2015 trends keynote
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These are the presentation slides charts and graphs from the 2015 GBRAR CID TRENDS in Baton Rouge Real Estate SeminarTRANSCRIPT
Real Estate Market Trends and Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at Baton Rouge Trends Seminar
Greater Baton Rouge Association of REALTORS® CIDand
Real Estate Research Institute at Louisiana State University
April 16, 2015
Commercial Investment Sales of Large Properties(Properties valued at $2.5 million and over)
130
212
362423
571
174
67
147
233299
355400 420 430
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Commercial Sales in $Billions
Federal Reserve Commercial Property Price Index
0
50
100
150
200
250
300
2000
‐ Q1
2000
‐ Q3
2001
‐ Q1
2001
‐ Q3
2002
‐ Q1
2002
‐ Q3
2003
‐ Q1
2003
‐ Q3
2004
‐ Q1
2004
‐ Q3
2005
‐ Q1
2005
‐ Q3
2006
‐ Q1
2006
‐ Q3
2007
‐ Q1
2007
‐ Q3
2008
‐ Q1
2008
‐ Q3
2009
‐ Q1
2009
‐ Q3
2010
‐ Q1
2010
‐ Q3
2011
‐ Q1
2011
‐ Q3
2012
‐ Q1
2012
‐ Q3
2013
‐ Q1
2013
‐ Q3
2014
‐ Q1
2014
‐ Q3
GDP Burstin 2014 Q2, Q3, Q4
‐10
‐8
‐6
‐4
‐2
0
2
4
6
2007‐ Q1
2007‐ Q3
2008‐ Q1
2008‐ Q3
2009‐ Q1
2009‐ Q3
2010‐ Q1
2010‐ Q3
2011‐ Q1
2011‐ Q3
2012‐ Q1
2012‐ Q3
2013‐ Q1
2013‐ Q3
2014‐ Q1
2014‐ Q3
GDP Annualized Growth Rate
Jobs(8 million lost … 12 million gained)
124000
126000
128000
130000
132000
134000
136000
138000
140000
1420002000
‐ Jan
2000
‐ Jul
2001
‐ Jan
2001
‐ Jul
2002
‐ Jan
2002
‐ Jul
2003
‐ Jan
2003
‐ Jul
2004
‐ Jan
2004
‐ Jul
2005
‐ Jan
2005
‐ Jul
2006
‐ Jan
2006
‐ Jul
2007
‐ Jan
2007
‐ Jul
2008
‐ Jan
2008
‐ Jul
2009
‐ Jan
2009
‐ Jul
2010
‐ Jan
2010
‐ Jul
2011
‐ Jan
2011
‐ Jul
2012
‐ Jan
2012
‐ Jul
2013
‐ Jan
2013
‐ Jul
2014
‐ Jan
2014
‐ Jul
2015
‐ Jan
In thousands
Weekly New Unemployment Insurance Claims
250
300
350
400
450
500
550
600
2000
‐ Jan
2000
‐ Jul
2001
‐ Jan
2001
‐ Jul
2002
‐ Jan
2002
‐ Jul
2003
‐ Jan
2003
‐ Jul
2004
‐ Jan
2004
‐ Jul
2005
‐ Jan
2005
‐ Jul
2006
‐ Jan
2006
‐ Jul
2007
‐ Jan
2007
‐ Jul
2008
‐ Jan
2008
‐ Jul
2009
‐ Jan
2009
‐ Jul
2010
‐ Jan
2010
‐ Jul
2011
‐ Jan
2011
‐ Jul
2012
‐ Jan
2012
‐ Jul
2013
‐ Jan
2013
‐ Jul
2014
‐ Jan
2014
‐ Jul
2015
‐ Jan
In thousands
Unemployment Rate
0
2
4
6
8
10
12
2000
‐ Jan
2000
‐ Jul
2001
‐ Jan
2001
‐ Jul
2002
‐ Jan
2002
‐ Jul
2003
‐ Jan
2003
‐ Jul
2004
‐ Jan
2004
‐ Jul
2005
‐ Jan
2005
‐ Jul
2006
‐ Jan
2006
‐ Jul
2007
‐ Jan
2007
‐ Jul
2008
‐ Jan
2008
‐ Jul
2009
‐ Jan
2009
‐ Jul
2010
‐ Jan
2010
‐ Jul
2011
‐ Jan
2011
‐ Jul
2012
‐ Jan
2012
‐ Jul
2013
‐ Jan
2013
‐ Jul
2014
‐ Jan
2014
‐ Jul
2015
‐ Jan
Jobs in D.C. Metro
2000
2100
2200
2300
2400
2500
2600
2700
2000‐ Jan
2001‐ Jan
2002‐ Jan
2003‐ Jan
2004‐ Jan
2005‐ Jan
2006‐ Jan
2007‐ Jan
2008‐ Jan
2009‐ Jan
2010‐ Jan
2011‐ Jan
2012‐ Jan
2013‐ Jan
2014‐ Jan
2015‐ Jan
