Macroeconomic Overview: The Sunbelt Continues To Shine. Michael Cohen Director of Advisory Services Property & Portfolio Research ULI SOUTH CAROLINA

Transcription

1 Macroeconomic Overview: The Sunbelt Continues To Shine Michael Cohen Director of Advisory Services Property & Portfolio Research

2 Macro Trends

3 A THREE-SPEED WORLD AND A RECESSION IN THE EUROZONE 4% Real GDP Growth 3% 2% 1% 0% (1%) U.S. United Kingdom Eurozone Japan World Trend 2013 Forecast 2014 Forecast 2015 Forecast Sources: Source: Bloomberg; PPR As of September 9, 2013

4 U.S. POISED FOR STRONGER GROWTH CONSUMPTION WILL DRIVE GROWTH 6% Contribution to GDP Growth 4% 2% 0% (2%) (4%) (6%) Consumption Business Investment Residential Investment Change in Inventories Government Net Exports Total GDP Sources: Moody's Analytics; BEA; PPR As of 13Q2

5 CONSUMPTION SHARE OF GDP AT ALL-TIME HIGH AND STILL RISING 73% Consumption as % of GDP Trailing 4-Quarter GDP Growth (Y/Y) 10% 71% 8% 69% 6% 67% 4% 65% 2% 63% 0% 61% (2%) 59% (4%) 57% (6%) Trailing 4-Quarter Year-Over-Year Real GDP Growth Consumption as % of Total GDP Sources: Moody's Analytics; PPR As of 13Q2

6 A TROUBLING TREND AVERAGE GROWTH DURING EXPANSIONS HAS SLOWED 6% 4% 2% Real Consumption & Employment Growth 4.9% 4.9% 4.4% 3.7% 4.1% 3.9% 2.7% 2.1% 0% (2%) (4%) (6%) (8%) 1958Q2-60Q1 Recession 1961Q1-69Q3 Recession 1970Q3-73Q4 Recession 1975Q2-80Q1 Recession 1982Q4-90Q2 Recession 1991Q2-01Q1 Recession 2001Q4-07Q4 Recession 2009Q3-13Q2 Average Annualized Real Consumption Growth During Expansions Consumption Change During Recessions Change in Total Employment Sources: Moody's Analytics; BEA; PPR As of 13Q2

7 RIGHT JOBS FOR WHO WE GOT WRONG JOBS FOR WHO WE WANT TO BE EMPLOYMENT BY SECTOR & INCOME LEVEL 600 Forecast Average Annual Employment Gains Through 2017 (Thousands) 500 Healthcare Svcs Leisure & Hosp (100) Admin. & Sup. Svcs Construction Government Prof. & Tech. Svcs Trade, Trans., Util. Financial Activities Educational Svcs Information Nat. Res. & Mining Manufacturing Mgmt of Comp. (200) (200) (100) Average Annual Employment Gains Since 2010 (Thousands) Lowest Income Level Highest Income Level Note: Size of shape signifies amount of annual average income Sources: Moody's Analytics; BLS; PPR As of 13Q2

8 BUSINESSES COULD BE SPENDING MORE CAPITAL SPENDING TO INTERNAL FUNDS RATIO, NONFINANCIAL CORPORATE 1.6 Capital Spending to Internal Funds Ratio Capital Spending to Internal Funds Ratio Recessionary Period Sources: Moody's Analytics; Federal Reserve Board of Governors; PPR As of 13Q1

9 PLENTY OF SLACK LEFT IN THE ECONOMY INDUSTRIAL CAPACITY UTILIZATION STILL BELOW 80% 95 Industrial Capacity Utilization Industrial Capacity Utilization Trend Sources: Moody's Analytics; PPR As of July 2013

10 PRIVATE CREDIT REBALANCING ALMOST COMPLETE PRIVATE SECTOR DEBT NEARLY BACK TO PRE-1998 TREND 350% Debt as % of GDP 300% 250% 200% 150% 100% 50% 0% Financial Business Non-Financial Business Home Mortgages Other Pre-1998 Trend Line Sources: Federal Reserve, Z.1 Flow of Funds; Moody's Analytics; PPR As of 13Q2

