Economic Potential Drives Commercial Real Estate

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Boom Boom Boom What Drives Commercial Real Estate Today September, 2016 First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no

1 Boom Boom Boom What Drives Commercial Real Estate Today September, 2016 First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American Financial Corporation is a parent holding company that does business through its operating subsidiaries. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American Financial Corporation is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF First American Economics Economic Potential Drives Commercial Real Estate 1

Underperforming Potential- GDP Depth and Duration Real Quarterly GDP (SA, %, Recession Peak = ) 99 98 97 96 95 1 2 3 4 5 6 7 8 Year from Peak 1953 1957 1973 1981 1990 2007 Source: BEA, FRED, Q3 2009

2 Underperforming Potential- GDP Depth and Duration Real Quarterly GDP (SA, %, Recession Peak = ) Year from Peak Source: BEA, FRED, Q Underworked or Aging? Finding the New Normal Unemployment Rates and Labor Force Participation (%,SA) Recessions Source: BLS,CBO, FRED, Q Unemployed (LHS) 2

3 Capital Versus Labor- Who Gains the Growth Benefits? Real GDP Per Capita and Full Time Employed Median Earnings (SA, Q = ) Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Recessions Earnings Real GDP Source: BLS, BEA, FRED, Q Household Income Stagnating for Decades Median Household Income ($ Thousands, Annual) Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Recessions 2014 Current Dollars Nominal Source: BLS, Census, FRED,

4 Job Polarization- Job Creation is Skill Skewed Employment Count of Full Time Workers (Q = ) Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 Jul-10 Jul-12 Jul-14 Recessions Total Low Earning Total High Earning Source: BLS, Q Robot Maker or Wage Taker Median Usual Weekly Earnings (Inflation Adjust Q1 2016, Q = ) Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15 Recessions < $40k > $40k Source: BLS, Q

5 mf4 mf9 Economic Growth Drives Commercial Real Estate GDP And Commercial Property Price Index (CPPI trailing 12 months, Dec. 2000=) Mar-01 Sep-02 Mar-04 Sep-05 Mar-07 Sep-08 Mar-10 Sep-11 Mar-13 Sep-14 Mar-16 Recession US CPPI GDP Source: Real Capital Analytics, Inc., FRED, 2016 It ain t what you don t know that gets you into trouble. It s what you know for sure that just ain t so. - Mark Twain 5

6 Slide 9 mf4 mf9 remove decimal from y-axis labels, why does x-axis start with March-01 when indexed to for Dec Why q for the index start point? Can we us a quarter label. Center legend, Source date? mark fleming, 9/6/2016 or the first month in the quarter instead of last- see GDP charts. mark fleming, 9/6/2016

Demographics Drives Rental Demand Household Formation by Occupancy Type (Year-Over-Year Inventory Growth, %) 6 5 4 3 2 1 0-1 -2-3 -4 Jan-01

11 Millennials Like the Sun- Or the Low Living Cost and Tech Jobs Renter Occupied Households By Region (Index, Q4 2007=) 130 mf7 mf10 125 120

7 Demographics Drives Rental Demand Household Formation by Occupancy Type (Year-Over-Year Inventory Growth, %) Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Recession Rented Owned Rented Three Year Moving Average Source: Census Bureau, FRED, Q Millennials Like the Sun- Or the Low Living Cost and Tech Jobs Renter Occupied Households By Region (Index, Q4 2007=) 130 mf7 mf Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Recessions West South MidWest NorthEast Source: Census Bureau, FRED, Q

8 Slide 12 mf7 mf10 quarterly date formatting mark fleming, 9/6/2016 most recent? mark fleming, 9/6/2016

9 Over or Under Achieving GenY Homeownership Marriage 1.2 Income Children Source: Census Bureau, Education Employment Baby Boomers Generation X Millennials Educational Attainment Sees Improvement Nationally Educational Attainment by Degree Type (% of Total) No High School High School Degree Bachelor Degree MA or Higher Source: IPUMS CPS,

10 With Age Comes Wisdom Percent Share of Population with Bachelors Degree or Higher by Age Baby Boomers Gen X Millennials Source: ACS IPUMS, 2015 With Age Comes A Different Tenure Choice Percent of Renters Asian Black Hispanic White Source: IPUMS CPS,

11 First American Economics Seattle, Washington GDP Begins to Trail Upwards in Washington Percent Change (%) and Millions of Dollars ($), NSA Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Washington GDP Growth US GDP Growth Source: BEA, FRED,

12 Unemployment Sees a Steady Drop Unemployment Rates (SA, %) Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Recession Seattle National Source: BLS, FRED, Q Educational Attainment Sees Improvement in Washington Educational Attainment by Degree Type (% of Total) No High School High School Degree Bachelor Degree MA or Higher Source: IPUMS CPS,

13 Seattle Income Outpaces National Median Household Income ($ Thousands, Annual) Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Recessions Seattle 2014 Current Dollars Seattle Nominal National 2014 Current Dollars Source: IPUMS CPS, 2015 Rentership on the Rise Rentership Rates, % Seattle National Source: IPUMS CPS, Census, FRED,

14 First American s Office of Economic Research #FirstAmEcon 12

Has The Game Changed? Millennials, and the Economics of Housing

Has The Game Changed? Millennials, and the Economics of Housing January, 2017 First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes