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Economic Outlook Beyond 2012 Where are We Going From Here

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					2012 Granbury Economic Outlook
          Conference

   Economic Outlook Beyond 2012: Where Are We
                Going From Here?




Dr. James P. Gaines
                                 Granbury Conference Center
 Research Economist
                                       Granbury, Texas
  Real Estate Center
                                     September 12, 2012
Texas A&M University
                                                     1
 recenter.tamu.edu
Economics Vocabulary Word for
the Day:
           Liquidity

             Definition:
Liquidity is when you look at your
  retirement funds and wet your
               pants.
Economy is Trying to
 Recover, but Slow
      Going

                       3
                    Percent Growth in Real GDP
  9.0
              8.0
  8.0
  7.0                                                                                   6.7

  6.0
                                                                                                                                                  5.1
  5.0                                                                                                                     4.2                                                                                                             4.0                                         4.1
  4.0                                                 3.5                         3.4
                                                                                              3.7
                                                                                                                    3.3
                                                                                                                                                                                3.6
                                                                                                              3.0                     3.2                                             3.0
  3.0                     2.4
                                     2.7                                                            2.7 2.6                                                         2.7
                                                                                                                                                                                                                                                2.3 2.2
                                                                                                                                                                                                                                                          2.6 2.4         2.5
                                                            2.1 2.0                                                                         2.1                                                                                                                                              2.0
  2.0                                           1.4
                                                                            1.7                                                 1.8                     1.6                                 1.7
                                                                                                                                                                                                       1.3                        1.4                                           1.3                1.5
        1.1
  1.0               0.3                                                                                                                                                   0.5
                                                                      0.1                                                                                     0.1                                                                                                   0.1
  0.0
 -1.0                                                                                                                                                                                                                         -0.3
                                         -1.1
 -2.0                        -1.3
                                                                                                                                                                                               -1.8
 -3.0
 -4.0               The average rate of growth is 3.2% per                                                                                                                                                 -3.7
 -5.0               quarter since 1947
 -6.0                                                                                                                                                                                                                 -5.3

 -7.0
 -8.0
 -9.0                                                                                                                                                                                                             -8.9
-10.0
        1Q2000

                    3Q2000

                                1Q2001

                                           3Q2001

                                                      1Q2002

                                                               3Q2002

                                                                            1Q2003

                                                                                        3Q2003

                                                                                                    1Q2004

                                                                                                              3Q2004

                                                                                                                          1Q2005

                                                                                                                                      3Q2005

                                                                                                                                                  1Q2006

                                                                                                                                                              3Q2006

                                                                                                                                                                          1Q2007

                                                                                                                                                                                      3Q2007

                                                                                                                                                                                                  1Q2008

                                                                                                                                                                                                             3Q2008

                                                                                                                                                                                                                         1Q2009

                                                                                                                                                                                                                                     3Q2009

                                                                                                                                                                                                                                                1Q2010

                                                                                                                                                                                                                                                          3Q2010

                                                                                                                                                                                                                                                                    1Q2011

                                                                                                                                                                                                                                                                                3Q2011

                                                                                                                                                                                                                                                                                             1Q2012
                                                                                                                                                                                                                                                                                         4
                                                                                         Source: Bureau of Economic Analysis
        Percent Change in Monthly
                Retail Sales
3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%

-5.0%




                 Source: U.S. Census Bureau
                                                                  Billions of Dollars




                                                                                        $10,000
                                                                                                            $11,000
                                                                                                                                    $12,000




                                                $6,000
                                                         $7,000
                                                                     $8,000
                                                                               $9,000
                                       Jan-00
                                       May-00
                                       Sep-00
                                       Jan-01
                                       May-01
                                       Sep-01
                                       Jan-02
                                       May-02
                                       Sep-02
                                       Jan-03
                                       May-03
                                                                                                  tailed off lately



                                       Sep-03
                                       Jan-04
                                       May-04
                                       Sep-04
                                       Jan-05
                                       May-05
                                       Sep-05
                                       Jan-06
                                       May-06
                                                                                                  about 70% of US GDP and has




                                       Sep-06
                                       Jan-07
                                                                                                  Personal consumption represents




                                       May-07
                                       Sep-07
                                       Jan-08
                                       May-08



Source: Department of Commerce, SAAR
                                       Sep-08
                                       Jan-09
                                       May-09
                                       Sep-09
                                       Jan-10
                                       May-10
                                       Sep-10
                                       Jan-11
                                       May-11
                                       Sep-11
                                       Jan-12
                                       May-12
                                       Sep-12
                                                                                                                                              Personal Consumption Expenditures
 Government &
Households are Still
  Over Levered

                       7
    Total National Debt Since 1929
     Amount and Percent of GDP
$16,000                                                                                                                                                                                                       160%
                  National Debt as a
                                                                                                        Ended WWII $270B
$14,000           Percentage of                                                                                                                                                                               140%
                                                                                                        Hit $1T in 1981 @ 32% GDP
                  Annual GDP (right
                                                                                                        Beginning FY2012 $14.8T
$12,000
                  scale)
                                                                                                        2011 debt = 344 times 1940                                                                            120%


$10,000                                                                                                                                                                                                       100%


 $8,000                                                                                                                                                                                                       80%


 $6,000                                                                                                                                                                                                       60%


 $4,000                                                                                                                                                                                                       40%

