an economic and real estate forecast for ’12 ’13 · an economic and real estate forecast for...

Déjà Vu All Over Again

An Economic and Real Estate Forecast for ’12-’13 Ted C. Jones PhD -- Chief Economist -- Stewart Title

http://blog.stewart.com/Ted

Mega Themes

• Time to Over Weight in Real Estate

• Residential Renting vs. Owning

• Fiscal Cliff

• Massive Uncertainty from Washington, DC…… and the Election

Capital Gains Rate in 2013? Was 15 Percent No Vote Says 20 Percent 3.8 Percent Obamacare Tax SO Minimum 23.8 Percent Obama “Likes” 35 Percent

128

130

132

134

136

138

'07 '08 '09 '10 '11 '12

U.S. Job Numbers

Jobs (Millions) Seasonally Adjusted

4.268 Million Fewer vs. Jan 2008 171,000 Gained in October 2012

U.S. Unemployment Rate

0

90 92 94 96 98 '00 '02 '04 '06 '08 '10 '12

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Recession

Percent Seasonally-Adjusted

Joke

Not in the Work Force – Seasonally Adjusted

0

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

65

70

75

80

85

90

Recession Millions of People

People Are Considered

Not in the Work Force If They Have

Not Looked for a Job In the Past Four weeks

8.97 Million People Increase Since January 1 2009

http://taxfoundation.org/files/2012_tax_foundation_index_bp62.pdf

Colorado – 16th Best Business Tax Environment

Seasonally-Adjusted Data

September Data Comparison

Percent Percent Number

Change Change Jobs

Prior Since Sept 2012

State 12 Months Peak* (Thousands)

Alabama 0.68% -6.61% 1,878.3

Alaska 0.76% 2.19% 330.6

Arizona 2.20% -7.86% 2,469.5

Arkansas 0.94% -3.68% 1,165.5

California 1.86% -5.62% 14,347.9

Colorado 1.65% -2.59% 2,300.2

Connecticut 0.12% -5.06% 1,626.1

Delaware 0.05% -5.90% 416.2

Dist of Columbia 0.90% 4.13% 739.6

Florida 0.87% -8.93% 7,349.8

Georgia 1.45% -5.18% 3,942.1

* Peak Employment Level From Jan 2006 - December 2009

Job Growth Rates

Seasonally-Adjusted Data

September Data Comparison

Percent Percent Number

Change Change Jobs

Prior Since Sept 2012

State 12 Months Peak* (Thousands)

Hawaii 2.07% -3.57% 605.7

Idaho 1.83% -5.96% 618.8

Illinois 0.93% -4.73% 5,711.5

Indiana 2.30% -3.08% 2,899.6

Iowa 0.78% -2.53% 1,489.6

Kansas 0.76% -3.48% 1,348.1

Kentucky 2.62% -1.67% 1,840.7

Louisiana 1.22% -0.23% 1,938.5

Maine 0.00% -3.98% 595.8

Maryland 1.00% -1.42% 2,581.3

Massachusetts 1.39% -1.65% 3,249.6

* Peak Employment Level From Jan 2006 - December 2009

Job Growth Rates

Seasonally-Adjusted Data

September Data Comparison

Percent Percent Number

Change Change Jobs

Prior Since Sept 2012

State 12 Months Peak* (Thousands)

Michigan 0.98% -8.85% 3,982.7

Minnesota 1.09% -2.38% 2,713.5

Mississippi -0.64% -6.45% 1,085.4

Missouri 0.43% -5.30% 2,657.2

Montana 1.85% -3.23% 434.2

Nebraska 1.34% -0.90% 958.3

Nevada 0.53% -12.41% 1,136.1

New Hampshire 0.29% -3.92% 625.7

New Jersey 1.14% -4.62% 3,905.4

New Mexico -1.32% -6.47% 794.6

New York 1.44% -0.02% 8,825.0

* Peak Employment Level From Jan 2006 - December 2009

Job Growth Rates

Seasonally-Adjusted Data

September Data Comparison

Percent Percent Number

Change Change Jobs

Prior Since Sept 2012

State 12 Months Peak* (Thousands)

North Carolina 0.80% -5.37% 3,953.0

North Dakota 5.60% 14.01% 420.7

Ohio 1.74% -5.06% 5,177.2

Oklahoma 2.54% 0.10% 1,596.7

Oregon 0.62% -6.19% 1,631.6

Pennsylvania 0.72% -1.57% 5,733.9

Rhode Island -0.37% -7.75% 458.0

South Carolina 1.60% -4.88% 1,860.5

South Dakota 0.87% -1.14% 407.6

Tennessee 0.77% -4.41% 2,685.1

Texas 2.48% 2.02% 10,857.6

* Peak Employment Level From Jan 2006 - December 2009

Job Growth Rates

Seasonally-Adjusted Data

September Data Comparison

Percent Percent Number

Change Change Jobs

Prior Since Sept 2012

State 12 Months Peak* (Thousands)

