History May Not Repeat Itself, But it Certainly Does Rhyme* * Mark Twain An Economic and Real Estate Forecast Ted C. Jones, PhD Chief Economist, Stewart.

History May Not Repeat Itself, But it Certainly Does Rhyme*

*Mark Twain

An Economic and Real Estate Forecast

Ted C. Jones, PhDChief Economist, Stewart Title

http://blog.stewart.com/

What have we learned in 2,066 years? "The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be  tempered and controlled, and the assistance to foreign lands should  be curtailed lest Rome become bankrupt.

People must again learn to work,   instead of living on public assistance."                                                                        -  Cicero   - 55 BC      Evidently nothing……….

All you Need to Know about Government Bureaucracy

Pythagorean theorem ....................................................24 wordsLord's prayer ..................................................................66 wordsArchimedes' Principle ...................................................67 words10 Commandments ......................................................179 wordsGettysburg address .....................................................286 wordsDeclaration of Independence ...................................1,300 wordsUS Constitution with 27 Amendments ................... 7,818 wordsUS Government regulations on sale of cabbage  26,911 words

Jobs Are Everything

Period.

NovemberYear Millions2000 132.42010 130.5

1.81 Million Fewer Jobs

US Employment

-1.37 Percent10 Years at 100,000 Per Month

= 12 Million Needed Jobs

NovemberYear Million2000 5.6192010 5.015

604,000 Lost Jobs

Ohio Jobs

-10.6 Percent

http://taxfoundation.org/files/bp60.pdf

OHIO – 46th Worst Business Tax Environment

128

130

132

134

136

138

'07 '08 '09 '10

U.S. Job NumbersJobs (Millions) Seasonally Adjusted

7.44 Million Lost Since Jan 2008103,000 Gained in Dec 2010

1,124,000 Gained YTD

900

950

1,000

1,050

1,100

'07 '08 '09 '10

Cleveland MSA Jobs

Jobs (Thousands) Seasonally Adjusted

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Cleveland

67

Percent Change from Same Month Prior Year

Cleveland MSA Jobs

12,000 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

-6.0%

-3.0%

0.0%

3.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Columbus

67

Percent Change from Same Month Prior Year

Columbus Jobs

8,000 Net Lost Jobs in the Past 12 Months

Not Seasonally Adjusted

-7.0%

-4.0%

-1.0%

2.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Cincinnati

67

Percent Change from Same Month Prior Year

Cincinnati Jobs

100 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

-7.0%

-4.0%

-1.0%

2.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Akron

67

Percent Change from Same Month Prior Year

Akron Jobs

400 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

-8.0%

-5.0%

-2.0%

1.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Canton

67

Percent Change from Same Month Prior Year

Canton Jobs

400 Net Lost Jobs in the Past 12 Months

Not Seasonally Adjusted

-8.0%

-5.0%

-2.0%

1.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Dayton

67

Percent Change from Same Month Prior Year

Dayton Jobs

3,000 Net Lost Jobs in the Past 12 Months

Not Seasonally Adjusted

-8.0%

-5.0%

-2.0%

1.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Lima

67

Percent Change from Same Month Prior Year

Lima Jobs

ZERO Net Lost Jobs in the Past 12 Months

