Mortgage rates. United States. Percent year ARM. 30-year fixed. Sources: Mortgage Bankers Association, Moody s Economy.com.

Transcription

1 Mortgage rates United States Percent year ARM year fixed Sources: Mortgage Bankers Association, Moody s Economy.com.

2 S&P/Case Shiller index Home price index Index Jan. 2000=100, 3 month ending metro composite metro composite Sources: Standard & Poor's and Fiserv, Inc., Moody s Economy.com

3 Delinquency rate far more severe in this recession Percent of loans past due vs. those in foreclosure Percent Percent Percent in foreclosure (R) Percent of loans past due (L) Sources: Mortgage Bankers Association, Moody s Economy.com.

4 TED spread* Difference between 3 month Libor and 3 month Treasury bill rate Basis points *based on monthly average Sources: British Bankers' Association, Federal Reserve Board, Moody's Economy.com.

5 S&P 500 composite Price index S&P 500 Index Sources: S&P, IHS Global Insight.

6 Business equipment spending rises but not the case for structures Compound annual growth rate Equip. and software Structures Sources: Bureau of Economic Analysis, IHS Global Insight.

7 Unemployment rate remains at high levels Civilian unemployment rate Percent Sources: Bureau of Labor Statistics, IHS Global Insight.

8 Consumer Sentiment Index University of Michigan Index 1966Q1= Sources: Federal Reserve Bank of St. Louis, University of Michigan.

9 U.S. international trade Exports vs. Imports (goods and services) Percent change, year ago Exports Imports Sources: U.S. Census, IHS Global Insight.

10 GDP declines in postwar recessions By year of real GDP peak Percent change from peak to trough Sources: Bureau of Economic Analysis, IHS Global Insight.

11 Federal government net saving United States US$ billions, SAAR Sources: Bureau of Economic Analysis, IHS Global Insight.

12 Real gross domestic product United States Compound annual growth rate Sources: Bureau of Economic Analysis, IHS Global Insight.

13 Job declines in postwar recessions By year of employment peak Percent change from peak to trough Sources: Bureau of Labor Statistics, Moody s Economy.com.

14 GDP and job declines in postwar recessions By year of employment peak Percent change from peak to trough Real GDP Employment Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Moody s Economy.com, IHS Global Insight.

15 Current recovery not as strong compared to past recessions Percent change in real GDP 8 6 Total decline Gain in first year of recovery * Sources: J.P. Morgan, The Wall Street Journal. *-10 recovery is a WSJ poll estimate

16 Job declines by sector Peak-to-trough change (December 2007 August 2009) Percent change Sources: Bureau of Labor Statistics, Moody s Economy.com.

17 Job creation still a problem Rate of job creation and destruction Percent Job destruction Job creation Sources: Bureau of Labor Statistics, Moody s Economy.com

18 Small businesses account for nearly half the decline in job creation Change between 2007 and Q >1000 employees 27.1% Total change in job creation = -1,648 ths employees 48.5% employees 24.5% Sources: Bureau of Labor Statistics, Moody s Economy.com

19 Small businesses facing tight underwriting Net percent of lenders tightening C&I loans to small businesses Percent Sources: Federal Reserve, Senior Loan Officer Opinion Survey, Moody s Economy.com.

20 Small businesses mood still gloomy Small Business Optimism Index Index Sources: National Federation of Independent Business, Moody s Economy.com.

21 Lack of credit hurting small businesses Small Business Optimism Index Percent Net percent of firms reporting credit is harder to get Net percent of firms planning to add inventory Sources: National Federation of Independent Business, Moody s Economy.com.

22 Commercial and industrial loans falling rapidly Loans at all commercial banks Compound annual growth rate Sources: Federal Reserve Bank of St. Louis, Moody s Economy.com.

23 Layoffs falling, but hiring still uncertain Unemployment insurance claims Millions Thousands 7 Initial UI 800 claims (R) Continuing UI claims (L) Sources: Bureau of Labor Statistics, Moody s Economy.com

24 Unemployed waiting longer for work Percent of the unemployed who are out of work for 27 weeks or more Percent Sources: Bureau of Labor Statistics, Moody s Economy.com

25 Labor force participation rate United States Percent Actual Projection Potential* Sources: Congressional Budget Office, Bureau of Labor Statistics. *The potential rate is CBO s estimate of the labor force participation rate that would prevail if the economy was at full employment.

