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Elliott D. Pollack & Company

Extra Innings13th Annual 2020 IREM/CCIM

Economic Forecast

January 17, 2020

Presented By:Elliott D. Pollack

CEO, Elliott D. Pollack & Company


Questions and Answers

2


If late last year was the 7th

inning,where are we now?

3


Are we near the abyss?

4


Is it time to panic?

5


The answers are…..

6


Extra innings. No, more of a mild dip.

No.

7


Could there be a recession?

8


Possibly, but not right now.The latest data suggests a recession

will not occur in 2020!

9


When a recession does occur, will it look like 2007?

10


Highly Unlikely!

11


The economy is inherently cyclical

12


Real GDP% Change a Year Ago

1960-2019*Source: Bureau of Economic Analysis

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%Recession

*Data through the third quarter 2019 13


But not all slowdowns are the same

14


The next one is likely to be a mild slowdown compared to

2007-2009.

15


We are very late in the game Synchronized global slowdown, especially in manufacturing

Chinese economy growing at the slowest rate in 28 years

Slowdown in velocity of money Fed is not getting much bang for the buck

Tax cuts have worked their way through the system Too much government debt

When we will pay the piper is unknown. Maybe 2 years. Maybe 20 years.

Election year could get Crazy

16

Where do we stand in the Cycle?


June 2009 - PresentMarch 1991 – March 2001

February 1961 – December 1969November 1982 – July 1990

November 2001 – December 2007March 1975 - January 1980

October 1949 – July 1953May 1954 – August 1957

November 1970 – November 1973April 1958 – April 1960July 1980 – July 1981

127120

10692

7358

4539

3624

12

U.S. BUSINESS CYCLE EXPANSIONSSource: National Bureau of Economic Research

17


Recessions don’t die of old age

18

Elliott D. Pollack & Company 19


But, they do become more vulnerable as the age

20


The closer the U.S. Economy gets to full-employment, the less employment growth you can expect.

So employment growth will slow over the next year

21


Consumer 69.6% of GDP Jobs plentiful, 7 million unfilled jobs available. Low unemployment Financially in good shape Confidence at high levels

22



Residential 3.1% of GDP Demographics outstanding for new housing Affordability okay in many cities. A problem on coasts. Problem is lack of supply

23



Trade Exports13.3% of GDP Imports 18.4% of GDP

USMCA newly approved Deal with China Value of the Dollar

24



Domestic Nonresidential Investment 14.5% of GDP Domestic investment is weak. Weakness is mainly in plant and equipment spending Structure 2.8% of GDP Equipment 6.7% of GDP Intellectual Property 5.1% of GDP

25



Government spending is 17.3% of GDP Federal Spending 6.7% of GDP

Growing faster than the rate of inflation

State and Local 10.6% of GDP Growing slower than the rate of inflation

Deficit – Too high and growing

26



Growth will be around 2% or less in

2020

27


Monetary Policy The Fed does not want a recession. Worldwide monetary policy is expansive. The Fed is entering a period of slower growth with few bullets

in its gun. Interest rates are likely to stay low by historic standards. FED will have to continue quantitative easing. But with interests rates so low and government’s high debt

levels, it will be less effective. Central Banks are worried about disinflation and deflation.

28


1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4Recession


Velocity of M2 Money Stock1960– 2019*

Source: Board of Governors of the Federal Reserve System


The fed is not getting the bang for the buck in money supply growth

30


Recession Periods

0%2%4%6%8%

10%12%14%16%18%20%

*Data through December 2019

Effective Federal Funds Rate1960– 2019*

Source: Board of Governors of the Federal Reserve System

31


Federal Surplus or DeficitFY 1989-2025

Source: U.S. Office of Management and Budget

32

-$1,600,000

-$1,400,000

-$1,200,000

-$1,000,000

-$800,000

-$600,000

-$400,000

-$200,000

$0

$200,000

$400,000

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

(Millions) Recession Periods


How Will We Pay for it?

