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. #FirstAmEcon @mflemingecon 2016 2015 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 Underworked or Aging? Finding the New Normal Unemployment Rates and Labor Force Participation (%,SA) 18 68 16 14 12 10 8 6 4 66 64 62 60 2 0 58 Recessions Source: BLS,CBO, FRED, Q2 2016 4 Unemployed (LHS) 2
Capital Versus Labor- Who Gains the Growth Benefits? Real GDP Per Capita and Full Time Employed Median Earnings (SA, Q1 1979 = ) 180 160 140 120 80 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, Q2 2016 Household Income Stagnating for Decades Median Household Income ($ Thousands, Annual) 60 55 50 45 40 35 30 25 20 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, 2014 6 3
Job Polarization- Job Creation is Skill Skewed Employment Count of Full Time Workers (Q3 2000 = ) 130 120 110 90 80 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, Q2 2016 Robot Maker or Wage Taker Median Usual Weekly Earnings (Inflation Adjust Q1 2016, Q3 2000 = ) 110 105 95 90 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, Q2 2016 4
mf4 mf9 Economic Growth Drives Commercial Real Estate GDP And Commercial Property Price Index (CPPI trailing 12 months, Dec. 2000=) 210 170 130 90 50 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
Slide 9 mf4 mf9 remove decimal from y-axis labels, why does x-axis start with March-01 when indexed to for Dec 2000. Why q4 2000 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 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, Q2 2016 11 Millennials Like the Sun- Or the Low Living Cost and Tech Jobs Renter Occupied Households By Region (Index, Q4 2007=) 130 mf7 mf10 125 120 115 110 105 95 90 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, Q2 2016 6
Slide 12 mf7 mf10 quarterly date formatting mark fleming, 9/6/2016 most recent? mark fleming, 9/6/2016
Over or Under Achieving GenY Homeownership 1.6 1.4 Marriage 1.2 Income 1 0.8 Children Source: Census Bureau, 2013-2014 13 Education Employment Baby Boomers Generation X Millennials Educational Attainment Sees Improvement Nationally Educational Attainment by Degree Type (% of Total) 80 60 40 20 0 1992 1997 2002 2007 2012 No High School High School Degree Bachelor Degree MA or Higher Source: IPUMS CPS, 2015 7
With Age Comes Wisdom Percent Share of Population with Bachelors Degree or Higher by Age 45 40 35 30 25 20 15 10 5 0 20 25 30 35 40 45 50 55 60 65 Baby Boomers Gen X Millennials Source: ACS IPUMS, 2015 With Age Comes A Different Tenure Choice Percent of Renters 90 80 70 60 50 40 30 20 10 0 25 35 45 55 65 Asian Black Hispanic White Source: IPUMS CPS, 2015 8
First American Economics Seattle, Washington GDP Begins to Trail Upwards in Washington Percent Change (%) and Millions of Dollars ($), NSA 8 6 4 2 0-2 -4 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, 2015 24 9
Unemployment Sees a Steady Drop Unemployment Rates (SA, %) 12 10 8 6 4 2 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Recession Seattle National Source: BLS, FRED, Q2 2016 25 Educational Attainment Sees Improvement in Washington Educational Attainment by Degree Type (% of Total) 80 60 40 20 0 1992 1997 2002 2007 2012 No High School High School Degree Bachelor Degree MA or Higher Source: IPUMS CPS, 2015 10
Seattle Income Outpaces National Median Household Income ($ Thousands, Annual) 80 70 60 50 40 30 20 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, % 43 41 39 37 35 33 31 29 27 25 23 1980 1985 1990 1995 2000 2005 2010 2015 Seattle National Source: IPUMS CPS, Census, FRED, 2015 11
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