Economic & Real Estate Outlook

Transcription

1 Economic & Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist, National Association of REALTORS Presentations at NAR Legislative Meetings Washington, DC May 17, 2018

2 Very Long Economic Expansion

3 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 6 GDP Growth Rate 3% in Q2 and Q3 (and Q4)

4 Stock Market: S&P

5 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 Q3 Record High Wealth In $billion

6 Animal Spirit Revival of Consumers? Consumer Confidence Index Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan

7 150, ,000 Job Gains for 90 straight months (18 million gained from 2010) In thousands 140, , , , ,

8 Low Unemployment Rate

9 Recent Employment Growth (March 2017 to March 2018)

10

11 Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Oil Price Bouncing Off Lows 120 West Texas Intermediate

12 Total Job Openings In thousands

13 Job Openings = Job Seekers In thousands

14 700 In thousands Weekly Initial Unemployment Insurance Filings

15 Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Backlog of Orders: Breaking Higher Source: ISM Institute

16 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 Consumer Spending Growth (year over year % growth after inflation)

17 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 15 Business Spending Growth (Non-Residential Fixed Investment, year over year % growth after inflation)

18 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 Commercial Construction Spending Growth (year over year % growth after inflation)

19 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 Export and Import Growth Rates (year over year % growth after inflation) Exports (Red) Imports (Blue)

20 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 Exports and Imports (in $ billion 2009 Prices) 2500 Imports Exports 1000

21 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 National Defense Spending Growth (year over year % growth after inflation)

22 May Sep May Sep May Sep May Sep May Sep May Sep May Sep May Sep 2018 Producer Prices on Materials for Construction (year over year % growth)

23 Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 2018 Construction Workers In thousands

24 Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul 2018 Construction Job Openings (12-month moving average) In thousands

25 May Sep May Sep May Sep May Sep May Sep May Sep May Sep May Sep 2018 Construction Job Wage Increase (year over year % growth) Construction All

26 US CRE fundamentals on upswing OFFICE INDUSTRIAL Office demand strong, due to rising employment Mobile workforce; increased telecommuting Flexible space layouts Moderate supply leads to 13% vacancy RETAIL Department stores lose ground Malls close/redevelop Small/discount grocery stores heat up: Aldi Amazon moves into grocery space with Whole Foods Completions remain low Rents experience solid growth Increased trade & rising e-commerce place industrial sector on hot streak Last mile distribution + Intermodal logistics Panama Canal; East coast ports Net absorption remains strong Net rent growth reaches record APARTMENT Mixed-use urban development; live/work/play Class A supply; small floorplans; amenities Demand remains robust; 12-mo net absorption: 230,000 units 12-mo Completions: 260,000 units Vacancy moves up to 5%; moderates rent growth (2.0% YoY in Q1.18)

27 Retail Sales 15 % change from one year ago

28 E-commerce Retail Sales (Growing 4 times as fast as traditional retail sales) % change from one year ago Q Q Q Q Q Q1

29 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 Q3 300 Commercial Property Price New Highs (85% gain in 7 years) Source: Federal Reserve

30 Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Commercial Appraisal Price Topping Off (More Than Doubled in 7 years) Source: Federal Reserve

31 % NCREIF Cap Rates Likely Already Hit Cyclical Low

32 Fed Rate Hikes and 10-Year Treasury Yield Federal Open Market Committee: Fed Funds Target Rate (EOP, %) Treasury 10-Year Note: Interest Rate (%) Sources: Federal Reserve Board, Bureau of Public Debt

33 Low Cap Rates Except in Hotel 9.0% Cap Rates Off Ret Ind Apt Htl 8.0% 7.0% 6.0% 5.0% '13 '14 '15 '16 '17 '18 Source: Real Capital Analytics

34 130 Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over)

35 REALTORS CRE sales advance in 2017 Q Percentage of REALTORS Who Closed a Sale Transaction 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% 75% Direction of Business Opportunity (QoQ) Q Investment Volume +9.1% Q Investment Prices +6.9% Source: National Association of Realtors 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% REALTORS Most Pressing Challenges 46% 42% 21% 23% 9% 13% 12% 8% 10% 10% 1% 3% 2017.Q Q3 Inventory Shortage Pricing Gap: Buyers vs Sellers Local Economy

36 Multifamily Housing Starts In thousand units

37 Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Oct 2018 Rent Growth Topping Off? % change from one year ago

38 Apartment Vacancy To Rise 10 % Rent Change Vacancy Source: CBRE via ULI

39 Office Vacancy To Fall % Rent Change Vacancy Source: CBRE via ULI

40 Industrial-Warehouse to Fall % Rent Change Vacancy Source: CBRE via ULI

41 Retail to Hold Steady % Rent Change Vacancy Source: CBRE via ULI

42 Forecast

43 OLD Economic Forecast Forecast 2018 Forecast GDP Growth 2.6% 1.5% 2.1% 2.5% Job Growth +2.6 million +2.0 million +2.1 million +2.4 million CPI Inflation 0.3% 1.2% 2.5% 2.5%

44 OLD Commercial Real Estate Forecast for 2017 Vacancy Rent Apartment Rising 50 to 80 basis points Rising Slowly 3% per year Office Stable 2.5% per year Industrial Stable 4% per year Retail Stable 2% per year

45 New Economic Forecast U.S. ECONOMIC OUTLOOK May Annual Growth Rate, % Real GDP Nonfarm Payroll Employment Consumer Prices Level Consumer Confidence Percent Unemployment Fed Funds Rate Month T-bill Rate Prime Rate Year Gov t Bond Year Gov t Bond Source: National Association of REALTORS

46 May Sep May Sep May Sep May Sep May Sep May Sep May Sep May Sep May Sep May Sep May Sep Probability of Recession (NY Fed: based on interest rate spread)

47 Thank You!