Education Healthcare Fighting Climate Change

33


Political Two major political parties Have completely different views of the world 2020 is an election year. It could get crazy

34


Political

35


PoliticalA lot of people think we have poor choices

36


What can kick us into a Recession?

37


The U.S. economy right now 70% Consumer – Strong Housing – Positive Capital spending – Weak Trade – seems to be moving towards a resolution

Dollar is strong Makes foreign goods less expensive here American goods more expensive abroad

Government – still going So the picture is still okay.

38


What can kick us into a Recession?Remember expansions don’t die of old age

Need to stop inflation – Not now. Deteriorating global growth – No Trade War – No Slowdown in spending by consumer – Unlikely Externalities that affect consumer confidence

Oil Price Shock – not likely War – who knows Unknown Unknowns

39


Recession indicators

40


Recession Periods

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

*Data through December 2019Monthly Averages

Treasury Spread (10-year minus 3-month)

1959 – 2019* Source: Federal Reserve of New York

41


Treasury Spread (10-year minus 3-month)March – December 2019

Source: U.S. Department of Treasury

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

3/1/2019 4/1/2019 5/1/2019 6/1/2019 7/1/2019 8/1/2019 9/1/2019 10/1/2019 11/1/2019 12/1/2019

42

5/23/2019 10/11/2019


Recession Periods

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

*Data through December 2020

New York Fed Recession IndicatorProbability of Recession in 12 Months

1960 – 2020* Source: Federal Reserve of New York

44


Other Indicators

46


Recession Periods

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

*Data through November 2019

Leading Economic Index(Year-over-Year % Change)

1960 – 2019* Source: The Conference Board

47


Recession Periods

0%

2%

4%

6%

8%

10%

12%


U.S. Unemployment Rate 1960– 2019*

Source: Bureau of Labor Statistics

48


Consumer Confidence1978 – 2019*

Source: The Conference BoardRecession Periods

2030405060708090

100110120130140150

*Data through December 2019 49


Employment Cost Index2002-2019*

Source: Bureau of Labor Statistics

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

50*Data through third quarter 2019

Recession Periods


Recession Periods

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Job Openings No. of Unemployed

*Data through October 2019

Job Openings/No. of Unemployed2001 – 2019*

Source: Bureau of Labor Statistics(1000’s)

51


Consumer Price Index:U.S. All items less food and energy

Annual Percent Growth1970 – 2019*

Source: Bureau of Labor Statistics Recession Periods

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

*Data through December 2019 52


Recession Periods

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

*Data through November 2019 53

Implicit Price Deflator:Personal Consumption Expenditures Excluding Food and Energy Index

Annual % Change1994-2019*

Source: U.S. Bureau of Economic Analysis


14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

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

2015

Q1

2016

Q1

2017

Q1

2018

Q1

2019

Q1

Financial Obligation*1980 – 2019**

Source: Federal Reserve

Recession Periods

54* of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.

**Data through the third quarter 2019


0%10%20%30%40%50%60%70%80%90%

100%Recession


Households: debt as a percent of gross domestic product

1960– 2019* Source: Board of Governors of the Federal Reserve System


Share of Borrowers who took a higher rate in a cash-out refinancing?

Source: Black Knight

0%10%20%30%40%50%60%

*2019 data through September 56


-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1970

Q1

1971

Q1

1972

Q1

1973

Q1

1974

Q1

1975

Q1

1976

Q1

1977

Q1

1978

Q1

1979

Q1

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

2015

Q1

2016

Q1

2017

Q1

2018

Q1

2019

Q1

Recession

Mortgage Equity Withdrawal as a share of Disposable Income-Single Family

U.S.: 1970 – 2019* Source: Bureau of Economic Analysis

*Data through third quarter 2019 57


Recession Periods

0%2%4%6%8%

10%12%14%16%18%20%


U.S. Saving Rate1970 – 2019*

Source: Bureau Economic Analysis

58


Student Loans

59


Student Loans Many young people have been lured into large amounts

of student loan debt that their qualifications do not equip them to repay. In other words, they didn't receive the commensurate increase in skills to justify the debt.

