Has The Game Changed? · Has The Game Changed? IREM/CCIM 12th Annual Economic Forecast January...
Transcript of Has The Game Changed? · Has The Game Changed? IREM/CCIM 12th Annual Economic Forecast January...
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Elliott D. Pollack & Company
7th Inning Stretch:
Has The Game Changed?
IREM/CCIM
12th Annual Economic Forecast
January 24th, 2019
Presented By:
Elliott D. Pollack
CEO, Elliott D. Pollack & Company
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Elliott D. Pollack & Company
Is the party Over?
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Elliott D. Pollack & Company 3
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Elliott D. Pollack & Company
Are we near the edge?
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Elliott D. Pollack & Company 5
Not Yet!
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Elliott D. Pollack & Company
Will the economy continue
to grow?
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Elliott D. Pollack & Company
Yes!
7
But, the expansion’s
momentum is decelerating.
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Elliott D. Pollack & Company
Recovery is Old but still going
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Elliott D. Pollack & Company
Current Economy
➢ Tax cuts helped a lot
➢ Continued fiscal stimulus
➢ Significant Trade war unlikely
➢ Strong plant and equipment spending
➢ Few obvious significant imbalances-yet
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Elliott D. Pollack & Company
Too early to tell how much
of a slowdown it will be.5
It is likely to be mild.5
Psychology has turned
less positive/negative.
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Elliott D. Pollack & Company
A Recession will happen
but not very soon.
Right now imbalances
seem relatively mild.
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Elliott D. Pollack & Company
But things can change quickly!
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Elliott D. Pollack & Company
Where do we stand in the
cycle?
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Elliott D. Pollack & Company
Strong Growth in Demand
Strong Labor Market
Lower Unemployment
Higher Wages
Higher Rates of Inflation
Fed Tightening
Credit Affordability
Credit Availability
Slower Growth
Fewer Jobs14
Credit Constraints
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Elliott D. Pollack & Company
Quantitative
Easing
Quantitative
Tightening
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Elliott D. Pollack & Company
Quantitative Easing
Versus
Quantitative Tightening
• Slowly restricting credit
• Bad for asset prices
• Higher short term rates
• Higher long term rates
• Flattening of the Yield Curve
• Cap rates increase
• Companies delay investment
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Elliott D. Pollack & Company
Where do we stand?
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Elliott D. Pollack & Company
U.S. Leading Indicators1970 – 2018*
Source: The Conference Board
Recession Periods
40
50
60
70
80
90
100
110
120
*Data through November 2018 18
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Elliott D. Pollack & Company
Consumer Confidence
1978 – 2018* Source: The Conference Board
Recession Periods
20
30
40
50
60
70
80
90
100
110
120
130
140
150
*Data through December 2018 19
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Elliott D. Pollack & Company
Recession Probability1959 – 2019*
Source: Federal Reserve Bank of New York
Recession Periods
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
*Data through December 2019 20
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Elliott D. Pollack & Company
Recession Periods
50%
53%
56%
59%
62%
65%
*Data through December 2018
Employment-to-Population Ratio1948 – 2018*
Source: Bureau of Labor Statistics
21
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Elliott D. Pollack & Company
U.S. Consumer Price Index
Annual Percent Growth
1970 – 2018* Source: Bureau of Labor Statistics Recession Periods
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
*Data through December 2018 22
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Elliott D. Pollack & Company
Personal Consumption Expenditures (excluding food and energy):
Implicit Price Deflator
Annual Percent Growth
1970 – 2018* Source: Bureau of Labor Statistics Recession Periods
-2%
0%
2%
4%
6%
8%
10%
12%
*Data through November 2018 23
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Elliott D. Pollack & Company
14%
15%
16%
17%
18%
19%
20%
198
0 Q
1
198
1 Q
1
198
2 Q
1
198
3 Q
1
198
4 Q
1
198
5 Q
1
198
6 Q
1
198
7 Q
1
198
8 Q
1
198
9 Q
1
199
0 Q
1
199
1 Q
1
199
2 Q
1
199
3 Q
1
199
4 Q
1
199
5 Q
1
199
6 Q
1
199
7 Q
1
199
8 Q
1
199
9 Q
1
200
0 Q
1
200
1 Q
1
200
2 Q
1
200
3 Q
1
200
4 Q
1
200
5 Q
1
200
6 Q
1
200
7 Q
1
200
8 Q
1
200
9 Q
1
201
0 Q
1
201
1 Q
1
201
2 Q
1
201
3 Q
1
2014 Q
1
201
5 Q
1
201
6 Q
1
201
7 Q
1
201
8 Q
1
Financial Obligation*
1980 – 2018**Source: Federal Reserve
* Household Financial Obligations as a percent of Disposable Personal Income
**Data through the third quarter 2018 24
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Elliott D. Pollack & Company
Federal Surplus or Deficit
FY 1989-2019*Source: U.S. Office of Management and Budget
25
-$1,600,000
-$1,400,000
-$1,200,000
-$1,000,000
-$800,000
-$600,000
-$400,000
-$200,000
$0
$200,000
$400,000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
(Millions)
George
H. Bush Clinton
George
W. Bush Obama
Recession Periods
Trump
*FY 2019 Data through November 2018
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Elliott D. Pollack & Company
What keeps me up at night?