                                                    Total National Debt
 $2,000                                                                                                                                                                                                       20%
                                                    (left scale)
    $0                                                                                                                                                                                                        0%
          1929
                 1932
                        1935
                               1938
                                      1941
                                             1944
                                                    1947
                                                           1950
                                                                  1953
                                                                         1956
                                                                                1959
                                                                                       1962
                                                                                              1965
                                                                                                     1968
                                                                                                            1971
                                                                                                                   1974
                                                                                                                          1977
                                                                                                                                 1980
                                                                                                                                        1983
                                                                                                                                               1986
                                                                                                                                                      1989
                                                                                                                                                             1992
                                                                                                                                                                    1995
                                                                                                                                                                           1998
                                                                                                                                                                                  2001
                                                                                                                                                                                         2004
                                                                                                                                                                                                2007
                                                                                                                                                                                                       2010
                                                                                                                                                                                                               8
                                                                  Source: U.S. Treasury
                                            Household Debt
             $16,000
                                        Total HH Debt                                   Home Mortgage                                    Consumer Credit
             $14,000

             $12,000

             $10,000

              $8,000
Billions $




              $6,000

              $4,000

              $2,000

                 $0
                       1945
                              1947
                                     1949
                                     1951
                                            1953
                                                   1955
                                                   1957
                                                          1959
                                                                 1961
                                                                        1963
                                                                        1965
                                                                               1967
                                                                                      1969
                                                                                      1971
                                                                                             1973
                                                                                                    1975
                                                                                                    1977
                                                                                                           1979
                                                                                                                  1981
                                                                                                                         1983
                                                                                                                         1985
                                                                                                                                1987
                                                                                                                                       1989
                                                                                                                                       1991
                                                                                                                                              1993
                                                                                                                                                     1995
                                                                                                                                                            1997
                                                                                                                                                            1999
                                                                                                                                                                   2001
                                                                                                                                                                          2003
                                                                                                                                                                          2005
                                                                                                                                                                                 2007
                                                                                                                                                                                        2009
                                                                                                                                                                                        2011
                                       Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University                                                                           9
 Total HH Debt as Percentage of GDP
                       Households Continue Way Over Levered
110.0%
                                                                                                                                Average 2000-2010 = 88%
100.0%

 90.0%

 80.0%
                                                                                                              Average 1985-1999 = 63%
 70.0%

 60.0%
                Average 1945-1984 = 39%
 50.0%

 40.0%

 30.0%

 20.0%                                                              Average 1945-2010 = 52.5%
 10.0% 194513.7%

  0.0%
         1945
                1947
                       1949
                              1951
                                     1953
                                            1955
                                                   1957
                                                          1959
                                                                 1961
                                                                        1963
                                                                               1965
                                                                                      1967
                                                                                             1969
                                                                                                    1971
                                                                                                           1973
                                                                                                                  1975
                                                                                                                         1977
                                                                                                                                1979
                                                                                                                                       1981
                                                                                                                                              1983
                                                                                                                                                     1985
                                                                                                                                                            1987
                                                                                                                                                                   1989
                                                                                                                                                                          1991
                                                                                                                                                                                 1993
                                                                                                                                                                                        1995
                                                                                                                                                                                               1997
                                                                                                                                                                                                      1999
                                                                                                                                                                                                             2001
                                                                                                                                                                                                                    2003
                                                                                                                                                                                                                           2005
                                                                                                                                                                                                                                  2007
                                                                                                                                                                                                                                         2009
                                                                                                                                                                                                                                                2011
                                     Sources: Fed Flow of Funds, Real Estate Center at Texas A&M University                                                                                                                                10
Employment Recovery May Take a While




                                   11
                                          Texas, Dallas & Hood Co. Employment
                                          Recovery: Percent Job Losses From Peak
                                            3.0%                                               Hood County                                               Texas
                                            2.0%                                             December 2011                                           June 2012
                                                                                                11,415 jobs,                                       10.78 million
                                            1.0%
                                                                                                      +1.6%                                          jobs, 1.3%
                                            0.0%
Percent Job Losses Relative to Peak, SA




                                           -1.0%
                                           -2.0%
                                           -3.0%
                                                                                                                                              Peak: Texas
                                           -4.0%                                                                                              August 2008
                                           -5.0%                                                                                              10.64 million;
                                           -6.0%            Dallas                                                                            Dallas MD
                                           -7.0%        June 2012                                                                             Feb 2008 2.11
                                                        2.1 million                                                                           million jobs;
                                           -8.0%
                                                       jobs, -0.7%                                                                            Hood Co.
                                           -9.0%                                                                                              11,236 jobs
                                          -10.0%                                                                                              August 2008
                                          -11.0%
                                                   0
                                                       2
                                                           4
                                                               6
                                                                    8
                                                                        10
                                                                             12
                                                                                  14
                                                                                       16
                                                                                       18
                                                                                            20
                                                                                                 22
                                                                                                      24
                                                                                                           26
                                                                                                                28
                                                                                                                     30
                                                                                                                          32
                                                                                                                               34
                                                                                                                               36
                                                                                                                                    38
                                                                                                                                         40
                                                                                                                                              42
                                                                                                                                                   44
                                                                                                                                                        46
                                                                                                                                                             48
                                                                                                                                                                  50
                                                                                                                                                                  52
                                      Months Aligned at maximum job losses
                                                                                                                                                                  12
                                                                   Source: Texas Workforce Commission; Real Estate Center at Texas A&M
                                                                                                                10
                                                                                                                     11
                                                                                                                          12
                                                                                                                               13
                                                                                                                                    14
                                                                                                                                         15
                                                                                                                                              16
                                                                                                                                                    17
                                                                                                                                                          18




                                                                                    3
                                                                                        4
                                                                                            5
                                                                                                6
                                                                                                    7
                                                                                                        8
                                                                                                            9
                                                                           Jan-95
                                                                           Jul-95
                                                                           Jan-96
                                                                           Jul-96
                                                                           Jan-97
                                                                           Jul-97
                                                                           Jan-98
                                                                                                                                               Texas
                                                                           Jul-98
                                                                           Jan-99
                                                                           Jul-99
                                                                           Jan-00
                                                                                                                                               US




                                                                           Jul-00
                                                                           Jan-01
                                                                           Jul-01
                                                                           Jan-02
                                                                           Jul-02
                                                                           Jan-03
                                                                                                                                               US U-6




                                                                           Jul-03
                                                                           Jan-04
                                                                           Jul-04
                                                                           Jan-05
                                                                           Jul-05
                                                                           Jan-06
                                                                           Jul-06
                                                                           Jan-07
                                                                                                                                               Hood Co.




                                                                           Jul-07
                                                                           Jan-08
                                                                           Jul-08
                                                                           Jan-09
                                                                                                                                                               Unemployment Rates




                                                                           Jul-09
Source: BLS, Texas Workforce Commission; Real Estate Center at Texas A&M




                                                                           Jan-10
                                                                           Jul-10
                                                                           Jan-11
                                                                           Jul-11
                                                                           Jan-12
                                                     13




                                                                           Jul-12
 Annual Employment Growth Rates for
     US, Texas and Hood County
10%
 9%
 8%
 7%                                                                                                                        Hood Co.
 6%
 5%
 4%
 3%
 2%
                                                                                                                                             Texas
 1%
 0%
-1%
-2%
-3%
                                                                                US
-4%
-5%
-6%
      Jan-05




                                 Jan-06




                                                            Jan-07




                                                                                       Jan-08




                                                                                                                  Jan-09




                                                                                                                                             Jan-10




                                                                                                                                                                        Jan-11




                                                                                                                                                                                                   Jan-12
               May-05

                        Sep-05



                                          May-06

                                                   Sep-06




                                                                     May-07

                                                                              Sep-07




                                                                                                May-08

                                                                                                         Sep-08



                                                                                                                           May-09

                                                                                                                                    Sep-09



                                                                                                                                                      May-10

                                                                                                                                                               Sep-10




                                                                                                                                                                                 May-11

                                                                                                                                                                                          Sep-11




                                                                                                                                                                                                            May-12
                                                                                                                                                                                                     14
                                                   Source: BLS, Real Estate Center at Texas A&M University
         Hood County Employment Has
         Expanded Significantly Since 1990
26,000

24,000

22,000

20,000

18,000

16,000

14,000

12,000

10,000



                                             15
                       Source: BLS
                 Hood County Employment
26,000
                                                                                                                                                                          24,478            24,442
                                                                                                                                                                 24,143            24,180
24,000
                                                                                                                                                        22,748

                                                                                                                                               21,843
22,000                                                                                                                  21,432 21,304 21,407
                                                                                                               20,586

20,000                                                                                         19,461 19,611



18,000
                                                                                      16,725
                                                                             15,962
16,000                                                              15,350
                                                           14,865
                                                  14,070
14,000
                                         13,204
                         12,753 12,826
         12,254 12,452
12,000

10,000
          1990

                 1991

                          1992

                                 1993

                                          1994

                                                   1995

                                                            1996

                                                                     1997

                                                                              1998

                                                                                       1999

                                                                                                2000

                                                                                                       2001

                                                                                                                2002

                                                                                                                         2003

                                                                                                                                2004

                                                                                                                                       2005

                                                                                                                                                2006

                                                                                                                                                         2007

                                                                                                                                                                  2008

                                                                                                                                                                           2009

                                                                                                                                                                                    2010

                                                                                                                                                                                             2011
                                                                              Source: BLS                                                                                                  16
                                                10.0
                                                       12.0
                                                              14.0
                                                                     16.0
                                                                            18.0




                        2.0
                              4.0
                                    6.0
                                          8.0
              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




Source: BLS
              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
               Jul-08
              Jan-09
               Jul-09
              Jan-10
               Jul-10
              Jan-11
17
                                                                                   Hood County Unemployment Rate




               Jul-11
              Jan-12
  Price of West Texas Intermediate
           Crude per Barrel
$140
$130
$120
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10


            Source: U.S. Energy Information Administration   18
                                                                                              Dollars per MCF




                                                                                                                                   $10.00
                                                                                                                                              $11.00




                                                           $1.00
                                                                   $2.00
                                                                           $3.00
                                                                                   $4.00
                                                                                           $5.00
                                                                                                   $6.00
                                                                                                           $7.00
                                                                                                                   $8.00
                                                                                                                           $9.00
                                                 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
                                                                                                                                                                Price




                                                 Jan-05
                                                  Jul-05
                                                 Jan-06
                                                  Jul-06
                                                 Jan-07


Source: U.S. Energy Information Administration
                                                  Jul-07
                                                 Jan-08
                                                  Jul-08
                                                 Jan-09
                                                  Jul-09
                                                 Jan-10
                                                  Jul-10
                                                 Jan-11
                                                                                                                                            10.82




