Dr. Mark G. Dotzour
Chief Economist
Real Estate Center
Texas A&M University
dotzour@tamu.edu
Major Themes
• Overall economy is pretty strong, thanks to
low interest rates.
• Global oversupply of capital and labor will
keep prices from rising quickly.
• Interest rates likely to rise modestly over the
next year.
Major Themes
• Will the flattening yield curve result in a
recession in 2007?
• Risk premium compression may be
reaching its bottom.
• Eerie similarities between the 1990’s and
the 2000’s.
Corporate Earnings Per Share
S&P 500 Operating Earnings
$25
Corporate profits surged in the 4Q, posting a 13.8 percent increase.
It was the strongest quarter since an 18.9 percent jump in 4Q 2001.
$20
$15
$10
$5
Q1-95
Q4-95
Q3-96
Q2-97
Q1-98
Q4-98
Q3-99
Q2-00
Q1-01
Q4-01
Q3-02
Q2-03
Q1-04
Q4-04
Q3-2005
Source: Standard and Poor’s
% Planning to Increase Employment
Small Business Outlook
30
% of Respondents
20
10
0
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
National Federation of Independent Business
Corporate Hiring Plans in
Next 6 Months
Mar06 Dec05 Sep05 May05
More Jobs 43% 40% 35% 35%
Less Jobs 15% 19% 24% 30%
Source: Business Roundtable
On The Radar Screen
Labor Unions Energizing ?
Stand for Security
A national community-based campaign to organize security
officers is bringing hope to hundreds of thousands of
black workers and their families. Visit StandForSecurity.org »
Justice for Janitors
Janitor and Student Hunger
Strike at Univ. of Miami Continues
¡Si, Se Puede!
Find out what’s going on in
campaigns in Houston, Indianapolis,
Miami, and Cincinnati. More »
Global Partnerships
Today’s global economy is dominated by corporations that have
no national loyalties and no concern about national boundaries.
To confront this consequence of globalization, working people
who work for the same corporations are uniting across national
borders. More »
On The Radar Screen
The Explosion of 1031
Exchanges:
A Little History of the Marginal Tax
Rates
A History of Marginal Tax Rates
“In the beginning…”
In 1913, 36 states ratified the 16th Amendment to
the Constitution.
Congress passed a new income tax law.
Lowest rate was 1%
Highest rate was 7%
Less than 1% of the population paid any tax.
Source: US Treasury Department
A History of Marginal Tax Rates
The Great War 1914-18
The 1916 Revenue Act
Lowest rate was raised from 1% to 2%.
Highest rate was raised from 7% to 15%.
Source: US Treasury Department
A History of Marginal Tax Rates
The Great War 1914-18
The War Revenue Act of 1917
Highest rate was raised from 15% to 67%.
Source: US Treasury Department
A History of Marginal Tax Rates
The Great War 1914-1918 United States
The War Revenue Act of 1918
Highest rate was raised from 67% to 77%.
Lowest rate raised from 2% to 6%.
Only 5% of the population paid income taxes.
Source: US Treasury Department
A History of Marginal Tax Rates
The Roaring Twenties
Through 1921, the top tax rate was over 70%.
1921-24, the top rate was dropped to 60%.
In 1925-28, the top rate was dropped to 25%.
Source: US Treasury Department
A History of Marginal Tax Rates
The Great Depression
The Tax Act of 1932 raised taxes to pay the
budget deficits.
The Tax Act of 1936
Raised the minimum rate back to 6%
Raised the maximum rate to 79%.
Source: US Treasury Department
A History of Marginal Tax Rates
World War II
By the end of the war (1945)
the minimum rate rose from 6% to 23%
the maximum rate from 79% to 94%.
Number of taxpayers in 1939: 4 million
Number of taxpayers in 1945: 43 million
Source: US Treasury Department
A History of Marginal Tax Rates
The Korean War Era
By 1954,
the maximum tax rate was still 87%
By 1964,
the maximum tax rate was 91%
Source: US Treasury Department
A History of Marginal Tax Rates
The Reagan Tax Cuts
The Economic Recovery Tax Act of 1981
featured a 25% reduction in individual tax
rates.
The top rate was dropped to 50%.
Source: US Treasury Department
A History of Marginal Tax Rates
The Reagan Tax Cuts
The Tax Reform Act of 1986
The top rate was dropped 50% to 28%.
Source: US Treasury Department
A History of Marginal Tax Rates
“Here we go again”
In 1990,
The top rate was increased from 28% to 31%
In 1993,
The top rate was increased from 31% to 39.6%
Source: US Treasury Department
A History of Marginal Tax Rates
“A Temporary Respite ??”
In 2001,
The top rate was lowered 39.6% to 33%.
(phased in over a long period of time)
Source: US Treasury Department
Federal Taxes as a % of GDP
• 1918 25.0%
• 1920’s 13.0%
• 1940 6.8%
• 1941 7.6%
• 1944 20.9%
• 1945 20.4%
• 1950 14.4%
• 1952 19.0%
• 1986 17.5%
• 1990 18.0%
• 2000 20.8%
Source: US Treasury Department
On The Radar Screen
Is the Housing Market Cooling ?
