Real Estate Markets in a Tentative Economic Landscape

Transcription

1 Real Estate Markets in a Tentative Economic Landscape GEORGE RATIU Director, Quantitative & Commercial Research National Association of REALTORS Bay Area Real Estate Council Annual Economic Outlook Tampa, FL February 17, 2016

2 There are two kinds of forecasters: those who don t know, and those who don t know they don t know. U.S. Economy Secular Stagnation? The New Normal? Centennial Transition Real Estate Markets Residential Renewal Commercial Ascent Capital Trends Outlook John Kenneth Galbraith

3 U.S. Population Grows by 26M in Last Decade U.S. Estimate of Resident Population ('000) 2015: 321 million

4 2000.Jan 2000.May 2000.Sep 2001.Jan 2001.May 2001.Sep 2002.Jan 2002.May 2002.Sep 2003.Jan 2003.May 2003.Sep 2004.Jan 2004.May 2004.Sep 2005.Jan 2005.May 2005.Sep 2006.Jan 2006.May 2006.Sep 2007.Jan 2007.May 2007.Sep 2008.Jan 2008.May 2008.Sep 2009.Jan 2009.May 2009.Sep 2010.Jan 2010.May 2010.Sep 2011.Jan 2011.May 2011.Sep 2012.Jan 2012.May 2012.Sep 2013.Jan 2013.May 2013.Sep 2014.Jan 2014.May 2014.Sep 2015.Jan 2015.May 2015.Sep U.S. Labor Force Grows by 8M in Last Decade Civilian Labor Force: 16 Yr + (SA, '000s) : 158 million Source: BLS

5 U.S. Economy Trickle-down theory - the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows. John Kenneth Galbraith

6 2000.Jan 2000.Oct 2001.Jul 2002.Apr 2003.Jan 2003.Oct 2004.Jul 2005.Apr 2006.Jan 2006.Oct 2007.Jul 2008.Apr 2009.Jan 2009.Oct 2010.Jul 2011.Apr 2012.Jan 2012.Oct 2013.Jul 2014.Apr 2015.Jan 2015.Oct Monetary policy designed to bring economy out of Great Recession Quantitative easing / low cost of money designed to stabilize banks Stable bank balance sheets translate into lending Increased credit boosts consumer/business spending Consumer/business spending drives economic growth FRB Funds Target Rate (EOP, %) Source: Federal Reserve Board

7 Subpar GDP growth despite unprecedented monetary policy 2000.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Real GDP (SAAR, Chn.2009$) % Chg - Annual Rate Source: BEA

8 Consumers remain economic growth engine Real GDP (SAAR, Bil.Chn.2009$) Consumer Spending Investments Net Exports Government Spending Q4: $15.0 T 2015.Q4: $16.5 T CONSUMER CONSUMPTION = 70% OF ECONOMY Source: BEA

9 Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Florida outpaces U.S. economic activity 190 Philadelphia FRB: Coincident Economic Activity Index U.S. Florida Nonfarm payroll employment Unemployment rate Avg. hours worked in manufacturing Wages and salaries

10 Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Thousands Housing recovery boosts economic activity EHS (SAAR, Units) Distressed Sales (%) Housing supply continues to hover below 6-7 month equilibrium Distressed properties decline: only 6% of total sales in 2015, down from high of 40% in 2008 and

11 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May Housing supply does not keep pace with population New SF Home Sales (SAAR, '000s) SF Housing Starts (SAAR, '000s) Net Household Formation ('000) Source: Census Bureau -500 Source: Census

12 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Shortage of inventory pushes home prices upward EHS Median Sales Price ($) Home prices rose 11.5%, 5.7%, and 5.9% over the past 3 years while wages have only been rising around 2% 0

13 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Tampa MSA Housing 250 Tampa-St Petersburg-Clearwater: Median Price ($, '000) SF Home Condo 25 Tampa-St Petersburg-Clearwater: Months' Supply of Homes

