2008 Economic and Housing Outlook
August 12, 2008
Dr. James P. Gaines
Research Economist R lE C Real Estate Center at Texas A&M University
REAL ESTATE CENTER
at TEXAS A&M UNIVERSITY Mays School of Business Mays School of Business
recenter.tamu.edu
Publications P bli ti
Tierra Grande
Monthly Economic Reports Technical Reports
Market Reports
RECON Newsletter
REC Website
2
Topics for Discussion p
• US, Texas and Local Economy • Mortgage and Capital Mortgage and Capital Markets • Housing Activity •D Demographic Trends hi T d
3
Challenging Economy 2008
• D fi i E Definite Economic Slowdown: Recession? i Sl d R i ? • Soft Housing Market • Interest Rates and Capital Markets • Inflation and Consumer Spending • Unemployment • Corporate spending and expansion p p g p • Political uncertainty • “Wait and See” attitude pervasive Wait and See attitude pervasive
4
Percent Growth in Real GDP Since 1990
( (Percent Change From Previous Quarter) g Q ) 8.0 7.0 6.0 60 5.0 4.0 3.0 2.0 1.0 10 0.0 ‐1.0 ‐2.0 ‐3.0 ‐4.0
1Q1990 3Q1990 1Q1991 3Q1991 1Q1992 3Q1992 1Q1993 3Q1993 1Q1994 3Q1994 1Q1995 3Q1995 1Q1996 3Q1996 1Q1997 3Q1997 1Q1998 3Q1998 1Q1999 3Q1999 1Q2000 3Q2000 1Q2001 3Q2001 1Q2002 3Q2002 1Q2003 3Q2003 1Q2004 3Q2004 1Q2005 3Q2005 1Q2006 3Q2006 1Q2007 3Q2007 1Q2008
5 ‐3 ‐2 1 0.5 0 2.6 1.9 1.9 2 2.1 4.7 4.2 3.9 4 4.5 4.1 3.3 2.3 3.4 3 2.9 3.1 3.4 3.4 3 2.7 2.1 1.6 1.1 0.7 1 1.2 1.2 0.2 1.2 1.1 0.6 06 0.6 0.6 06 2.7 2.4 2.2 3.5 2.7 3 3.6 3.5 3.1 2.8 2.5 5.5 5.3 4.8 4.8 6.7 6.2 6.2 7.3 6.4 7.5
5.1 4.5 4.7
4.8
4.5
4.8
4.9
3.8
2.4
2.1
1.9
‐0.5 ‐0.5 ‐1.4
Source: Bureau of Economic Analysis
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
‐1.5% 0.0%
‐0.5%
Jan‐00 Apr‐00 Jul‐00 Oct‐00 Jan‐01 Apr‐01 Jul‐01 Oct‐01 Jan‐02 Apr‐02 Jul‐02 Oct‐02 Jan‐03 Apr‐03 Jul‐03 Oct‐03 Jan‐04 Apr‐04 Jul‐04 Oct‐04 Jan‐05 Apr‐05 Jul‐05 Oct‐05 Jan‐06 Apr‐06 Jul‐06 Oct‐06 Jan‐07 Apr‐07 Jul‐07
6
‐2.0% 2 0%
‐1.0% 1 0%
U. S. Employment Growth Rate
Source: BLS, Texas Workforce Commission
Oct‐07 Jan‐08
2.0 20
1.0
Source: Bureau of Labor Statistics
3.0
4.0
5.0
6.0
7.0
Targeted Overall Inflation Rate g
Yr/Yr Rate of Change in the Monthly Index, US Urban, All Items
7
Jan-86 Jul-86 Jan-87 Jul-87 Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Do ollars per Gall lon
4.20 4.00 3.80 3.60 3.40 3.20 3.00 2.80 2.60 2.40 2.20 2 20 2.00 1.80 1.60 1.40 1 40 1.20 1.00
Regular Grade
U. S. Weekly Retail Gas Prices
Source: Energy Information Administration
8
1/ /3/00 4/ /3/00 7/ /3/00 10/ /3/00 1/ /3/01 4/ /3/01 7/ /3/01 10/ /3/01 1/ /3/02 4/ /3/02 7/ /3/02 10/ /3/02 1/ /3/03 4/ /3/03 7/ /3/03 10/ /3/03 1/ /3/04 4/ /3/04 7/ /3/04 10/ /3/04 1/ /3/05 4/ /3/05 7/ /3/05 10/ /3/05 1/ /3/06 4/ /3/06 7/ /3/06 10/ /3/06 1/ /3/07 4/ /3/07 7/ /3/07 10/ /3/07 1/ /3/08 4/ /3/08
We Finally Got There !! y
9
What to Expect
• Fed to stop cutting interest rates • Food will continue to increase but gas Food will continue to increase but gas prices may decline for a while • Look for a federal bailout of the banks and financial institutions • Rise in unemployment rate • 2008‐2009: “Stagflation” ‐ h h fl “ fl ” high inflation, low economic growth, job losses – without high interest rates
10
Texas and Local Economy