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Elliott D. Pollack & Company
Recession Periods
2,000
3,000
4,000
5,000
6,000
7,000
8,000
*Data through November 2018 27
Job Openings2001 – 2018*
Source: Bureau of Labor Statistics(1000’s)
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Elliott D. Pollack & Company
Recession Periods
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
Employment
Labor Force
*Data through December 2018 28
Employment Versus Labor Force Growth1970– 2018*
Source: Bureau of Labor Statistics(1000’s)
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Elliott D. Pollack & Company
Employment Cost Index2002-2018*
Source: Bureau of Labor Statistics
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
29*Data through third quarter 2018
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Elliott D. Pollack & Company 30
Bear Markets
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Elliott D. Pollack & Company
Recession Periods
0
5
10
15
20
25
30
35
40
45
50
Cyclically Adjusted PE Ratio**1950 – 2019*
Source: Robert Shiller, Yale University
31*Data through January 2019
**Price earnings ratio is based on average inflation-adjusted earnings from the
previous 10 years, known as the Cyclically Adjusted PE Ratio
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Elliott D. Pollack & Company
Stock Market is a bad Predictor of Recessions:
Corrections since WWIISource: Goldman Sachs
S&P 500
Corrections
37
Recession
12
No Recession
25
A Bear Market is a decrease of 20% or More in Stocks prices
No Bear Market
5
Bear Market
7
Bear Market
4
No Bear Market
21
Correction:
decrease of
10% on the
Market
32
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Elliott D. Pollack & Company
Treasury Spread 1977 – 2019*
Source: Federal Reserve Bank of St. LouisRecession Periods
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
10 year minus 2 year
*Data through January 2019 33
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Elliott D. Pollack & Company
Lag BetweenYield Curve Inversion & Start of Recession
Source: Federal Reserve Bank of St. Louis; Federal Reserve Bank of New York
Start of Recession
Lag Time (months) from
First Inversion
10yr minus 2yr
Jan-80 16
Jul-81 10
Jul-90 18
Mar-01 33
Dec-07 22
34
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Elliott D. Pollack & Company
Pending Home Sale Index
2001-2018* Source: National Association of Realtors
Recession Periods
70
80
90
100
110
120
130
*Data through November 2018 35
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Elliott D. Pollack & Company
Corporate Debt Outstanding
as % of GDPSource: Federal Reserve; Bureau of Economic Analysis
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
19
52
Q1
19
54
Q1
19
56
Q1
19
58
Q1
19
60
Q1
1962 Q
1
19
64
Q1
19
66
Q1
19
68
Q1
19
70
Q1
19
72
Q1
19
74
Q1
19
76
Q1
19
78
Q1
19
80
Q1
19
82
Q1
19
84
Q1
19
86
Q1
19
88
Q1
19
90
Q1
19
92
Q1
19
94
Q1
19
96
Q1
19
98
Q1
2000 Q
1
20
02
Q1
20
04
Q1
2006 Q
1
20
08
Q1
20
10
Q1
20
12
Q1
20
14
Q1
20
16
Q1
20
18
Q1
36
Recession Periods
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Elliott D. Pollack & Company
High Yield Spread Versus 2-year 2017-2018
Source: Federal Reserve; ICE Benchmark Administration Limited
0.0
5.0
10.0
15.0
20.0
25.0
High Yield Spread 2-Year Treasury
37
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Elliott D. Pollack & Company 38
Trade War
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Elliott D. Pollack & Company
Canadians Response to NAFTA Negotiations:
Build the Wall!
39
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Elliott D. Pollack & Company
Effects of a Trade War
1. Higher prices on inputs
2. Jobs? Depends on structure. Probably a minor
plus
3. Intellectual Property Rights
Will have a relatively minor effect on U.S. economy
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Elliott D. Pollack & Company
• 4.6% of China’s economy depends on
exports to the U.S.
• 0.7% of U.S. economy depends on exports to
China.
• 65% of the U.S. trade deficit is with China.
Trade War or Negotiation?
41
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Elliott D. Pollack & Company
• China needs exports to keep jobs.
• They probably don’t want a U.S. recession.
Trade War or Negotiation?
42
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Elliott D. Pollack & Company
This Cycle is No Spring Chicken
43
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Elliott D. Pollack & Company
March 1991 – March 2001
June 2009 - Present
February 1961 – December 1969
November 1982 – July 1990
November 2001 – December 2007
March 1975 - January 1980
October 1949 – July 1953
May 1954 – August 1957
November 1970 – November 1973
April 1958 – April 1960
July 1980 – July 1981
120
115
106
92
73
58
45
39
36
24
12
U.S. BUSINESS CYCLE EXPANSIONSSource: National Bureau of Economic Research
44
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Elliott D. Pollack & Company
But, it is not over!
45
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Elliott D. Pollack & Company
Expansions don't die
of old age.
46
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Elliott D. Pollack & Company
They die because an economy
becomes vulnerable to
exogenous shocks or asset
bubbles or a tightening in
the credit market.
47
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Elliott D. Pollack & Company
As recoveries get older, they
become more vulnerable to
shocks...
…Just as people get older they
become more vulnerable to
diseases.
48
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Elliott D. Pollack & Company
So, where does this leave us?
49
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Elliott D. Pollack & Company
2019 will probably still be a
good year.
Slower but continuing growth.
50
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Elliott D. Pollack & Company
Tax cuts, deficit spending and plant
& equipment spending should keep
things going.