26 Job market turning the corner? Non-farm employment, United States Percent change, year ago 4.0 Difference from previous month Absolute change, ths. (R) % change (L) Sources: Bureau of Labor Statistics, IHS Global Insight.

27 Employment by sector United States Percent change, year ago Manufacturing Construction Financial Activities Sources: Bureau of Labor Statistics, IHS Global Insight.

28 Publicly-held debt to GDP ratio United States Ratio Actual Projection Sources: Congressional Budget Office, Office of Management and Budget.

29 Households shredding debt Financial obligations ratio Homeowners debt as percent of disp. income Percent Mortgage debt Consumer debt Sources: Federal Reserve Board, Moody s Economy.com

30 Household net worth beginning to rebound United States US$ trillions Sources: Federal Reserve Board, Moody s Economy.com.

31 Household savings As percent of disposable personal income Percent Sources: Federal Reserve, IHS Global Insight.

32 Consumer spending picks up Real personal consumption expenditures Percent change, year ago Sources: Bureau of Economic Analysis, IHS Global Insight..

33 Interest rates Fed funds rate vs. 10-year bond yield Percent year T- note yield Federal funds rate Sources: Federal Reserve Board, IHS Global Insight.

34 Yield curve 10-year government bond minus fed funds rate Percentage points Sources: Federal Reserve Board, IHS Global Insight.

35 S&P 500 composite Dividend yield Percent Sources: S&P, IHS Global Insight.

36 Auto sales improving but slowly Light vehicle sales Millions, SAAR Sources: Bureau of Economic Analysis, IHS Global Insight.

37 Retail sales turn higher but consumer credit continues to decline Percent change, year ago Retail sales (excl. autos) Consumer installment credit Sources: U.S. Census, Federal Reserve Board of Governors, IHS Global Insight, Moody s Economy.com.

38 Oil prices inch higher again West Texas Intermediate Crude Dollars per barrel Sources: Wall Street Journal, IHS Global Insight.

39 Headline CPI inflation turns positive again Overall vs. core Consumer Price Index Percent change, year ago Less food and energy Overall Sources: Bureau of Labor Statistics, IHS Global Insight.

40 Decline in consumer inflation rate indicative of excess capacity in labor market Percent change, year ago Average hourly earnings Core CPI Sources: Bureau of Labor Statistics, IHS Global Insight.

41 Unit labor costs United States Percent change, year ago Sources: Bureau of Labor Statistics, IHS Global Insight.

42 Productivity rises in the U.S. % change from previous year, 2009 U.S. EU-15 Hours worked GDP per hour GDP Employment Sources: The Conference Board, The Economist.

43 Non-defense capital spending (excl. aircraft) Value of new orders Percent change, year ago Sources: U.S. Census Bureau, IHS Global Insight.

44 National defense spending Expenditures and gross investment Percent change, year ago Sources: Bureau of Economic Analysis, IHS Global Insight.

45 Health care spending As share of GDP, among selected OECD countries* Rank Rank 1 United States 16.0% 11 Norway 8.9% 2 France 11.0% 12 Australia 8.7% 3 Switzerland 10.8% 13 Italy 8.7% 4 Germany 10.4% 14 Spain 8.5% 5 Austria 10.1% 15 United Kingdom 8.4% 6 Canada 10.1% 16 Japan 8.1% 7 Portugal 9.9% 9% 17 Ireland 7.6% 8 Denmark 9.8% 18 Korea 6.8% 9 Greece 9.6% 19 Czech Republic 6.8% 10 Sweden 9.1% 20 Mexico 5.9% Sources: OECD. *Based on latest available data, 2007 in most cases.

46 Recovery broadening to service sector ISM diffusion indices Diffusion Index Manufacturing Non- Manufacturing Sources: Institute for Supply Management, IHS Global Insight.

47 Corporate profits Profits before tax (without IVA and CCadj.) Percent change, year ago Sources: Federal Reserve Board, IHS Global Insight.

48 Trade balance Merchandise exports and imports US$ billions Imports Exports Balance Sources: U.S. Census, IHS Global Insight.

49 Exports to BRICs, Japan and EU Merchandise exports Percent change, year ago 40 BRICs 20 Japan 0-20 EU Sources: U.S. Census, IHS Global Insight.

50 Exports to newly industrialized countries and China Merchandise exports Percent change, year ago China Newly industrialized countries Sources: U.S. Census, IHS Global Insight.

51 Exports to NAFTA Merchandise exports Percent change, year ago Mexico 0-20 Canada Sources: U.S. Census, IHS Global Insight.

52 Foreign direct investment into U.S. Direct investment inflows US$ billions Sources: IMF, IHS Global Insight.

53 Foreign purchases of U.S. securities Net foreign purchases US$ billions Sources: Bureau of Economic Analysis, IHS Global Insight.

54 Weighted average exchange value of U.S. Dollar Major Currencies Index, In real terms Index (March 1973=100) Sources: U.S. Board of Governors of the Federal Reserve System, Moody s Economy.com.

55 Federal government net saving as percent of GDP United States Percent Sources: Bureau of Economic Analysis, IHS Global Insight.

56 Federal expenditures as percent of GDP United States Percent Sources: Bureau of Economic Analysis, IHS Global Insight.

57 State and local government revenues plummet United States Percent change, year ago Source: Bureau of Economic Analysis.

58 Construction put-in-place United States Percent change, year ago Nonresidential Residential Sources: U.S. Census, Moody s Economy.com.

59 Commercial real estate prices bust United States Index 2000Q4 = Commercial RE prices House prices Sources: Standard & Poor's and Fiserv, Moody's Investors Service, Moody s Economy.com.

60 Median existing single-family home price United States Percent change, year ago Sources: National Association of Realtors, Moody s Economy.com.

61 Single-family housing starts United States Millions of units Sources: U.S. Census Bureau, IHS Global Insight.

62 Median single-family home sales United States Percent change, year ago Existing homes New homes Sources: National Association of Realtors, Moody s Economy.com.

63 Housing inventory Existing, Single-family homes, United States Millions Months Available homes for 10 sale (L) Months supply (R) Sources: NAR, Moody s Economy.com

64 Percent of loans past due 30 days United States Percent Percent 3.8 Percent of loans past due 30 days (L) Percent in foreclosure (R) Sources: Mortgage Bankers Association, Moody s Economy.com.

65 Percent of loans past due 90 days United States Percent Percent Percent in foreclosure (R) Percent of loans past due 90 days (L) Sources: Mortgage Bankers Association, Moody s Economy.com.

66 Housing affordability United States Index Sources: U.S. Census, Moody s Economy.com

67 Mortgage principal and interest payments Monthly payment amounts US$ Sources: National Association of Realtors, Moody s Economy.com.

68 Homeownership rates United States Percent Sources: U.S. Census, Moody s Economy.com

69 Corporate income tax policy simulation Impact on employment Jobs for America study Absolute difference from baseline, employment in millions 2.5 Non-manufacturing Manufacturing Sources: U.S. Bureau of Labor Statistics, Milken Institute

70 R&D tax credit permanent and increased by 25 percent policy simulation Impact on employment Jobs for America study Absolute difference from baseline, employment in millions 0.60 Non-manufacturing Manufacturing Sources: U.S. Bureau of Labor Statistics, Milken Institute

71 Modernizing export controls on commercially available technology products policy simulation Impact on employment Jobs for America study Absolute difference from baseline, employment in millions 0.35 Non-manufacturing 0.30 Manufacturing Sources: U.S. Bureau of Labor Statistics, Milken Institute

72 Real GDP outlook United States Compound annual growth rate Milken Institute projection Sources: Bureau of Economic Analysis, IHS Global Insight, Milken Institute.

73 Employment outlook United States Percent change, year ago Milken Institute t projection Sources: Bureau of Labor Statistics, IHS Global Insight, Milken Institute.

74 Housing starts outlook United States Millions, annual rate Milken Institute projection Sources: U.S. Census, IHS Global Insight, Milken Institute.

75 Business investment in equipment and software outlook United States Compound annual growth rate Milken Institute projection Sources: Bureau of Economic Analysis, IHS Global Insight, Milken Institute.

76 Exports outlook United States Percent change, year ago Milken Institute projection Sources: Bureau of Economic Analysis, IHS Global Insight, Milken Institute.

77 Consumer sentiment outlook United States Index 1996Q1= Milken Institute projection Sources: Federal Reserve Bank of St. Louis, University of Michigan, IHS Global Insight, Milken Institute.

78 Interest rate outlook United States Percent year T-note yield Milken Institute projection Fed funds rate Sources: Federal Reserve Board, IHS Global Insight, Milken Institute.

79 Core CPI outlook United States Percent change, year ago 3.0 Milken Institute projection Sources: Bureau of Labor Statistics, IHS Global Insight, Milken Institute.