Jan-05
Jan-02
Jan-99
Jan-96
New SF Homes Sold
Jan-93
and Recessions
Jan-90
Jan-87
Jan-84
`
Jan-81
Jan-78
Jan-75
Jan-72
Jan-69
Jan-66
Jan-63
Jan-60
1400
1200
1000
800
600
400
200
0
House Price Appreciation
Percentage Change from Previous Quarter
5
4
3
2
1
0
95
95
96
97
98
98
99
00
01
01
02
03
04
04
05
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
US Market
Source: OFHEO
House Price Appreciation
Percentage Change from Previous Quarter
20
18
16
14
12
Percent
10
8
6
4
2
0
95
95
96
97
98
98
99
00
01
01
02
03
04
04
05
3Q
1Q
4Q
2Q
3Q
1Q
4Q
1Q
4Q
2Q
3Q
1Q
4Q
2Q
3Q
Annual Appreciation 30 YR Mortgage
Source: OFHEO and Federal Reserve System
Housing Market Slowing ??
Annual Appreciation Rates 4Q05
• 25 states have appreciation rates over 10%
– Florida 27%
– Hawaii 24%
– DC 22%
– US Average 13%
– Texas 5%
Source: OFHEO
Housing Market Slowing ??
Annual Appreciation Rates 4Q05
• Phoenix 40%
• Naples 39%
• Yuma 31%
• Miami Beach 27%
• Washington DC 24%
Source: OFHEO
Texas Metro Price Appreciation
Annual Appreciation Rates 4Q05
• Odessa 15%
• Midland 11%
• El Paso 11%
• Killeen-Temple 10%
• San Antonio 10%
• San Angelo 10%
• Waco 9%
Source: OFHEO
Texas Metro Price Appreciation
Annual Appreciation Rates 4Q05
• Wichita Falls 8%
• Corpus Christi 8%
• Tyler 8%
• Brownsville 8%
• Abilene 7%
• Austin 7%
• Texarkana 7%
Source: OFHEO
Texas Metro Price Appreciation
Annual Appreciation Rates 4Q05
• Longview 5%
• Sherman 5%
• Amarillo 5%
• Lubbock 5%
• Houston 4%
• Dallas 4%
• McAllen 4%
Source: OFHEO
Texas Metro Price Appreciation
Annual Appreciation Rates 4Q05
• Beaumont 3%
• College Station 2%
• Laredo 2%
• Victoria 1%
Source: OFHEO
Inventory of Unsold Homes
February, 2006
• Austin 3.6 month supply
• San Antonio 4.0
• Corpus Christi 5.0
• Dallas 5.4
• Houston 5.4
• College Station 6.6
• Statewide Average 4.8
Source: Real Estate Center
Ratio of Population Growth and SF Permits
Time Austin Dallas Houston San Ant
80–84 4.7 7.0 5.3 6.3
90–94 7.1 6.9 8.1 7.4
00–04 3.4 4.7 3.4 3.3
80-04 4.8 6.2 4.7 4.9
Real Estate Still Preferred by Investors
• 73% of investors believe that housing in the
US is overvalued.
• 19% of investors believe that housing in the
US is appropriately valued.
Source: Roper Public Affairs survey for TIAA-CREF in 2005,
Published in BALANCE, Winter 2006.
Real Estate Still Preferred by Investors
• 24% of investors believe that stocks are a better
investment than real estate.
• 69% of investors believe that real estate is a a
better investment than stocks.
• “On a relative basis, commercial real estate still
appears to be priced appropriately when compared
to stocks and bonds.”
– Tom Garbutt, TIAA-CREF managing director
Source: Roper Public Affairs survey for TIAA-CREF in 2005,
Published in BALANCE, Winter 2006.
Real Estate Still Preferred by Investors
• 51% of American investors believe that recent
corporate scandals are “just the tip of the iceberg.”
Same as 2004.
• Only 9% of investors say financial services
companies in general are “very trustworthy,”
down from 14% in 2004.
• Only 13% of investors find the largest public
accounting firms to be “very trustworthy.”
Source: Roper Public Affairs survey for TIAA-CREF in 2005,
Published in BALANCE, Winter 2006.
Saving for Retirement
• The median amount of financial assets for
households aged 55-64 years is about
$55,000.
• Represents about one year’s income
– In 2001
– Doesn’t include house
– Does include 401-k, etc
– Doesn’t include defined benefit pensions
Source: Andrew A. Samwick, “Saving for Retirement…”,
Business Economics, January, 2006.
Saving for Retirement
“It may come as no surprise that the median household
between ages 55 and 64 has accumulated only about a
year’s worth of income in financial assets.”
“A sizable number of households appear to be insensitive to
the usual mechanism for encouraging them to save for
retirement..”
Source: Andrew A. Samwick, “Saving for Retirement…”,
Business Economics, January, 2006.