Globalization Powerpoint

Globalization and Real Estate Lawrence Yun, Ph.D. Senior Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at International Presidential Advisory Group Meeting Chicago, IL July 18, 2007 Top World Economies $ trillion 15 10 5 0 U.S. Japan Germany China U.K. Source: IMF Expanding World Economy – Without the U.S. 2005 15 12 9 6 3 0 U.S. Asia South Eurozone America U.K. Eastern Europe World % 2006 Source: World Bank Typical Economic Expansion Rates % 12 9 6 3 0 U.S. Japan Germany China U.K. World Economies in 30 years (in 2037) $ trillion U.S. Japan Germany China U.K. 60 50 40 30 20 10 0 2007 Source: NAR 2017 2027 2037 Global Interdependence • China benefiting greatly from access to the U.S. market • Why not simply shut off China from U.S. Market? – Higher inflation – Higher interest rates • China holds $1.3 trillion in FX of which 30% are U.S. $ denominated – Stagnating U.S. economy Global Bond Investors Determine Long rates Mortgage Rate 7.0 6.5 6.0 5.5 5 00 2 -A ug 5 00 2 -O ct 05 20 -D ec 06 20 b Fe 6 00 2 -A pr 06 20 n Ju 6 00 2 -A ug 6 00 2 -O ct 06 20 -D ec 07 20 b Fe 7 00 2 -A pr 07 20 u -J n Source: Freddie Mac Fed Controls on Short Rates Mortgage Rate % Fed Funds Rate 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 4 00 2 n Ja 4 00 2 u -J l 5 00 2 n Ja 5 00 2 u -J l 6 00 2 n Ja 6 00 2 u -J l 7 00 2 a -J n Source: Freddie Mac, Federal Reserve Rates: Long Run Decline … Ending? Mortgage Rate 20 1970s 9% average 1980s 13% average 1990s 8% average 2000s 6.5% average 15 10 5 0 an Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan -J 2 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 97 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 1 Source: Freddie Mac 20 00 $0.80 $0.90 $1.00 $1.10 $1.20 $1.30 $1.40 -J Source: BLS U.S. homes are selling at a 30% to 40% discount $Dollar vs Euro an 20 00 -J 20 ul 01 -J an 20 01 -J 20 ul 02 -J an 20 02 -J 20 ul 03 -J an 20 03 -J 20 ul 04 -J an 20 04 -J 20 ul 05 -J an 20 05 -J 20 ul 06 -J an 20 06 -J 20 ul 07 -J an U.S. Population Projection 2000 to 2050 milliion 450 400 350 300 250 200 150 100 50 0 2000 2050 Source: U.S. Census Rapid Growth in Developing Countries 2000 to 2050 milliion 1600 1400 1200 1000 800 600 400 200 0 2050 2000 In do ne sia ad es h C hi na In di a U .S ki st er ia az il Br Pa Source: The Economist Ba ng l Et hi o N ig pi a an . Stagnant or Declining Population 2000 to 2050 milliion 200 150 100 2000 2050 50 0 an y d Fr an er m Source: U.S. Census, Brugesgroup, The Economist G Po R us sia in Ja pa n . U .K ce ly Sp a It a la n Most Expensive Cities in 2006 1. 2. 3. 4. 5. Moscow Seoul Tokyo Hong Kong London 6. Osaka 7. Geneva 8. Copenhagen 9. Zurich 10. Oslo 10. New York Source: Mercer Consulting International Home Price Growth (1997 to 2005) • U.S. price growth 74% --------------------------------- • Spain 140% • U.K. 150% • Ireland 180% RISKIER MORTGAGE PRODUCTS International Trade % 30 Import + Export in relation to GDP 20 10 0 19 50 19 60 19 70 19 80 19 90 20 00 Source: BEA 20 07 Manufacturing Sector’s Share of Economy % 50 40 30 20 10 0 19 50 Source: BEA 20 07 19 90 1,000 250 500 