In thousands
Jobs in Detroit
1700
1800
1900
2000
2100
2200
2300
2000‐ Jan
2001‐ Jan
2002‐ Jan
2003‐ Jan
2004‐ Jan
2005‐ Jan
2006‐ Jan
2007‐ Jan
2008‐ Jan
2009‐ Jan
2010‐ Jan
2011‐ Jan
2012‐ Jan
2013‐ Jan
2014‐ Jan
2015‐ Jan
In thousands
Jobs in New Orleans
400
450
500
550
600
650
2000‐ Jan
2001‐ Jan
2002‐ Jan
2003‐ Jan
2004‐ Jan
2005‐ Jan
2006‐ Jan
2007‐ Jan
2008‐ Jan
2009‐ Jan
2010‐ Jan
2011‐ Jan
2012‐ Jan
2013‐ Jan
2014‐ Jan
In thousands
Jobs in Baton Rouge
300
320
340
360
380
400
420
2000‐ Jan
2001‐ Jan
2002‐ Jan
2003‐ Jan
2004‐ Jan
2005‐ Jan
2006‐ Jan
2007‐ Jan
2008‐ Jan
2009‐ Jan
2010‐ Jan
2011‐ Jan
2012‐ Jan
2013‐ Jan
2014‐ Jan
2015‐ Jan
In thousands
Household Net Worth at All‐Time High
40000450005000055000600006500070000750008000085000
$ billion
But Wait …
“But, I am not feeling it”
REALTORS® Report Commercial Sales Increase
‐50%
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
30%
Percen
t Cha
nge, ye
ar‐over‐year
Sales VolumeSales Volume
Source: National Association of Realtors®
REALTOR® Markets & Deal Size(Not $2.5 million Properties)
21%
22%
26%
17%
12%
1%
2%
< $250,000
$250,000 ‐ $500,000
$500,000 ‐ $1,000,000
$1,000,000 ‐ $2,000,000
$2,000,000 ‐ $5,000,000
$5,000,000 ‐ $10,000,000
> $10,000,000
2013 CRE Lending Survey: Value of most recent sales transaction
Source: NAR
8%
17%
25%
7%6%
4%
18%
1% 11%3%
Current sources of financing for commercial deals
National banks (“Big four”)
Regional banks
Local banks
Credit unions
Life insurance companies
REITs
Private investors
Public companies
Small Business Administration
Other, please specify
Source: NAR
Small Banks Important to REALTORS®
GDP Still not Robust … Below 3% for 9 straight years
‐4
‐2
0
2
4
6
8
10
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
GDP Annual Growth Rate
Sluggish Growth + Gap after Great Recession ($1.5 trillion gap … $4,700 per person)
10000
11000
12000
13000
14000
15000
16000
17000
18000
19000
1998‐ Q1
1999‐ Q1
2000‐ Q1
2001‐ Q1
2002‐ Q1
2003‐ Q1
2004‐ Q1
2005‐ Q1
2006‐ Q1
2007‐ Q1
2008‐ Q1
2009‐ Q1
2010‐ Q1
2011‐ Q1
2012‐ Q1
2013‐ Q1
2014‐ Q1
GDP in 2009 Dollars
Real GDP Real GDP W/O Recession
3% Growth Line
2.2% Growth Line
Employment Rate
54
56
58
60
62
64
66
2000
‐ Jan
2000
‐ Jul
2001
‐ Jan
2001
‐ Jul
2002
‐ Jan
2002
‐ Jul
2003
‐ Jan
2003
‐ Jul
2004
‐ Jan
2004
‐ Jul
2005
‐ Jan
2005
‐ Jul
2006
‐ Jan
2006
‐ Jul
2007
‐ Jan
2007
‐ Jul
2008
‐ Jan
2008
‐ Jul
2009
‐ Jan
2009
‐ Jul
2010
‐ Jan
2010
‐ Jul
2011
‐ Jan
2011
‐ Jul
2012
‐ Jan
2012
‐ Jul
2013
‐ Jan
2013
‐ Jul
2014
‐ Jan
2014
‐ Jul
2015
‐ Jan
Renter Households over 10 years (Increased by 8 million)
25,00027,00029,00031,00033,00035,00037,00039,00041,00043,000
1980
‐ Q1
1981
‐ Q1
1982
‐ Q1
1983
‐ Q1
1984
‐ Q1
1985
‐ Q1
1986
‐ Q1
1987
‐ Q1
1988
‐ Q1
1989
‐ Q1
1990
