Economic and Commercial Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist, National Association of REALTORS ® Presentation at NAR Annual Meetings San Diego, CA November 13, 2015
Jan 17, 2016
Economic and Commercial Real Estate Outlook
By Lawrence Yun, Ph.D.Chief Economist, National Association of REALTORS®
Presentation at NAR Annual Meetings
San Diego, CA November 13, 2015
Commercial Property Price Index
Source: Federal Reserve
Green Street Property Price Index – Even Higher
Dow Jones Industrial Average(Doubling since 2009)
Lifetime Wealth at All-Time High
Consumer Confidence Index
Median Household Income(Inflation Adjusted)
Annual GDP … Below 3% for 10 straight years
Sluggish Growth + Gap after Recession ($1.7 trillion gap … $5,000 per person)
3% Growth Line
2.2% Growth Line
GDP Component on Commercial Construction and Sales
More inconsistent
Jobs(8 million lost … 13 million gained)
In thousands
Fresh Unemployment Insurance Claims
In thousands
Unemployment Rate Falling
But Employment Rate Not Rising
Part-time and Underemployment(in thousands)
Which State is Hot in Jobs? Year-on-year Growth as of Sept 2015
Top and Bottom States for JobsThe Best % Gain in 12 months
Utah 3.9
Idaho 3.2
South Carolina 3.1
Florida 3.0
Washington 3.0
California 2.9
Nevada 2.8
Oregon 2.7
North Carolina 2.4
The Worst % Gain in 12 months
Louisiana 0.0
Alaska -0.2
Wyoming -0.9
West Virginia -1.7
North Dakota -1.8
Dallas Still Creating Jobs; Houston Not(job growth rate from a year ago)
Fed Rate Hike in December?
Fed Rate Hike in December
then again in March
Fed Rate Hike in December
then again in March
then again in August
then again in …
Fed Policy and Mortgage Rate
What Determines Bond Yields?
• Federal Reserve’s short-term rate changes• Inflation and erosion of purchasing power• Foreign capital flow and demand for dollar• Savings rate• U.S. budget deficit• Printing of money• …
Federal Deficit - Shrinking( $ million, 12 month total)
Federal Debt … Cumulative ( $ million; debt held by public excluding intra-governmental holdings)
U.S. Dollar Reversing the Decline … Stronger and Stronger
No CPI Inflation – Yet
Oil Price
Supply and Demand: Oil in U.S.
19
21
5
9
Rents Rising at 7-year high
Rental Vacancy Rate(30-year low)
Multifamily Oversupply?
Renters(8 million more households)
Homeowners (2.5 million fewer households)
Commercial Real Estate
Commercial Investment Sales of Large Properties(Properties valued at $2.5 million and over)
REALTOR® Deal Size(Not $2.5 million Properties)
CRE Financing: Small vs. Large CRE Markets
REALTORS® CRE Lending
Administrator Maria Contreras-Sweet SBA Loan for Small Business and Commercial Real Estate
• New … streamlined process• Match.com concept
CRE Sales: Small vs. Large Markets
Sources: NAR, Real Capital Analytics
REALTORS® Vacancy Rates
Source: National Association of REALTORS®
REALTORS® CRE Construction Picks Up
Source: National Association of REALTORS®
CRE Prices: Small vs. Large Markets
Sources: NAR, Real Capital Analytics
CRE Spreads: Small vs. Large CRE Markets
Sources: NAR, Real Capital Analytics
®
SIOR CRE Index
Source: SIOR, NAR
CCIM Quarterly Market Trends
CCIM Quarterly Market Trends
Forecast and Risks
Economic Forecast2013 2014 2015
Forecast2016
ForecastGDP Growth 2.2% 2.6% 2.3% 3.0%
Job Growth +2.3 million +3.0 million +2.4 million +2.7 million
CPI Inflation 1.5% 1.6% 0.3% 3.2%
Consumer Confidence
73 87 99 101
10-year Treasury 2.5% 2.6% 2.2% 3.3%
REALTORS® CRE Outlook
Commercial Real Estate Vacancy Forecast (%)2014.Q3 2014.Q4 2015.Q1 2015.Q2 2015.Q3 2015.Q4 2016.Q1 2016.Q2 2016.Q3 2016.Q4 2014 2015 2016
Office 15.7 14.9 15.1 15.9 15.8 15.5 15.3 15.1 14.9 14.8 16.0 15.6 15.0Industrial 9.9 11.6 11.3 10.8 10.3 9.8 9.4 9.0 8.5 8.4 12.0 11.7 8.8Retail 13.8 12.5 13.7 13.2 13.0 12.7 12.3 12.1 11.9 11.6 13.8 13.2 12.0Multifamily 6.1 6.8 8.4 6.6 6.7 6.6 6.6 6.6 6.6 6.7 6.6 7.1 7.1Source: NAR
Commercial Property Price Indices Forecast 2008 2009 2010 2011 2012 2013 2014 2015 2016NCREIF 215.2 165.1 168.2 186.5 195.2 211.9 224.9 249.8 249.0Green St. Advisors 86.1 63.5 74.4 87.1 92.2 99.4 106.7 117.5 115.5Sources: NAR, NCREIF, Green Street Advisors
2/3 of Members used 1031 Like-Kind Exchanges
1031 and Economic Impact
Like-Kind Exchanges: Potential RepealREALTORS® reported that 40% of 2011-14 transactions
would not have occurred, absent IRC Section 1031