11 SHARE OF PUBLIC SECTOR DEBT RISING DEBT AS A SHARE OF GDP 400% Debt as % of GDP 350% 300% 250% 200% 150% 100% 50% 0% Financial Business Non-Financial Business Home Mortgages Other Government Pre-1998 Trend Line Sources: Federal Reserve, Z.1 Flow of Funds; Moody's Analytics; PPR As of 13Q2

12 MARKETS MOST AT RISK FROM FEDERAL CUTBACKS FEDERAL SPENDING AS % OF GMP 25% Federal Civilian and Military Spending as % of Gross Metro Product (2010) 20% 15% 10% 5% 0% Norfolk Honolulu Washington, D.C. San Diego San Antonio Baltimore Oklahoma City Jacksonville Richmond Seattle Inland Empire Kansas City Memphis Saint Louis U.S. Tampa Las Vegas New Orleans Atlanta Denver Salt Lake City Nashville Philadelphia Indianapolis Pittsburgh Cincinnati Columbus Sacramento Detroit Portland Miami Phoenix Chicago Boston Dallas - FW Milwaukee Austin Orlando San Francisco Raleigh Minneapolis New York Los Angeles Houston Hartford San Jose Charlotte Federal Military Spending as % of Gross Metro Product (2010) Federal Civilian Spending as % of Gross Metro Product (2010) Sources: Moody's Analytics; PPR As of 13Q2

13 THE AMERICAN TIGER EXPORTS AS % OF GDP AT POSTWAR HIGHS 14% Exports & Trade Deficit as % of GDP Trade Weighted US Exchange Rate % % 120 8% 110 6% 4% 100 2% 90 0% Exports as % of GDP Trade Deficit as % of GDP Weighted Average Exchange Value of U.S. Dollar (Index 1997=100, NSA) 80 Sources: Moody's Analytics; BEA; PPR As of 13Q2

14 WHOSE AFRAID OF BIG BAD EUROPE MASSACHUSETTS, INDIANA, MINNESOTA HAVE THE HIGHEST EXPORT EXPOSURE 30% Exports to Eurozone Countries as % of Total Exports, % Massachusetts 20% 15% 10% 5% Colorado Florida Maryland Minnesota Indiana North Carolina New Jersey Pennsylvania Georgia Virginia New York Illinois Tennessee California Arizona Ohio Washington Michigan Texas 0% 0.0% 0.5% 1.0% 1.5% 2.0% Exports to Eurozone Countries as % of State GDP, Bubble sizes denote size of the economy Source: Census Bureau; PPR

15 SUNBELT KEEPS GROWING POPULATION GROWTH BY METRO 4.5% 4.0% 3.5% Population Growth (2013Q2-17Q4) Past Laggards, Future Leaders Raleigh Consistent Leaders Las Vegas 3.0% Phoenix Austin 2.5% Dallas - FW Charlotte 2.0% Atlanta Houston San Diego 1.5% Miami Denver Orange County Seattle East Bay Washington, D.C. 1.0% LA Minneapolis San Francisco San Jose Boston Chicago 0.5% Philadelphia New York 0.0% Pittsburgh Detroit Chronic Laggards Past Leaders, Future Laggards (0.5%) (1%) 0% 1% 2% 3% 4% 5% Population Growth ( ) West South East Midwest Sources: Moody's Analytics; BLS; PPR As of 13Q2

16 TECH, ENERGY AND STRONG DEMOGRAPHICS EMPLOYMENT GROWTH BY METRO 4.0% Forecast Employment Growth (2013Q2-17Q4) Consistent Leaders 3.5% Denver Austin 3.0% Las Vegas Raleigh Dallas - FW Houston Atlanta Phoenix 2.5% Charlotte San Francisco Minneapolis LA East Bay San Jose 2.0% Philadelphia San Diego Miami Orange County Seattle Washington, D.C. New York Pittsburgh Boston 1.5% Chicago Detroit Consistent Laggards 1.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Employment Growth Past Two Years (2011Q2-13Q2) West South East Midwest Sources: Moody's Analytics; BLS; PPR As of 13Q2

17 Housing

18 THE HOUSING RECOVERY IS WELL UNDERWAY DOUBLE-DIGIT GROWTH AMONG HOME PRICE AND STARTS $250 Median Home Price (Thousands) Total Construction Employment & Starts (Thousands) 9,000 8,000 $200 $150 $100 $50 7,000 6,000 5,000 4,000 3,000 2,000 1,000 $ Total Construction Employment Existing Single-Family Home Price Real Existing Single-Family Home Price (Base=2005) Total Housing Starts Sources: Moody's Analytics; PPR As of 13Q2 0