51
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Elliott D. Pollack & Company
Probability of a recession still
relatively low
52
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Elliott D. Pollack & Company
We’re probably in the 8th inning
53
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Elliott D. Pollack & Company
Not All Recessions the Same
54
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Elliott D. Pollack & Company
This is Not a Barcode
55
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Elliott D. Pollack & Company
Length of RecessionsSource: NBER
56
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Elliott D. Pollack & Company
U.S. BUSINESS CYCLE RECESSIONSSource: National Bureau of Economic Research
Recession Period # of Months
November 1948 – October 1949 11
July 1953 – May 1954 10
August 1957 – April 1958 8
April 1960 – February 1961 10
December 1969 – November 1970 11
November 1973 – March 1975 16
January 1980 – July 1980 6
July 1981 – November 1982 16
July 1990 – March 1991 8
March 2001 – November 2001 8
December 2007 – June 2009 18
*Subject to revision when NBER releases recession end date
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Elliott D. Pollack & Company
Since WWII
• There have been 3 bad recessions
• 1973-1975
• OPEC Oil Embargo
• Wage Control instituted
• Off the Gold Standard
• 1981-1982
• Inflation
• 2007-2008
• Housing Bubble
• Bad Government Policy
58
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Elliott D. Pollack & Company
Since WWII
• 8 have not been severe.
• Most recessions are shallow and 8-11 months in
length and caused by imbalances are due to
overheating.
• Right now, employment is growing faster than
the labor force. As this continues, job growth will
slow. Wage pressure will increase and lead to
inflation. The FED will attempt to slow inflation
using interest rates.
• There is nothing on the horizon that we think can
cause a long and severe recession.
59
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Elliott D. Pollack & Company 60
Welcome to Phoenix
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Elliott D. Pollack & Company
The New Norm
61
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Elliott D. Pollack & Company
6
10
13
15
9
1
4
2
Jobs growing
Jobs declining
Top 10
Hawaii
19
332
Alaska
50
7
5
Job Growth 2018Preliminary 2018 vs. 2017
Source: U.S. BLS
8
62
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Elliott D. Pollack & Company
Year Rank
2008 46
2009 49
2010 49
2011 27
2012 9
2013 9
2014 18
2015 11
2016 7
2017 5
2018* 6
Year Rank
1997 2
1998 1
1999 2
2000 5
2001 9
2002 10
2003 4
2004 2
2005 2
2006 2
2007 17
Arizona Employment Growth
Arizona’s Rank Out of 50 StatesSource: Arizona State University, U.S. Bureau of Labor Statistics
63*Preliminary 2018 vs 2017
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Elliott D. Pollack & Company
Top 10 Growing States
by PercentageSource: Bureau Labor Statistics
Rank State % Change
1 Nevada 3.334%
2 Utah 3.313%
3 Washington 3.013%
4 Idaho 2.893%
5 Texas 2.886%
6 Arizona 2.807%
7 Colorado 2.731%
8 Florida 2.530%
9 Oregon 2.365%
10 Wyoming 2.183%
64*Preliminary 2018 vs 2017
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Elliott D. Pollack & Company
Employment GrowthFrom Bottom of Recession to Now
Seasonally AdjustedSource: BLS
Area % Change
% of Arizona
Growth
Household
Income
United States 15.3% $60,336
Arizona 21.8% 100.0% $56,581
Greater Phoenix 26.7% 87.1% $61,506
Greater Tucson 10.4% 7.1% $51,425
Balance of State 8.8% 5.8% $45,987
65Bottom of Recession Sept. 2010 to December 2018
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Elliott D. Pollack & Company
Phoenix-Mesa-Scottsdale Employment Growth(Ranking among all metro areas greater than 1,000,000)
Source: Arizona State University, U.S. Bureau of Labor Statistics
Year Rank # MSA’s
1997 2 22
1998 1 23
1999 3 24
2000 7 25
2001 7 26
2002 5 25
2003 3 25
2004 3 25
2005 1 26
2006 1 27
2007 10 29
66
Year Rank # MSA’s
2008 25 29
2009 23 24
2010 23 23
2011 14 25
2012 10 28
2013 7 29
2014 15 31
2015 10 32
2016 7 34
2017 5 34
2018* 4 36
*Preliminary 2018 vs 2017
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Elliott D. Pollack & Company
Top 10 Growing Metros
by Percentage
67
Rank Metro % Change
1 Orlando 4.071%
2 Austin 3.531%
3 Seattle 3.358%
4 Phoenix 3.315%
5 San Jose 3.197%
6 Las Vegas 3.166%
7 Houston 3.164%
8 Riverside 3.151%
9 Dallas 3.053%
10 Charlotte 2.634%
*Preliminary 2018
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Elliott D. Pollack & Company
Jobs in Phoenix?