750 0 Source: BLS In thousands Textile Jobs 19 Ja 91 n 19 - Ja 92 n 19 Ja 93 n 19 Ja 94 n 19 - Ja 95 n 19 Ja 96 n 19 Ja 97 n 19 Ja 98 n 19 - Ja 99 n 20 Ja 00 n 20 Ja 01 n 20 - Ja 02 n 20 Ja 03 n 20 Ja 04 n 20 Ja 05 n 20 - Ja 06 n 20 Ja 07 n -J an 19 90 10,000 15,000 20,000 5,000 0 Professional Business Service Jobs Source: BLS In thousands 19 Ja 91 n 19 - Ja 92 n 19 Ja 93 n 19 Ja 94 n 19 - Ja 95 n 19 Ja 96 n 19 Ja 97 n 19 Ja 98 n 19 - Ja 99 n 20 Ja 00 n 20 Ja 01 n 20 - Ja 02 n 20 Ja 03 n 20 Ja 04 n 20 Ja 05 n 20 - Ja 06 n 20 Ja 07 n -J an 19 90 10,000 15,000 5,000 In thousands 0 Source: BLS Health Care Service Jobs 19 Ja 91 n 19 - Ja 92 n 19 Ja 93 n 19 Ja 94 n 19 - Ja 95 n 19 Ja 96 n 19 Ja 97 n 19 Ja 98 n 19 - Ja 99 n 20 Ja 00 n 20 Ja 01 n 20 - Ja 02 n 20 Ja 03 n 20 Ja 04 n 20 Ja 05 n 20 - Ja 06 n 20 Ja 07 n -J an 19 85 -J 20 40 60 80 0 19 87 -J an an an an an an an an 20 03 20 05 20 07 -J -J -J an an an -J -J -J -J -J -J -J an $ per barrel 19 89 19 91 19 93 19 95 19 97 19 99 20 01 Source: Wall Street Journal Oil Price Knowledge Based Economy • Paul Romer at Stanford • Thomas Friedman at NY Times – World is Flat • Education becoming more important • Jobs less dependent to specific location – Favors hip cities • Your children will work for whom? And where? U.S. REALTORS Engagement (April 2006 to April 2007) 18% or 243,000 NAR members 14% 68% 65% of FL REALTORS had foreign clients Closings Source: NAR Prospects Only None International Home Buyers in Florida 15% 81,900 Home Sales 85% Foreign Domestic Source: 2005 NAR Profile of International Home Buyers in Florida International Homebuyer Trend in Florida in 2005 (versus 5 years ago) 60% 50% 40% 30% 20% 10% 0% Increased About the Same Decreased 6% 49% 45% Source: NAR International Homebuyer Trend in the U.S. in 2006 (versus 5 years ago) 100% 80% 67% 60% 40% 25% 20% 0% Increased About the Same Decreased 8% International Buyers’ Origin by Country in the U.S. Mexico U.K. Canada India China 13% 12% 11% 6% 5% 0 0.05 0.1 0.15 Source: NAR International Buyers’ Origin by Country in Florida U.K. Germany Canada Venezuela Colombia Brazil France All Others 33% 7% 7% 7% 5% 3% 3% 35% 0 0.1 0.2 0.3 0.4 Source: NAR International Buyers’ Destination in the U.S. NC GA OH IL CO NY AZ TX CA FL 2% 2% 2% 2% 3% 4% 6% 10% 16% 26% 0% Source: NAR 10% 20% 30% International Buyer Prospects’ Non-Purchase Loss of Home Benefit Insurance Cost Exposure of U.S. tax laws Property Tax Visa Restrictions Price 5% 9% 18% 19% 32% 49% 0% 20% 40% 60% Source: NAR Foreign Direct Investment in U.S. Commercial Real Estate 60 50 40 30 20 10 0 $ billion 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 Source: Department. Of Commerce 20 05 Foreign Direct Investment Position in U.S. Top Investing Countries in 2005 • • • • • • • Germany Latin America Australia Japan United Kingdom Canada Netherlands U.S. Citizens Living Abroad • • • • • • • • • • • Mexico: 1,036,300 Canada: 687,000 UK: 224,000 Germany: 210,000 Italy: 168,000 Philippines: 105,000 Australia: 102,000 France: 101,000 Spain: 94,000 Israel: 94,000 All other countries: 1,247,705 Total = 4.1 million Outbound to Foreign