Spending that would have occurred is not occurring because student loans are eating up that cash flow.

A huge transfer of spending from housing, durables, and optional non-durables to universities.

60


Recession Periods

-60%

-40%

-20%

0%

20%

40%

60%

80%


Housing Starts(Year-over-year % Growth, 6-month Average)

1960 – 2019* Source: U.S. Census Bureau

61


Not all Recessions are the same

62


Not all recessions are the Same

People don’t have long economic memories 2007-2009 was an aberration, not the norm. Most recessions are short and shallow At this point, any recession is likely to be mild Government?

63


Overall

Probably a slowdown……. Odds of recession over next year are relatively Low Modestly Slower Economic Growth Modestly Slower Employment Growth Modestly Slower Consumer Spending Stronger Dollar Possible Downward Pressure on Exports

64


Risks are on the downside

65


Conclusion:Recession is possible but not now.

And, not like 2007!

66


No Housing Bubble No consumer debt bubble Total unfilled jobs Fed and other central banks are trying to

prevent a recession and low inflation

It is not 2007

67


Most likely economic growth is going to slow

next year.

68


A recession before the election is possible but

unlikely.

69


Depends on a shock, a trade war, or the government

70


Don’t panic!!!!!

(at least not yet)71


ARIZONA

72


Area % Change% of Arizona

Growth2018

Annual Wages

United States 16.8% $57,198

Arizona 24.8% 100.0% $51,477

Greater Phoenix 30.4% 86.9% $53,760

Greater Tucson 11.2% 6.7% $45,352

Balance of State 11.0% 6.4% $38,911

Note: Wages for Private industriesBottom of Recession Sept. 2010 to November 2019

Arizona:Phoenix and the rest of the State

73


3

19

15

14

11

1

6

2

Jobs growing

Jobs decliningTop 10

Hawaii

46

524

Alaska28

9

7

Job Growth 2019YTD November 2019 vs. YTD November 2018

Source: U.S. BLS

4

8

10

74


Year Rank2009 492010 492011 282012 82013 92014 162015 112016 72017 42018 42019* 3

Arizona Employment GrowthArizona’s Rank Out of 50 States

Source: U.S. Bureau of Labor Statistics

Year Rank1998 11999 22000 52001 92002 92003 42004 22005 22006 22007 172008 46

75*YTD November 2019 vs YTD November 2018


Phoenix-Mesa-Scottsdale Employment Growth(Ranking among all metro areas greater than 1,000,000)

Source: U.S. Bureau of Labor Statistics

Year Rank # MSA’s

1998 1 221999 2 232000 6 242001 6 252002 5 242003 3 242004 2 242005 1 252006 1 262007 10 282008 24 28

Year Rank # MSA’s

2009 22 232010 22 222011 13 242012 10 272013 7 282014 15 302015 11 312016 7 332017 4 332018 3 352019* 3 36

76*YTD November 2019 vs YTD November 2018


Recession Periods

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%


Greater Phoenix Employment Growth (S/A)Annual Growth

2000– 2019* Source: Bureau of Labor Statistics

77


Greater Phoenix PopulationSource: U.S. Bureau of Census; Office of Economic Opportunity; UofA Forecasting Project

Period Ending Population Change APR

1970 1,039,807 301,507 3.5%1980 1,600,093 560,286 4.4%1990 2,249,116 649,023 3.5%2000 3,275,362 1,026,246 3.8%2010 4,200,427 925,065 2.5%2015 4,482,906 282,479 1.3%2020* 4,904,811 421,905 1.8%2025* 5,314,821 410,010 1.6%

*Forecasts from UofA1970-2010 10 year period2010-2025 5 year period 78


3%

4%

5%

6%

7%

8%

Note: Includes all movers except movers within same county

Total Movers as a % of Total U.S. Population

1981-2019Source: U.S. Census Bureau Recession Periods

80


01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

Same State Different State Abroad

Movers from an Outside Area1981-2019

Source: U.S. Census BureauRecession Periods

81

(1,000’s)


Population Moving by AgeBase year=2005Source: American Community Survey

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Under 1818-3435-6465+

82


0%

2%

4%

6%

8%

10%

12%

Arizona Capture RateSource: U.S. Census Bureau

Note: Does not include in-state movers;Net migration numbers.