19 MORTGAGE RATES UP BUT HOUSING AFFORDABILITY STILL NEAR ALL-TIME HIGH 9% Interest Rates Housing Affordability Index 200 8% 180 7% 160 6% 5% 4% 3% % 40 1% 20 0% Composite Housing Affordability Index, (Index US = 100, SA) FHLMC: 30-Year Commitment Rate - Fixed Rate - National, (%, NSA) FHLMC: 15-year fixed commitment rate, (%, NSA) Sources: Moody's Analytics; NRA; PPR As of July

20 HOME PRICES REBOUNDING ACROSS THE COUNTRY BUT HOUSING MARKET HEALTH VARIES BY METRO 30% 20% 10% 0% (10%) (20%) (30%) (40%) (50%) (60%) Home Price - Total Loss & Recovery Since Level Austin Houston Dallas Pittsburgh Denver San Francisco Raleigh Philadelphia San Jose Boston Seattle New York Orange County Washington, D.C. East Bay San Diego Atlanta Chicago Los Angeles Phoenix Miami Las Vegas Detroit Home Price - Current Relative to Level *Industry Location Quotient >1.1 Sources: Moody's Analytics; BLS; PPR As of 13Q2

21 ENERGY MARKETS ON TOP HOME PRICE TRENDS BY MARKET 30% 20% 10% 0% (10%) (20%) (30%) (40%) (50%) (60%) Home Price - Total Loss & Recovery Since Level Austin Houston Dallas Pittsburgh Denver San Francisco Raleigh Philadelphia San Jose Boston Seattle New York Orange County Washington, D.C. East Bay San Diego Atlanta Chicago Los Angeles Phoenix Miami Las Vegas Detroit Home Price - Current Relative to Level Metro Classification: Energy* *Industry Location Quotient >1.1 Sources: Moody's Analytics; BLS; PPR As of 13Q2

22 TECH METROS ALSO FARING RELATIVELY WELL HOME PRICE TRENDS BY MARKET 30% 20% 10% 0% (10%) (20%) (30%) (40%) (50%) (60%) Home Price - Total Loss & Recovery Since Level Austin Houston Dallas Pittsburgh Denver San Francisco Raleigh Philadelphia San Jose Boston Seattle New York Orange County Washington, D.C. East Bay San Diego Atlanta Chicago Los Angeles Phoenix Miami Las Vegas Detroit Home Price - Current Relative to Level Metro Classification: Tech* *Industry Location Quotient >1.1 Sources: Moody's Analytics; BLS; PPR As of 13Q2

23 HOUSING-BUST METROS OFFER THE GREATEST UPSIDE HOME PRICE TRENDS BY MARKET 30% 20% 10% 0% (10%) (20%) (30%) (40%) (50%) (60%) Home Price - Total Loss & Recovery Since Level Austin Houston Dallas Pittsburgh Denver San Francisco Raleigh Philadelphia San Jose Boston Seattle New York Orange County Washington, D.C. East Bay San Diego Atlanta Chicago Los Angeles Phoenix Miami Las Vegas Detroit Home Price - Current Relative to Level Metro Classification: Home Price - Total Recessionary Loss >40%* Sources: Moody's Analytics; BLS; PPR As of 13Q2

24 BRICKLAYERS, BROKERS, & BANKERS HOUSING-RELATED EMPLOYMENT GROWTH BY MARKET 8% 7% 6% 5% 4% 3% 2% 1% 0% (1%) (2%) Housing-Related Job Growth & Contribution by Industry (Y/Y) Jacksonville Salt Lake City Tampa San Jose Dallas Oklahoma Las Vegas Houston Norfolk Orange County Miami Inland Empire Nashville Denver Austin Milwaukee Baltimore Atlanta Phoenix Minneapolis Portland Charlotte Orlando Seattle Los Angeles Saint Louis San Francisco Sacramento Washington, D.C. New Orleans Cincinnati San Antonio East Bay Detroit Boston Construction* Manufacturing* Prof. & Bus. Svcs* *Includes only housing related subsectors: residential construction; manufacturing of household and kitchen goods; architecture, engineering, and interior design svcs; credit intermediation and real estate services; retail/wholesale trade of home furnishings garden products, and construction equipment. Sources: Moody's Analytics; BLS; PPR Financial Activities* Retail/Wholesale Trade* Total Housing-Related Job Growth (Y/Y) As of 13Q2