• Running Ahead of US Economy • Employment Steady Increase • Low Unemployment • Personal Income Growth • Population Growth • Housing market still relatively strong
11
Top 10 Job-Creating States in 2007 Job300 250 200 150 100 50 0
N North Ca arolina Washi ington Lou uisiana Colorado Ge eorgia Illinois New w York Ala abama
12
Thousands of jobs created December 2006 to December 2007
236.90 236 90
78.00
67.60
67.10 44.90 41.60 36.20 35.40 31.40 25.00
Texas
Source: BLS
Utah
Top 10 Job-Creating States JobFirst Half of 2008
250 200 150 100 50 0
Louisiana North Caro olina Washing gton Okalaho oma New w Hamps shire Color rado Maryl land Te Texas New Y York U Utah
Thousands of jobs created June 2007 to June 2008
238.4
32.0
31.5
30.1
29.9
24.8
24.0
21.9
11.2 11 2
9.2
Source: BLS
13
15 Top Job-Creating MSAs in 2007 Job110 100 90 80 70 60 50 40 30 20 10 0
Thousands of jobs created December 2006 to December 2007
94.2
75.3 66.5
46 35.8 23.2 22.7 22 21.5 21.1 21 20.6 19.5 19.2 18.8
San Fr rancisco
Salt Lake City L
Seattle
Raleigh
Dallas-F Worth Ft
C Charlotte
Boston
14
Denver
Atlanta
Source: BLS
Washington DC
San Antonio
H Houston
N New York
C Chicago
Austin
If Texas Was A Nation
1 United States 2 Japan 3 Germany 3 Germany 4 China 5 United Kingdom 6 France 7 Italy 8 Canada 9 Spain 10 Brazil 10 Brazil 11 TEXAS 12 Russia 13 India
Source: World Bank and U.S. Bureau of Economic Analysis
0.0
1.0
2.0
3.0
4.0
‐1.0
Jan‐00 Apr‐00 Jul‐00 Oct‐00 Jan‐01 Apr‐01 Jul‐01 Oct‐01 Jan‐02 Apr‐02 Jul‐02 Oct‐02 Jan‐03 Apr‐03 Jul‐03 Oct‐03 Jan‐04 Apr‐04 Jul‐04 Oct‐04 Jan‐05 Apr‐05 Jul‐05 Oct‐05 Jan‐06 Apr‐06 Jul‐06 Oct‐06 Jan‐07 Apr‐07 Jul‐07 Oct‐07
16
‐2.0 20
Texas
Annual Employment Growth Rates for US and T R f d Texas
Source: BLS, Texas Workforce Commission
US
Jan‐08 Apr‐08
1%
2%
3%
4%
5%
6%
7%
8%
‐4% 0%
Jan‐00 Apr‐00 Jul‐00 Oct‐00 Jan‐01 Apr‐01 Jul‐01 Oct‐01 Jan‐02 Apr‐02 Jul‐02 Oct‐02 Jan‐03 Apr‐03 Jul‐03 Oct‐03 Jan‐04 Apr‐04 Jul‐04 Oct‐04 Jan‐05 Apr‐05 Jul‐05 Oct‐05 Jan‐06 Apr‐06 Jul‐06 Oct‐06 Jan‐07 Apr‐07 Jul‐07 Oct‐07 Jan‐08 Apr‐08
17
‐3%
‐2%
‐1%
Midland
Midland & Odessa Employment Growth Rates
Source: BLS, Texas Workforce Commission
US Odessa Texas
0%
1%
2%
3%
4%
5%
6%
7%
8%
‐2%
‐1%
Midland
Midland & Odessa Employment Growth Rates
Source: BLS, Texas Workforce Commission
Texas US Odessa
Jan‐02 Mar‐02 May‐02 Jul‐02 Sep‐02 Nov‐02 Jan‐03 Mar‐03 May‐03 Jul‐03 Sep‐03 Nov‐03 Jan‐04 Mar‐04 May‐04 Jul‐04 Sep‐04 Nov‐04 Jan‐05 Mar‐05 May‐05 Jul‐05 Sep‐05 Nov‐05 Jan‐06 Mar‐06 May‐06 Jul‐06 Sep‐06 Nov‐06 Jan‐07 Mar‐07 May‐07 Jul‐07 Sep‐07 Nov‐07 Jan‐08 Mar‐08 May‐08
18
The Texas Outlook for 2008
• US job growth less than 1% j • Texas will more than double the national job growth rate • Texas housing markets generally strong but spotty “spotty” • Mortgage interest rates unlikely to change much • Fall in overall residential demand tighter credit o erall demand: credit, less investment buying, less second home • Rent and occupancy rates of Texas commercial real estate will continue to rise
Mortgage & Capital Markets