Recession Periods

83


4.3%

2.6% 2.7%3.1%

3.6%3.8% 3.7%

3.0%

1.9%

0.5%0.3%

0.7%

1.2%1.5% 1.6% 1.6% 1.7% 1.7%

1.9% 1.9% 1.9% 1.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Recession Periods

Greater Phoenix PopulationAnnual Percent Change 2000–2021*

Source: Office of Economic Opportunity, EDPCo

*Estimates for 2011, 2012, 2013, 2014, 2015 and 2016 and forecasts for 2020 from Elliott D. Pollack & Co. as of October 2019. 84


Greater Phoenix Natural Increase

Source: UofA Forecasting Project

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Natural Increase Births Deaths85


Population: Greater Phoenix to U.S.Outgrowing the U.S.

2000-2018Source: U.S. Census Bureau; Office of Economic Opportunity; EDPCo

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

86


Less population growth means less demand for housing,

other goods and services..

Therefore, less job growth than otherwise would’ve occur.

88


3.5%

1.3%

0.0%

1.5%

3.9%

6.2%5.4%

1.7%

-2.5%

-7.8%

-1.9%

1.5%2.5% 2.9%

2.3%3.4% 3.4% 3.0% 3.3% 3.0% 2.5%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Greater Phoenix Employment*Annual Percent Change 2000–2020**

Source: Office of Economic Opportunity

Recession Periods

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

**2019 & 2020 forecasts from Elliot D. Pollack and Co. January 2020. 89


53.1

20.0

-0.1

24.2

64.0

104.2 96.6

31.7

-47.5

-146.8

-32.1

25.142.9 51.3 41.4

62.1 64.6 60.2 68.1 63.2 54.3

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Greater Phoenix Employment*Net Annual Growth Change 2000–2020**

Source: Office of Economic OpportunityRecession Periods(000’s)

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

**2019 & 2020 forecasts from Elliot D. Pollack and Co. January 2020. 90


Employment: Greater Phoenix to U.S.Outgrowing the U.S.

2004-2018Source: Bureau of Labor Statistics

-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

91

Recession Periods


2019 Predictions & Recap

92

Prediction RecapThe economy was old but strong It was. After growing at 2.9% in 2018, the economy posted a Real GDP growth of

2.3% through the first three quarters of 2019.

The party isn’t over It wasn’t. The economy surpassed and continued its longest expansion, currently at 127 months.

Housing market would be strong It was. YTD Single Family: permits up over 7%, Resales 2%, and New homes 5%

Office market would remain strong It was. Vacancy rate dropped. Absorption outpaced new supply.

Industrial market would remain strong Stronger than anticipated. Already low vacancy rate dropped further. High levels of absorption, new supply and under construction.

Retail would remain weak It did. Slight decrease in vacancy rate. Low levels of new supply, under construction and absorption.

YTD through November, commercial data based on the latest available.


2020 Prediction

93

Subject PredictionEconomy Rate of growth to slow. But, it still positive.

Recession Chances are a lot less than 50/50.

Housing Market Will continue to do well.

Office Market Do well but not as well as 2019. Not enough in the pipeline to cause a problem.

Industrial Market Do well but not as well as 2019. There is a lot in the pipeline.

Retail Market Not great improvement.


Single Family Housing

94


It’s all about Affordability

95


Greater Phoenix SF Permits1967-2018

Source: U.S. Census Bureau

010,00020,00030,00040,00050,00060,00070,000

Recession Periods

96


Greater Phoenix SF PermitsAnnual % Change

1967-2018Source: U.S. Census Bureau

-60.0%-40.0%-20.0%

0.0%20.0%40.0%60.0%80.0%

100.0%120.0%

Recession Periods

97


% Change

1972 – 1975 -59.9%

1978 – 1981 -58.8%

1986 – 1990 -52.4%

1999 – 2000 -11.0%

2004 – 2010 -87.4%

Greater Phoenix SF PermitsSource: U.S. Census Bureau

98


Demand too high Inventory too low Interests rates likely to stay low

99

Is it likely there will be a significant downturn in housing 2020 and 2021?


