parents home Sources: Marcus & Millichap Research Services, Bureau of Census 2005-2009 Increase: 2.2 Million
APARTMENT PRICING LOOKS TO BE RECOVERING Source: CoStar Group As of: April 2010
U.S. Quarterly Apartment Sales Trends Capital Flows Favoring Apartments Total Dollar Volume ($Bil.) Total Transactions (Ths.) Total Dollar Volume Total Transactions * Preliminary Estimate Includes transactions sold for $1,000,000 and greater Excludes Archstone Privatization Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
24 – Month Cap Rate Adjustment Matrix * Primary Secondary Tertiary Class “A” Class “B” Class “C” 1.00 1.25 1.75 1.25 1.75 2.25 2.25 2.75 2.00 * Change in cap rates last 24 months
TRADING IN MAJOR COASTAL METROS IS SKEWING THE AVERAGE Sources: PPR, CoStar Group As of: 10Q1
MULTIFAMILY DISTRESSED AND NON-DISTRESSED SALES Non-distressed Sales Distressed Sales Distressed Sales as % of Total 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 1998 1q 1999 1q 2000 1q 2001 1q 2002 1q 2003 1q 2004 1q 2005 1q 2006 1q 2007 1q 2008 1q 2009 1q 2010 1q 0% 5% 10% 15% 20% 25% 30% Number of Transactions Percentage of Distressed Transactions Sources: PPR, CoStar Group