14 2000.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Capital holders ride growth wave Households & Nonprofit Org: Total Financial Assets (NSA, Bil.$) 2007.Q3: $52.6 > 2014.Q3: $68.9T Households & Nonprofit Organizations: Total Real Estate Holdings (NSA, Bil.$) FRB 2006.Q4: $25.0 > 2015.Q3: $24.9T Source: Federal Reserve Board

15 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May 1960.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Consumers without assets lag on low wages Real Personal Income Excluding Transfer Receipts (SAAR, Chn.2009$) %Chg YoY Consumer Confidence (SA, 1985=100) Consumer Sentiment (NSA, Q1.66=100) Source: BEA Sources: The Conference Board, University of Michigan

16 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Employment maintains momentum Chg in Total Nonfarm Employment (SA, '000s) Unemployment Rate (SA, %) J.08-D.09: 8.7M jobs cut : 13.8M jobs added

17 With service industries driving employment gains : Payroll Employment Growth by Sector (SA, 000s) Government Other services Leisure & hospitality Education & health services Prof & business services Financial activities Information Trade, transportation & utilities Manufacturing Construction Mining & Logging Source: BLS

18 Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Tampa MSA employment Payroll Employment YoY Chg (SA, '000) FL Tampa MSA Unemployment Rate (%) U.S. FL Tampa MSA TPA : 1.5M new jobs

19 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Labor force participation returns to 1970s level Labor Force Participation Rate (%) Source: Bureau of Labor Statistics

20 Jan.2000 Sep.2000 May.2001 Jan.2002 Sep.2002 May.2003 Jan.2004 Sep.2004 May.2005 Jan.2006 Sep.2006 May.2007 Jan.2008 Sep.2008 May.2009 Jan.2010 Sep.2010 May.2011 Jan.2012 Sep.2012 May.2013 Jan.2014 Sep.2014 May.2015 Jan.2000 Sep.2000 May.2001 Jan.2002 Sep.2002 May.2003 Jan.2004 Sep.2004 May.2005 Jan.2006 Sep.2006 May.2007 Jan.2008 Sep.2008 May.2009 Jan.2010 Sep.2010 May.2011 Jan.2012 Sep.2012 May.2013 Jan.2014 Sep.2014 May.2015 Consumer credit grows as does student debt Commercial Banks Savings Institutions Consumer Credit - YoY % Change (EOP, SA, Bil.$) Revolving Nonrevolving Finance Companies Federal Government Securitized Assets Credit Unions Nonfinancial Businesses 2015: $946B : $84B Source: Federal Source: Federal Reserve Board

21 Jan.2000 Sep.2000 May.2001 Jan.2002 Sep.2002 May.2003 Jan.2004 Sep.2004 May.2005 Jan.2006 Sep.2006 May.2007 Jan.2008 Sep.2008 May.2009 Jan.2010 Sep.2010 May.2011 Jan.2012 Sep.2012 May.2013 Jan.2014 Sep.2014 May.2015 Jan Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Consumer spending concentrated on durable goods Personal Consumption (SAAR, Chn.2009$) % Chg Annual Rate Total Light Truck Retail Sales [Imported+Domestic] (SAAR, Mil. Units) Total Car Retail Sales [Imported+Domestic] (SAAR, Mil. Units) Durable goods Nondurable goods Services Total Light Vehicle Retail Sales [Imported+Domestic] (SAAR, Mil. Units) Source: BEA Source: Autodata

22 Business investments lose momentum Real Business Spending (SAAR, Chn2009$) % Chg Annual Rate Source: BEA

23 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May 2016.Jan As activity throttles back Manufacturers' Activity (EOP, SA, Mil.$) ISM Index (SA, 50+ Increasing) Shipments New orders Inventories ISM Manufacturing ISM Nonmanufacturing Source: Census Bureau Source: Institute for