• Problems more severe than anticipated – Pricing mortgage-backed assets – Capital requirements/solvency among institutions – Loss of confidence in debt ratings – Plethora of proposed legal/regulatory changes – Mergers, acquisitions and/or failures – Law suits • Traditional mortgage loan underwriting g y • Foreclosures high into 2009 and early 2010 • Mortgage delinquency/default contagion to business & consumer markets • Li idit in market, nobody knows how to/willing to Liquidity i k t b d k h t / illi t lend
20
Total HH Home Mortgage Borrowing
1,100 1,000 900 800 700
$Billions
$0.5 trillion in home mortgages between 1972 and 1979; $1.5 trillion in home mortgages between 1980 and 1989; $2.12 trillion in home mortgages between 1990 and 1999; $2 12 trillion in home mortgages between 1990 and 1999; $6.1 trillion in home mortgages between 2000 and 2007
708
1,031 990 941
857
669
600
507
500 400 300 200 100
34 40 37 40 86 58 106 117 127 90 67 47 105 182 199 222 216 225 199 174 171 157 167 154 206 216 380 386 321
302
0
1Q2008
21
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Federal Reserve, Flow of Funds, D-2, 6/5/2008
2007
Current Residential Finance Conditions
• 65% of US owner-occupied homes have a mortgage (64% in Texas) – 76% fixed-rate • About 7.5 million, 13%-14% of all mortgages, are subprime loans • 75 percent of all subprime loans originated since 2003 • About two-thirds of subprime loans in ‘05 and ‘06 were two thirds ARMs • Total home equity is less than 50% and as many as 10% q y y of homeowners have negative equity • Falling home prices in key areas is the key factor to defaults d f d f lt and foreclosures l
22
Banks Are Running Low on Capital
23
Percent of Foreclosures Started by Type of Loan 1Q2008 b T fL
Percent of Outstanding Loans Percent of Foreclosures Started
Type of Loan
24 Source: Mortgage Bankers Association, National Delinquency Survey, March 31,2008, Estimates by Real Estate Center
10.0 11.0
1Q1998 2Q1998 3Q1998 4Q1998 1Q1999 2Q1999 3Q1999 4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002 1Q2003 2Q2003 3Q2003 4Q2003 1Q2004 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008
0.0
Prime Loans
1.0
3.0
4.0
5.0
6.0
7.0
8.0
2.0 20
9.0 90
US Mortgages in Foreclosure at the End of the Quarter
Source: Mortgage Bankers Association, National Delinquency Survey
Subprime Loans
All Loans 1.22 2.47
10.74
1Q1998 8 2Q1998 8 3Q1998 8 4Q1998 8 1Q1999 9 2Q1999 9 3Q1999 9 4Q1999 9 1Q2000 0 2Q2000 0 3Q2000 0 4Q2000 0 1Q2001 1 2Q2001 1 3Q2001 1 4Q2001 1 1Q2002 2 2Q2002 2 3Q2002 2 4Q2002 2 1Q2003 3 2Q2003 3 3Q2003 3 4Q2003 3 1Q2004 4 2Q2004 4 3Q2004 4 4Q2004 4 1Q2005 5 2Q2005 5 3Q2005 5 4Q2005 5 1Q2006 6 2Q2006 6 3Q2006 6 4Q2006 6 1Q2007 7 2Q2007 7 3Q2007 7 4Q2007 7 1Q2008 8
0.0
Prime Loans Subprime Loans
1.0
2.0
4.0
5.0
6.0
7.0
3.0 30
8.0 80
Texas Mortgages in Foreclosure at the End of the Quarter Q
Source: Mortgage Bankers Association, National Delinquency Survey
All Loans
5.96
0.62
1.45
Total Delinquency & Foreclosure Filings 2007
• US 2,203,295, up 75% • Texas 149 703 down 4 6% (1 of only 6 down) Texas 149,703, down 4.6% (1 of only 6 down)
– – – – – – – – – – California 481,392, up 238% Florida 279,325, up 124% Ohio 153,196, up 88% Michigan 136,205, up 68% Arizona 69,970, up 151% o a 69,9 0, up 5 % Nevada 66,316, up 215% Virginia 24,199, up 456% Maryland 25,109, up 455% Maryland 25 109 up 455% Connecticut 23,470, up 100% Massachusetts 41,487, up 161%
Source: RealtyTrac, Inc.