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Elliott D. Pollack & Company
Greater Phoenix 2018* Net Job Growth and Wages
-2 0 2 4 6 8 10 12 14
Natural Resources and Mining
Other Services
Information
Government
Financial Activities
Trade, Transportation, and Utilities
Manufacturing
Leisure and Hospitality
Professional and Business Services
Educational and Health Services
Construction
(1000’s)
69*Preliminary 2018; 2017 private wages
$56,408
$51,700
$56,940
$25,004
$73,952
$47,404
$53,828
$73,882
$38,901
$50,605
$69,822
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Elliott D. Pollack & Company
Greater Phoenix 2018*% Job Growth and Wages
-2.0% 0.0% 2.0% 4.0% 6.0% 8.0%10.0%12.0%14.0%
Natural Resources and Mining
Other Services
Government
Trade, Transportation, and Utilities
Financial Activities
Professional and Business Services
Leisure and Hospitality
Information
Educational and Health Services
Manufacturing
Construction
70
$56,408
$73,952
$51,700
$73,882
$25,004
$69,822
$47,404
$53,828
$38,901
$50,605
$56,940
*Preliminary 2018; 2017 private wages
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Elliott D. Pollack & Company
5.9%
2.5%2.2%
-0.4%
1.1%
4.9%
6.6%7.2%7.3%
5.4%5.4%
4.6%
3.5%
1.3%
0.0%
1.5%
3.9%
6.2%
5.4%
1.7%
-2.5%
-7.8%
-1.9%
1.5%
2.5%2.9%
2.3%
3.3%3.4%2.8%
3.3%2.8%
2.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Greater Phoenix Employment*
Annual Percent Change 1988–2020**Source: Office of Economic Opportunity
Pre-2008 Avg. 3.8%
Recession Periods
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2019 & 2020 forecasts from Elliott D. Pollack & Co. as of January 2019. 71
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Elliott D. Pollack & Company
53.9
23.821.8
-3.5
11.2
49.8
70.882.1
88.8
70.575.166.8
53.7
20.0
-0.1
24.1
64.4
104.597.4
31.6
-47.9
-146.8
-32.2
25.6
43.051.3
41.1
62.064.654.9
67.458.8
43.2
-160.0
-120.0
-80.0
-40.0
0.0
40.0
80.0
120.0
Greater Phoenix Employment*
Net Annual Growth Change 1988–2020**Source: Office of Economic Opportunity
Recession Periods(000’s)
72*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2019 & 2020 forecasts from Elliott D. Pollack & Co. as of January 2019.
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Elliott D. Pollack & Company
Employment: Greater Phoenix to U.S.
Annual Growth Rate1990-2018
Source: Bureau of Labor Statistics
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
U.S.
Greater Phoenix
73
Recession Periods
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Elliott D. Pollack & Company
Where are the Inflows of
Population?
74
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Elliott D. Pollack & Company
Moving???
75
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Elliott D. Pollack & Company
3%
4%
5%
6%
7%
8%
Note: Includes all movers except movers within same
county
Total Movers as a % of
Total U.S. PopulationSource: U.S. Census Bureau
Recession Periods
76
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Elliott D. Pollack & Company
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Same State Different State Abroad
Movers from an Outside Area
1981-2018Source: U.S. Census Bureau
Recession Periods
77
(1,000’s)
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Elliott D. Pollack & Company
0%
2%
4%
6%
8%
10%
12%
Arizona Capture RateSource: U.S. Census Bureau
Note: Does not include in-state movers;
Net migration numbers.
Recession Periods
78
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Elliott D. Pollack & Company
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
United States Population
Annual % Change 1985–2018Source: U.S. Census Bureau
79
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Elliott D. Pollack & Company
Population Growth after RecessionsGreater Phoenix
Source: Office of Economic Opportunity
Years % Growth APR
1975-1980 20.1% 3.7%
1981-1990 35.5% 3.4%
1991-2001 46.0% 3.9%
2001-2007 21.6% 3.3%
2009-2018 13.1% 1.4%
80
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Elliott D. Pollack & Company
Growth itself is an economic driver in
Greater Phoenix–
People moving to the State create demand for goods
and services that create more jobs.
When you grow around 1.8% instead of 3.6%, the
part of the economy that is based on servicing new
population becomes much smaller.
81
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Elliott D. Pollack & Company
Greater Phoenix PopulationSource: U.S. Bureau of Census; Office of Economic Opportunity; UofA Forecasting Project
Period
Ending Population Change APR
1970 1,039,807 3.5%
1980 1,600,093 560,286 4.4%
1990 2,249,116 649,023 3.5%
2000 3,275,362 1,026,246 3.8%
2010 4,200,427 925,065 2.5%
2015 4,482,906 282,479 1.3%
2020* 4,903,717 420,811 1.8%
2025* 5,339,441 435,724 1.7%*Forecasts from UofA
1970-2010 10 year period
2010-2025 5 year period 82
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Elliott D. Pollack & Company
2.9%
2.5%
1.3%
2.4%
2.8%
3.5%
4.3%
4.6%
4.2%4.2%
3.8%
4.3%4.3%
2.6%2.7%
3.1%
3.6%3.8%
3.7%
3.0%
1.9%
0.5%0.3%
0.7%
1.2%
1.5%1.6%1.6%
1.7%1.7%1.8%
1.9%2.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Pre-2008 Avg. 3.4%
83
Recession Periods
Greater Phoenix Population
Annual Percent Change 1988–2020*Source: Office of Economic Opportunity, EDPCo
*Estimates for 2011, 2012, 2013, 2014, 2015 and 2016 and forecasts for 2019 and
2020 from Elliott D. Pollack & Co. as of January 2019.
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Elliott D. Pollack & Company
60.154.9
29.7
54.6
64.5
83.8
104.2
118.6111.9
115.6111.0
130.4133.6
84.7
92.0
105.9
127.7
141.6 141.5
118.6
79.6
19.114.3
29.4
52.4
65.971.372.5
78.378.9
85.890.0
96.5
0.0
40.0
80.0
120.0
160.0
Greater Phoenix Population
Annual Net Change 1988–2020*Source: Office of Economic Opportunity, EDPCo
84
Recession Periods(000’s)
*Estimates for 2011, 2012, 2013, 2014, 2015 and 2016 and forecasts for 2019 and 2020
from Elliott D. Pollack & Co. as of January 2019.
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Elliott D. Pollack & Company
Population: Greater Phoenix to U.S.