24 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May 2016.Jan 2000.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 And net exports feel the squeeze of a strong dollar Exchange Rate: US$/Euro (EOP) International Trade (SAAR, Bil.Chn.2009$) Real Exports Real Imports source: Federal Source: BEA

25 2000.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Corporate balance sheets remain healthy Real Corporate Profits After Tax (SAAR, Bil.Chn.2009$) 2500 Corporate Cash/Cash Equivalent Holdings (NSA, Bil.$) Q3: $1.67 Trillion 2015.Q3 = $2.00 Trillion Source: BEA Source: Federal

26 2000.Jan 2000.May 2000.Sep 2001.Jan 2001.May 2001.Sep 2002.Jan 2002.May 2002.Sep 2003.Jan 2003.May 2003.Sep 2004.Jan 2004.May 2004.Sep 2005.Jan 2005.May 2005.Sep 2006.Jan 2006.May 2006.Sep 2007.Jan 2007.May 2007.Sep 2008.Jan 2008.May 2008.Sep 2009.Jan 2009.May 2009.Sep 2010.Jan 2010.May 2010.Sep 2011.Jan 2011.May 2011.Sep 2012.Jan 2012.May 2012.Sep 2013.Jan 2013.May 2013.Sep 2014.Jan 2014.May 2014.Sep 2015.Jan 2015.May 2015.Sep Inflation remains contained Overall CPI Core CPI ( =100, %Chg YoY) Source: BLS

27 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May 2016.Jan 2000.Jan 2000.Sep 2001.May 2002.Jan 2002.Sep 2003.May 2004.Jan 2004.Sep 2005.May 2006.Jan 2006.Sep 2007.May 2008.Jan 2008.Sep 2009.May 2010.Jan 2010.Sep 2011.May 2012.Jan 2012.Sep 2013.May 2014.Jan 2014.Sep 2015.May 2016.Jan Aided by dropping oil/gas prices Brent Nominal (EU Mkt Price, $/Barrel) Cushing West Texas Intermediate (Spot FOB, EOP, $/Barrel) Jan 2016: $ Natural Gas Price (Henry Hub, LA, $/mmbtu) Jan 2016: $ Source: EIA Source: Wall Street

28 Rents and Owners Equivalent Rent components of CPI rising at over 3.0% 2000.Jan 2000.May 2000.Sep 2001.Jan 2001.May 2001.Sep 2002.Jan 2002.May 2002.Sep 2003.Jan 2003.May 2003.Sep 2004.Jan 2004.May 2004.Sep 2005.Jan 2005.May 2005.Sep 2006.Jan 2006.May 2006.Sep 2007.Jan 2007.May 2007.Sep 2008.Jan 2008.May 2008.Sep 2009.Jan 2009.May 2009.Sep 2010.Jan 2010.May 2010.Sep 2011.Jan 2011.May 2011.Sep 2012.Jan 2012.May 2012.Sep 2013.Jan 2013.May 2013.Sep 2014.Jan 2014.May 2014.Sep 2015.Jan 2015.May 2015.Sep 5.0 CPI-U Commodities ex F&E CPI-U Services ex Energy ( =100, % Chg YoY) Source: BLS

29 Economic outlook moderately positive JANUARY Annual Growth Rate, % Real GDP Nonfarm Payroll Employment Consumer Prices Level Consumer Confidence Percent Unemployment Fed Funds Rate Month T-bill Rate Corporate Aaa Bond Yield Year Gov t Bond Year Gov t Bond Source: National Association of REALTORS

30 Commercial Real Estate Markets

31 % Change, Quarter-over-quarter Percent Change, Quarterly 2009.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 CRE fundamentals in line with economy 10% New Construction Leasing Volume REALTOR Commercial Leasing Trends Leasing Volume Leasing Rates Lease Concessions 5% 20% 0% 15% -5% 10% -10% 5% -15% 0% -20% -5% -25% -10% -30% Source: National Association of Realtors -15% Source: National Association of Realtors