Data include all default, delinquency and foreclosure filings reported. The same property often has more than one filing.
16 states doubled or more; D.C. DC was up 608%
27
Monthly Foreclosure Filings y g
100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 20 000 10,000 0
Jun‐05 Jun‐06 Jun‐07 Aug‐05 Oct‐05 Dec‐05 Feb‐06 Apr‐06 Aug‐06 Oct‐06 Dec‐06 Feb‐07 Apr‐07 Aug‐07 Oct‐07 Dec‐07 Feb‐08 Apr‐08 Jun‐08
Texas foreclosures have been very moderate compared to the US trend. US f foreclosures are up 2 % YTD2008 l 27% YTD2008; Texas is down 18% YTD2008.
US
Texas
Source: RealtyTrac, Inc.
Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
The US Housing Market
The “Un‐Magnificent Seven”: California Florida Nevada Arizona o a Indiana Ohio Michigan
29
Bottom 10 Job-Creating States JobFirst Half of 2008
0 ‐20
‐25.5
Thousands of jobs lost June 2007 to June 2008
‐12.1
‐18.9 ‐33.0
‐17.8
‐13.7
‐13.0
‐40 ‐60 ‐80 80 ‐100
‐106.1 106 1 ‐58.9 ‐53.6
‐120
Wisco onsin Califo ornia Mich higan Ari izona Rhode Is sland New Je ersey Tenne essee Ne evada
30
Flo orida
Source: BLS
Ohio
US and Texas Appreciation
Purchase Only Index Change Year over Year Purchase Only Index Change Year over Year y g
30% 25% 20% 15% 10% 5% 0% -5% 10% -10% -15% -20% 20%
1Q1997 2Q1997 3Q1997 4Q1997 1Q1998 2Q1998 3Q1998 4Q1998 1Q1999 2Q1999 3Q1999 4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002 1Q2003 2Q2003 3Q2003 4Q2003 1Q2004 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008
US 1Q2008 = -3.1%; Texas 1Q2008 = 2.5% Florida = -14.5%; California = -19.1%
Florida
US Texas
Arizona down 6.8%; Arizona down 6 8%; Nevada down 10.6% Michigan down 9.1%
California
31
Source: OFHEO
Housing Market Boom 20012001-2006
1. Historically low interest rates 2. Record home price increases in selected areas, followed by 3. 3 4. 5. 6. 7. 8. 8
declines Flood of private capital led to Wall Street dominance in the residential mortgage market Extraordinary investor/speculator demand Surge in second/vacation home demand “Non traditional” loans removed former barriers to home ownership resulting i a l hi lti in leap i th h in the homeownership rate hi t Hyper-aggressive “easy credit, easy terms” financing Rise and fall of home affordability
32
Housing Fall Off 2006-08 . . . 2006• Unlike past housing downturns, this one not preceded
by rising interest rates, unemployment or recession • Causes: – E d of “Easy Credit – E End f “E C dit Easy Terms” T ” – Excess building in fast growing markets – Sl d Slowdown i appreciation – d li i h in i ti declining home prices i – Falling affordability leading to lower user demand – Fall off of speculative building and “investor” market
33
(Percent)
70.0
US Homeownership Rate and the FHLMC 30-Year Fixed Rate 30Homeownership Rate (left scale)
1980-1985 Mortgage interest rate exceeds 12%; Homeownership plummets
(Percent)
20 19 18 17 16 15 14
69.0
68.0
67.0 67 0
Since 1997 Low interest rate and new mortgage products; Homeownership explodes
13 12 11 10 9 8 7
66.0
65.0
64.0
63.0
1970s Baby Boomers enter market; homeownership grows
2Q1971 2Q1972 2Q1973 2Q1974 2Q1975 2Q1976 2Q1977 2Q1978 2Q1979 2Q1980 2Q1981 2Q1982 2Q1983 2Q1984 2Q1985 2Q1986
FHLMC 30‐Year Rate (right scale)
2Q1987 2Q1988 2Q1989 2Q1990 2Q1991 2Q1992 2Q1993 2Q1994 2Q1995 2Q1996 2Q1997 2Q1998 2Q1999 2Q2000 2Q2001 2Q2002 2Q2003 2Q2004 2Q2005 2Q2006 2Q2007 2Q2008
6 5 4
34
62.0
Source: US Census Bureau; FHLMC (4‐quarter moving average homeownership rate)
(000s)
1,000
2,000
3,000
5,000
6,000
7,000
4,000 4 000
0
Jan-68 Jan-69 Jan-70 Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
New and Existing SF Home Sales U.S.
