Charles E. Gilliland Research Economist Real Estate Center Texas A&M University
TODAY’S TOPICS
• Real Estate Markets Outlook • Chaos in Global Credit Markets
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 Jun-07
Source: Real Estate Center
Total Home Sales in Texas
300,000 250,000 200,000 150,000 100,000 50,000 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
RETURN TO “NORMAL”
Source: Real Estate Center
TEXAS EXISTING HOME SALES
35,000 30,000
YTD 2007 sales down 3% from 2006
2007 will not “stack” on top of 2006, but not be far behind
2007
25,000
2006
20,000
2003
15,000
2005 2004 2002
10,000 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
5
Source: Real Estate Center
TEXAS SF HOME PERMITS
18,000 16,000
2006
14,000
12,000
2004 2007
2005 2003
10,000
8,000
YTD SF Permits are down 27.2%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
6,000
6
Source: Real Estate Center
TEXAS SINGLE-FAMILY BUILDING PERMITS
200,000 150,000
100,000
50,000
0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Source: Real Estate Center
TEXAS SINGLE-FAMILY BUILDING PERMITS
200,000
RETURN TO “NORMAL”
150,000
100,000
50,000
0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Source: Real Estate Center
SINGLE-FAMILY BUILDING PERMITS
PER 1,000 POPULATION GROWTH
800 700 600 500 400 300 200 100 0 1980 1983 1986 1989 1992 1995
The average since 1980 Is 242 permits per 1,000
Source: Real Estate Center
1998
2001
2004
2007
TYLER POPULATION GROWTH annual population Normal
195,000 190,000 185,000 180,000 175,000 170,000 165,000 160,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
growth is about 4,000
Source: State Data Center
SINGLE-FAMILY BUILDING PERMITS
TYLER, TX
700
204 Through Aug. 2007
600 500 400 300 200 100 0
1981
1983
1985
1987
1989
Source: Real Estate Center
1991
1993
1995
1997
1999
2001
2003
2005
2007
TYLER RETAIL SALES PER CAPITA
$16,000
15,268
$15,000 $14,000 $13,000 $12,000 $11,000 $10,000 1996 1997 1998
11,919 12,084 12,949
14,805 14,540 13,958 13,850 13,923
14,760
1999
2000
2001
2002
2003
2004
12
Source: Texas Comptroller of Public Accounts
2005
EXISTING HOME SALES
TYLER
420
2006
370
2007
320
2005
270
220
Home sales still near record levels.
170 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Source: Real Estate Center Texas A&M
INVENTORY OF UNSOLD HOMES
May-07 Nov-06 May-06 Nov-05 May-05 Nov-04 May-04 Nov-03 May-03
Source: Real Estate Center
Nov-02
TYLER
May-02 Nov-01 May-01 Nov-00 May-00 Nov-99 May-99 Nov-98 May-98 Nov-97 May-97 Nov-96 May-96 15 12 9 6 3 0
May 1996 to present
Months
TEXAS RURAL LAND PRICES
Dollars/Acre
2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1966
Nominal Real or Deflated
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
TEXAS RURAL LAND PRICES
Dollars/Acre
2,200 2,000 Nominal 1,800 1,600 2002 2004 2002 2003 2004 Real or2003 Deflated 1,400 Real $215 $240 $273 Real $215 $240 $273 1,200 Nominal $974 $1,097 Nominal $974 $1,097 $1,274 $1,274 1,000 Increase 13% 16% 800 Increase 13% 16% 600 400 Volume 5,882 7,283 8,073 Volume 5,882 7,283 8,073 200 0 1966 1969 1972 1975 1978 1981
2005 2005 $307 $307
2006 2006 $364 $364
2007Prelim. 2007Prelim. $407 $407
$1,483 $1,825 $2,076 $1,483 $1,825 $2,076 16% 23% 14% 16% 23% 14% 8368 8368 8,215 8,215
1984
1987
1990
1993
1996
1999
2002
2005
SIGNIFICANT PRICE TRENDS PERCENT CHANGE 2006-07 (First Half)
Hill Country -- North (14) Coastal Prairie--South (20) Fort Worth Prairie (23) Coastal Prairie--North (19) Rolling Plains--Central (7) Hill Country--West (15) Coastal Prairie--Middle (21) Rolling Plains--North (6) North Central Plains (12) Piney Woods--South (31) Crosstimbers (13) Edwards Plateau -- South (10) Trans-Pecos (8) Permian--West (4) Piney Woods--North (30) Blacklands--North (25) Brazos (27) Highland Lakes (16) Edwards Plateau--West (9) Rio Grande Plains (11) North East (29) Texoma (22)
7 7 10 0
11
15
28 25 25 24 22 22 22 21 20 20 19 19
43 42 39 39 38 37
20
30
40
50
60
70
FOREIGN INVESTMENT IN TEXAS AG LAND Acres
830,190 825,362
800,000
Cropland Pasture Forest
600,000
424,096
400,000
308,408 306,668
200,000
29,105
0 2005 2006
Source: USDA
PINEY WOODS - NORTH LAND PRICES
2,800 2,400 2,000 1,600 1,200 800 400 0 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Dollars/Acre
Nominal Real or Deflated
EARLY 2007
• Volume of Sales Faltering • All Significant Trends Are UP • Lack of Properties • Some Resistance to Increased Asking Prices
CORPORATE PROFITS
(WITH INVENTORY VALUATION ADJUSTMENT & CAPITAL CONSUMPTION ADJUSTMENT)
$1,200 $1,000 Billions $800 $600 $400 $200 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
Corporate profits still increasing, means continued hiring.
