Real Estate Forecast 2015
No Place But Up Interest Rates Rents Prices Real Estate and the Economy Ted C. Jones, PhD Chief Economist Stewart Title Guaranty Company
Thank Heavens for Global Warming Think How Cold it Would be Without it Today. Ted C. Jones
Current Positives More Jobs Than Anytime in History YTD 58% of New Jobs Pay More Interest Rates Highly Affordable Significant Demographic Demand
Mega Themes Retail Boom Just Starting Demographics Kicking In Residential Renting vs. Owning Inflation Potential
Election -- Changes XL Pipeline -- NOPE! ThaT s IT
Washington, DC Stalemate
Gold Price Per Ounce Nominal (Not Inflation Adjusted) $1,800 $1,500 Down 34.8 Percent Since Sept 2011 $1,200 $900 $600 $300 $0 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13
U.S. Jobs Jobs (Millions) Seasonally Adjusted 141 139 137 1.99% Prior 12 Months 321,000 Net New Jobs in October 2.734 Million in Past 12-Months 135 133 131 129 '07 '08 '09 '10 '11 '12 '13 '14
U.S. Monthly Job Growth Jobs Thousands, Seasonally Adjusted 600 300 0-300 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 15-600 -900
U.S. Average Number of New Jobs Per Month Prior 12 Months Jobs - Thousands 300 200 100 0-100 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14-200 -300-400 -500-600 228
Cleveland-Elyria-Mentor Jobs Jobs (Thousands) Seasonally Adjusted 1,100 1,075 1.20% Prior 12 Months 12,400 Net New Jobs in Past 12-Months 1,050 1,025 1,000 975 '07 '08 '09 '10 '11 '12 '13 '14
Cleveland MSA Government Jobs Jobs (Thousands) Not Seasonally Adjusted 145 135 125 '07 '08 '09 '10 '11 '12 '13 '14
Cleveland MSA Manufacturing Jobs Jobs (Thousands) Not Seasonally Adjusted 150 140 130 120 110 '07 '08 '09 '10 '11 '12 '13 '14
Cleveland MSA Education & Health Jobs Jobs (Thousands) Not Seasonally Adjusted 200 190 180 170 '07 '08 '09 '10 '11 '12 '13 '14
Cleveland Q3 2014 Apts Industrial Retail Office Hotels
Q3 2014 Office Market
Q3 2014 Industrial
Q3 2014 Apartments Q3 2014
Q3 2014 Retail
Q3 2014 Hotels
U.S. Commercial Real Estate Sales Volume $ Billions Trailing 12 Months $600 $500 $400 Property and Portfolio Sales $2.5 Million and Up +9.77% $300 $200 $100 $0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Cleveland Commercial Real Estate Sales Volume $ Millions Trailing 12 Months $2,500 $2,000 Property and Portfolio Sales $2.5 Million and Up -16.9% $1,500 $1,000 $500 $0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Ohio Commercial Real Estate Sales Volume $ Billions Trailing 12 Months $8 $7 $6 $5 $4 $3 $2 $1 $0 Property and Portfolio Sales $2.5 Million and Up 6.8% '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
U.S. Commercial Segments Price and Performance Returns Percent 20% 10% 0% -10% '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-20% -30% Apartment Hotel Industrial Office Retail
Commercial Real Estate Value and Performance Returns Annual Average Return Since Property 2013 2000 Retail 12.29% 10.12% Industrial 11.79% 8.40% Apartments 10.03% 8.78% Office 9.52% 7.92% Hotels 7.48% 6.44% National Council of Real Estate Investment Fiduciaries
Offshore Buyers of US Commercial Real Estate Latest 24 Months Top Foreign Buyer Market Buyers Number Volume Market Properties $ Millions Canada 872 $23,401.0 China 80 $7,640.2 Norway 82 $6,504.7 Singapore 20 $4,758.1 Switzerland 102 $4,682.5 Germany 86 $4,616.4 Japan 58 $4,050.1 Israel 103 $3,784.5 Hong Kong 54 $3,101.5 Other 601 $25,717.5 Total 2,058 $88,256.4
Offshore Buyers of US Commercial Real Estate Latest 24 Months Top Foreign Buyer Market Destinations Number Volume Market Properties $ Millions Manhattan 110 $19,570.7 Los Angeles 74 $8,471.1 Boston 53 $6,192.6 Chicago 98 $4,373.1 Washington, DC 34 $4,290.6 San Francisco 51 $3,983.6 Hawaii 13 $2,990.1 Houston 77 $2,529.7 Dallas 84 $1,938.5 Other 1,464 $33,916.4 Total 2,058 $88,256.4
U.S. Existing Home Sales Sales -- Seasonally Adjusted Annualized Rate Millions 5.5 5.3 2013 2014 5.1 4.9 4.7 4.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec National Association of REALTORS
U.S. Existing Home Sales Median Price -- $ Thousands $230 $220 $210 $200 $190 $180 $170 $160 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec National Association of REALTORS
U.S. Existing Home Sales Sales Not Seasonally Adjusted - Thousands 600 2013 2014 500 400 300 200 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec National Association of REALTORS