                                                  Jul-11
                                                 Jan-12
                                                  Jul-12
                                                 Jan-13
                                                                                                                                                    US Average Wellhead Natural Gas




                                                  Jul-13
                                                 Jan-14
                                                                0
                                                                      200
                                                                            400
                                                                                  600
                                                                                        800
                                                                                              1,000
                                                                                                      1,200
                                                                                                              1,400
                                                                                                                              1,600
                                                       Jan-70
                                                       Jan-71
                                                       Jan-72
                                                       Jan-73
                                                       Jan-74
                                                       Jan-75
                                                       Jan-76
                                                       Jan-77
                                                       Jan-78
                                                       Jan-79
                                                       Jan-80
                                                       Jan-81
                                                                                                                      1,445




                                                       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

Source: Baker Hughes, Federal Reserve Bank of Dallas
                                                                    186



                                                       Jan-00
                                                       Jan-01
                                                       Jan-02
                                                       Jan-03
                                                       Jan-04
                                                                                                                                  Texas Rotary Rig Count




                                                       Jan-05
                                                       Jan-06
                                                       Jan-07
                                                       Jan-08
                                                       Jan-09
                                                       Jan-10
                                                       Jan-11
                                                       Jan-12
                                                       Jan-13
 Barnett Shale Average Monthly Rig
   Count vs. Avg. Wellhead Price
200                                                                                                                                                                                                                  $11.00

180                                                                                                                                                                                                                  $10.00

160                                                                                                                                                                                                                  $9.00

140                                                                                                                                                                                                                  $8.00

120                                                                                                                                                                                                                  $7.00

100                                                                                                                                                                                                                  $6.00

 80                                                                                                                                                                                                                  $5.00

 60                                                                                                                                                                                                                  $4.00

 40                                                                                                                                                                                                                  $3.00

 20                                                                                                                                                                                                                  $2.00

  0                                                                                                                                                                                                                  $1.00
      Jan-05




                                 Jan-06




                                                            Jan-07




                                                                                       Jan-08




                                                                                                                  Jan-09




                                                                                                                                             Jan-10




                                                                                                                                                                        Jan-11




                                                                                                                                                                                                   Jan-12
               May-05

                        Sep-05



                                          May-06

                                                   Sep-06



                                                                     May-07

                                                                              Sep-07



                                                                                                May-08

                                                                                                         Sep-08



                                                                                                                           May-09

                                                                                                                                    Sep-09



                                                                                                                                                      May-10

                                                                                                                                                               Sep-10



                                                                                                                                                                                 May-11

                                                                                                                                                                                          Sep-11



                                                                                                                                                                                                            May-12
                                                                                                                                                                                                                     21
                                                                                       Source: Smith Services
The National Economy 2013 … ?




                                22
What Is (Will Be) Holding Up
         Recovery?
• Household’s still heavily in debt, saving
  rather than spending
• Unemployment still high
• Home construction & prices rising –
  enough?
• Commercial real estate drag on community
  and regional banks
• Inability (unwillingness) of big banks to lend
• State and local governments pull back

                                                   23
      2013+ Economic Outlook
qMost indicators positive – not robust
qMajor business, investment and political
 decisions postponed
qSluggish growth into the first quarter of 2013
qInterest rates stay low through 2014
qTight lending requirements will continue
qHousing offers little help until foreclosures clear
qLimited government resources and spending
qInternational economy highly uncertain
qGeneral UNCERTAINTY & Lack of CONFIDENCE
               Consumer Confidence Index
130
120
110
                                                                                                                                                                Expansion
100
90
80
                                                                                                                                                                        Recession
70
60
50                      7 cycles since 1967:
                        Avg. during recession = 72
40
                        Avg. during an expansion = 102
30
20
10
      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

                                                                                                                                             Jul-08

                                                                                                                                                      Jan-09

                                                                                                                                                               Jul-09

                                                                                                                                                                         Jan-10

                                                                                                                                                                                  Jul-10

                                                                                                                                                                                           Jan-11

                                                                                                                                                                                                    Jul-11

                                                                                                                                                                                                             Jan-12

                                                                                                                                                                                                                      Jul-12

                                                                                                                                                                                                                               Jan-13
                                                                     Source: The Conference Board (1985=100)
Texas’ Economy is Doing Better
   Than Most Other States
    •Job Gains
    •Housing Prices
    •General Business Growth
    •Population Growth


                               26
                                               100
                                                     110
                                                           120
                                                                 130
                                                                       140




                                          90
                                 Jan-97

                                 Sep-97

                                 May-98

                                 Jan-99

                                 Sep-99

                                 May-00

                                 Jan-01

                                 Sep-01

                                 May-02

                                 Jan-03

                                 Sep-03

                                 May-04

                                 Jan-05

                                 Sep-05

                                 May-06

                                 Jan-07



Source: Dallas Federal Reserve
                                 Sep-07

                                 May-08

                                 Jan-09

                                 Sep-09

                                 May-10

                                 Jan-11

                                 Sep-11
                    27
                                                                             Texas Leading Economic Index




                                 May-12
The Drought Has Been Really Bad




                                  28
 2010 Census Top 25 States
1         California                        37,253,956