Annual Growth Rate1990-2018
Source: U.S. Census Bureau; Office of Economic Opportunity; EDPCo
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
U.S.
Greater Phoenix
85
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Elliott D. Pollack & Company
Housing Market Outlook
86
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Elliott D. Pollack & Company
What’s Going On?
87
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Elliott D. Pollack & Company
Builders are facing supply side constraints:
• Cost of buildable lots
• Increasing construction material costs
• insufficient labor
And demand side constraints of rising mortgage
interest rates
The result is upward pressure on housing prices and
reduced affordability.
88
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Elliott D. Pollack & Company
Greater Phoenix Single Family Permits
Annual % Change1970-2018*
Source: U.S. Census Bureau
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
*YTD thought October 89
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Elliott D. Pollack & Company
Greater Phoenix Housing PermitsSource: Home Builder Association of Central Arizona
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2016 2017 2018
90
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Elliott D. Pollack & Company
Greater Phoenix New Home SalesSource: Belfiore
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2016 2017 2018
91
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Elliott D. Pollack & Company
Greater Phoenix
Population Change-to-Total Permits Ratio
1988-2018Source: AOEO; U.S. Census Bureau; UofA Forecasting Project
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
92
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Elliott D. Pollack & Company
Greater Phoenix
Population Change-to-Single Family Permits Ratio
1988-2018Source: AOEO; U.S. Census Bureau; UofA Forecasting Project
1.0
2.0
3.0
4.0
5.0
6.0
7.0
93
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Elliott D. Pollack & Company
75
80
85
90
95
100
105
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64
Arizona Population by Age
65 and Under2018
Source: U.S. Census Bureau
94
(1,000’s)
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Elliott D. Pollack & Company
Arizona Number of Persons vs. Home-Purchase Loan Applications
2018Source: U.S. Census Bureau
0
5
10
15
20
25
30
35
40
80.0
85.0
90.0
95.0
100.0
105.0
95
(1,000’s)
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Elliott D. Pollack & Company
Arizona Number of Persons vs. Home-Purchase Loan Applications
2023Source: U.S. Census Bureau
0
5
10
15
20
25
30
35
40
80.0
85.0
90.0
95.0
100.0
105.0
96
(1,000’s)
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Elliott D. Pollack & Company
Greater Phoenix
Homeownership Rates by Age GroupSource: 2017 American Community Survey 1-Year Estimates; OEO
Householder
Age
% of
Total
Occupied
Current
Population
15 to 24 years 13.9% 626,087
25 to 34 years 40.1% 679,718
35 to 44 years 55.6% 617,153
45 to 54 years 65.3% 596,066
55 to 64 years 76.6% 544,408
65 to 74 years 82.3% 426,671
75 to 84 years 82.9% 218,059
85 years and over 70.0% 79,972
Total 63.7% 3,788,134
97
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Elliott D. Pollack & Company
Greater Phoenix Month’s Supply2002-2018
Source: ARMLS
0
2
4
6
8
10
12
14
16
18
20
Jan
-02
Ju
l-0
2
Jan
-03
Ju
l-0
3
Jan
-04
Ju
l-0
4
Jan
-05
Ju
l-0
5
Jan
-06
Ju
l-0
6
Jan
-07
Ju
l-0
7
Jan
-08
Ju
l-08
Jan
-09
Ju
l-0
9
Jan
-10
Ju
l-1
0
Jan
-11
Ju
l-1
1
Jan
-12
Ju
l-1
2
Jan
-13
Ju
l-1
3
Jan
-14
Ju
l-1
4
Jan
-15
Ju
l-1
5
Jan
-16
Ju
l-1
6
Jan
-17
Ju
l-1
7
Jan
-18
Ju
l-1
8
*Data through November 2018 98
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Elliott D. Pollack & Company
Greater Phoenix
Single Family Days on MarketSource: Cromford Report
0
20
40
60
80
100
120
140
160
Recession Periods
99*Data through December 2018
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Elliott D. Pollack & Company
Greater Phoenix
Single Family Resales - Days on Market
Under $250,000Source: Cromford Report
0
20
40
60
80
100
120
140
160
Recession Periods
100*Data through December 2018
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Elliott D. Pollack & Company
New Home InventorySource: Zonda by Meyers Research
22
24
26
28
30
32
34
36
38
40
42
44
46
39,160
40,940
42,720
44,500
46,280
48,060
49,840
51,620
53,400
55,180
56,960
58,740
60,520
Total Remainding Units
Months of Supply
101
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Elliott D. Pollack & Company
Vacant Developed LotsSource: Zonda by Meyers Research
35,000
37,500
40,000
42,500
45,000
47,500
50,000
102
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Elliott D. Pollack & Company
Foreclosure: Residential Notices
Maricopa CountySource: Information Market
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
*Data through December 2018 103
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Elliott D. Pollack & Company
U.S.
Most new Housing demand over the next 10 years will
come from millennialsSource: JCHS tabulations of 2016 JCHS Household Projections, Harvard
104
0
5
10
15
20
25
30
35
40
45
50
Millenial (1985-2005) Gen-X (1965-1984) Baby-Boomer (1945-1964)
Number of Households
2015 2025
(Millions)
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Elliott D. Pollack & Company
Greater Phoenix
Most new Housing demand over the next 10 years will
come from millennialsSource: ACS; MAG; EDPCo
105
0
50
100
150
200
250
300
350
400
450
500
Millenial (1985-2005) Gen-X (1965-1984) Baby-Boomer (1945-1964)
Number of Households
2015 2025
(1000’s)
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Elliott D. Pollack & Company
Housing Troubles???