Utah 1.62% -1.97% 1,238.6

Vermont 0.87% -2.35% 302.9

Virginia 0.98% -1.50% 3,722.5

Washington 2.04% -3.19% 2,880.6

West Virginia -1.32% -2.29% 747.5

Wisconsin -0.18% -5.77% 2,729.2

Wyoming 1.05% -3.99% 289.0

* Peak Employment Level From Jan 2006 - December 2009

Job Growth Rates

2200

2225

2250

2275

2300

2325

2350

2375

'07 '08 '09 '10 '11 '12

Colorado Job Numbers

Jobs (Thousands) Seasonally Adjusted

37,300 Net New Jobs in Prior 12 Months

1,150

1,175

1,200

1,225

1,250

1,275

'07 '08 '09 '10 '11 '12

Denver-Aurora MSA Job Numbers

Jobs (Thousands) Seasonally Adjusted

30,000 Net New Jobs in Prior 12 Months

Seasonally-Adjusted Data

September Data Comparison

Percent Percent Number

* Peak Employment 1-2006 to 12-2009 Change Change Jobs

Prior Since Sept 2012

Metro Statistical Area (MSA) 12 Months Peak* (Thousands)

Boulder-Longmont 3.13% -0.94% 168.1

Colorado Springs -1.68% -6.40% 245.5

Denver-Aurora 2.47% -1.25% 1,244.0

Fort Collins-Loveland 2.71% 1.08% 140.0

Grand Junction 4.14% -5.70% 62.9

Greeley 4.34% 0.84% 84.1

Pueblo 0.00% -0.34% 58.9

Job Growth Rates

Housing Has Finally Reached the Bottom

Nationwide With Some Markets

Rebounding (Some Markets Never Declined)

0

2

4

6

8

10

12

'09 '10 '11 '12

Months Inventory of Existing Homes

National Association of REALTORS®

Months -- Seasonally-Adjusted Sales and Inventory

U.S. Existing Home Sales & Prices 12-Month Moving Averages

$150

$165

$180

$195

$210

$225

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

3

4

5

6

7

Median Price Homes Sales

Median Price $ Thousands Home Sold Millions

Luxury home sales jumped 52 percent in the Denver metro area in June, according to a report by Coldwell Banker Residential Brokerage. A total of 108 homes sold for more than $1 million in June, up 52 percent from last June's 71 sales and 42 percent higher than May, when 76 properties changed hands above the million-dollar mark. Coldwell Banker said the June sales were the highest since it began compiling the luxury report in 2007 . The report noted that while luxury sales increased, the median sale price for a million dollar home eased somewhat, falling 2.1 percent from May and 4.2 percent from June 2011

NAR Profile of Home Buyers and Sellers

View of Home as an Investment

Good Financial Investment 78% Better than stocks 45% As good as stocks 24% Not as good as stocks 9%

Denver-Aurora Existing Home Sales

$0

$50

$100

$150

$200

$250

$300

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Median Price ($ Thousands)

National Association of REALTORS®

U.S. Residential Building Permits

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

80 82 84 86 88 90 92 94 96 98 '00

'02

'04

'06

'08

'10

'12f

Single Family Multi

Number of Dwelling Units -- Millions

Colorado Residential Building Permits

0

10,000

20,000

30,000

40,000

50,000

60,000

80 82 84 86 88 90 92 94 96 98 '00

'02

'04

'06

'08

'10

'12f

Single Family Multi

Number of Dwelling Units

18,951 Permits in Past Months and 37,300 Net New Jobs -- 1.97 New Jobs Per New Dwelling

∑(40 i) i = 1

∞

X

QE3 - Quantitative Easing 3 $40 Billion Per Month Until the Economy Improves

$0

$300

$600

$900

$1,200

$1,500

$1,800

$2,100

$2,400

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Money Supply – M1 $ Billions – Seasonally Adjusted

Federal Reserve Board of Governors

Currency, Checking Accounts, Demand Deposits

Up 68.9 Percent Since Mid 2008

Velocity of Money Supply M1

6

7

8

9

10

11

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Velocity

8.9 Times Annual Turnover Average

Number of times one dollar is used to purchase final goods and services included in GDP

Current Level is 29 Percent Less Than Normal

$140

$150

$160

$170

$180

$190

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

U.S. Real Retail & Food Service Sales

$Billions – Seasonally Adjusted

Household Debt Service as a Percent of Household Disposable Income

9

10

11

12

13

14

'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

Percent

FED Board of Governors, BEA

0

4

8

12

16

20

'04 '05 '06 '07 '08 '09 '10 '11 '12

Light Weight Vehicle Sales Millions – Seasonally Adjusted Annual Rate

Bureau of Economic Analysis

Federal On-Budget Deficit Forecast

-$1,600.0

-$1,400.0

-$1,200.0

-$1,000.0

-$800.0

-$600.0

-$400.0

-$200.0

$0.0'0

1'0

2'0

3'0

4'0

5'0

6'0

7'0

8'0

9'1

0'1

1'1

2'1

3'1

4'1

5'1

6'1

7'1

8'1

9'2

0'2

1'2

2

$ Billions – Alternative Fiscal Scenario

Interest Expense on Federal Debt

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

88 92 96 '00 '04 '08 '12 '16 '20

$ Billions 2011 $438 Billion

2022 $1.3 Trillion

CBO Forecast

Forecast Assumes • No Added Federal Spending Programs Not Already in Budget Unless New Taxes or Cut Existing Programs • Healthcare Funding is Adequate (taxes) • 30-Year Treasury Does Not Exceed 5 Percent