Sources: US Census Bureau , NAR, NAHB, NBER
Existing SF S l E i ti Sales
New SF Sales
35
Jan-07 Jan-08
$250,000
US Median Home Prices Since 1990
National House Price Bubble
$225,000
$200,000
$175,000
Prices in 2001 stayed above trend, despite a national recession.
$150,000
$125,000
$100,000
The national housing boom started around January 2002 creating a dJ 2002 i house price bubble that peaked at around $230,000 in 2006
$75,000
$50,000 Jan-90 0 Jul-90 0 Jan-91 1 Jul-91 1 Jan-92 2 Jul-92 2 Jan-93 3 Jul-93 3 Jan-94 4 Jul-94 4 Jan-95 5 Jul-95 5 Jan-96 6 Jul-96 6 Jan-97 7 Jul-97 7 Jan-98 8 Jul-98 8 Jan-99 9 Jul-99 9 Jan-00 0 Jul-00 0 Jan-01 1 Jul-01 1 Jan-02 2 Jul-02 2 Jan-03 3 Jul-03 3 Jan-04 4 Jul-04 4 Jan-05 5 Jul-05 5 Jan-06 6 Jul-06 6 Jan-07 7 Jul-07 7 Jan-08 8 Jul-08 8 Jan-09 9
36
Source: NAR, Real Estate Center at Texas A&M University
100
110
120
130
140
150
(000)
50
Jan 1990 0 Jul 1990 0 Jan 1991 1 Jul 1991 1 Jan 1992 2 Jul 1992 2 Jan 1993 3 Jul 1993 3 Jan 1994 4 Jul 1994 4 Jan 1995 5 Jul 1995 5 Jan 1996 6 Jul 1996 6 Jan 1997 7 Jul 1997 7 Jan 1998 8 Jul 1998 8 Jan 1999 9 Jul 1999 9 Jan 2000 0 Jul 2000 0 Jan 2001 1 Jul 2001 1 Jan 2002 2 Jul 2002 2 Jan 2003 3 Jul 2003 3 Jan 2004 4 Jul 2004 4 Jan 2005 5 Jul 2005 5 Jan 2006 6 Jul 2006 6 Jan 2007 7 Jul 2007 7 Jan 2008 8
37
60 1212-Month Moving Average
70
80
90
US SF Housing Permits
Source: US Census Bureau, Real Estate Center at Texas A&M
(000s Units)
Inventory of New SF Homes For Sale
Months Inventory
820 780 740 700 660 620 580 540 500 460 420 380 340 300 260 220 180 140 100
Jan-00 Mar-00 May-00 Jul-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04 Feb-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08
12
Excess units plus new construction in 2008 at annual sales of around 600,000 will take several years to get back to balance. several years to get back to balance
11.5 11 10.5 10 9.5 9 8.5 8 7.5 7 6.5 6 6 5.5 5 4.5 4 3.5 3
Source: US Census Bureau, NAHB
38
Texas and the T d h Odessa - Midland Housing Markets
39
Texas Home Sales
35,000
2008 appears headed toward 2003‐2004 levels
2006
30,000
2007
25,000
2005
2004 2003
20,000
2008
15,000 15 000
2007 Sales down 6.0% YTD 2008 sales down 14.7%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
40
10,000 Dec
Source: Real Estate Center at Texas A&M University
Texas Home Sales
1212-Month Moving Average Mo ing A erage
26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000