• Affordability is a Major Issue
• Greater Phoenix’s affordability is slightly
lower than normal. But, it is better than
most competitive western metros.
• The pent up demand is massive.
106
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Elliott D. Pollack & Company
Recession Periods
3%
4%
5%
6%
7%
8%
9%
30-Year Mortgage Rate2000 – 2019* Source: Freddie Mac
*Data through the week of January 17, 2019 107
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Elliott D. Pollack & Company
100 Basis Point Increase in Mortgage Rates reduces
Borrowing Capacity by 7%
Source: John Burns
$259,000
$230,000
$213,000
$200,000
$210,000
$220,000
$230,000
$240,000
$250,000
$260,000
$270,000
At 3.5% At 5.0% At 6.0%
11%
7%
108
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Elliott D. Pollack & Company
Housing Opportunity Index
1992-2018Source: NAHB/Wells Fargo
20
30
40
50
60
70
80
90
U.S.
Greater Phoenix
109
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Elliott D. Pollack & Company
Housing Opportunity Index
2018 Q3Source: NAHB/Wells Fargo
67 66.7
56.6 56.452.3
47.642.9
35.6
14.17.6
0
10
20
30
40
50
60
70
80
110
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Elliott D. Pollack & Company
Arizona
111
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Elliott D. Pollack & Company
Affordability is a key-concern, for
millennials entering the marketplace and
for the retirement population moving to
Phoenix.
112
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Elliott D. Pollack & Company 113
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Elliott D. Pollack & Company
Pricing by Builders in Greater PhoenixSource: Belfiore
114
Subdivision Name Builder Name Net Pricing Range
Express at Santa Rosa Springs D. R. Horton $182,990 - $252,990
Cactus at Parkside Pulte Homes $164,870 - $214,870
Express at Tartesso D. R. Horton $178,660 - $237,660
Magma Ranch Unit 8 D. R. Horton $150,005 - $203,005
Harmony at Meridian William Lyon Homes $291,040 - $304,040
Cactus at Desert Oasis Pulte Homes $217,185 - $268,185
Inspiration at Solana Lennar $231,190 - $239,190
Cactus at Festival Foothills Pulte Homes $206,002 - $310,002
Coldwater Retreat Courtland Communities $212,012 - $250,012
Juniper at Desert Pass KB Home $161,990 - $184,990
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Elliott D. Pollack & Company
Top-seller are mostly smaller-lot, lower-
priced new home communities-
communities target entry-level and
value–oriented buyers.
Source: Belfiore, KnowledgeBase Current and Future Market Insights 115
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Elliott D. Pollack & Company
Millennials
116
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Elliott D. Pollack & Company 117
Millennials
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Elliott D. Pollack & Company 118
Baby Boomers
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Elliott D. Pollack & Company
Baby Boomers Versus Millennials
Aged 25-34Source: Bowling Green State University; 1980 Decennial Census; 2015 American Community Survey; CDC
Baby Boomers
(1980)
Millennials
(2015)
Married 68% 40%
Never Married 20% 53%
Age first marriage Males 25 ≈30
Age first marriage Females 22 ≈28
Mean Age at First Child 23 ≈27
Live in Independent Households 84% 59%
Lived with Parents/Grandparents 9% 22%
119
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Elliott D. Pollack & Company
Millennials were hit with
several factors that, for many,
delayed home buying from
their 20’s and 30’s.
120
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Elliott D. Pollack & Company
These Factors Include:
• The Great Recession and the lack of job opportunities
• Greater acceptance of larger amounts of student debt
• Social mores are changing and becoming acceptable:
• Delay of Marriage
• Living with Mommy and Daddy
• Becoming less materialistic
121
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Elliott D. Pollack & Company
Many of those changes are coming to an
end as millennials start to:
• Pay off student loan debt
• Benefit from a strong economy
• Realize they are subject to the laws of biology
122
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Elliott D. Pollack & Company 123
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Elliott D. Pollack & Company
Student LoansSource: Federal Reserve; Citizens Financial Group
• 70% of students leave college with debt
• Standard repayment plan is 10 years
• 60% of students are expected to pay off their
loan in their 40’s
124
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Elliott D. Pollack & Company
Student Loan Debt Delaying
Homeownership Source: Bankrate Money Pulse Survey
30% of 18-40 years old with student
loan debt have delayed buying a
home.
125
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Elliott D. Pollack & Company
Millennials Rent for Life?Source: Fannie Mae
According to Fannie Mae’s Renters Survey:
• 37% are renting in order to get ready to buy a home
• 46% said their biggest obstacle to doing so is saving up
for a down payment and closing costs
• 95% said they plan to own someday
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Elliott D. Pollack & Company 127
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Renter
Owner
Single Family Occupancy
as % of Total Source: American Community Survey
Note: Single Family includes 1-unit detached and attached
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Elliott D. Pollack & Company
What’s Going On?Source: American Community Survey
• Move up markets
➢ Majority of homeowners bought in the last 8 years.
• First time homebuyers are shocked by recent
increases in interest rates
• Number of single family renter households
increased from 179,624 to 253,364 between
2008 and 2017.