‐ Q1
1991
‐ Q1
1992
‐ Q1
1993
‐ Q1
1994
‐ Q1
1995
‐ Q1
1996
‐ Q1
1997
‐ Q1
1998
‐ Q1
1999
‐ Q1
2000
‐ Q1
2001
‐ Q1
2002
‐ Q1
2003
‐ Q1
2004
‐ Q1
2005
‐ Q1
2006
‐ Q1
2007
‐ Q1
2008
‐ Q1
2009
‐ Q1
2010
‐ Q1
2011
‐ Q1
2012
‐ Q1
2013
‐ Q1
2014
‐ Q1
In thousands
Homeowner Households over 10 years(Decreased by 2 million)
50,000
55,000
60,000
65,000
70,000
75,000
80,0001980
‐ Q1
1981
‐ Q1
1982
‐ Q1
1983
‐ Q1
1984
‐ Q1
1985
‐ Q1
1986
‐ Q1
1987
‐ Q1
1988
‐ Q1
1989
‐ Q1
1990
‐ Q1
1991
‐ Q1
1992
‐ Q1
1993
‐ Q1
1994
‐ Q1
1995
‐ Q1
1996
‐ Q1
1997
‐ Q1
1998
‐ Q1
1999
‐ Q1
2000
‐ Q1
2001
‐ Q1
2002
‐ Q1
2003
‐ Q1
2004
‐ Q1
2005
‐ Q1
2006
‐ Q1
2007
‐ Q1
2008
‐ Q1
2009
‐ Q1
2010
‐ Q1
2011
‐ Q1
2012
‐ Q1
2013
‐ Q1
2014
‐ Q1
In thousands
Homeownership Rate
6061626364656667686970
1990
‐ Q1
1991
‐ Q1
1992
‐ Q1
1993
‐ Q1
1994
‐ Q1
1995
‐ Q1
1996
‐ Q1
1997
‐ Q1
1998
‐ Q1
1999
‐ Q1
2000
‐ Q1
2001
‐ Q1
2002
‐ Q1
2003
‐ Q1
2004
‐ Q1
2005
‐ Q1
2006
‐ Q1
2007
‐ Q1
2008
‐ Q1
2009
‐ Q1
2010
‐ Q1
2011
‐ Q1
2012
‐ Q1
2013
‐ Q1
2014
‐ Q1
Median Home Price
$166,100
$176,800
$197,100
$208,500
$150,000
$160,000
$170,000
$180,000
$190,000
$200,000
$210,000
$220,000
2011 2012 2013 2014
Household Net Worth($5,500 vs. $195,500)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Renter Homeowner
1998 2001 2004 2007 2010 2013
x31 x46x36 x34x46
Homeowner net worth ranges from 31 to 46 times that of renters x36
Source: Federal Reserve Survey of Consumer Finances
The Reason for Not Feeling It
• Very Slow Housing Market Recovery• Very Slow Commercial Market Recovery
• Holds Back Economic Recovery
Pent Up Demand2000 2014
Existing Home Sales 5.2 m 4.9 m
New Home Sales 880 K 440 K
Mortgage Rates 8.0% 4.2%
Payroll Jobs 132.0 m 138.9 m
Population 282 m 319 m
37 million more people living in the country
Home Sales: Two and Out?Or Multi‐year Expansion?
(Single‐Family Existing Home Sales Only)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,0001968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Housing Starts Rising … Too Slowly
0
500
1000
1500
2000
2500
300019
70 ‐ Jan
1972
‐ Jan
1974
‐ Jan
1976
‐ Jan
1978
‐ Jan
1980
‐ Jan
1982
‐ Jan
1984
‐ Jan
1986
‐ Jan
1988
‐ Jan
1990
‐ Jan
1992
‐ Jan
1994
‐ Jan
1996
‐ Jan
1998
‐ Jan
2000
‐ Jan
2002
‐ Jan
2004
‐ Jan
2006
‐ Jan
2008
‐ Jan
2010
‐ Jan
2012
‐ Jan
2014
‐ Jan
Thousand units
Time to Sell a New Spec Home(in months)
0
2
4
6
8
10
12
14
16
2000‐ Jan
2001‐ Jan
2002‐ Jan
2003‐ Jan
2004‐ Jan
2005‐ Jan
2006‐ Jan
2007‐ Jan
2008‐ Jan
2009‐ Jan
2010‐ Jan
2011‐ Jan
2012‐ Jan
2013‐ Jan
2014‐ Jan
Sluggish Recovery in Housing Starts
• Cost of Construction Rising Faster than CPI
• Labor Shortage for construction work
• Construction loan difficulty for small local homebuilders … Dodd‐Frank financial regulations?
