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					Economic Outlook in Uncertain Times

                Lawrence Yun, Ph.D.
                  Chief Economist
        NATIONAL ASSOCIATION OF REALTORS®

           Presentation to IREM Chapter 77
                    In Reston, VA
                 September 15, 2010
GDP Growing, but Decelerating
annualized % growth rate
            Construction Spending
$ billion
Pending Contracts on Existing Homes
                             Tax Credit Impact
            Share of First-Time Buyers
50%                                                     47%
45%   42%
              40%    40%    40%                  41%
40%                                       39%
                                   36%
35%
30%
25%
20%
      2001    2003   2004   2005   2006   2007   2008   2009
Other Home Price Measurements
Still High Months Supply of
 Existing Home Inventory


                              Pent-up Supply
                              and Demand
                              Number of Distressed Loans
            7,000

                                                                                                                                                                                    Mortgage Payments
            6,000
                                                                                                                                                                                    Past Due 30-59 Days

            5,000
Thousands




            4,000                                                                                                                                                                   Mortgage Payments
                                                                                                                                                                                    Past Due 90+ Days
            3,000

            2,000
                                                                                                                                                                                    Mortgage
            1,000                                                                                                                                                                   Foreclosures Started

               0
                    2006/Q1
                              2006/Q2
                                        2006/Q3
                                                  2006/Q4
                                                            2007/Q1
                                                                      2007/Q2
                                                                                2007/Q3
                                                                                          2007/Q4
                                                                                                    2008/Q1
                                                                                                              2008/Q2
                                                                                                                        2008/Q3
                                                                                                                                  2008/Q4
                                                                                                                                            2009/Q1
                                                                                                                                                      2009/Q2
                                                                                                                                                                2009/Q3
                                                                                                                                                                          2009/Q4
                                                                                                                                                                                    Mortgage
                                                                                                                                                                                    Foreclosure Inventory
                       Housing Starts
        In thousands
2,500

2,000

1,500

1,000

 500

   0
                  Commercial Real Estate Transactions
                                     (of those above $5 million properties)

           $140
Billions




           $120

           $100                                                               Unknown
                                                                              User/other
           $80                                                                Public
                                                                              Private
           $60                                                                Institutional
                                                                              Equity Fund
           $40                                                                Crossborder
           $20

             $-


                   Source: Real Capital Analytics
          Commercial Real Estate Market Activity
                        Based on Survey of Realtors®
Commercial Markets Expected to Bottom Out by 2011

    – Sales Volume Compared with Previous Year: Down 6%
    – Sales Prices Compared with Previous Year: Down 16%

    – Expected Availability for the Next 12 Months: Up 12%

    – Expected Cap Rate Movement for the Next 12 Months: Up 9 bps

    –   Rental Volume Compared with Previous Quarter: Up 3%
    –   Rental Rates Compared with Previous Quarter: Down 10%
    –   Level of Rent Concessions Compared with Previous Quarter: Up 9%
    –   Direction of Business Opportunities Compared with Previous Quarter: Down 1%
                                                                              11
                               National Office Fundamentals
                                         Completions       Absorption       Vacancy
                      15000                                                                        17.5%

                      10000                                                                        17.0%

                                                                                                   16.5%
Square Feet ('000s)




                       5000




                                                                                                           Percent (%)
                                                                                                   16.0%
                          0
                               2009.4   2010.1   2010.2   2010.3   2010.4   2011.1    2011.2       15.5%
                       -5000
                                                                                                   15.0%
                      -10000                                                                       14.5%
                                    Washington DC Area vacancy rate at 13.3% and falling
                      -15000                                                                       14.0%
                                                                                           Source: NAR / CBRE-EA

                                                                                                                    12
 National Multifamily Fundamentals
                   Completions       Absorption        Vacancy Rate
200000                                                                           8.0%

150000
                                                                                 7.0%

100000




                                                                                        Percent (%)
                                                                                 6.0%
 50000
                                                                                 5.0%
     0
          2009.4   2010.1   2010.2    2010.3      2010.4   2011.1     2011.2     4.0%
 -50000

-100000                                                                          3.0%
             Washington D.C. vacancy rate at 4.1% and falling           Source: NAR / CBRE-EA
                                                                                               13
Corporate Profits and Business Spending
 $ billion
              Private Sector Job Gains
             (763,000 in year-to-date in 2010)
% change from one year ago
       Total Payroll Jobs in Michigan
       In thousands
5000


4500


4000


3500


                                   Source: BLS
Total Payroll Jobs in Washington D.C. Metro
        In thousands
 2600

 2400

 2200

 2000


                                    Source: BLS)
                                           U.S. Budget Deficit
             1990
                    1991
                           1992
                                  1993
                                         1994
                                                1995
                                                       1996
                                                              1997
                                                                     1998
                                                                            1999
                                                                                   2000
                                                                                          2001
                                                                                                 2002
                                                                                                        2003
                                                                                                               2004
                                                                                                                      2005
                                                                                                                             2006
                                                                                                                                    2007
                                                                                                                                           2008
                                                                                                                                                  2009
                                                                                                                                                         2010


                                                                                                                                                                       2012
                                                                                                                                                                2011
  400,000
  200,000
        0
 -200,000
 -400,000
 -600,000
 -800,000
-1,000,000
-1,200,000
-1,400,000
-1,600,000
       Source: CBO, NAR estimate
                             Thousands




                        1000
                        4000
                        4500




                        1500
                        2000
                        2500
                        3000
                        3500




                         500
                           0
                 1980
                 1981
                 1982
                 1983
                 1984
                 1985
                 1986
                 1987
                 1988
                 1989
                 1990
                 1991
                 1992
                 1993
                 1994
                 1995
                 1996
                 1997
                 1998
                 1999
                                         (2-year moving average)




                 2000
                 2001
                 2002
                                                                   Household Formation




                 2003
                 2004
                 2005
Source: Census




                 2006
                           Weak
                          Growth




                 2007
                 2008
                 2009
               Baseline Outlook
• Moderate GDP Expansion 2.5% in the next 2
  years (historical average is 3%)
• 1.0 to 1.5 million annual job additions in the
  next 2 years
• Rental Housing Demand steady to improving
  and first of commercial sectors to improve
• Local Apartment Rents 0% to 2% growth in 2011
• Local Apartment Rents 2% to 5% growth in 2012
                Alternative Outlooks
• High inflation … people desire tangible investment like
  real estate, but interest rate will be higher

• Deflation … people hold back for better home price …
  holds back economy … but rental demand holding on

• Budget deficit tipping point … higher interest rate and
  sharp cut back in standard of living

				
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posted:9/27/2012
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