25 Healthcare

26 HEALTHCARE PRACTICALLY IMMUNE TO JOB LOSSES HEALTHCARE EMPLOYMENT, TOTAL EMPLOYMENT, AND GROWTH IN AGE 65+ COHORT 16% 15% 14% 13% 12% 11% 10% Population: Ages 65+ (%) Employment Index (1982) Population: Ages 65+ (%) Healthcare Employment Index (1982) Total Employment Index (1982) Sources: Moody's Analytics; PPR As of 13Q2

27 POTENTIAL SURGE IN HEALTHCARE DEMAND FROM OBAMACARE UNINSURED AMERICANS UNDER THE AGE OF 65 19% Uninsured Rate Number Uninsured (Thousands) 55,000 18% 50,000 17% 45,000 16% 40,000 15% 35,000 14% 30,000 13% 25,000 12% Number Uninsured - Age: Under 65 Uninsured Rate - Age: Under 65 20,000 Sources: U.S. Census Bureau (most recent data as of 2011); PPR As of 2011

28 PENT-UP DEMAND FOR HEALTHCARE IN THE SUN BELT UNINSURED RATES BY METRO 40% Uninsured Rate: Residents Less than 65 Years Old 35% 30% 25% 20% 15% 10% 5% 0% Miami Fort Lauderdale Houston Palm Beach LA Las Vegas Dallas - FW Inland Empire Orlando Tampa San Antonio Atlanta New Orleans Austin Orange County Oklahoma City San Diego Phoenix Salt Lake City Charlotte East South Midwest West Sources: U.S. Census Bureau (most recent data as of 2011); PPR As of 2011

29 WEALTHY SENIORS DRIVE HEALTHCARE DEMAND SENIOR POPULATION, RETIREMENT INCOME, AND RANKED MEDICAL SCHOOLS Average Annual Retirement Income ($ Thousands) Long Island San Francisco East Bay Very Wealthy Seniors San Diego Palm Beach County Baltimore San Jose Orange County Stamford Atlanta Los Angeles Aus tin Chicago Northern New Jersey New York Raleigh Denver Seattle Lots of Wealthy Seniors Portland Boston Phoenix Dallas - Fort Worth Nashville Saint Louis Houston Salt Lake City Minneapolis Detroit Philadelphia Tampa Cleveland Oklahoma City Miam i Indianapolis Milwaukee Pittsburgh , , , , ,000 1,100,000 1,300,000 Population of Residents Aged Color Coding = Metros Ranking For Depth of Top Ranking Medical Schools Bottom Rank Sources: American Communities Survey, ESRI, US News & World Report, PPR Top Rank As of 13Q2

30 Manufacturing

31 DON'T CALL IT A COMEBACK BUT MANUFACTURING HAS ADDED 507,000 JOBS DURING THE RECOVERY (200) (400) (600) (800) Change in Manufacturing Employment & Real Manufacturing Output Total Manufacturing Employment (Millions) (1,000) Change in Manufacturing Employment (Thousands, Y/Y) Total Manufacturing Employment (Thousands) Real Manufacturing Output Sources: Moody's Analytics; PPR As of 13Q2 0

32 SOME METROS HAVE SEEN A SURGE IN MANUFACTURING MANUFACTURING EMPLOYMENT GAINS SINCE RECESSIONARY LOW Source: Moody s Analytics; PPR As of 13Q2

33 Energy

34 CHASING AFTER THAT LIQUID GOLD ENERGY EMPLOYMENT & FIXED INVESTMENT IN OIL AND GAS EXTRACTION 300 Energy Employment & Investment (Index: 2005 = Base) Energy Employment Index (2005=Base) Quantity Index: Private Nonresidential Fixed Assets: Investment in Mining and Oilfield Machinery for Oil and Gas Extraction Industry, (Index 2005 = 100) Sources: Moody's Analytics; OCC; OTS; PPR As of 13Q2