Rising Interest Rates:How Soon and How Much?
Monetary Policy by Federal Reserve (zero rate policy for 6 years!)
0
1
2
3
4
5
6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fed Funds%
Federal Reserve Balance Sheet from Quantitative Easing
05000001000000150000020000002500000300000035000004000000
2005
‐ Jan
2005
‐ Jun
2005
‐ Nov
2006
‐ Ap
r2006
‐ Sep
2007
‐ Feb
2007
‐ Jul
2007
‐ De
c2008
‐ May
2008
‐ Oct
2009
‐ Mar
2009
‐ Au
g2010
‐ Jan
2010
‐ Jun
2010
‐ Nov
2011
‐ Ap
r2011
‐ Sep
2012
‐ Feb
2012
‐ Jul
2012
‐ De
c2013
‐ May
Total Asset Purchase
$ million
10‐year Treasury Yield
0
1
2
3
4
5
6
7
2000‐ Jan
2001‐ Jan
2002‐ Jan
2003‐ Jan
2004‐ Jan
2005‐ Jan
2006‐ Jan
2007‐ Jan
2008‐ Jan
2009‐ Jan
2010‐ Jan
2011‐ Jan
2012‐ Jan
2013‐ Jan
2014‐ Jan
2015‐ Jan
Non‐worrisome CPI Inflation – YetCOLA of 1.7% in 2015
‐3
‐2
‐1
0
1
2
3
4
5
6
2000
‐ Jan
2000
‐ Au
g2001
‐ Mar
2001
‐ Oct
2002
‐ May
2002
‐ De
c2003
‐ Jul
2004
‐ Feb
2004
‐ Sep
2005
‐ Ap
r2005
‐ Nov
2006
‐ Jun
2007
‐ Jan
2007
‐ Au
g2008
‐ Mar
2008
‐ Oct
2009
‐ May
2009
‐ De
c2010
‐ Jul
2011
‐ Feb
2011
‐ Sep
2012
‐ Ap
r2012
‐ Nov
2013
‐ Jun
2014
‐ Jan
2014
‐ Au
g
Rising Renters’ and Homeowners’ Rent Growth (Above 3%)
‐1
0
1
2
3
4
5
2003
‐ Jan
2003
‐ Jul
2004
‐ Jan
2004
‐ Jul
2005
‐ Jan
2005
‐ Jul
2006
‐ Jan
2006
‐ Jul
2007
‐ Jan
2007
‐ Jul
2008
‐ Jan
2008
‐ Jul
2009
‐ Jan
2009
‐ Jul
2010
‐ Jan
2010
‐ Jul
2011
‐ Jan
2011
‐ Jul
2012
‐ Jan
2012
‐ Jul
2013
‐ Jan
2013
‐ Jul
2014
‐ Jan
2014
‐ Jul
Owners' Equivalent Rent Renters' Rent
Oil Price
0
20
40
60
80
100
120
140
160
2000
‐ Jan
2000
‐ Au
g2001
‐ Mar
2001
‐ Oct
2002
‐ May
2002
‐ De
c2003
‐ Jul
2004
‐ Feb
2004
‐ Sep
2005
‐ Ap
r2005
‐ Nov
2006
‐ Jun
2007
‐ Jan
2007
‐ Au
g2008
‐ Mar
2008
‐ Oct
2009
‐ May
2009
‐ De
c2010
‐ Jul
2011
‐ Feb
2011
‐ Sep
2012
‐ Ap
r2012
‐ Nov
2013
‐ Jun
2014
‐ Jan
2014
‐ Au
g
Supply and Demand: Oil in U.S.