Jan‐9 96 Jul‐9 96 Jan‐9 97 Jul‐9 97 Jan‐9 98 Jul‐9 98 Jan‐9 99 Jul‐9 99 Jan‐0 00 Jul‐0 00 Jan‐0 01 Jul‐0 01 Jan‐0 02 Jul‐0 02 Jan‐0 03 Jul‐0 03 Jan‐0 04 Jul‐0 04 Jan‐0 05 Jul‐0 05 Jan‐0 06 Jul‐0 06 Jan‐0 07 Jul‐0 07 Jan‐0 08 Jul‐0 08 Jan‐0 09
Sales Bubble Sales “Bubble” Reverting to long‐term trend
Source: Real Estate Center
41
Annual Texas Home Sales
310,000 310 000 290,000 270,000 250,000 230,000 210,000 190,000 170,000 150,000 150 000 130,000 110,000 90,000 70,000 50,000 ,
2008p
42
107,107 100,047 99,619 116,604 122,134121,823 146,395 146 395 138,123 170,638 184,056 188,738 196,401 201,528
2007 Trend
2007 = 272,200 along the trend line, about 5% decline. 2008 = 285,000 (trend) , ( ) 2009 = 296,750 (trend)
216,099
290,003
296,750 285,000
272,177
266,519
240,870
Source: Real Estate Center at Texas A&M University
2009p
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Annual Texas Home Sales
310,000 310 000 290,000 270,000 250,000 230,000 210,000 190,000 170,000 150,000 150 000 130,000 110,000 90,000 70,000 50,000 ,
2008p
43
107,107 100,047 99,619 116,604 122,134121,823 146,395 146 395 138,123 170,638 184,056 188,738 196,401 201,528
2003 Trend
2007 = 272,200 along the trend line 2008 = 262,000 5% less (30 sales/1,000 HH) 2009 = 272,000 (equal to 2007) 2009 = 272 000 (equal to 2007)
240,870 216,099
290,003 272,177 261,939 271,615
266,519
Source: Real Estate Center at Texas A&M University
2009p
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
OdessaOdessa-Midland Monthly MLS Home Sales
400
2007 home sales declined 9.8%, but YTD 2008 up 2.0%
350 300
2008 2007
2006
250
2003
200 150 100
2004
2005
Sept S
Jan J
Feb F
Source: Real Estate Center at Texas A&M University
Mar M
Apr A
May M
Jun J
Jul J
Aug A
Oct O
Nov N
Dec D
310 300 290 280 270 260 250 50 240 230 220 210 200 190 180 170 160 150 140
Jan‐9 96 Jul‐9 96 Jan‐9 97 Jul‐9 97 Jan‐9 98 Jul‐9 98 Jan‐9 99 Jul‐9 99 Jan‐0 00 Jul‐0 00 Jan‐0 01 Jul‐0 01 Jan‐0 02 Jul‐0 02 Jan‐0 03 Jul‐0 03 Jan‐0 04 Jul‐0 04 Jan‐0 05 Jul‐0 05 Jan‐0 06 Jul‐0 06 Jan‐0 07 Jul‐0 07 Jan‐0 08
45
OdessaOdessa-Midland Home Sales
Source: Real Estate Center at Texas A&M University
Jul‐0 08 Jan‐0 09
1212-Month Moving Average Mo ing A erage
US and Texas Median Home Prices
$240,000 $215,000 $190,000 $165,000 , $140,000 $115,000 $90,000 $65,000 $40,000 ,
Texas is a housing bargain. The gap between the US and Texas median price has widened from around 25% to 33%.
