today’s real estate: drivers and the road ahead
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Today’s Real Estate: Drivers and the Road Ahead. Jon Haveman Principal, Haveman Economic Consulting April, 2013. Outline: Drivers. General Economy Government Policy Fiscal Policy Monetary Policy Bank Lending Standards Venture Capital. Background statistics. - PowerPoint PPT PresentationTRANSCRIPT
Jon HavemanPrincipal, Haveman Economic Consulting
April, 2013
Today’s Real Estate: Drivers and the Road Ahead
Outline: Drivers
• General Economy• Government Policy
– Fiscal Policy– Monetary Policy
• Bank Lending Standards• Venture Capital
BACKGROUND STATISTICS
Median Home PricesThrough Q3-2012
• Price Declines – Peak to Current– Bay Area: -31%– Solano: -50%– Contra Costa: -38%– Napa: -36%– Alameda: -28%– Sonoma: -26%– Santa Clara: -19%– Marin: -18%– San Francisco: -15%– San Mateo: -14%
Source: DataQuick1990Q2
1992Q4
1995Q2
1997Q4
2000Q2
2002Q4
2005Q2
2007Q4
2010Q2$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
ALAMEDACONTRA COSTASANTA CLARASAN FRANCISCOBAY AREA
Thou
sand
s of D
olla
rs
ForeclosuresThrough Q3-2012
• Current Rates– Bay Area: 1.4– Solano: 4.0– Contra Costa: 2.3– Napa: 2.0– Sonoma 1.8– Alameda: 1.3– San Mateo: 0.6– Marin: 0.5– Santa Clara: 0.6– San Francisco: 0.5
Source: DataQuick
1995Q3
1997Q2
1999Q1
2000Q4
2002Q3
2004Q2
2006Q1
2007Q4
2009Q3
2011Q20
2
4
6
8
10
12
14
16
ALAMEDACONTRA COSTASOLANOBAY AREA
Fore
clos
ures
/ 1
,000
Hom
es
High Housing Prices(Median Home Values Over Time)
Bay Area
LA & SD
United States
Apartment Rents• Bay Area: rapidly rising• Silicon Valley: most expensive place to rent• Santa Clara County: 29% increase over 4 years
Source: Realfacts/bizjournals.com
GENERAL ECONOMY
US GDP Growth Remains Sluggish
20142012201020082006
6420
-2-4-6-8
-10
(Percent Change, SAAR)
Source: UCLA Anderson Forecast
Unemployment Remains Too High
20142012201020082006
10%
9%
8%
7%
6%
5%
4%
(Rate)
Source: UCLA Anderson Forecast
Inflation Stays off the Radar
20142012201020082006
5%
4%
3%
2%
1%
0%
-1%
-2%
(Percent Change Year-Ago)
Price Deflator for Personal Consumption Expenditures
Source: UCLA Anderson Forecast
Housing Set to Rebound
20142012201020082006
2500
2000
1500
1000
500
0
(Thousands of Units)Housing Starts, Annual Data
Source: UCLA Anderson Forecast
Investment in Business Structures Uneven
20142012201020082006
15%10%5%0%
-5%-10%-15%-20%-25%
(Percent Change)
Source: UCLA Anderson Forecast
Threats to U.S. Recovery and Long Run Prosperity
• Abroad:– Europe – Asia
• At home:– Austerity push– Income inequality – Infrastructure
Bay Strengths Relative to CA & US(12 month % growth to Dec.)
Industry Bay Area California U.S.
Total Non-Farm Employment
2.9 1.6 1.7
Construction 8.4 4.4 1.8
Manufacturing 0.9 -0.9 1.3
Prof, Sci, and Technical
6.1 3.0 3.1
Information 5.8 4.7 -0.2
Bay Area Share of Selected U.S. Tech Jobs in 2010
Comp. & Electr. Manuf.
Pharmaceuticals
Medical Equipment
Software
Internet-Related
Architectural & Engr. Services
Computer Services
Management.& Technical Serv.
Scientific R&D Services
Total Jobs
0% 2% 4% 6% 8% 10% 12% 14%
Forecast Growth in Total Jobs
2007-2020 2010-2020 2020-20400.0%
5.0%
10.0%
15.0%
20.0%
25.0%
11.4%
20.2%
13.5%
9.2%
19.2%
13.0%
8.8%
15.1%
12.3%
Bay Area California United States
Source: Center for Continuing Study of the California Economy
Bay Area Population Growth (thousands)
0-24 25-34 35-54 55-64 65-74 75+-200,000
-100,000
0
100,000
200,000
300,000
400,000
2000-2010 2010-2020
Source: Center for Continuing Study of the California Economy
GOVERNMENT POLICY
The Fiscal Austerity Issue• Austerity:
– US – cutting spending– EU – Greek prescription
driving renewed recession
• Continue stimulus until strong growth prevails
• Plenty of time later for austerity
• Remember 1937
Interest Rates: Zero Rate Policy to Continue Through Late 2014
20142012201020082006
6%
5%
4%
3%
2%
1%
0%
-1%
(Rates)
Fed Funds 10-Yr. T-bonds
Source: UCLA Anderson Forecast
Income Inequality
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
0.47
0.48
0.49
0.5
0.51
0.52
0.53
The U.S.
The Bay AreaCalifornia
Gini
Coe
ffici
ent
Facts on Income Inequality• Top 1%:
– Collect 24% of all income– Own 40% of all wealth– Hold 50% of all stocks, bonds, and mutual funds– Received 63% of all income gains in recent years
• Problem for residential real estate:– Hollowing out of the middle creates a bifurcated
residential market. Softening at the bottom and tightening at the top.
BANK LENDING STANDARDS
Lending Standards: Prime Mtgs.(Through Q4-2012)
Source: Federal Reserve
Loos
enin
g
|
T
ight
enin
g
Q1-07
Q2-07
Q3-07
Q4-07
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
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
-80
-60
-40
-20
0
20
40
60
80
100
Lending Standards Loan Demand
Source: Federal Reserve
Lending Standards: C&I(Through Q4-2012)
Loos
enin
g |
Ti
ghte
ning
Q1-
05
Q3-
05
Q1-
06
Q3-
06
Q1-
07
Q3-
07
Q1-
08
Q3-
08
Q1-
09
Q3-
09
Q1-
10
Q3-
10
Q1-
11
Q3-
11
Q1-
12
Q3-
12
-40
-20
0
20
40
60
80
100
Large/Medium Firms Small Firms
%
Cash Purchases• Residential
– 32.4% of all California home sales in 2012– Double the average of 15.6% since 1991– Cash-only purchases > $500k up 35% compared to
2011– Why?
• Can’t get a mortgage• Want to prevail in hot markets
VENTURE CAPITAL
Venture Capital
Source: PriceWaterhouseCoopers MoneyTree
Q3-2012Value of All Deals
(Millions)% of Total
US VC
Bay Area 2,619 40
California 3,314 51
United States 6,482
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
CA and Bay Shares of U.S. Venture Capital to Q3-2012
Bay California
(%)
Summary• Economy may be slow – current activity may be short
lived• Government policy: push-me pull-you
– Austerity vs. Easy money vs. Uncertainty– Income inequality will influence markets
• Lending standards are an impediment– How long will cash drive markets?
• Bay area– Demographics will play a major role going forward– VC will likely continue, but is facing problems– Tech likely to be a driver for some time, but no guarantees
Regional Analysis Business & Market Analysis Ports & Infrastructure Analysis Economic Impact Analysis Public Policy Analysis
Haveman Economic Consulting