Real estate march 2012

Economic Trends &Implications for Treasure Valley

Real Estate

Presented by

Brian Greber

March 8, 2012

1© Brian J Greber 2012

INTRODUCTION

Brian Greber, Ph.D.B.S. Forestry (WVU)M.S. (WVU), Ph.D.(VT) Resource Economics19 years industry/executive experience (most

recently VP Marketing & Technology in a Fortune 100 Forest Products Firm)

14 years teaching, research, policy experience at universities (VT, OSU, BSU)

Lots of public policy work at the state & federal levels

Have own businessLive in Boise – avid fitness buff and enjoy most

things outdoorsActive with not-for-profits (Pres. The Arc

Board)Great family – 2 kids and “lifelong best friend”

5-2© Brian J Greber 2012 2

The Business CycleL

evel

of

Rea

l Ou

tpu

t

Time

Peak

Peak

Peak

Recession

Recession

Expan

sion E

xpan

sion

Trough

Trough

Growth

Trend

4

Common link = Unexpected changes in spending that are often more psychological than structural

© Brian J Greber 2012

US Economy In Perspective:Historic GDP Growth

1929-2010 3.63%1950-2010 3.27%1970-2010 3.03%1990-2010 2.89%

Source:bea.gov

5

0

2,000

4,000

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14,000

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1931

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Real US GDP 1929-2011(Billion 2005 Chain Weighted $'s)


US GDP Growth through Q4 2011:


www.bea.gov

Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product[Percent] Seasonally adjusted at annual rates

6

Believe it or not, the economy is expanding at an OK pace! 10 Qtrs of growth

US GDP Growth through Q4 2011 : Personal Consumption vs. Investment


www.bea.gov

7

Volatility is in Investment!

US GDP Growth through Q4 2011 : Nonres Structures and Residential


www.bea.gov

8

US Economy In Perspective:Historic Unemployment

Source:bls.gov

9

1950-2012 5.8

1970-2012 6.3

1990-2012 6.0

2000-2012 6.2

2009-2012 9.2

0.0

2.0

4.0

6.0

8.0

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12.0

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US Unemployment Rate: January 1948-January 2012


US Economy In Perspective:Historic US Residential Construction

Source:stlouisfed.org

10

1960-2012 14781970-2012 14951990-2012 13742000-2012 13762009-2012 586Demographic Trend 1350

0

500

1000

1500

2000

2500

3000

1960

-01

1961

-04

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-07

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-10

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-07

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-10

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-01

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-04

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-07

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-10

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-01

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-04

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-07

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-10

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-01

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-04

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-07

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-10

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-01

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-04

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-07

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-10

1990

-01

1991

-04

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-07

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-10

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-01

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-04

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-07

1998

-10

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-01

2001

-04

2002

-07

2003

-10

2005

-01

2006

-04

2007

-07

2008

-10

2010

-01

2011

-04

US Housing Starts 1960-2012(Thousands of New Privately Owned Units)

That ‘s bad!


That ‘s encouraging!

What Caused the Collapse?• Housing Bubble

– Artificial, not real demand supported housing quantity and price appreciation.– Investment-based saturation of housing market in “sunshine states”

• Investment stops;• Home price appreciation stops

– Investors begin to “sell off positions” – “demand became supply” as the base of existing homes for sale grew,

» Home prices fall

• Investments on a downward spiral• Homes significant part of economic engine

• Slow down in economy generates unemployment• “Creative” Mortgages come up for refinancing

– Mortgages “upside down” – house is worth less than current note, can only refinance portion of pay-off amount.

• Unemployment, upside down mortgages lead to foreclosures– Foreclosure sales expanded the case of existing homes for sale, again “demand became

supply” » Home ownership on a downward spiral


“Can’t Lose …..”


Let’s get creative ….

13

Source: www.calculatedrisk.com


Easy come, easy go ….


House Prices Moderating:Historic US Residential Prices

Source:stlouisfed.gov


0.00

50.00

100.00

150.00

200.00

250.00

1987

-01

1987

-09

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-05

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-09

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-01

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-09

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-09

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S&P -Case-Shiller 10 City Home Price IndexCopyright, 2011, Standard & Poor's Financial Services LLC. Reprinted

May be even better than that…

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Source: www.nahb.org. Index = percentage of homes sold in a given area that are affordable to families earning that area’s media income during a specific quarter.


0.0

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30.0

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70.0

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.1

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.3

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.1

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NAHB/Wells Fargo Housing Opportunity Index 1992-2011

http://www.nahb.org/

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Signs of a Return to Normalcy:Home Ownership Rates


18

A word of caution:Home Vacancy Rates


Where are they living?