2         Texas                        25,145,561
 3        New York                          19,378,102
 4         Florida                          18,801,310
 5          Illinois                        12,830,632
 6      Pennsylvania                        12,702,379
 7            Ohio                          11,536,504
 8        Michigan                           9,883,640
 9         Georgia                           9,687,653
10      North Carolina                       9,535,483
11       New Jersey                          8,791,894
12         Virginia                          8,001,024
13       Washington                          6,724,540
14      Massachusetts                        6,547,629
15         Indiana                           6,483,802
16         Arizona                           6,392,017
 -   Dallas-Fort Worth                     6,371,773     > 34 states
17        Tennessee                         6,346,105
18         Missouri                         5,988,927
 -       Houston                           5,946,800     > 32 states
19        Maryland                          5,773,552
20        Wisconsin                         5,686,986
21        Minnesota                         5,303,925
22        Colorado                          5,029,196
23        Alabama                           4,779,736
24      South Carolina                      4,625,364
25        Louisiana                         4,533,372          29
              Source: U.S. Census Bureau
 Projected Texas Population 2000 - 2040
54,000,000
                                                                                                                                     51,707,541
52,000,000    State Demographer’s projections based on rate of
              immigration into the state. 100 and 50 percent of 1990-                                                             n
                                                                                                                                io
50,000,000
                                                                                                                             rat
              2000 immigration rate and continuation of the 2000-2007                                                      ig
48,000,000                                                                                                             m
                                                                                                                   46,105,919
              rate of immigration.                                                                                   m
                                                                                                                     I
46,000,000                                                                                                    0%                     44,872,038
              Variation of 16,000,000 residents by 2040.                                                t   10                    ti  on
44,000,000                                                                                           ra                       gra
                                                                                                   e                        mi
42,000,000                                                                                    ph
                                                                                             41,117,631                 Im
                                                                                                                   40,927,000
                                                                                         gr
                                                                                            a                        007
40,000,000                                                                          m
                                                                                       o                  0      0-2
                                                                                  De                    20
                                                                                                  at
                                                                                             37,285,486
38,000,000                                                                    te
                                                                            36,682,200
                                                                              a                her
                                                                           St          g   rap                                       35,761,165
36,000,000                                                                          mo
                                                                                 De
                                                                            33,936,986                33,789,697
                                                                                            33,317,744
34,000,000                                                     32,736,716     te
                                                                          Sta            31,830,575
                                                                                                                 igra
                                                                                                                      tion
                                                                                 ea u
32,000,000                                                     30,858,449
                                                                             Bur 30,865,134                Imm
                                                                           s29,897,410                5 0%
                                                  29,213,840           nsu                       r at
30,000,000                                        28,015,550       S Ce
                                                                 U 28,634,896            gra phe
28,000,000                                                                     eD   emo
                                                                          Stat
                                  2010 Census 25,145,561
                                     26,058,595 26,156,723
                                     25,373,947               28,005,740
                                                        26,585,801
26,000,000
                                             25,145,561
                         23,276,607
                         22,973,810
24,000,000               22,556,046
                                22,801,920
22,000,000   20,851,820
                    20,851,820
20,000,000
              2000         2005        2010         2015        2020          2025              2030                 2035              2040

                                                                                                                                        30
                           Source: U.S. Census Bureau, Texas State Demographer
         Texas Population 1910-2030
45,000,000
                    From 1970 to 2010 (40 years),
40,000,000
                    Texas added 13.9 million people –
35,000,000          a rate of 349,000 per year or 955
                    people per day
30,000,000

25,000,000

20,000,000
                                                                              From 2010 to 2030 (20
15,000,000                                                                    years), Texas will add
                                                                              another 14 million
10,000,000                                                                    people – a rate of
                                                                              703,000 per year or 1,925
 5,000,000                                                                    people per day
         0
             1910   1920   1930   1940   1950   1960   1970   1980   1990   2000   2010   2015   2020   2025   2030

     Sources: U.S. Census Bureau, Texas State Demographer 2008 Projections (average of 2000-2007 and           31
     100% 1990-2000 immigration scenarios)
         Texas Is An Urban State
                             2010               Percent of
                           Population            Total State
        MSA                 (millions)           Population
Austin                          1.72              6.8%
Dallas-Ft. Worth                6.37              25.3%
Houston                         5.95              23.7%
San Antonio                     2.14              8.5%
Total 4 MSAs                    16.2              64.3%
Total All MSAs                  21.7              86.5%
Texas                           25.1             100.0%
                                                           32
                   Source: U.S. Census Bureau
                 Texas Population Groups 2012
           9.0                                                30.2%
                                                              7.965
           8.0
                   25.6%
                                                                                    23.9%
           7.0     6.751
                                                                                    6.298
           6.0

           5.0
Millions




           4.0                          10.2%                                                      10.2%
           3.0                           2.699                                                     2.691

           2.0

           1.0

           0.0
                     <18                 18-24                 25-44                45-64           65+

                 Source: U.S. Census Bureau; 2009 National Population Projections (Supplemental)           33
Texas Age Distribution 2005-2030
            Boomers
  2005                          2010          Boomers




     2020                              2030
                      Boomers                           Boomers




                                                            34
    Texas Population > 65 Years Old
6,000,000                                                                                         18.0%
                                            Number              Percent > 65          5,524,499
5,500,000                                                                                         17.0%

5,000,000        Average 825 people per day will turn 65                                          16.0%
                                                                      4,592,099
4,500,000                                                                                         15.0%
                                                                                        14.8%
4,000,000                                                                                         14.0%
                                                    3,724,878

3,500,000                                                              13.5%                      13.0%
                                   3,035,248
3,000,000                                                                                         12.0%
                                                      12.1%
                  2,516,747
2,500,000                                                                                         11.0%
                                    10.8%
2,000,000                                                                                         10.0%
                    9.9%
1,500,000                                                                                         9.0%