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
46
Source: NAR; Real Estate Center at Texas A&M University
2007
22% 21% 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% 4%
1Q1997 2Q1997 3Q1997 4Q1997 1Q1998 2Q1998 3Q1998 4Q1998 1Q1999 2Q1999 3Q1999 4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002 1Q2003 2Q2003 3Q2003 4Q2003 1Q2004 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007
US 1Q2008 = -3.1% Texas 1Q2008 = 2.5% Odessa = 13.0%
Purchase Only Index Change Year over Year Purchase Only Index Change Year over Year y g
US, Texas and Odessa Appreciation
Source: OFHEO
Texas
Odessa
US
47
3Q2007 4Q2007 1Q2008
US, Texas and Midland Appreciation
Purchase Only Index Change Year over Year Purchase Only Index Change Year over Year y g
25% 24% 23% 22% 21% 20% 19% 18% 17% 16% 15% 14% % 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% 5%
1Q1997 2Q1997 3Q1997
US 1Q2008 = -3.1% Texas 1Q2008 = 2.5% Midland = 11.4%
Midland Texas
US
4Q1997 1Q1998 2Q1998 3Q1998 4Q1998 1Q1999 2Q1999 3Q1999 4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002 1Q2003 2Q2003 3Q2003 4Q2003 1Q2004 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008
48
Source: OFHEO
Texas Median Home Prices
$160,000 $160 000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $90 000 $80,000
71,200 78,200 75,200 68,500 68,100 80,000 81,600
2003 Trend
Median Home Price of $154,600 by 2010 equals a 4.8% increase over 2007. Annual average increase of 4.4% 1990‐2007; Annual increases of ‐1.3% in 2008 and 3% in 2009 and 2010.
112,100
154,585 150,118 147,500 145,650
143,100 136,800 130,100
127,700 124,500
119,400
2003 trend line
90,600 86,400
100,900 96,200
$70,000 $60,000 $50,000
2008p p
2009p p
Source: Real Estate Center at Texas A&M University
2010p p
1989 9
1990 0
2 1992
1993 3
1994 4
1995 5
1996 6
1997 7
1998 8
1999 9
2000 0
2 2002
2003 3
2004 4
2005 5
2006 6
2007 7
1991
2001
OdessaOdessa-Midland Average and Median Home Prices
1212-Month Moving Average
$180,000 $170,000 $ , $160,000 $150,000 $140,000 $130,000 $130 000 $120,000 $110,000 $100,000 $90,000 $80,000 $80 000 $70,000 $60,000
Jan-00 0
Between 2000 and 2007 the Median home price increased Median home price increased 103.1% and the Average price increased 97.1% increased 97.1% Average Median
Jul-00 0 Jan-01 1 Jul-01 1 Jan-02 2 Jul-02 2 Jan-03 3 Jul-03 3 Jan-04 4 Jul-04 4 Jan-05 5 Jul-05 5 Jan-06 6 Jul-06 6 Jan-07 7
165,275
143,300
Jul-07 7
Source: Real Estate Center at Texas A&M University
Jan-08 8
Percent of Tota Sales al
10 16
12
2
4
14 13.6
0
$29,999 or less 9
6
8
2.7 8.2 82
30,000 - 39,999
1.8 9.6
40,000 - 49,999
2.3 9
50,000 - 59,999
3.1 11.4
60,000 - 69,999
3.7 9.2
70,000 - 79,999
4.9 8
80,000 - 89,999
6.1 4.3
1997
90,000 - 99,999
5
9.2 8.4 84
100,000 - 119,999
5.4
11.3
120,000 - 139,999
4.4
2007
10.8
140,000 - 159,999
2.6
1997 and 2007 Odessa-Midland Home Sales by OdessaPrice
Source: Real Estate Center at Texas A&M
160,000 - 179,999
7.6
2.3
180,000 - 199,999
6.1
2.3
200,000 - 249,999
9.6
0.9 09
250,000 - 299,999
6.9
0.3
300,000 - 399,999
6.2
0.2
400,000 - 499,999 500,0 and 000 m more
1.5 0 1.2
12,000
13,000
14,000 ,
10,000
15,000
11,000 11 000
4,000
5,000
6,000 6 000
7,000
8,000
9,000
1212-Month Moving Average
2003 Trend line has very tight fit with actual. A construction “bubble” from 2004 to mid-2006. 2008 YTD down 35%
Texas SF Permits
Source: US Census Bureau, Real Estate Center at Texas A&M
52
Jan-95 Apr-95 Jul-95 Oct-95 Jan-96 Apr-96 Jul-96 Oct-96 Jan-97 Apr-97 Jul-97 Oct-97 Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
Texas SFD Building Permits
180,000 160,000 140,000 120,000
108,613
New home construction will be down about 24%, back to 1997‐1998 levels, , , or lower
122,913 111,915 111 915
166,203
163,032
151,384
137,493
‐31.3%
112,040 ,
100,000
83,103 82,180
99,831
101,848
-24%
85,000
80,000 80 000
70,355 70,418 62,672
60,000
41,654 41 654
54,798
40,000 20,000 0
38,141
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p 53
Source: U.S. Census Bureau, Real Estate Center at Texas A&M University
2,500
OdessaOdessa-Midland MSA Single-Family SingleBuilding Permits
2,183
2,000
1,646
SF Permits essentially flat in 2007. YTD 2008 permits up 23%
Only 532 multi family permits issued since 2000; 224 in 2007 Only 532 multi‐family permits issued since 2000; 224 in 2007
1,500
1,000
842 731 729 539
500
450
441 377 216 246 242 261 284 290 328 350 358 390 391 228 262 253 355
483 433
469
189
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Census Bureau, Real Estate Center at Texas A&M University
Population Growth
US Population Growth 2007-2012 2007-
Source: Global Insight, Inc.