*Included attached and detached 1-unit households
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Elliott D. Pollack & Company
Overview of Single Family Housing
• Current conditions in the single family market
are the polar opposite of 2007-2011
• No signs of oversupply
• Signs of strong pent-up demand
• With rising interest rates, affordability becomes
more of an issue
• While the housing market will be under pressure
over the near term, the outlook over the next 5
years is excellent
129
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Elliott D. Pollack & Company
The slowdown in new single
family housing continues is
likely to be transitory.
130
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Elliott D. Pollack & Company
Apartments
131
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Elliott D. Pollack & Company
Multi-Family Housing Market Source: PMHS; RealData CBRE
Year Absorption (sf) Chg in Inventory (sf)
2004 4,348 3,612
2005 -275 (4,181)
2006 -6,431 (3,798)
2007 -3,058 1,797
2008 960 8,484
2009 5,151 8,443
2010 10,021 1,441
2011 3,326 1,224
2012 2,756 1,573
2013 4,584 3,830
2014 5,823 6,351
2015 6,140 6,804
2016 5,731 8,018
2017 6,179 10,033
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Elliott D. Pollack & Company
Apartment Unit DeliveriesGreater Phoenix
2005-2018Source: RealData; CBRE
8,459
6,620 6,645
3,756
4,502 4,660 4,5444,359
6,603 6,474
565 545
1,651
4,299
5,768
7,394
5,813
8,880
8,040
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Note: 100 units or more 133
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Elliott D. Pollack & Company
Potential Supply Increase
CBRE
Year Units
2019 7,109
2020 6,667
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Elliott D. Pollack & Company
High end apartment demand will
continue to be strong..
But there is a lot of high priced
supply coming to market.
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Elliott D. Pollack & Company
Where is the supply/demand
imbalance?
136
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Elliott D. Pollack & Company 137
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Elliott D. Pollack & Company
Worker HousingSource: Everest Holdings
• The strongest demand is in worker housing
• Households earning between 60% and 120% of median
household income.
• This not Subsidized housing
• Police officer, firefighters, teachers, retail workers, hospital
workers, etc.
• Housing that is affordable (20 to 30 percent of Household
income).
• Traditional Apartments, SF rentals and for-sale housing.
• Close to major employment centers and transportation
routes.
138
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Elliott D. Pollack & Company
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Greater Phoenix Multi-Family Average Rent
Percent Change a Year Ago
2004 – 2018* Source: RealData Inc.
Recession Periods
*Data through the fourth quarter 2018 139
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Elliott D. Pollack & Company
Multi-Family Year-End Vacancy Rates
Greater Phoenix County 1975–2020Source: ASU Realty Studies / Berkadia**
6.2%
4.1%3.3%
2.8%
3.9%
6.1%
4.4%
6.1%
6.9%
7.7%
10.1%10.6%
13.0%14.1%
13.4%
10.0%9.5%
8.0%
4.0%3.8%4.5%4.5%
4.8%
5.1%5.9%
6.8%
8.2%
9.4%9.6%
7.9%
6.8%
7.8%
10.2%
12.5%
13.4%
10.8%
7.5%
6.3%6.6%
5.9%5.4%
5.8%5.6%
4.6%
0%
3%
6%
9%
12%
15%
18%
197519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
18
**Data prior to 2005 is from ASU
Forecast from Greater Phoenix Blue Chip
Recession Periods
140
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Elliott D. Pollack & Company
Office, Industrial and Retail are
a function of Employment and
Population. a
Both of those look positive
for 2019
141
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Elliott D. Pollack & Company
OFFICE
142
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Elliott D. Pollack & Company
Office Space Year-End Vacancy Rates
Greater Phoenix 1986–2020*Source: CBRE
26.7%
22.8%
24.0%
26.7%26.4%
25.4%
22.7%
18.8%
14.8%
11.7%
9.5% 9.2%
9.5%10.0%
9.9%
16.0%
18.8%
18.3%
16.4%
12.6%
11.1%
13.9%
19.1%
24.5%
26.2%25.5%
23.9%
22.4%21.3%
19.4%
17.4%16.4%
15.2%15.8%16.5%
0%
5%
10%
15%
20%
25%
30%
35%
198619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
1920
20
*2019 & 2020 are forecasts from CBRE.
Recession Periods
143
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Elliott D. Pollack & Company
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
New Supply Absorption
(Millions)
Greater Phoenix Office Market
New Supply versus Absorption
1998–2018Source: CBRE
144
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Elliott D. Pollack & Company
Greater Phoenix Office Market*Source: CBRE
Year Absorption (sf) Chg in Inventory (sf)
2005 3,119,293 7,987
2006 3,245,888 2,320,302
2007 1,500,704 4,905,374
2008 (603,112) 3,402,646
2009 (667,329) 1,798,415
2010 233,670 1,785,620
2011 1,857,433 3,370,694
2012 2,020,529 973,282
2013 1,721,366 (35,566)
2014 1,816,411 1,107,906
2015 3,704,039 3,763,828
2016 3,219,853 1,045,155
2017 2,839,559 1,912,217
2018 2,473,034 803,403
*All Leased multi-tenant space greater than 10,000 SF. 145
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Elliott D. Pollack & Company
Current Office MarketSource: CBRE
• Over 88.9 million of sq. ft.
• 13.4 million sq. ft. vacant• Multi-tenant non owner occupied 12.5 million sq. ft. vacant
• Available by class
• Class A 2.8 million sq. ft.
• Class B 6.8 million sq. ft.
• Class C 2.8 million sq. ft.
• 2.6 million sq. ft. under construction. • Under Construction by class
• Class A 1.4 million sq. ft.
• Class B 1.2 million sq. ft.