Greater Phoenix New Home SalesSource: Belfiore

7001,0001,3001,6001,9002,200

2016 2017 2018 2019

100


Greater Phoenix Month’s Supply2002-2019*

Source: ARMLS

02468

101214161820

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16Ju

l-16

Jan-

17Ju

l-17

Jan-

18Ju

l-18

Jan-

19Ju

l-19

*Data through November 2019 101


Greater Phoenix Single FamilyMonths of Supply by Price Range

Source: Cromford Report

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15A

pr-1

5Ju

l-15

Oct

-15

Jan-

16A

pr-1

6Ju

l-16

Oct

-16

Jan-

17A

pr-1

7Ju

l-17

Oct

-17

Jan-

18A

pr-1

8Ju

l-18

Oct

-18

Jan-

19A

pr-1

9Ju

l-19

Oct

-19

0k to 200k 200k to 300k 300k to 400k 400k plus

102


Active Listings to SF Units RatioSource: American Community Survey; AMLS

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

103


Millennials

104


75

80

85

90

95

100

105

110

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

Arizona Population by Age(0-65)

2018Source: U.S. Census Bureau

105

(1,000’s)


Arizona Number of Persons vs. Home-Purchase Loan Applications2018

Source: U.S. Census Bureau; CoreLogic

0510152025303540

80.0

85.0

90.0

95.0

100.0

105.0

110.0

106

(1,000’s) Home-purchase loan application per 1,000 persons


Arizona Number of Persons vs. Home-Purchase Loan Applications2023

Source: U.S. Census Bureau; CoreLogic

0510152025303540

80.0

85.0

90.0

95.0

100.0

105.0

110.0

107

(1,000’s)Home-purchase loan application

per 1,000 persons


Greater PhoenixHomeownership Rates by Age Group

Source: 2018 American Community Survey 1-Year Estimates; AOEO

Householder Age% of Total Occupied 2018 2028

15 to 24 years 13.3% 691,958 780,642

25 to 34 years 38.4% 637,501 788,063

35 to 44 years 57.2% 627,464 697,957

45 to 54 years 67.2% 592,955 672,180

55 to 64 years 75.8% 542,487 634,457

65 to 74 years 82.1% 410,564 567,246

75 to 84 years 84.0% 209,332 332,066

85 years and over 71.9% 79,127 113,176

Total 63.9% 4,735,051 5,559,818

108


8.0%

10.0%

12.0%

14.0%

16.0%

Percent of 25-34 Year Olds Living With ParentsU.S.: 1983 – 2019

Source: US Census Bureau Recession Periods

Children of the householder are not living with a spouse or unmarried partner, and are residing in the household of a parent. In CPS unmarried college students living in dormitories are counted as living in the parental home. 109


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

25-34 Year Olds Living With ParentsU.S.: 1983 – 2019

Source: US Census Bureau Recession Periods

Children of the householder are not living with a spouse or unmarried partner, and are residing in the household of a parent. In CPS unmarried college students living in dormitories are counted as living in the parental home.

Millions

110


It’s all about Affordability

111


Housing Opportunity Index2019 Q3

Source: NAHB/Wells Fargo

73.4 72.9 68.0 63.6 62.8 59.4 55.346.5

20.111.5

01020304050607080

112


Housing Opportunity Index1992-2019

Source: NAHB/Wells Fargo

2030405060708090

U.S.Greater Phoenix

113


Greater PhoenixHomeownership Rate


54.0%56.0%58.0%60.0%62.0%64.0%66.0%68.0%70.0%72.0%74.0%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

114


Greater Phoenix% of Renter Occupied 1-unit

Source: American Community Survey

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

115


Top selling subdivisions are mostly smaller-lot, lower-priced new home

communities- communities target entry-level and value–oriented buyers.