1,000,000                                                                                         8.0%
                   2010             2015             2020              2025            2030

            Sources: Texas State Demographer 2008 Projections, 2000-2007 immigration scenarios      35
At Last, a Cell Phone for Seniors!
   Demographic Changes will Affect
       More than Real Estate
• Younger people shop, consume and demand
  different products
• Changing household size and type will have far
  reaching implications
• Housing demand will follow lifestyle rather than
  investment motives: affecting size, location and
  amenities (internal and external)
• Retail and office space will follow demand
  patterns created by Gen-Y & Millenials in future
  just as Boomers affected land uses after 70’s
                                                 37
  Hood County Population Groups 2012
20,000
                                                                             29.9%
18,000                                                                      17,256.0

16,000
                                                        21.4%                              21.7%
14,000
              18.7%                                   12,368.0                             12,500.0
12,000
            10,780.0
10,000

 8,000
                                   8.3%
 6,000
                                  4,793.0
 4,000

 2,000

    0
                <18                 18-24                25-44                45-64          65+

         Source: U.S. Census Bureau; 2009 National Population Projections (Supplemental)           38
                       Projected Hood County Population
   (000s)                         2000 - 2030
120,000
                            At 50% 1990-2000 rate of immigration
                            At 2000-2007 rate of immigration
100,000                     At 100% 1990-2000 rate of immigration
                                                                                                                                                                            89,751
                                                                                                                                                                                              88,466


                                                                                                                                                                   79,712
 80,000                                                                                                                                           77,730

                                                                                                                                          70,861
                                                                                                                         66,777
                                                                                                                                                                                     65,089
                                                                                                                 62,423                                    61,056
 60,000                                                                                                                           56,847
                                                         51,4621,3531,670
                                                              5    5                                    52,541
                                                    50,724
                                               49,376
                                          48,378
                                     46,862
                                45,768
                           44,760
                      43,635
                 42,658
            41,468
 40,000




 20,000




       0
              2000

                     2001

                            2002

                                   2003

                                          2004

                                                 2005

                                                        2006

                                                               2007

                                                                      2008

                                                                             2009

                                                                                    2010

                                                                                           2011



                                                                                                          2015

                                                                                                                  2015

                                                                                                                          2015



                                                                                                                                   2020

                                                                                                                                           2020

                                                                                                                                                    2020



                                                                                                                                                            2025

                                                                                                                                                                     2025

                                                                                                                                                                             2025



                                                                                                                                                                                       2030

                                                                                                                                                                                               2030

                                                                                                                                                                                                       2030
                                                                                                  ...




                                                                                                                                                                                              39
                                   Source: U.S. Census Bureau, Texas State Demographer 2008 Projections
Lake Granbury in 2050?




                         40
Housing Historically
Has Lead Coming Out
   of a Recession,
  Not This Time!

                       41
           How Bad Has the Housing
               Collapse Been?
                  U.S.                                  Texas
Ø Home prices down ~30% since 2006       v Home prices down ~4.3% since
  peak                                     2Q2010 peak
Ø Around $7 trillion, 50%, lost equity   v 9.6%, 350,000, upside-down on
  in housing                               mortgage
Ø ~20% households, 12 million,           v Defaults, delinquencies and
  upside-down on mortgage – some           foreclosures well above average:
  states >50%                              foreclosures 1.9% vs. 0.9% average
Ø Defaults, delinquencies and            v Fewest new homes permitted in
  foreclosures at historic levels          2011 since 1992
Ø 2011 new home starts lowest in the     v About 111,000 new households in
  past 60 years                            2011 vs. 125,000 average
Ø New household formations about         v Gen Y coming to Texas looking for
  25% of historical rate                   jobs: renting
Ø Federal government programs have
  done little to help overall housing
       Current Housing Issues
• Government stimulus efforts prolonged market
  recovery
• Low Demand - High Supply = Weak Home
  Values
• FNMA/FHLMC resolution
• Lenders in difficulty: punished for making RE
  loans; CRE and other bad loans have not be
  cleared; definition of QRM
• Renting regarded as viable option to buying
• First-time buyers financially unable to buy
• FHA essentially a subprime lender
                                              43
 Dodd – Frank Bank Regulations
Have Created More Uncertainty &
 Confusion in the Credit Market
 Hundreds of new rules regulating bank behavior,
 most of which still haven’t been written.


 Many potential buyers can’t get a loan if they
 don’t have the highest credit ratings, because
 Dodd-Frank threatens more reserves and big
 fines if a loan becomes delinquent.

                                                   44
(Percent)
            US Homeownership Rate
            Current rate is same as 2Q1997




                                                                       1995-2005
                  1970s                                             Low interest rates
               Baby Boomers                                         and new mortgage
               enter market;                                            products;
              homeownership                                          Homeownership
                  grows                                               explodes from
                                                                     64.1% to 69.1%




                                                                                            45
            Source: US Census Bureau; FHLMC (4-quarter moving average homeownership rate)
                    New and Existing SF Home Sales U.S.
Existing Home Sales 000s                                                                                                                                                                                                    New Home Sales 000s

 8,000                                                                                                                                                                                                                                                 1,600


 7,000                                                                                                                                                                                                                                                 1,400
                                                                                                                                                                      Existing SF Home Sales
                                                                                                                                                                                                (left axis)
 6,000                                                                                                                                                                                                                                                 1,200