Conclusion

• Global economy is in doldrums• US economy is showing signs of recovery• Housing is lagging,

– At the bottom?


What drives Idaho economic growth?

New Money!!!In a regional economy, if the activity

does not bring in outside dollars, you are simply “redistributing the wealth” and

the jobs.

© Brian J Greber 2012 22

3 key components of Idaho’s legacy growth

1. Natural resources2. Scalable entrepreneurship

• Focused on new money• Much of this focused on natural

resources3. In-migration

• Bringing with it personal wealth.


In-migration: last decade contributed 1.06%/yr to population

Idaho Housing Fundamentals 2010 2000 1990 1980Totals

Population 1,567,582 1,293,955 1,006,734 943,935 Households 579,408 469,315 360,718 324,107

Housing Units 667,796 527,825 413,322 375,200 Annual Change (Decade Prior)

Population 27,363 28,722 6,280 Households 11,009 10,860 3,661

Housing Units 13,997 11,450 3,812 Annual Average (Decade Prior)

Housing Permits 12,475 10,693 3,944 Annual "Gap"

Change in Housing Units vs Households 2,988 591 151 Housing Permits vs Change in Households 1,466 (167) 283

Decade "Gap"Change in Housing Units vs Households 29,878 5,906 1,511

Housing Permits vs Change in Households 14,658 (1,669) 2,826 Source: US Census Bureau www.census.gov


Source: US HUD (huduser.org)

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2011

2012

Idaho Building Permits January2001- January2012Total Units Units in Single-Family Structures

Single Family Average 84%

Peak in 2005, 20,256 units

Trough in 2011, 3.253 units


Idah

o C

hip

s A

way

at

the

Ove

rhan

g…..

Source: US HUD (huduser.org)

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0

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2011

2012

Ada/Canyon County Building Permits January2001- January2012Total Units Units in Single-Family Structures

Single Family Average 87%

Peak in 2005, 11,163 units

Trough in 2010, 1,647 units


50%

of A

ctiv

ity

in T

reas

ure

Val

ley…

..

Keys to Idaho Housing Recovery• National housing market recovery

– In-migration spurred by housing liquidity in other states• Influences retirement, second homes, business relocation

• Local employment strength– Drives household formation– Ownership rates– Stems foreclosures

• “Devouring the Inventory Overhang”– 1+ years worth of housing activity– Could take as much as 4 years to absorb (clock started in

2011)


Idaho Recovery: dependent on new money

• Idaho will lag the U.S. out of the economic doldrums. Two national waves must roll in to lift the Idaho economic boat.

• The first wave is an increase in U.S. business investment. • As U.S. businesses sense a looming recovery, they will invest in

America's neglected industrial infrastructure to better serve the recovery.

• This will ripple back to Idaho businesses directly serving this activity, such as electronics and engineering/business services.

• The second wave is national housing recovery. • This will help natural resource and building products sectors, but the

more significant impact is • Make it affordable to EXIT other regions to restart in-migration

(which has fallen from 1.87% in 2007 to 0.44% in 2010!



Objective

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90

92

94

96

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100

102

104

106

108

110

45,500

46,500

47,500

48,500

49,500

50,500

51,500

52,500

53,500

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

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-08

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Jun-

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Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

BSU

's Id

aho

Lead

ing

Inde

x

GD

P in

Mill

ion

Chai

n W

eigt

ed 2

005

Dol

lars

BSU's Idaho Leading Index vs Historic GDP: Jun 2012Real GDP Index

2011 and 2012 GDP estimated using the Governor's Personal Income Increase Forecasts

Despite Housing: Idaho Is Recovering

www.cobe.boisestate.edu/businessresources


Objective

30

85

90

95

100

105

110

115

550

570

590

610

630

650

670 Se

p-05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

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08

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09

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09

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-10

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10

Sep-

10

Dec

-10

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11

Dec

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Mar

-12

Jun-

12

BSU

's Id

aho

Lead

ing

Inde

x

Idah

o Em

ploy

men

t in

Tho

usan

ds

BSU's Idaho Leading Index vs Historic Employment: Jan 2012Actual Employment Index

www.cobe.boisestate.edu/businessresources

Idaho Is Recovering: Employment Lags

Conclusions• The economy, national and regional, is poised for

growth in 2012-2013– In fact, the economy has been expanding over the past 2+

years

• Business investment will precede residential, nationally and regionally.

• The Idaho residential construction market will lag the national recovery with a significant lag.

• Visit our website: http://cobe.boisestate.edu/businessresources/


http://cobe.boisestate.edu/businessresources/

Real estate march 2012

Real Estate

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