35 GULF COAST REGION DOMINATES ENERGY OUTPUT NATURAL RESOURCES AND MINING CONTRIBUTION TO GSP (2011) 2011 Energy Output (Mil. Chained 2005$) 0-2,100 2,100-5,900 5,900-14,700 14,700-25,500 25,500+ Sources: Moody s Analytics; PPR As of 2011

36 BUT SMALLER MARKETS HAVE BEEN GROWING FAST ANNUAL CHANGE IN NATURAL RESOURCES AND MINING OUTPUT Avg Annual Energy Growth <0% 0-10% 10%+ Sources: Moody s Analytics; PPR As of 2011

37 Risks: Everything Isn t Picture-Perfect

38 LOAN PERFORMANCE: INVERSE TO CLIMATE TOTAL DOUBTFUL AND NON-PERFORMING LOANS BY COUNTRY 20 Doubtful and Nonperforming Loan % USA* Germany France Spain Portugal Italy Cyprus Greece Hungary Sources: PPR; ECB; FDIC As of 2012 *Doubful Not Included

39 THE TREND IS NOT YOUR FRIEND TOTAL UNEMPLOYMENT RATE BY COUNTRY AND EUROZONE AVERAGE 30 Unemployment Rate Q2 10Q2 11Q2 12Q2 13Q2 Ireland Greece Spain Italy Portugal Eurozone Sources: Oxford Economics; PPR As of 13Q2

40 OIL: THE SAND IN THE GEARS OIL SHOCKS HAVE PRECEDED EVERY U.S. RECESSION SINCE % Real GDP Growth Real Oil Price $16 6% $14 $12 4% $10 2% $8 0% $6 $4 (2%) $2 (4%) Real GDP Recessions Real Oil Price Oil Shocks (40% increase over 2 Years) Sources: Source: Bloomberg; Moody's Moody s Analytics; PPR As of 13Q2 $0

41 IMF: U.S. WON'T MANAGE THE DEFICIT ADMINISTRATION: WE'RE GOOD! 120% Receipts and Outlays (% of GDP) Budget Deficit (% of GDP) 4% 110% 2% 100% 0% 90% (2%) 80% (4%) 70% (6%) 60% (8%) 50% (10%) 40% Deficit (% of GDP) - U.S. Treasury Deficit (% of GDP) - CBO Deficit (% of GDP) - IMF Debt (% of GDP) (12%) Sources: Moody's Analytics; U.S. Treasury; CBO; IMF; PPR As of 13Q2

42 TREASURIES FOR SALE! TREASURY PURCHASES BY CHINA AND THE FED HAVE SLOWED 12-Month Trailing Average Monthly Change, 10-Year Treasury Rate 2.0 US$ Annual Billions Change, $US B 10-Year Treasury Yield 6% 1.5 5% 1.0 4% 3% 0.5 2% 0.0 1% (0.5) Fed Ownership of U.S. Government Securities China Foreign Reserves 10-Year Treasury Yield (and implied forward forecast) Interest Rate Shock Scenario Sources: Bloomberg; PPR As of 13Q2 0%

43 U.S. LOSES THREE MILLION JOBS INTEREST RATE SHOCK SCENARIO LABOR MARKET IMPACT 4% Job Growth (Y/Y) 3% 2% 1% 0% (1%) (2%) (3%) (4%) (5%) (6%) Base Case Interest Rate Shock Scenario Sources: Moody's Analytics; PPR As of 13Q2

44 CAP RATES RISE BY 130 BASIS POINTS INTEREST RATE SHOCK SCENARIO CAP RATE IMPACT 9.5% Cap Rate Assumptions 9.0% 8.5% 8.0% 7.5% 7.0% Base Case Interest Rate Shock Source: PPR As of 13Q2

45 ANNUAL RETURNS 240 BASIS POINTS BELOW BASE CASE INTEREST RATE SHOCK SCENARIO IMPACT ON TOTAL RETURNS 30% Derived Transaction Returns (DTRs*) 25% 20% 15% 10% 5% 0% (5%) (10%) (15%) (20%) (25%) Base Case Interest Rate Shock Source: PPR *Based on a market cap weighted aggregate of Apartment, Office, Retail, and Warehouse Total Returns As of 13Q2

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