Dr. Mark G. Dotzour
Chief Economist
Real Estate Center
Texas A&M University
dotzour@tamu.edu
Corporate Profits
(With Inventory Valuation Adjustment & Capital Consumption Adjustment)
$1,300
$1,200
$1,100
$1,000
$900
Billions
$800
$700
$600
$500
$400
$300
$200
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
Source: Department of Commerce
% 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
Q3-2006 Q2-2006 Q1-2006 Q4-2005
More Jobs 32% 41% 43% 40%
Less Jobs 29% 20% 15% 19%
Source: Business Roundtable
Major Business Risk
• Will the flattening yield curve result in a
recession in 2007?
Yield Curve in the 2000’s
Upward slope to stimulate a recovery
5
4
3
Percent
2
June, 2003
1
0
Funds
2-Yr
5-Yr
10-Yr
Fed
Source: Federal Reserve Bank of St. Louis
Yield Curve in the 2000’s
Flat yield curve can lead to recession
5
August 24, 2006
4
Percent
3
2
June, 2003
1
0
Funds
2-Yr
5-Yr
10-Yr
Fed
Source: Federal Reserve Bank of St. Louis
Mortgage Rates and Treasuries
Monthly Data
10.00
Interest Rate
8.00
6.00
4.00
2.00
3/1/2000
9/1/2000
3/1/2001
9/1/2001
3/1/2002
9/1/2002
3/1/2003
9/1/2003
3/1/2004
9/1/2004
3/1/2005
9/1/2005
3/1/2006
10-YR Treasury 30-YR Mortgages
Source: Federal Reserve Board
P/E Ratio
S&P 500 12-month trailing
50
45
40
35
30
25
20
15
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Source: Standard and Poor’s
House Price Appreciation
Annualized Percentage Change from Previous Quarter
20.00
18.00
16.00
14.00
12.00
Percent
10.00
8.00
6.00
4.00
2.00
0.00
95
96
96
97
98
99
99
00
01
02
02
03
04
05
05
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
Annual Appreciation
Source: OFHEO and Federal Reserve System
People Who Plan to Buy a
Home in the Next Six Months
5.5
5.0
% of Respondents
4.5
4.0
3.5
3.0
2.5
2.0
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Source: The Conference Board
Texas Index of Leading Indicators
130
125
120
115
110
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Source: Federal Reserve Bank of Dallas
Job Growth Past 12 Months
Ending August 2006
Laredo
McAllen
Midland
Brownsville
Odessa
Sherman
Amarillo
Austin
Houston
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Source: Texas Workforce Commission
Unemployment Rates Aug 2006
Midland
Amarillo
Austin
Bryan/CS
Lubbock
Odesa
Abilene
Tyler
Victoria
1 2 3 4 5 6
Apartment Occupancy Rates
96%
95%
94%
93%
92%
91%
90%
89%
88%
87%
86%
Austin Fort El Paso Dallas Houston San
Worth Antonio
Aug-05 Aug-06
Source: Apartment MarketData Research, LLC
Aug-06
Employment Growth Rates
M ay-06
Austin
F eb-06
Nov-05
Aug-05
M ay-05
F eb-05
Texas
Nov-04
Aug-04
M ay-04
F eb-04
Nov-03
U.S.
Aug-03
M ay-03
F eb-03
Nov-02
Aug-02
5
4
3
2
1
0
-1
-2
-3
Existing Home Sales
3,500
Austin
3,000
2006
2,500
2005
2,000
1,500
2003
1,000
2004
500
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Source: Real Estate Center
Inventory of Unsold Homes
Austin
8
7
6
5
Months
4
3
2
1
Jul-95
Jul-96
Jul-97
Jul-98
Jul-99
Jul-00
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
July, 1995 to present
Source: Real Estate Center
1Q
-3
-2
-1
0
1
2
3
4
5
6
7
8
91 1Q
-4
-2
0
2
4
6
8
10
12
1Q 91
92 1Q
1Q 92
93 1Q
1Q 93
94 1Q
1Q 94
95 1Q
95
1Q
96 1Q
96
1Q
97 1Q
97
1Q
98 1Q
98
1Q 1Q
99 99
1Q
DFW
00 1Q
00
San Antonio
1Q 1Q
01 01
1Q 1Q
02 02
1Q 1Q
San Antonio
03 03
1Q 1Q
Dallas/Ft. Worth
04 04
1Q 1Q
05 05
1Q 1Q
06 06
1Q 1Q
-4
-2
0
2
4
6
8
10
-2
0
2
4
6
8
10
12
14
16
Source: OFHEO
91 91
1Q 1Q
92 92
1Q 1Q
93 93
1Q 1Q
94 94
1Q 1Q
95 95
1Q 1Q
96 96
1Q 1Q
97 97
1Q 1Q
98 98
1Q 1Q
Price Change from Year Earlier
99 99
1Q 1Q
Austin
Houston
00 00
1Q 1Q
01 01
Austin
1Q 1Q
Houston
02 02
House Price Appreciation
1Q 1Q
03 03
1Q 1Q
04 04
1Q 1Q
05 05
1Q 1Q
06 06
Conclusions
• Mortgage rates unlikely to rise much more
• Continued weakness in home sales in the US
• Recession in 2007 unlikely
• Fed likely to lower rates in 2007
• Austin economy to outperform state/nation
• Home sales in Austin will be strong in 2007