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THE ECONOMIC OUTLOOK FOR REAL ESTATE INVESTORS AND DECISION MAKERS Dr. Mark G. Dotzour Chief Economist Real Estate Center at Texas A&M University College Station, Texas

Read Dotzour blogs at http://blog.recenter.tamu.edu/


THE OUTLOOK FOR THE ECONOMY The economy began to rebound 3Q 2011  Home sales, car sales and retail sales rebound  Real estate construction is growing again  Residential housing markets stabilizing  More people working  Five years of pent up demand  Americans have credit capacity again 


JOB OPENINGS IN AMERICA LOOKING FOR WORKERS Total Job Openings Construction Manufacturing Trade, Transportation, Utilities Professional & Business Services Health Care Leisure & Hospitality Government Source: Bureau of Labor Statistics BLS release on Jan 10, 2013

3,676,000 93,000 276,000 720,000 584,000 643,000 479,000 355,000


JOB OPENINGS IN AMERICA LOOKING FOR WORKERS Total Job Openings

3,925,000

Construction

116,000

Manufacturing

259,000

Trade, Transportation, Utilities

608,000

Professional & Business Services

722,000

Health Care

673,000

Leisure & Hospitality

510,000

Government

440,000 Source: Bureau of Labor Statistics BLS release on April 9, 2013


DE-LEVERAGING OVER !!


HOUSEHOLD NET WORTH RECOVERING AFTER STOCK MARKET RALLY


HOUSEHOLDS HAVE LOST ALMOST $8 TRILLION IN REAL ESTATE EQUITY


LIGHT WEIGHT VEHICLE SALES: AUTOS & LIGHT TRUCKS


HOUSEHOLD DEBT SERVICE PAYMENTS AS A PERCENT OF DISPOSABLE PERSONAL INCOME


THE BUSINESS SECTOR


CORPORATE PROFITS (WITH INVENTORY VALUATION ADJUSTMENT & CAPITAL CONSUMPTION ADJUSTMENT)

$1,600 $1,400

Billions

$1,200 $1,000 $800 $600 $400 $200 Jan-12

Jan-10

Jan-08

Jan-06

Jan-04

Jan-02

Jan-00

Jan-98

Jan-96

Jan-94

Jan-92

Jan-90

Source: Department of Commerce


THE  ECONOMY:  PROPRIETOR’S  INCOME


SMALL BUSINESS OUTLOOK “PLANNING  TO  HIRE  PEOPLE  IN  THE  NEXT  THREE  MONTHS” 25

Net % of Respondents

20 15 10 5 0 -5 -10 Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

National Federation of Independent Business

Updated 4/12/13 Haver


MAYBE BIGGEST SURPRISE IN 2013 

Home price appreciation  Significant

change in buyer psychology  Significant easing of mortgage credit  Unprecedented low levels of inventory  Homebuilders constrained to respond


UNCERTAINTY IN APRIL, 2012 SLOWED ECONOMIC ACTIVITY REST OF THE YEAR           

What is my marginal income tax rate? What is my capital gains tax rate? What is my tax rate on dividends? What will my estate tax look like? How much will my health care cost in 2014? Will runaway inflation happen in the US? Will the U.S. dollar collapse? When will the Fed let rates to increase? When will the housing market stabilize? Will the government extend the debt ceiling? Will we go over the fiscal cliff?


INVESTOR RESPONSE TO UNCERTAINTY IN 2012 Buy gold  Buy TIPS  Buy apartments  Buy grain producing cropland  Buy junk bonds  Buy treasury bonds 


UNCERTAINTY IN APRIL, 2013 STARTING TO SLOW THE ECONOMY AGAIN           

What is my marginal income tax rate? What is my capital gains tax rate? What is my tax rate on dividends? What will my estate tax look like? How much will my health care cost in 2014? Will runaway inflation happen in the US? Will the U.S. dollar collapse? When will the Fed let rates to increase? When will the housing market stabilize? Will the government extend the debt ceiling? Will we go over the fiscal cliff?


HEALTH CARE UNCERTAINTY In a private presentation to brokers late last month, United Health Group Inc., the nation's largest carrier, said premiums for some consumers buying their own plans could go up as much as 116%, and small-business rates as much as 25% to 50%. ‌‌ raise coverage prices for younger, healthier consumers, while reining them in for older, sicker ones. WSJ March 22, 2013


HEALTH CARE UNCERTAINTY Aetna in a presentation last fall to its national broker advisory council, suggested rates on individual plans not being grandfathered under the law could go up 55%, on average, and gave a figure of 29% for small business rates. An official with Blue Cross & Blue Shield of North Carolina told a gathering of brokers last week that individual premiums could go up by as much as 40% to 50%, according to brokers who were present.


HEALTH CARE UNCERTAINTY

The nation's largest movie theater chain has cut the hours of thousands of employees‌ Regal Entertainment Group, which operates more than 500 theaters in 38 states, last month rolled back shifts for non-salaried workers to 30 hours per week, putting them under the threshold at which employers are required to provide health insurance.


HEALTH CARE UNCERTAINTY Colleges Cutting Faculty to 30 Hours to Avoid the ACA The four schools are : Palm Beach State College Community College of Allegheny County Youngstown State University Kean University Thirty hours could become the new work week.


INFLATION OUTLOOK


THE ECONOMY: WAGE RATES INCREASE SLOWLY


HUGE MONETARY BASE COULD FUEL INFLATION


VELOCITY AT HISTORIC LOW LEVELS


ACTUAL MONEY SUPPLY BARELY INCREASING


INFLATION RATE: CPI REMAINS LOW DESPITE FOOD/FUEL


FED’S EXIT STRATEGY Stop buying new mortgages  Stop buying more US Treasury debt  Stop re-investing principal from mortgages held in their portfolio (runoff)  Raise the Fed Funds rate  Raise the interest rate paid to banks for excess reserves  Start selling mortgages held in portfolio  Start selling Treasuries held in portfolio 


2013 Economic Outlook for Real Estate