 5,000                                                                                                                                                                                                                                                 1,000


 4,000                                                                                                                                                                                                                                                 800
                                                                                            New Home Sales
                                                                                                        (right axis)
 3,000                                                                                                                                                                                                                                                 600


 2,000                                                                                                                                                                                                                                                 400


 1,000                                                                                                                                                                                                                                                 200


       0                                                                                                                                                                                                                                               0
           Jan-00



                             Jan-01



                                               Jan-02



                                                                 Jan-03



                                                                                   Jan-04



                                                                                                      Jan-05



                                                                                                                        Jan-06



                                                                                                                                          Jan-07



                                                                                                                                                            Jan-08



                                                                                                                                                                              Jan-09



                                                                                                                                                                                                 Jan-10



                                                                                                                                                                                                                   Jan-11



                                                                                                                                                                                                                                     Jan-12
                    Jul-00



                                      Jul-01



                                                        Jul-02



                                                                          Jul-03



                                                                                             Jul-04



                                                                                                               Jul-05



                                                                                                                                 Jul-06



                                                                                                                                                   Jul-07



                                                                                                                                                                     Jul-08



                                                                                                                                                                                       Jul-09



                                                                                                                                                                                                          Jul-10



                                                                                                                                                                                                                            Jul-11



                                                                                                                                                                                                                                              Jul-12
                                                                                                                                                                                                                                                       46
                                                                                            Sources: US Census Bureau , NAR, SAAR
                   Annual Texas Home Sales
310,000                                                                                                                                                                                         $310,000
                     Sales                       Avg Price                         Md Price                                           292,805
290,000                                                                                                                                                                                         $290,000
                                                                                                                                               275,584
270,000                                                                                                                       266,842                                                           $270,000
           Home sales up 13% first 1H2012
250,000                                                                                                                                                                                         $250,000
           Look for ~ 8% for the year                                                                                241,020

230,000                                                                                                                                                232,381
                                                                                                                                                                                      222,000
                                                                                                                                                                                                $230,000
                                                                                                             216,147
                                                                                                                                                                213,334
210,000                                                                                          201,528
                                                                                                                                                                           205,817
                                                                                                                                                                     203,610                    $210,000
                                                                                           196,401

190,000                                                                              188,738
                                                                                                                                                                                                $190,000
                                                          line
                                                                               184,056

                                                 d
                                              ren
                                                                       170,638
170,000                                                                                                                                                                                         $170,000
                                            T
150,000                  -2        003                        146,395
                                                                                                                                                                                                $150,000
                     990
                                                        138,123

                    1
130,000                                 122,134                                                                                                                                                 $130,000
                                116,604       121,823

110,000   100,047
                      107,107                                                                                                                                                                   $110,000
                99,619

 90,000                                                                                                                                                                                         $90,000

 70,000                                                                                                                                                                                         $70,000

 50,000                                                                                                                                                                                         $50,000




                                                                                                                                                                                       2012p
           1990
                  1991
                         1992
                                 1993
                                          1994
                                                 1995
                                                         1996
                                                                1997
                                                                        1998
                                                                                 1999
                                                                                        2000
                                                                                               2001
                                                                                                      2002
                                                                                                              2003
                                                                                                                       2004
                                                                                                                               2005
                                                                                                                                        2006
                                                                                                                                                2007
                                                                                                                                                         2008
                                                                                                                                                                 2009
                                                                                                                                                                        2010
                                                                                                                                                                               2011
                                             Source: Real Estate Center at Texas A&M University
                    Texas Median Home Price
                                               12-Month Moving Average
$160,000


$150,000

$140,000


$130,000


$120,000


$110,000

$100,000


 $90,000
           Jan-99




                                      Jan-01




                                                                 Jan-03




                                                                                            Jan-05




                                                                                                                       Jan-07




                                                                                                                                                  Jan-09




                                                                                                                                                                             Jan-11




                                                                                                                                                                                                        Jan-13
                    Sep-99

                             May-00



                                               Sep-01

                                                        May-02



                                                                          Sep-03

                                                                                   May-04



                                                                                                     Sep-05

                                                                                                              May-06



                                                                                                                                Sep-07

                                                                                                                                         May-08



                                                                                                                                                           Sep-09

                                                                                                                                                                    May-10



                                                                                                                                                                                      Sep-11

                                                                                                                                                                                               May-12
                                                                                                                                                                                                 48
                                                          Source: Real Estate Center at Texas A&M University
             Texas Median Home Prices
$160,000
                                                                                                                                                                          154,750

$150,000                                                                                                                             147,300
                                                                                                                                          146,900
                                                                                                                                                         148,800
                                                                                                                                                    147,600
                                                                                                                                               145,800
                     2012 YTD ~ 5%                                                                                              143,100

$140,000
                     Look for ~ 4% for the year                                                                          136,800

                                                                                                              130,100
$130,000                                                                                                 127,700
                                                                                                    124,500
                                                                                             119,400
$120,000
                                                                                      112,100
$110,000
                                                                               100,900
$100,000                                                                96,200

                                                                 90,600
 $90,000                                                  86,400
                                         81,600
                                    80,000
 $80,000                       78,200
                          75,200
                     71,200
 $70,000   68,500
                68,100


 $60,000

 $50,000
             1989
                    1990

                           1991
                                  1992
                                         1993
                                                1994
                                                       1995

                                                              1996
                                                                     1997
                                                                            1998
                                                                                   1999
                                                                                          2000