80 Real GDP outlook Milken Institute projection vs. consensus Percent change, year ago Milken Institute projection Consensus Sources: Bureau of Economic Analysis, IHS Global Insight, Milken Institute.

81 The U.S. under-exports Proportion of Manufacturing Production Exported. (Index: United States = 1.00) dex, United States = 1.00 In U.S W o r l d A v e r a g e = Times as Much as U.S. Brazil Japan India Turkey Spain China Mexico Italy UK Korea Canada France Germa any Ta aiwan 0 IF THE U.S. EXPORTED AT THE WORLD AVERAGE, U.S. MANUFACTURED GOODS EXPORTS WOULD DOUBLE, ELIMINATING THE TRADE DEFICIT

82 National export goal to double export in five years Worthy target, but achievement will need significant policy changes 2000 Illustrative View of Five-Year Goal To Double Exports Manufa actured Goods Exports, $Billions ACTUAL 15%/Year (Doubling in 5 Yrs.) Gap = $300 Bill. 10%/Yr. Up 60% (40-Yr. Trend) Optimistically, Based on Long-Term Export Trends, Will Need Minimum of $300 Billion Added Exports

83 Statutory corporate income tax rates OECD average vs. United States Tax rate 45 United States OECD average Sources: OECD, Milken Institute.

84 112 Quantity Index (Prerecession 110 Peak = 100) Consumer spending (1982 recession vs 2009 recesion) Quarters (1= first quarter of recession) Source: U.S. Department of Commerce and NAM estimate (current forecast)

85 Where REITs Are Today Due to the recapitalization of balance sheets, adoption of aggressive cost cutting measures, decreased capital spending, dividend cuts and/or payment in stock/cash combination, REITs emerged from one of the most difficult economic crises on record The public REIT market demonstrated its staying power as the undisputed preference among investors in commercial real estate REITs allow for immediate price discovery RMS lost almost 1,000 points, or 74%, from its 2007 high to 2009 low and has recovered approximately 65% in 2010 REITs raised approximately $35 billion of debt and equity in 2009 Near term debt maturities have been addressed The Moody s/real All Property Type Aggregate Index measured a 1.0% increase in commercial real estate prices in January of 2010, marking three consecutive months of price gains (1) Prices are down 24.3% over a year ago and 40.2% from the peak (1) (1) Source: Moody s Investors Service, March, 2010

86 Signs of Recovery? Retailers March comp chain store sales increased significantly as consumers are starting to spend again In the industrial sector, AMB s Industrial Business Indicator indicates that their industrial customers business has been expanding for the past several months In the multi-family sector, AvalonBay will start $400 million in development this year, betting demand for apartments will be back by 2012 In the hotel sector, Starwood Hotels & Resorts says it plans to build up its Sheraton Hotels & Resorts brand during the next three years with approximately 50 new hotels Investor sentiment towards commercial real estate is improving as evidenced by lack of redemption queues for institutional real estate funds Biggest Variable in Recovery Jobs!

87 However There Is Still Distress Tsunami is fast approaching Industry has $3.5 trillion of debt to deal with: Approximately $800 billion maturing just in 2010 and 2011 from the banks and CMBS market CMBS delinquency 30-day delinquency rate for CMBS loans was 7.61% in March, the highest in the history of CMBS (1) Kicking the can down the road due to complex factors in restructuring Equity required to adjust for the appropriate loan-to-value Small but improving CMBS market CMBS AAA spreads continue to tighten NOI decreases likely for most product types until we see job growth Losses need to be recognized (1) Source: TreppWire, April, 2010

88 M&A Stabilizing cap rates / Revert to mean? CEO confidence is rising Consolidation always occurs in a capital intensive, mature industry Opportunities will present themselves for well-capitalized companies but not overly abundant Blind pools or REIT wannabe s may be too plentiful Lots of money on the sidelines will it find a home?

89 Future of REITs Will have attractive access to capital / Will continue to delever Fundamentals will still be challenged / Stock prices have anticipated recovery / May be ahead of itself Limited new supply (development) will benefit existing operators M&A activity should pick up Institutional money wants to partner with first class operators who have skin in the game REITs have proven to be an important part of a balanced investment portfolio and are the most effective means for investing in commercial real estate Have we learned any lessons?