U.S. Existing Sales Actual Forecast 2015 2014 Percent Change Actual Quarterly Sales Forecast Error Percent Sales Sequentially Y-O-Y Jan 281,000 303,246 22,246 7.9% 319,096 Feb 282,000 297,399 15,399 5.5% 337,719 Mar 355,000 365,940 10,940 3.1% 438,244 1,095,059-5.1% 19.3% Apr 422,000 371,533 (50,467) -12.0% 458,654 May 473,000 449,877 (23,123) -4.9% 488,953 Jun 506,000 498,939 (7,061) -1.4% 515,766 1,463,373 33.6% 4.5% Jul 494,000 489,292 (4,708) -1.0% 498,736 Aug 479,000 510,586 31,586 6.6% 515,480 Sep 436,000 412,861 (23,139) -5.3% 444,305 1,458,521-0.3% 3.5% Oct 443,000 442,422 (578) -0.1% 443,000 Nov 352,000 388,970 36,970 10.5% 388,970 Dec 358,824 358,824 1,190,794-18.4% 3.2% Total 4,889,889 8,065-0.2% Total 5,207,747 6.7% Ted s Latest Forecast
U.S. Existing Home Sales Recession Average Number of Sales Per Month Prior 12 Months Thousands 600-51.1% -19.4% -42.0% 500 400 300 200 Peak To Trough 100 0 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05 '07 '09 '11 '13 0
Peak-to-Trough Impact of Sales & Price -- Existing Home Sales Decline Period Sales Price* Net 1979-1982 -51.1% 12.3% -38.8% 1989-1991 -19.4% 10.7% -8.7% 2005-2009 -42.0% -20.7% -62.8% * +5% increase in home price = 3.68% increase in statutory premiums -5% decline in home price = 3.64% decline in statutory premiums
New Home Sales Thousands Seasonally Adjusted Annualized Rate 12-Month Moving Average 1,500 1,250 1,000 750 500 250 0 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 11 12 '13 '14
NE Ohio Home Sales Number Per Month 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
NE Ohio Existing Home Sales Average Number Per Month For Prior 12 Months 3,500 3,000 2,500 2,000 1,500 1,000 500 0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Northeast Ohio Existing Home Prices Median Price Prior 12 Month Average $175 $150 +2.0% $125 $100 $75 $50 $25 $0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14f Cleveland et al Residential Building Permits Number of Dwelling Units 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Single Family 2014 12-Months Ending November 2014 Multifamily 2,852 New Dwelling Units in 12-Months Ending November 2014 12,400 New Jobs = 4.35 Jobs Per New Dwelling
Money Supply M1 $ Billions Seasonally Adjusted $3,000 $2,500 $2,000 Currency, Checking Accounts, Demand Deposits Up 105 Percent Since January 2008 $1,500 $1,000 $500 $0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Federal Reserve Board of Governors
10-Year Treasury Rate
10-Year Treasury Rates Percent 6 5 4 3 2 1 0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
30-Year Residential Rates Expect 5.6 to 6 Percent in Next 12 Months 4.7% 4.5% 4.3% 4.1% 3.9% 3.7% 3.5% 3.3% 5- Jan 10- May 13- Sep 17- Jan 23- May 26- Sep 30- Jan 5- Jun 16- Oct
90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14f '15f 1-4 Family Residential Lending Purchase $ Billions Lending Volume $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Fannie Mae
90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14f '15f $2,700 $2,400 $2,100 $1,800 $1,500 $1,200 $900 $600 $300 $0 1-4 Family Residential Lending Refinance $ Billions Lending Volume Fannie Mae
U.S. Leisure & Hospitality Jobs Recession Millions of Jobs Seasonally-Adjusted 15 14.5 14 13.5 13 12.5 12 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 11.5
Cleveland MSA Leisure and Hospitality Jobs Jobs (Thousands) Not Seasonally Adjusted 98 95 93 90 88 85 '07 '08 '09 '10 '11 '12 '13 '14
U.S. Real Retail & Food Service Sales $ Billions Seasonally Adjusted $190 $180 $170 $160 $150 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Household Debt Service as a Percent of Household Disposable Income Percent 14 13 12 11 10 9 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 FED Board of Governors, BEA
U.S. Real Retail & Food Service Sales $ Billions Seasonally Adjusted $190 $180 $170 $160 $150 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Light Weight Vehicle Sales Millions Seasonally Adjusted Annual Rate 20 16 12 8 4 0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Bureau of Economic Analysis
Natural Gas Price Delivered to Commercial Customers vs. WTI Crude Oil Gas Per 1,000 Cubic Feet, Oil Per Barrel Natural Gas $30 Oil $120 $25 $20 $15 $10 $5 $0 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 $100 $80 $60 $40 $20 $0
Office Rents Past Four Years Urban Rents Increased 18.7% Suburban Rents Increased 3.3%
52 Percent of U.S. Households Receive Some Form of Government Benefits $$$$$$$$$s
2015 Economic Concerns Politicians Rather Than Leaders GSEs Rural Land Bubble Inflation & Interest Rates Government Revenues & Regulations Newton s Third Law of Motion
Telling It Like It Is Ted Twitter DrTCJ blog.stewart.com/ted stewart.com It is What it Is Ted C. Jones, PhD Chief Economist Stewart Title Guaranty Company