In 2022, Interest on Debt Would Total 24.5 Cents of Every Tax Dollar

Fiscal Cliff

US 2012 GDP $15.6t US Debt Ceiling $16.4t US Debt Now $16.1t

Tax Cut Expiration $265 Billion Per Year

US Energy Consumption

0

20

40

60

80

100

'50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

Consumption – Quadrillion BTUs Restated by USEI

Oil Natural Gas

Hydro Nuclear

Biomass

Coal

Geothermal Solar & Wind

0

1,000

2,000

3,000

4,000

5,000

6,000

'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

Corn Used for Ethanol Production

Bushels -- Millions

Source: National Corn Growers Association, The World of Corn, 2011 and previous annual editions, http://www.ncga.com Note: Based on Marketing Year September - August (i.e., 1985 data are from September 1985-August 1986)

Corn Prices

$1.50

$2.50

$3.50

$4.50

$5.50

$6.50

$7.50

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Price Per Bushel

http://www.farmdoc.illinois.edu/manage/uspricehistory/USPrice.asp

Solar 0.16%

Wind 1.50%

Geothermal 0.29%

Percent of U.S. Energy 2011

Time to

Overweight

In

Real estate

$0

$100

$200

$300

$400

$500

$600

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Commercial Real Estate Sales Volume $ Billions

12-Year Average

Percent Change 2010 to 2011

Percent

$ Billions Change

All Types 291.6$ 32%

Office 74.0$ 39%

Multifamily 62.1$ 46%

Retail 58.7$ 43%

Industrial 35.9$ 8%

Hospitality 20.9$ 32%

Land Sales 19.6$ -14%

Other 20.5$ 76%

Source: CoStar

2011 Commercial Real Estate Sales

http://www.ncreif.org/property-index-returns.aspx

U.S. Industrial Property Returns

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Price and Performance Returns

Percent TTM 8.81 Percent Average Annual Return

U.S. Retail Property Returns

-20%

-10%

0%

10%

20%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Price and Performance Returns

Percent TTM 9.89 Percent Average Annual Return

U.S. Hotel Property Returns

-30%

-20%

-10%

0%

10%

20%

30%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Price and Performance Returns

Percent TTM 6.3 Percent Average Annual Return

U.S. Apartment Property Returns

-30%

-20%

-10%

0%

10%

20%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Price and Performance Returns

Percent TTM 8.56 Percent Average Annual Return

U.S. Office Property Returns

-30%

-20%

-10%

0%

10%

20%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Price and Performance Returns

Percent TTM 7.68 Percent Average Annual Return

Property Return

Retail 9.89%

Hotels 6.30%

Apartments 8.56%

Industrial 8.81%

Offices 7.68%

Source: NCREIF

Average Annual Returns Since 2000

http://www.costar.com/News/Article/Stand-Back-CREs-View-of-Fiscal-Cliff-from-Two-Months-Out/142852?ref=100&iid=304&cid=9DAB84E02030A42E4EA7AA9A13F4390B

Denver Metro Area

10-Year Returns 10-Year Total

Price Annual Annual

Change Dividend Return

Commercial Real Estate 26.30% 5.50% 8.13%

Dow Jones Indistrial Average 27.50% 2.96% 5.71%

10-Year U.S. Treasury Bond * 0.00% 5.45% 5.45%

S&P 500 22.85% 1.80% 4.08%

U.S. Existing Homes 4.17% 2.45% 2.86%

U.S. Existing Homes ** 23.70% 2.45% 4.82%

* Current 10-Year Treasury Yield 1.70 Percent Per Year

** Average 10-Year Home Price Change 1992-2012

Comparative 10-Year Investment Performance 1

2013 Economic Concerns

• Washington DC (Congress & Prez)

• Jobs – Stimulus Did Not Work GDP = Consumption + Investment + Government Spending + Exports - Imports

• Rural Land Bubble

• Fiscal Cliff

• Energy: US Imports 50+ Percent of Oil

• Government Can’t Fix Everything Newton’s Third Law of Motion

Election

11-6-2012

Maintain or Expand Spending

Increase Taxes Only on Those That Pay Taxes

Cradle to Grave

It’s Bush’s Fault

Cut Taxes

Cut Spending

Have Some of the 47 Percent Not Paying Taxes

Pay Some

Ted’s Blog

http://blog.stewart.com/ted

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