90 Distribution of National Health Expenditures by Type of Service, Other Personal Health Care 12.9% Other Health Spending 16.5% Hospital Care 30.7% Home Health Care, 2.8% Nursing Home Care, 5.9% Prescription Drugs 10.0% Physician/ Clinical Services 21.2% 2% Note: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc. Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (see Historical; National Health Expenditures by type of service and source of funds, CY ; file nhe.zip).

91 Obesity Trends* Among U.S. Adults (*BMI 30, or about 30 lbs. overweight for 5 4 person) No Data <10% 10% 14% 15% 19% 20% 24% 25% 29% 30% Source: CDC Behavioral Risk Factor Surveillance System

92 HealthCare Landscape Increasing Impact of Chronic Conditions Increasing Prevalence of Chronic Illness (in millions) Over 25% of young adults, roughly 50% of middle-aged adults and 69% of the elderly have one or more chronic conditions Source: Wu S, Green A. Projection of Chronic Illness Prevalence and Cost Inflation. The RAND Corporation/RAND Health; October 2000, Document PM-1144 Hoffman C, Rice D, Sung HY. Persons with chronic conditions: their prevalence and costs. JAMA. 1996; 276 (18):

93 Putting Off Care Because of Cost In the past 12 months, have you or another family member living in your household because of the cost, or not? Relied on home remedies or over the counter drugs instead of going to see a doctor Skipped dental care or checkups Percent saying yes 39% 35% Put off or postponed getting health care you needed 30% Skipped recommended medical test or treatment 28% Not filled a prescription p for a medicine 26% Cut pills in half or skipped doses of medicine Had problems getting mental health care 10% 21% Did ANY of the above 57% Source: Kaiser Family Foundation Health Tracking Poll (conducted March 10-15, 2010)

94 National Health Expenditures Per Capita $16,000 Historical Projected $14,000 $13,387 (2019) $12,000 $10,000 $8,047 (2009) $8,000 $6,000 $4,000 $2,000 $0 $2,814 (1990) Per Capita Projected Per Capita Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (Historical data from NHE summary including share of GDP, CY 1960-, file nhegdp08.zip; Projected data from NHE Projections , Forecast summary and selected tables, file proj2009.pdf).

95 Cumulative Changes in Health Insurance Premiums, Inflation, and Workers Earnings, % 131% 120% 100% 80% 60% 40% 20% 38% 28% 0% Note: Due to a change in methods, the cumulative changes in the average family premium are somewhat different from those reported in previous versions of the Kaiser/HRET Survey of Employer-Sponsored Health Benefits. See the Survey Design and Methods Section for more information, available at Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, (April to April). Health Insurance Premiums Workers' Earnings Overall Inflation

96 Physicians Slow To Adopt Connectivity More than 20% of physicians have a basic Electronic Medical Records system; about 6% have a fully functioning i EMR system* The average cost per physician to implement an EMR system is $44,000** Physicians from solo practices and those over 55 years of age are less likely to adopt EMR systems. *** 18% of nonusers do not have any plans to implement an EMR system in their practice. *** Source: * American Medical News, February, 2010, **Miller RH, West C, Brown TM, Sim I, Ganchoff C: The value of electronic health records in solo or small group practices. Health Aff 24(5): , 2005 *** Accenture Survey, March, 2010

97 Government Programs Cost Shift 1 Medicare & Medicaid Cost Shift as percent of Commercial Hospital & Physician Costs Cost Shift 15% 85% Source: Hospital & Physician Cost Shift, Milliman, December

98 Government Programs Cost Shift 2 We estimate the total annual cost shift in the United States from Medicare and Medicaid to commercial payers is approximately $88.8 billion We define the cost shift for each payer as the difference between the actual payment and the payment amount that would have resulted in an equal margin by payer Medicare & Medicaid Cost Shift in Billions Medicare e Medicaid d Commercial Hospital ($34.8) ($16.2) $51.0 Physician ($14.1) ($23.7) $37.8 Total ($48.9) ($39.9) $88.8 Source: Hospital & Physician Cost Shift, Milliman, December

99 Determinants of Health Access to Care Genetics 20% 10% 50% HEALTH BEHAVIORS Environment 20% Institute for the Future

100 85 percent MER Unintended Consequences

101 Source: PriceWaterHouseCoopers, October 2009 Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage 2010 Individual average premiums = ~$4, Absence of reform = ~$8, Reform becomes law = ~$9, Family average premiums = ~$13, Absence of reform = ~$22, Reform becomes law = ~$26,000