Not Seasonally Adjusted

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Mansfield

67

Percent Change from Same Month Prior Year

Mansfield Jobs

900 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Sandusky

67

Percent Change from Same Month Prior Year

Sandusky Jobs

1,000 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Springfield

67

Percent Change from Same Month Prior Year

Springfield Jobs

600 Net Lost Jobs in the Past 12 Months

Not Seasonally Adjusted

-12.0%

-9.5%

-7.0%

-4.5%

-2.0%

0.5%

3.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Stuebenville

67

Percent Change from Same Month Prior Year

Steubenville Jobs

600 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Toledo

67

Percent Change from Same Month Prior Year

Toledo Jobs

1,900 Net Lost Jobs in the Past 12 Months

Not Seasonally Adjusted

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

US Youngstown

67

Percent Change from Same Month Prior Year

Youngstown Jobs

700 Net New Jobs in the Past 12 Months

Not Seasonally Adjusted

0

2

4

6

8

10

12

'79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09

U.S. Unemployment RatePercentage

6.3 Percent Average

0

2

4

6

8

10

12

'79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09

Inflation ExpectationsPercent

3.0 Percent 10-Year Average Current 2.2 Percent

University of Michigan

Average Daily Global Oil Consumption

55

60

65

70

75

80

85

90

Millions of Barrels Per Day

US Energy Consumption

0

20

40

60

80

100Consumption – Quadrillion BTUs

Coal

Oil

Natural GasHydroNuclear

Other

0

1,000

2,000

3,000

4,000

5,000

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

Rotary Rig CountAverage Number Working Per Month

$0

$2

$4

$6

$8

$10

$12

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

Well Head Natural Gas PricePrice Per 1,000 Cubic Feet – 3 Month Moving Average

$0

$20

$40

$60

$80

$100

$120

$140

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

Spot Oil Price – West Texas IntermediatePrice Per Barrel – 3 Month Moving Average

Wall Street Journal-St Louis Fed

4.0

5.0

6.0

7.0

'02

'03

'04

'05

'06

'07

'08

'09

'10

30-Year Residential Mortgage RatePercent

$0

$20

$40

$60

$80

$100

$120

$140

72 75 78 81 84 87 90 93 96 99 '02 '05 '08

2

5

8

11

14

17

Oil Prices

10-Year Treasury Rates %

Oil Prices & 10-Year Treasury Note Rates

September 2010 Dollars

$20

$40

$60

$80

$100

$120

$140

'02 '03 '04 '05 '06 '07 '08 '09 '10

$0.85

$1.05

$1.25

$1.45

$1.65

Oil Prices

DollarsPer

Euro

Oil Prices & Exchange Rates $US Per Euro Oil in September 2010 Dollars

Oil Price

Japanese Buyer of 2-Year Treasury Note in September 2008

Dollar-YenExchange

Date Event U.S. Dollars Rate Yen9-2008 Purchase the Bond (100,000.00)$ 106.6 (10,660,000)$ 3-2009 Interest Payment 480.00$ 97.9 46,992$ 9-2009 Interest Payment 480.00$ 91.3 43,824$ 3-2010 Interest Payment 480.00$ 90.7 43,536$ 9-2010 Interest Payment 480.00$ 83.3 39,984$ 9-2010 Bond Redempetion 100,000.00$ 83.3 8,330,000$

Total (With No Time Value of Money) (2,155,664)$ Return (No Time Value of Money) -20.2%

Why Interest Rates Are Going To Increase

RatesUp 100-250

BasisPoints

Ted

’s F

ore

cast

11-

4-20

10 t

o 1

2-31

-11

Big 2011Upside…

10-Year Treasurys

Since Nov 430-Year Rates

Up 69 bp

So Goes Jobs,So Goes

Housing…….

3.0

4.0

5.0

6.0

7.0

8.0

'02 '03 '04 '05 '06 '07 '08 '09 '10

US Existing Home SalesSold (Millions)