Source: Belfiore, KnowledgeBase Current and Future Market Insights 116


BalanceNumber of Borrowers

2017 Q1 2017 Borrower $1 and $5,000 8,547,500

28,250,100$5,000 and $10,000 7,425,400

$10,000 and $25,000 12,277,200

$25,000 and $50,000 8,609,700 8,609,700

$50,000 and $75,000 3,681,000

7,855,700

$75,000 and $100,000 1,612,600

$100,000 and $150,000 1,347,400

$150,000 and $200,000 604,900

$200,000+ 609,800

Student Debt Distribution Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

117


Student Loan or Mortgage PaymentOriginal Amount Monthly

PaymentPotentialMortgage

$200,000 $2,121 $458,052 $150,000 $1,591 $343,539 $100,000 $1,061 $229,026 $75,000 $795 $171,770 $50,000 $530 $114,513 $29,000 $308 $66,418 $25,000 $265 $57,257 $10,000 $106 $22,903

118

Assumptions: Monthly Payment

10 years5% interest rate

Potential Mortgage30-year mortgage 3.75% Interest rate


Why the outlook for new housing is Positive!

• Demand should remain strong and steady • Demographics for millennials are excellent • Low interests rates which make affordability reasonable• Existing homeowners

• Are staying put longer• Baby Boomers are not moving to the “Home”

• Inventory will remain low

119


Why the outlook for new housing is Positive!

Negatives (and Positives): • Shortage of affordable homes both existing and new• Doubling up – living with parents or multiple roommates • Fewer people moving• Baby Boomers aging in place• Continued costly regulation• Lack of sufficient construction labor• Student loans• Millennials starting saving late for a down payment• Misconception regarding FICO scores and down payment needed to buy a home

120


Which of the following milestones do millennials consider top priority?

Source: 2018 Homebuyer Insights Report

Milestone %

Being able to retire 80%

Owning a home 72%

Travelling the world 61%

Getting Married 50%

Having Kids 44%

121


First-time millennial buyers plan to buy…?Source: 2018 Homebuyer Insights Report

• 57% with a spouse or partner• 37% solo• 8% with a friend sibling or other family member

122


What consumers (millennials) cite as a motivation to buy for the first time?

Source: 2018 Homebuyer Insights Report

Motivation %

Having enough money saved 53%

Having a higher salary 41%

Getting Married 21%

Having Kids 9%

123


When do millennials plan to buy?Source: 2018 Homebuyer Insights Report

• 38% in the next 2 years

• 36% in the next 3-5 years

• 16% in the next 6+ years

124


Owning Versus RentingSource: 2019 Homebuyer Insights Report

Does owning a home make you happier than renting did?• 93% Yes• 7% No

Could you go back to renting after owning?• 17% Yes• 83% No

125


9.311.8

23.8

31.0

22.0

13.012.713.8

21.421.123.123.818.4

15.312.111.3

14.319.4

23.228.228.629.5

32.236.638.4

34.237.2

40.0

47.3

57.454.3

36.3

26.4

12.78.67.27.3

11.913.011.616.618.420.5

23.525.126.025.6

0

10

20

30

40

50

60

70

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

# Permits(000)

Single Family Permits Greater Phoenix 1975–2020*


*2019, 2020 and 2021 forecast is from Greater Phoenix Blue Chip 126


Apartments

127


Year Absorption (sf) Chg in Inventory (sf)2004 4,348 3,612 2005 (275) (4,181)2006 (6,431) (3,798)2007 (3,058) 1,797 2008 960 8,484 2009 5,151 8,443 2010 10,021 1,441 2011 3,326 1,224 2012 2,756 1,573 2013 4,584 3,830 2014 5,823 6,351 2015 6,140 6,804 2016 5,731 8,018 2017 6,179 10,033 2018 8,905 8,462 2019 9,650 8,497

Multi-Family Housing Market Source: PMHS; RealData, Berkadia CBRE

128


Apartment Units Delivered2000-2021

Source: RealData; Various Sources

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

129


-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Greater Phoenix Multi-Family Average Rent Percent Change a Year Ago

2004 – 2019* Source: RealData Inc.