                                                                                                 2001
                                                                                                        2002

                                                                                                               2003
                                                                                                                      2004
                                                                                                                             2005

                                                                                                                                    2006
                                                                                                                                           2007

                                                                                                                                                  2008
                                                                                                                                                         2009
                                                                                                                                                                2010

                                                                                                                                                                       2011
                                                                                                                                                                              2012p
                                          Source: Real Estate Center at Texas A&M University                                                                                          49
                    NAHB/WF HMI & SF Starts
  100                                                                                                                         2,000
                             Housing Market Index                     Single-Family Starts
      90                                                                                                                      1,800

      80                                                                                                                      1,600

      70                                                                                                                      1,400

      60                                                                                                                      1,200




                                                                                                                                       Housing Starts
      50                                                                                                                      1,000
HMI




      40                                                                                                                      800

      30                                                                                                                      600

      20                                                                                                                      400

      10                                                                                                                      200

       0                                                                                                                      0
           Jan-90



                    Jan-92



                                 Jan-94



                                           Jan-96



                                                    Jan-98



                                                             Jan-00



                                                                        Jan-02



                                                                                 Jan-04



                                                                                          Jan-06



                                                                                                   Jan-08



                                                                                                            Jan-10



                                                                                                                     Jan-12
                                                                                                                                  50
                                          Source: NAHB, Real Estate Center at Texas A&M University
           Texas SF Building Permits
180,000
                                       2012 ~15% > 2011 or more                                                                                                                      166,203
                                                                                                                                                                                         163,032
160,000
                                                                                                                                                                            151,384


140,000                                                                                                                                                                137,493


                                                                                                                                                                122,913                                 120,366
120,000
                                                                                                                                            111,915
                                                                                                                                        108,782
                           103,252
                                                                                                                             99,912 101,928
100,000
                                   84,565
                                                                                                            83,13282,228                                                                                        81,107                77,500
                     78,714
 80,000                                                                                               70,452                                                                                                           68,170
          67,870                          67,964                                                  69,964 70,421                                                                                                    68,230 67,254
              66,161
                                                 59,143                                    59,543
 60,000
                                                                          46,209
                                                        43,975
                                                                   36,658
 40,000                                                        35,908 38,233



 20,000

      0




                                                                                                                                                                                                                                            2012p
           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
                                                                                                                                                                                                         2007
                                                                                                                                                                                                                2008
                                                                                                                                                                                                                       2009
                                                                                                                                                                                                                              2010
                                                                                                                                                                                                                                     2011
                                              Source: US Census Bureau, Real Estate Center at Texas A&M
  Hood County Single-Family Market
                                                                         Months
                          Average                  Median                Inventor
           Sales           Price                    Price                y
July
            84             $192,980                $165,000                      11.9
2011

July        82             $196,097                $170,500                      10.7
2012       -2.4%               1.6%                     3.3%


YTD 2011   405             $205,931                $169,000                      11.7

           430             $179,798                $160,000
YTD 2012                                                                         10.7
           6.2%              -12.7%                    -5.3%
                                                                                        52
           Source: NTREIS, Area 73; Real Estate Center at Texas A&M University
         Median Land Price per Acre
         Fort Worth Prairie (LMA 23)
 Hood, Johnson, Palo Pinto, Parker, Somervell, Tarrant & Wise Counties
$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

   $0
         1966
                1968
                       1970
                              1972
                                     1974
                                            1976
                                                   1978
                                                          1980
                                                                 1982
                                                                        1984
                                                                               1986
                                                                                      1988
                                                                                             1990
                                                                                                    1992
                                                                                                           1994
                                                                                                                  1996
                                                                                                                         1998
                                                                                                                                2000
                                                                                                                                       2002
                                                                                                                                              2004
                                                                                                                                                     2006
                                                                                                                                                            2008
                                                                                                                                                                   2010
                                               Source: Real Estate Center at Texas A&M                                                                                53
                   2012+ U.S.
q Economy to go quiet between now and the end of the year
q Worries of fiscal cliff and debt ceiling will dominate the
   headlines this fall
q Congress will likely kick the can into 2013 . . . 2014?
q Interest rates will continue at low levels
q Interest in real estate hot and getting hotter: alternatives?
q Strong US dollar will make oil cheaper
q With comprehensive tax reform, the economy could be
   surprisingly strong in 2013, without it 2013 will look a lot like
   2012 and 2011
q Regulatory uncertainty continues to fuel business indecision
                                                                       54
               2012+ Texas
q Downside risk is national (global) recession, even then Texas
  will do better than most other states

q Texas job growth continues to out pace national rate

q Energy sector continues strong – oil & petrochemicals

q State faces deficit for next legislative session (and beyond)

q Population growth continues even stronger with jobs as bait

q New construction rebound will continue

q Pent up demand for housing and other real estate: investment,
  affordability and low interest rates                    55
    Reasons for Optimism
q North Texas continues to grow in jobs & pop
q Four years of pent up demand
q Affordability: prices and interest rates
q Home builders still offering incentives
q For qualified buyers, an ideal time to buy



                                               56
2012 Granbury Economic Outlook
          Conference

   Economic Outlook Beyond 2012: Where Are We
                Going From Here?




Dr. James P. Gaines
                                 Granbury Conference Center
 Research Economist
                                       Granbury, Texas
  Real Estate Center
                                     September 12, 2012
Texas A&M University
                                                     57
 recenter.tamu.edu

				
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