National Association of REALTORS®

No

vem

ber

201

0

$8,000Tax

Credit

$0

$50

$100

$150

$200

$250

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

U.S. Existing Home SalesMedian Price -- $ Thousands

National Association of REALTORS®

Down 23 Percent From 12-Month Average Peak in July 2006

0

200

400

600

800

1,000

1,200

1,400

'02 '03 '04 '05 '06 '07 '08 '09 '10

U.S. New Home SalesSold -- Thousands

No

vem

ber

201

0

$0

$50

$100

$150

$200

$250

'02 '03 '04 '05 '06 '07 '08 '09 '10

U.S. New Home SalesMedian Price $ Thousands

No

vem

ber

201

0

Ohio Housing Sales

0

50

100

150

200

250

300

'02 '03 '04 '05 '06 '07 '08 '09 '10

Seasonally Adjusted Annualized Rate -- Thousands

National Association of REALTORS®

Cleveland Housing Sales

$0

$25

$50

$75

$100

$125

$150

'02 '03 '04 '05 '06 '07 '08 '09 '10

Median Home Price -- $ Thousands

National Association of REALTORS®

Cleveland Residential Building Permits

0

1,500

3,000

4,500

6,000

7,500

9,000Single Family Multi

Number of Dwelling Units

Real 2011 GDP Forecasts

3.0%

1.6%

1.5%

0.9%

5.1%

6.2%

3.5%

5.9%

7.5%

0% 1% 2% 3% 4% 5% 6% 7% 8%

World

US

Eurozone

Japan

China

Emerging Markets

Emerging Asia

Latin America

Sub Saharan Africa

Gross Domestic Product -- GDP

Value of All Goods and Services Produced by a Country

GDP = C + I + G + (Ex – Im)

Where:

C = Consumption

I = Investments

G = Government Spending

Ex = Exports

Im = Imports

Q2 2010 +1.7 PercentQ3 2010 +2.0 Percent

Retail Sales – Real, Inflation Adjusted

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Largest Contraction in Retail Sales Since the Depression

St. Louis Fed

Percent Change From Same Month in Prior Year

Investments????????????????????????????????????????????????????????????

????????????????

$0

$300

$600

$900

$1,200

$1,500

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

GoldPrice Per Ounce – Nominal (Not Inflation Adjusted)

Jan 1980 to NowGold Up 95.5 Percent

$0$25$50$75

$100$125$150$175$200$225

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Existing Home Prices$ Thousands --Nominal Average of MSA Medians

National Association of REALTORS®

Jan 1980 to NowHousing Up 252 Percent

$0

$400

$800

$1,200

$1,600

$2,000

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

GoldPrice Per Ounce – Real -- September 2010 $Dollars

Jan 1980 to NowGold Down 30.2 Percent

$0

$50

$100

$150

$200

$250

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

U.S. Existing Home Prices$ Thousands –Real Inflation Adjusted Sept 2010 $s

National Association of REALTORS®

Jan 1980 to NowHousing Up 18.6 Percent

Gold vs. U.S. Home PricesJanuary 1980 - October 2010Percent Change

Nominal* Real**Gold 95.5% -30.2%Housing 252.0% 18.6%

* Not Adjusted for Inflation** Adjusted for Inflation

http://blog.stewart.com/

12Average Number of Homes Looked at by

2010 Homebuyers

Bond Yields

0

5

10

15

20

25

30

35

40

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

CCC & Less

B Corp

BB Corp

BBB Corp

A Corp

AA-AAA Corp

Percent Effective Yield

Merrill Lynch - Bloomberg

59

HistoricalAA/AAA Current

Basis Points Basis PointsAverage Spread Current Spread

AA/AAA 5.348 0 2.83 0A 5.836 48.7 3.62 78.6BBB 6.564 121.6 4.43 159.7BB 8.255 290.6 6.80 396.1B 10.219 487.1 8.40 556.3CCC Down 16.765 1,141.7 11.88 904.4