Recession Periods

*Data through the fourth quarter 2019 130


6.2%

4.1%3.3%

2.8%

3.9%

6.1%

4.4%

6.1%6.9%

7.7%

10.1%10.6%

13.0%

14.1%13.4%

10.0%9.5%

8.0%

4.0%3.8%4.5%4.5%4.8%5.1%

5.9%

7.0%7.7%

9.5%10.0%

9.2%

7.5%6.9%

9.2%

11.3%

12.9%

11.2%

9.2%8.4%

7.3%

6.2%5.7%

5.2%5.8%5.7%5.4%5.6%5.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Multi-Family Year-End Vacancy RatesGreater Phoenix 1975–2020

Source: Various Sources

*2019, 2020 and 2021 Forecast from Greater Phoenix Blue Chip 131


Office, Industrial and Retail are a function of

Employment and population. a

Both of those look positive for 2020!

132


OFFICE

133


26.7%

22.8%24.0%

26.7%26.4%25.4%

22.7%

18.8%

14.8%

11.7%

9.5% 9.2% 9.5%10.0%9.9%

16.0%

18.8%18.3%

16.4%

12.6%11.1%

13.9%

19.1%

24.5%26.2%25.5%

23.9%22.4%

21.3%

19.4%

17.4%16.4%

15.2%14.1%13.9%13.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Office Space Year-End Vacancy RatesGreater Phoenix 1986–2021*

Source: CBRE

*2019, 2020 & 2021 are forecasts from CBRE. 134

Recession Periods


-1.00.01.02.03.04.05.0

New Supply Absorption Under Construction

(Millions)

Greater Phoenix Office MarketNew Supply versus Absorption

1998–2019*Source: CBRE

135*Data through Q3 2019


Greater Phoenix Office MarketSource: CBRE

136

Year Absorption (sf) Chg in Inventory (sf)

2005 3,119,293 7,987

2006 3,245,888 2,320,302

2007 1,500,704 4,905,374

2008 (603,112) 3,402,646

2009 (667,329) 1,798,415

2010 233,670 1,785,620

2011 1,857,433 3,370,694

2012 2,020,529 973,282

2013 1,721,366 (35,566)

2014 1,816,411 1,107,906

2015 3,704,039 3,763,828

2016 3,219,853 1,045,155

2017 2,839,559 1,912,217

2018 2,473,034 803,403

2019* 2,380,275 2,752,115 *All Leased multi-tenant space greater than 10,000 SF.

**Data through third quarter 2019


Current Office MarketSource: CBRE

• Over 91.6 million of sq. ft. • 13.1 million sq. ft. vacant

• Available by class• Class A 2.3 million sq. ft. • Class B 7.6 million sq. ft. • Class C 3.2 million sq. ft.

• 1.6 million sq. ft. under construction. • Under Construction by class

• Class A 1.3 million sq. ft. • Class B 0.2 million sq. ft.• Class C 0.0 million sq. ft.

137


INDUSTRIAL

138


-10.0

-5.0

0.0

5.0

10.0

15.0


(Millions)

Greater Phoenix Industrial Market1998–2019*

Source: CBRE



8.4%9.4%

11.1%

9.7%

12.8%13.2%

16.4%15.2%

14.6%

12.8%14.0%

14.8%13.6%

10.8%

7.4%6.6%

5.7%7.0%7.1%

8.1%7.4%

9.8%10.3%9.7%

8.5%

5.6%6.7%

8.4%

12.5%

16.1%

14.7%

12.4%

10.9%11.4%11.0%10.1%

8.0%6.8%6.5%6.3%6.6%7.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Industrial Space Vacancy RatesGreater Phoenix 1980 – 2020*

Source: CBRE

140

Recession Periods

*2019, 2020 & 2021 are forecasts from CBRE.