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Elliott D. Pollack & Company
INDUSTRIAL
147
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Elliott D. Pollack & Company
Industrial Space Vacancy Rates
Greater Phoenix 1980 – 2020*Source: CBRE
8.4%
9.4%
11.1%
9.7%
12.8%
13.2%
16.4%15.2%14.6%
12.8%
14.0%
14.8%
13.6%
10.8%
7.4%
6.6%
5.7%
7.0%7.1%
8.1%7.4%
9.8%10.3%
9.7%
8.5%
5.6%
6.7%
8.4%
12.5%
16.1%
14.7%
12.4%
10.9%
11.4%11.0%
10.1%
8.0%
6.8%6.6%7.2%7.6%
0%
5%
10%
15%
20%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
*2019 & 2020 are forecasts from CBRE
Recession Periods
148
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Elliott D. Pollack & Company
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
New Supply Absorption
(Millions)
Greater Phoenix Industrial Market
New Supply versus Absorption
1998–2018Source: CBRE
149
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Elliott D. Pollack & Company
Greater Phoenix Industrial MarketSource: CBRE
Year Absorption (sf) Chg in Inventory (sf)
2005 12,361,368 7,072,477
2006 6,179,533 7,829,959
2007 8,359,835 13,914,181
2008 629,838 13,467,215
2009 (4,649,352) 4,753,218
2010 4,455,097 2,451,202
2011 7,745,111 1,954,037
2012 7,405,168 3,358,724
2013 8,783,982 8,902,571
2014 6,214,680 6,791,313
2015 7,046,663 3,966,434
2016 9,497,677 5,136,644
2017 9,898,883 6,988,240
2018 9,781,257 8,966,852
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Elliott D. Pollack & Company
Current Industrial MarketSource: CBRE
Existing Vacant Vacancy
Rate
Under
Construction
Multi Tenant 37,052,525 2,083,604 5.6% 0
Distribution Buildings 109,967,121 10,780,241 9.8% 3,916,545
Freestanding Buildings 55,639,946 1,151,290 2.1% 276,220
General 68,518,048 4,224,280 6.2% 868,413
Back Office 14,406,595 2,498,802 17.3% 0
Major User 27,088,033 93,096 0.3% 536,533
Special Purpose 5,503,465 0 0.0% 487,000
Market 318,175,733 20,831,313 6.5% 6,084,711
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Elliott D. Pollack & Company
Current Industrial MarketSource: CBRE
152
2018
Inventory 318,175,73
Vacant 20,831,313
Vacancy Rate 6.5%
Under Construction 6,084,711
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Elliott D. Pollack & Company
RETAIL
153
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Elliott D. Pollack & Company
Retail Space Vacancy Rates
Greater Phoenix 1985–2019*Source: CBRE**
6.6%
8.9%
10.0%
11.8%13.1%
14.2%
13.5%12.7%
11.1%
9.8%8.7%
7.9%7.5%
6.3%5.5%
5.3%6.6%7.3%
7.4%
6.1%5.3%
5.1%
6.2%
7.5%
11.4%12.2%12.2%
11.0%10.2%
9.6%9.1%8.9%
8.1%8.7%8.5%8.3%
0%
5%
10%
15%
20%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
*2018, 2019 & 2020 are forecasts from CBRE
** Data prior to 1992 is from Grubb & Ellis
Recession Periods
154
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Elliott D. Pollack & Company
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
New Supply Absorption
(Millions)
Greater Phoenix Retail Market
New Supply versus Absorption
1998–2018*Source: CBRE
*Data through the third quarter 2018 155
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Elliott D. Pollack & Company
Year Absorption (sf) Chg in Inventory (sf)
2005 6,708,155 6,248,789
2006 5,244,597 4,582,618
2007 9,409,985 11,104,865
2008 3,395,986 6,229,205
2009 (1,117,100) 4,405,985
2010 (75,352) 902,380
2011 (152,647) 24,543
2012 1,879,005 184,932
2013 1,579,202 (325,959)
2014 1,487,313 (49,225)
2015 1,150,192 164,859
2016 1,321,833 1,204,766
2017 1,039,989 336,152
2018* 147,471 794,295
*Data through the third quarter 2018
Greater Phoenix Retail MarketSource: CBRE
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Elliott D. Pollack & Company
Current Retail MarketSource: CBRE
• Over 151.5 million of sq. ft.
• 12.7 million sq. ft. vacant
• Over 700,000 sq. ft. under construction.
• 2.8 million sq. ft. planned.
157
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Elliott D. Pollack & Company
E-Commerce Retail Sales
as a Percent of Total Sales2000 – 2018*
Source: U.S. Census Bureau
Recession Periods
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
158*Data through the third quarter 2018
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Maricopa County Retail Sales
Percent Change Year Ago*
1999 – 2018**Source: Arizona Department of Revenue
*Data through October 2018
**3-month moving average
Note: January 2010 and March 2010 retail sales are estimates.
Recession Periods
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
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.
Rate of growth likely to slow
somewhat in 2019.
But 2019 should still be a good
year.
The Economics are still strong
but
the psychology is changing.
Overall Conclusions:
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Elliott D. Pollack & Company
We are in the bottom of the 7th or the
top of the 8th inning of what has
been a very long game.
At the present time, there is nothing
that would suggest the next
recession, when it does show up,
would be very deep.
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For a quick analysis of
important economic data released
each week, subscribe to the
Monday Morning Quarterback
www.arizonaeconomy.com(Click on Subscribe to MMQ)
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