Historical CurrentPremium Premium

A 9.1% 27.7%BBB 22.7% 56.4%BB 54.3% 139.8%B 91.1% 196.3%CCC Down 213.5% 319.1%

Premium calculatedas a percentage of

AA/AAA

Bond Yield Premium Analysis

IRF

Some PositivesGleaned From the Painful Recession

i.e. Not Everything is Bad News

61

Stock Values vs. GDP

0

1

2

3

4

5

6

'75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Real GDP

Real Dollar Stock Values

Index 1975 = 1.0

S&P, BEA

Rational Behavior Returns

National Median Home Price vs. Median Income

2.502.753.003.253.503.754.004.25

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Price to Income Ratio

NAR / BEA

Price to Income Ratio

Rule of Thumb: Median Prices =< 3X Median Income

63

U.S. Personal Savings Rate6 Month Moving Average

0

2

4

6

8

10

12

14

'60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08

Percent of Disposable Income

St. Louis Fed

Household Debt as a Percent of Household Income

40%

60%

80%

100%

120%

'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Debt-to-Income Ratio

Percent

FED Board of Governors, BEA

Even More Progress if Incomes Weren’t Falling

Home Mortgage Delinquency Rates Percent of Total Outstanding 60 Days Delinquent

0%

10%

20%

30%

40%

50%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

Alt A

Subprime

FHA/VA

Conv. Prime

CoreLogic

The foreclosure problem will not be over until delinquencies fall

0102030405060708090

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08

Business Bankruptcy FilingsNumber of Filings -- Thousands

0

300

600

900

1,200

1,500

1,800

2,100

2,400

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08

Non-Business Bankruptcy Filings

Number of Filings -- Thousands

$3.5 Trillion

Total Amount of CommercialLoans Outstanding

2.5 Million

U.S. Commercial OfficeSpace Absorbed in Q4 2010

(first positive in 3 years

Commercial Loans

• $400 Billion Due in Next 12 Months• 9.2 Percent of CMBS Loans in Default• 354 Loans Modified in First 11 Months of

2010 – Up from 216 in 2009• $15.6 Billion Modified in 2010 (less than

1/2 Percent)• $7.06 Billion Modified in 2009

A Rolling Loan Gathers No Loss

Percent$ Billion Change

2007 557.8$ 2008 181.6$ -67.4%2009 54.4$ -70.0%

Commercial Sales

$58 Billion Q1+Q2+Q3 2010 Forecast 2010 = $77.3 2010 +42%

2011 $120 Billion (Ted)

Real Estate

Mortgage Bankers Association Office BuildingWashington, DC

Purchased 2007 $79.0 MillionSold Feb 2010 $41.3 Million

Loss $37.7 Million 47.7 Percent

Federal Budget Surplus (Deficit)

-$1,600.0

-$1,400.0

-$1,200.0

-$1,000.0

-$800.0

-$600.0

-$400.0

-$200.0

$0.0'0

1

'02

'03

'04

'05

'06

'07

'08

'09

'10f

'11f

$ Billions

Federal On-Budget Deficit Forecast

-$1,600.0

-$1,400.0

-$1,200.0

-$1,000.0

-$800.0

-$600.0

-$400.0

-$200.0

$0.0'0

1'0

2'0

3'0

4'0

5'0

6'0

7'0

8'0

9'1

0'1

1f

'12

'13

'14

'15

'16

'17

'18

'19

'20

$ Billions – Baseline ($10.7 Trillion Total Debt 12-31-08)

$10.53 Trillion 2009-2020

$10.7 Trillion Cumulative Debt

Dec 31 2008

Interest Expense on Debt Outstanding

$0

$100

$200

$300

$400

$500

88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

$ Billions 2010$413.9 Billion

Federal Debt Interest Payments

1-Year T-Bill 0.318 Percent2-Year T-Note 0.703 Percent

2010 Average Rates

If 1-Year Rates Rise to 1 Percent, Then Annual Interest Payments Triple to $1.23 Trillion

If the Debt Doubles (as projected)Then Annual Interest Payments Rise to $2.46 Trillion

Ted’s Bloghttp://blog.stewart.com/

2011 Economic Concerns• Wall Street—Washington DC—Liquidity• Jobs – Stimulus Not Working GDP=C+I+G

• Time Bomb Loans Now Commercial

• Cold War II—Terrorists• Inflation (and Cap Rates)--Recession

• Energy: US Imports 70+ Percent of Oil

• Real Estate-Autos-Credit Cards-Banks

Ted C. Jones, PhD Chief Economist

Stewart Title Guaranty Co.

http://blog.stewart.com/

Ted C. Jones, PhD Chief Economist Stewart Title Guaranty Co.

http://blog.stewart.com/

Ted C. Jones, PhD Chief Economist

Stewart Title Guaranty Co.

http://blog.stewart.com/

Ted C. Jones, PhD Chief Economist

Stewart Title Guaranty Co. http://blog.stewart.com/