Greater Phoenix Industrial MarketSource: CBRE



2005 12,361,368 7,072,477

2006 6,179,533 7,829,959

2007 8,359,835 13,914,181

2008 629,838 13,467,215

2009 (4,649,352) 4,753,218

2010 4,455,097 2,451,202

2011 7,745,111 1,954,037

2012 7,405,168 3,358,724

2013 8,783,982 8,902,571

2014 6,214,680 6,791,313

2015 7,046,663 3,966,434

2016 9,497,677 5,136,644

2017 9,898,883 6,988,240

2018 9,781,257 8,966,852

2019* 8,082,653 5,895,215


Current Industrial MarketSource: CBRE

Market Area ExistingVacancy

RateUnder

Construction

Northeast Valley 13,613,728 3.6% 0

Southeast Valley 75,346,683 6.0% 2,321,476

Airport Area 76,691,921 6.2% 320,700

Southwest Valley 108,365,309 6.9% 9,094,459

Northwest Valley 50,053,307 5.1% 170,179

Market 324,070,948 6.1% 11,906,784



Current Industrial MarketSource: CBRE

143

2019* (millions)

Inventory 324.1Vacant 19.8Vacancy Rate 6.1%Under Construction 11.9

*Data through third quarter 2019


RETAIL

144


6.6%

8.9%

10.0%

11.8%

13.1%

14.2%13.5%

12.7%

11.1%

9.8%

8.7%7.9%7.5%

6.3%5.5%5.3%

6.6%7.3%7.4%

6.1%5.3%5.1%

6.2%

7.5%

11.4%12.2%12.2%

11.0%10.2%

9.6%9.1%8.9%

8.1%8.4%8.0%7.8%7.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Retail Space Vacancy RatesGreater Phoenix 1985–2020*

Source: CBRE**

*2019, 2020 & 2021 are forecasts from CBRE** Data prior to 1992 is from Grubb & Ellis 145

Recession Periods


-2.00.02.04.06.08.0

10.012.014.0


(Millions)

Greater Phoenix Retail Market1998–2019*

Source: CBRE



Greater Phoenix Retail MarketSource: CBRE



2005 6,708,155 6,248,789

2006 5,244,597 4,582,618

2007 9,409,985 11,104,865

2008 3,395,986 6,229,205

2009 (1,117,100) 4,405,985

2010 (75,352) 902,380

2011 (152,647) 24,543

2012 1,879,005 184,932

2013 1,579,202 (325,959)

2014 1,487,313 (49,225)

2015 1,150,192 164,859

2016 1,321,833 1,204,766

2017 1,601,498 580,776

2018 147,471 997,933

2019* 888,564 (46,485)


Current Retail MarketSource: CBRE

• Over 151.7 million of sq. ft. • 12.7 million sq. ft. vacant• 883,000 sq. ft. under construction.



Current Retail MarketSource: CBRE

Market Area Bldg. Sq. FtVacancy

RateUnder

Construction

Community Centers 20,455,254 9.7% 0

Freestanding Food 1,583,366 0.4% 0

Freestanding Non-Food 5,995,420 2.0% 160,000

Neighborhood Centers 42,014,113 7.7% 473,901

Power Centers 35,789,101 6.4% 78,296

Regional Centers 14,744,300 10.0% 0

Retail-Office 3,298,298 6.6% 121,215

Specialty 5,174,589 3.7% 50,000

Strip Centers 22,649,307 11.4% 0

Total 151,703,748 8.0% 883,412



.

Rate of growth likely to slow somewhat in 2020.

But 2020 should still be a good year.The underline economics are still

strong.

Overall Conclusions:


Greater Phoenix is doing well compared to virtually

everyone else

151


Greater Phoenix will be affected by the business

cycle

152


If growth just slows, Greater Phoenix is likely

remain in the top 5 metropolitan areas

153


The impact of a recession this time around is likely to be milder in Greater Phoenix

than in most places

154


Slowdown or RecessionThis is the place you want to

be.

155


For a quick analysis of important economic data released

each week, subscribe to the Monday Morning Quarterback

www.arizonaeconomy.com(Click on Subscribe to MMQ)

157

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