19
21
5
9
U.S. Dollar – The Most Trusted
0
20
40
60
80
100
120
140
1980
‐ Jan
1981
‐ Jan
1982
‐ Jan
1983
‐ Jan
1984
‐ Jan
1985
‐ Jan
1986
‐ Jan
1987
‐ Jan
1988
‐ Jan
1989
‐ Jan
1990
‐ Jan
1991
‐ Jan
1992
‐ Jan
1993
‐ Jan
1994
‐ Jan
1995
‐ Jan
1996
‐ Jan
1997
‐ Jan
1998
‐ Jan
1999
‐ Jan
2000
‐ Jan
2001
‐ Jan
2002
‐ Jan
2003
‐ Jan
2004
‐ Jan
2005
‐ Jan
2006
‐ Jan
2007
‐ Jan
2008
‐ Jan
2009
‐ Jan
2010
‐ Jan
2011
‐ Jan
2012
‐ Jan
2013
‐ Jan
2014
‐ Jan
2015
‐ Jan
Dollar Strength Index – Trade Weighted
Who is Stalking the Dollar?
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
2000
‐ Jan
2000
‐ Jul
2001
‐ Jan
2001
‐ Jul
2002
‐ Jan
2002
‐ Jul
2003
‐ Jan
2003
‐ Jul
2004
‐ Jan
2004
‐ Jul
2005
‐ Jan
2005
‐ Jul
2006
‐ Jan
2006
‐ Jul
2007
‐ Jan
2007
‐ Jul
2008
‐ Jan
2008
‐ Jul
2009
‐ Jan
2009
‐ Jul
2010
‐ Jan
2010
‐ Jul
2011
‐ Jan
2011
‐ Jul
2012
‐ Jan
2012
‐ Jul
2013
‐ Jan
2013
‐ Jul
2014
‐ Jan
2014
‐ Jul
2015
‐ Jan
Yuan per Dollar
Monetary Policy
• Quantitative Easing … Finished
• Fed Funds Rate … hike in mid‐2015
• Long‐term Steady State Rate (2016 onwards) .. 10 year Treasury at 4.5%
Forecast
Economic Forecast
2013 2014 2015Forecast
2016 Forecast
GDP Growth 2.2% 2.6% 3.0% 3.0%
Job Growth +2.3 million +3.0 million +2.7 million +2.7 million
CPI Inflation 1.5% 1.2% 1.4% 3.2%
Consumer Confidence
73 87 95 98
10‐yearTreasury
2.5% 2.6% 2.3% 3.6%
Housing Forecast
2013 2014Likely
2015Forecast
2016 Forecast
Housing Starts 925,000 990,000 1.2 million 1.4 million
New Home Sales
430,000 440,000 600,000 720,000
Existing Home Sales
5.1 million 4.9 million 5.3 million 5.4 million
Median Price Growth
+ 11.5% + 5.3% + 4% + 4%
30‐year Rate 4.0% 4.2% 4.8% 5.8%
Underwriting Standards
Strict Strict Transition Normal
OFFICE 2014 2015 2016Vacancy Rate 16.2% 15.8% 15.6%Net Absorption ('000 sq. ft.) 36,192 50,678 57,782Completions ('000 sq. ft.) 26,450 41,799 44,862Rent Growth 2.6% 3.2% 3.6%
INDUSTRIAL 2014 2015 2016Vacancy Rate 8.9% 8.5% 8.1%Net Absorption ('000 sq. ft.) 107,580 104,948 105,044Completions ('000 sq. ft.) 83,424 68,755 61,720Inventory ('000,000 sq. ft.) 8,468 8,537 8,598Rent Growth 2.4% 2.8% 2.9%
RETAIL 2014 2015 2016Vacancy Rate 9.8% 9.7% 9.4%Net Absorption ('000 sq. ft.) 11,214 19,314 24,313Completions ('000 sq. ft.) 7,275 12,196 16,342Rent Growth 2.0% 2.4% 3.0%
MULTI‐FAMILY 2014 2015 2016Vacancy Rate 4.0% 4.0% 4.2%Net Absorption (Units) 223,421 170,065 140,128Completions (Units) 191,481 146,461 122,381Rent Growth 4.0% 3.9% 3.5%
Sources: National Association of REALTORS® / Reis, Inc.
Commercial Real Estate Forecast
Forecast over the next 2 years
• Rising interest rates … • Cap rates rise somewhat (narrow the gap first)• Increased occupancy and falling vacancy (new supply lacking)
• Rising rents … can offset rising rates to support property values
• Overall … improving business opportunities
Washington Policy Watch onCommercial Real Estate
• Preserve 1031 Like‐Kind Exchanges• Facilitate Covered Bonds to help credit flow• Raise cap on holding of commercial RE loans by credit unions
• Preserve capital gains status on carried interest• Depreciation Rules should match economic life• Oppose lease‐accounting changes