Countries (2005 vs 2004) 12% 10% 8% 6% 4% 2% 0% U.S. GDP 11% 3% U.S. Exports Source: NAR Live Births in the U.S. Million 4.5 Baby Boomers 4 3.5 3 Echo Boomers Entering 20s 2.5 2 19 09 19 13 19 17 19 2 19 1 25 19 29 19 3 19 3 37 19 41 19 45 19 49 19 5 19 3 57 19 61 19 6 19 5 69 19 7 19 3 7 19 7 81 19 8 19 5 89 19 93 19 9 20 7 01 Source: National Center for Health Statistics Baby Boomers million 40 35 30 25 20 15 10 5 0 42 to 49 50 to 55 Source: Census 55 to 60 Vacation Home Sales 2,000 In thousand units 1,000 0 20 03 20 04 20 05 Source: NAR 20 06 20 00 11000 13000 7000 9000 Source: NYSE -J Dow Jones Industrial Average Dow Jones Industrial Average an 20 00 -J 20 ul 01 -J an 20 01 -J 20 ul 02 -J an 20 02 -J 20 ul 03 -J an 20 03 -J 20 ul 04 -J an 20 04 -J 20 ul 05 -J an 20 05 -J 20 ul 06 -J an 20 06 -J 20 ul 07 -J an Record Household Wealth $ trillion 60 Net Worth 55 50 45 40 35 120 00 320 01 120 03 320 04 120 06 Q Q Q Q Source: Federal Reserve Q Household Wealth Accumulation (2004) Median Net Worth in $ thousand 2004 $300 $250 $200 $150 $100 $50 $0 Under 35 35-44 45-54 55-64 65-74 75 and over Source: Federal Reserve Homeownership Rate Among the Young (Under 35 years old) % 45 43 41 39 37 35 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Census Downtown Resurgence? – Downtown Population Trending Up (Examples from 1990 to 2000) • Houston up 69% • Seattle 67% • Chicago 51% • Denver 51% • Portland 35% • Cleveland 32% – Central cities holding up better than before • 31 of 50 largest cities lost population in 1970s • 22 of 50 largest cities lost population in 1980s • 15 of 50 largest cities lost population in 1990s Condo Share of Total Home Sales 15% 10% 5% 0% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Source: NAR (only existing home sales) Surging Immigration million 15 Projected 11.0 10 7.3 5 2.5 4.4 9.3 3.3 0 1950s 1960s 1970s 1980s 1990s 2000s Source: Census Bureau, NAR Forecast Foreign-Born Population on the Rise … Inevitable Rise in International Inbound/Outbound Purchases % 70 60 50 40 30 20 10 0 2000 1980 SD N Y D C LA n i SF go ia m C hi ca M Source: U.S. Census H ou st o U .S . Immigrant Homeownership Rate Rises over Time (2000) 90 % 80 70 60 50 40 30 20 10 0 10 15 20 25 30 35 les s 40 or 11 16 21 26 31 5 36 Years in the U.S. Source: U.S. Census m or e th 6 an to to to to to to to 40 Homeownership Rate by Citizenship Status 80 70 60 50 40 30 20 10 0 NH White Black Asian/Pacific Islander Hispanic Higher Rate for New Citizens Noncitizen Naturalized Native Source: Census, Harvard Joint Center Positive Trends in Global Real Estate • Private Property Movement • Better market information – Thailand 1997 Crisis from lack of reliable Real Estate Information – Foreign MLSs? • Mortgage Market Innovations in other countries – ARMs in U.K. – Few mortgages in Russia – Large down payments in South Korea – Nascent Mortgage Backed Securities outside U.S. • Deeper Information and Liquidity … lower borrowing cost and more transactions Local Real Estate in Global World • Location, Location, Location • Non-movable asset • Local specialists needed • Only the clients will no longer be locals