56
2000 – 2007 States with Population Increases > 1 million
Number Texas 3,052,581 California C lif i 2,681,560 2 681 560 Florida 2,268,419 Georgia 1,357,934 Arizona 1,208,140 1 208 140 North Carolina 1,014,541
Source: U.S. Census Bureau
Table 2. Cumulative Estimates of the Components of Population Change for the United States, Regions, States and Puerto Rico: April 1, 2000 to July 1, 2007 (NST‐EST 2007‐02), December 27, 2007
Percent 14.6% 7.9% 7 9% 14.2% 16.6% 23.5% 23 5% 12.6%
Top 18 Growth MSAs 2000-2007 20001,100,000 1 100 000 1,000,000 900,000 800,000 700,000
996,463
600,000 600 000 500,000 400,000 300,000 200,000 100,000 00,000 0
947,907
900,276
887,678
8 803,100
484,631
472,112
459,482
442,901
405,515
385,489
375,572
332,315
3 319,492
3 311,341
282,427
71,266 27
58
Source: U.S. Census Bureau
27 70,712
Projected Texas Population
(000s)
45,000 45 000
2000 - 2030
At 50% 1990-2000 rate of immigration At 2000-2004 rate of immigration At 100% 1990-2000 rate of immigration
36,682 41,118
40,000
35,000
Between 9 and 18 million more residents between 2005 and 2030 residents between 2005 and 2030
29,214 27,581 26,059 25,106 24,331 26,157 28,006
36,333
32,737
33,158 33 158 31,831
30,253
30,000
29,897
25,000
22,929 20,952
23,904
20,000
15,000
2000 2001 2002 2003 2004 2005 2006 2007 ... 2010 2010 2010 2015 2015 2015 2020 2020 2020 2025 2025 2025 2030 2030
59
Source: U.S. Census Bureau, Texas State Demographer
2030
60% 50% 40%
Percent Anglo and Hispanic Reverse by 2030
Anglo
53.1 1% 49.5%
Black
Hispanic
Other
% 51.3% 32.5% 10.0% 9.5% 6.1%
45.9%
42 2.4%
1.9% 41
38.6%
39.0% %
45.1%
20% 10% 0% 2000
11.6%
32.0%
30%
11.4%
35.3%
11.2%
10.8%
10.5%
35.7%
48.2%
3.3%
3.8%
4.3%
4.9%
2005
2010
2015
2020
5.4%
2025
2030
60
Source: Texas State Data Center and Demographer, Average of Projections
6.7%
OdessaOdessa-Midland Population
300,000 290,000 280,000 270,000 260,000 250,000 240,000 230,000 220,000 210,000 200,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2010 2010 2010 2015 2015 2015 2020 2020 2020 2025 2025 2025 2030
61
234,644 245,150
Historically, young people left the area for jobs in major MSAs. Increase of 20 000 b I f 20,000 between 1995 and d 2005 as energy business expanded; estimated 40,000 more people by 2030
255,978
294,037 287,912
292,973
2030
Source: US Census Bureau, Texas State Data Center and Demographer, 50%, 100% and 2000-2004 immigration scenarios , respectively
2030
What to Expect p
• Energy industry continued strong for next year or so with slower job growth but … growth, • Rapid home value increases due to constrained supply still very high but supply, slowing down • 2008-2009: good economic growth, job gains not as great as past several years, strong housing market demand
62
2008 Economic and Housing Outlook
August 12, 2008
Dr. James P. Gaines
Research Economist R lE C Real Estate Center at Texas A&M University