Source: Department of Commerce
PEOPLE WHO PLAN TO BUY A HOME
Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-04 Jul-03 Jan-03 Jul-02 Jan-02 Jul-01 Jan-01 Jul-00 Jan-00 Jul-99 Jan-99 Jul-98 Jan-98 4.5 4.0 3.5 3.0 2.5
Source: The Conference Board
IN THE NEXT SIX MONTHS
% of Respondents
BUILDERS REPORTING THAT CURRENT SALES ARE GOOD
100 90 80 70 60 50 40 30 20 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
% of Respondents
Source: National Association of Home Builders
DEBT SERVICE PAYMENTS
AS A PERCENT OF DISPOSABLE PERSONAL INCOME
15 14 Percent 13 12 11 10 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
Consumers do appear to be taking A breather from piling on more debt. When consumers don’t spend, we usually Go into a recession.
Source: Federal Reserve Board
THE MORTGAGE MARKET CHAOS Subprime
Alt-A Piggyback Hybrids Jumbos Prime The Conduit
Global Banks
Sovereign Nations Hedge Funds Pensions/Insurance Endowments Money Mkt Accts
THE MORTGAGE MARKET CHAOS Subprime
Alt-A Piggyback Hybrids Jumbos Prime • • • Moody’s S&P Fitch Bond Ratings The Conduit
Global Banks
Sovereign Nations Hedge Funds Pensions/Insurance Endowments Money Mkt Accts
THE MORTGAGE MARKET CHAOS Subprime Stop ??
Alt-A Stop Piggyback Stop Hybrids Stop Jumbos ?? Prime • • • Moody’s S&P Fitch Bond Ratings The Conduit
Global Banks
Sovereign Nations ?? Hedge Funds Pensions/Insurance Endowments Money Mkt Accts ??
THE 2008 OUTLOOK FOR NEW HOME CONSTRUCTION
EXPECTED SUPPLY OF NEW HOMES -- 2008
• If Population grows by 400,000 • If homebuilders return to 242 single-family permits per 1,000 population • New single-family permits in 2008 will be 96,800. Another decline of 23% from the current annual rate
THE 2008 OUTLOOK FOR HOME SALES IN TEXAS
EXPECTED LEVEL OF HOME SALES PER MLS ACTIVITY -- 2008
• If population grows to 24.5 million • MLS home sales would be 223,000
– 2006 = 290,000 (at 35 sales per 1,000 h.h.) – 2007 = 260,000 (down 10% from 2006) – 2008 = 223,000 (down 15% from 2007)
CONCLUSION: A RETURN TO “NORMALCY”
• 2008 Home Sales Like 2003 • Home building could fall 20% • “Real” demand for houses continues • Second home buyers take a breather • Investor/speculators likely to leave • Texas relentless population growth will continue for the next 20 years
NATURAL PROCESSES
• The alligator,
• one of the oldest and ultimate predators • considered an "apex predator“ • can fall victim to implemented 'team work' strategy of canines • tight knit social structure • "survival of the pack mentality"
NATURAL PROCESSES
• A remarkable photograph courtesy of Nature Magazine • Note: • Alpha dog has a muzzle hold on the gator preventing it from breathing • Another has a hold on the tail to keep it from thrashing • A third dog attacks the soft underbelly •
Not for the squeamish!