32 As rising demand leads to lower vacancies 30.0% REALTORS Commercial Vacancy Rates Office Industrial Retail Multifamily Hotel 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Source: National Association of Realtors

33 CRE investment sales close 2015 at $504 B billions $600 Individual Portfolio Entity CPPI* 240 $500 $ $ $200 $ $0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Real Capital Analytics, Moody's/RCA CPPI 0

34 Tampa CRE sales up 25% YoY in 2015 Tampa Raleigh/Durham Palm Beach Orlando Nashville Miami Memphis Jacksonville Charlotte Broward Atlanta CRE Sales Volume: Southeast 2015 ($M) 5,685.3 Tampa Sales by Property: 2015 ($M) , Dev Site Hotel Apartment Retail Industrial Office Source: Real Capital Analytics

35 Capital in search of yield drives prices 10.0% Capitalization Rates 300 Commercial Property Price Index CBD-Office 9.0% 250 Apartment 8.0% Hotel 200 Retail 7.0% 6.0% Sub-Office Industrial Retail Apartment Industrial Hotel Sub-Office 5.0% '09 '10 '11 '12 '13 '14 '15 CBD-Office 50 '09 '10 '11 '12 '13 '14 '15 Source: Real Capital Analytics, Moody's/RCA CPPI

36 2008.Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 CRE remains a tale of two markets 200% Sales Volume (YoY % Chg) Real Capital Analytics CRE Markets REALTOR CRE Markets 20.0% Sales Prices (YoY % Chg) Real Capital Analytics CRE Markets REALTOR CRE Markets 150% 10.0% 100% 0.0% 50% -10.0% 0% -20.0% -50% -30.0% -100% -40.0% Sources: NAR, Real Capital Analytics

37 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 Smaller markets offer yield premium RCA Markets Cap Rates Q4 REALTOR Markets CRE Spreads: Cap Rates to 10-Yr. T-Notes (bps) RCA Cap Rates REALTORS Cap Rates 9.0% 8.0% 7.0% % 5.0% 4.0% 3.0% % % 0.0% Office Industrial Retail Apartment Hotel 0 Sources: NAR, Real Capital Analytics

38 Capital markets flush with liquidity at high end Commercial Real Estate Debt: $3.54 Trillion Commercial Real Estate Equity: $2.64 Trillion

39 Lending conditions improve Change in Lending Conditions over Past Year Average Loan-to-Value for CRE Transactions 100% 100% 90% 90% 80% 70% 60% 50% Eased Significantly Eased Somewhat Not Changed 80% 70% 60% 50% Other 100% Cash 50% 55% 60% 65% 40% 30% 20% Tightened Somewhat Tightened Significantly 40% 30% 20% 70% 75% 80% 85% 10% 10% 90% 0% %

40 But capital landscape remains bifurcated REALTORS - CRE Financing Real Capital Analytics CRE Financing 100% 90% Small Business Administration REITs 100% 90% 80% 70% 60% 50% 40% Regional Banks Public Cos. Private Investors Other National Banks Local/Comm. Banks 80% 70% 60% 50% 40% Pvt/Other Reg'l/Local Bank Nat'l Bank Int'l Bank Insurance Gov't Agency 30% 20% 10% 0% Life Insurance Cos. International banks Credit Unions CMBS 30% 20% 10% 0% Financial CMBS

41 Commercial real estate outlook Commercial Real Estate Vacancy Forecast (%) 2015.Q Q Q Q Q Q Q Q Office Industrial Retail Multifamily Source: National Association of REALTORS NAR Commercial Property Price Forecast NCREIF Green St. Advisors Sources: NAR, NCREIF, Green Street Advisors, Real Capital Analytics

42 In-depth analyses: Economy Capital markets Property markets Office Industrial Retail Apartment Hotel Outlook scenarios

43 / research-and-statistics GEORGE Director, Quantitative & Commercial Research National Association of REALTORS