CCIM LIVE!

THE ECONOMIC OUTLOOK FOR REAL ESTATE INVESTORS AND DECISION MAKERS

Dr. Mark G. Dotzour

Chief Economist Real Estate Center at Texas A&M University College Station, Texas

THE OUTLOOK FOR THE ECONOMY

The economy began to rebound last fall Home sales, car sales and retail sales rebound Real estate construction is underway Residential housing markets stabilizing More people working

THE OUTLOOK FOR THE ECONOMY

Economy going on hold until the election Fiscal cliff would cause a recession in 2013 More drama about debt ceilings Warnings about European debt crisis/recession China slowing down and Aussie goes with them Current slowdown is a pause, rather than a move into a new recession.

THE OUTLOOK FOR THE ECONOMY

Look for Congress to extend all tax cuts Look for Congress to extend the debt ceiling Look for Fed to keep interest rates low and talk about more QE Two outlooks:

If

Congress begins to balance the budget If Congress fails again in 2013

WHY REAL ESTATE LOOKS ATTRACTIVE: THREE SIMPLE QUESTIONS Where would the DOW be if the Fed didnt constantly threaten additional QE? Where would bond values be if the Fed didnt constantly threaten additional QE? Where would gold be if the Fed didnt constantly threatened additional QE?

CONSUMER CONFIDENCE INDEX

Aug-12 Feb-12 Aug-11 Feb-11 Aug-10 Feb-10 Aug-09 Feb-09 Aug-08 Feb-08 Aug-07 Feb-07 Aug-06 Feb-06 Aug-05 Feb-05 Aug-04 Feb-04 Aug-03 Feb-03 Aug-02 Feb-02 Aug-01 Feb-01 Aug-00 150 140 130 120 110 100 90 80 70 60 50 40 30
Source: The Conference Board

HOUSEHOLD NET WORTH RECOVERING AFTER STOCK MARKET RALLY

PERSONAL CONSUMPTION EXPENDITURES

GENERAL MERCHANDISE RETAIL SALES

SAME STORE SALES % CHANGE FROM YEAR EARLIER

7 5 3 1 -1 -3 -5 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Jan-10

Jan-11

Jan-12

Source: Redbook Instinet Research

INTERNET SALES EXPLODING

Amazon had $12.8 billion sales in recent quarter. Translates to $51.2 billion in sales per year. If retail store sales are $400 per square foot. Then Amazon has replaced 128 million square feet. This could be about 128 regional malls.

LIGHT WEIGHT VEHICLE SALES:

AUTOS & LIGHT TRUCKS

HOUSEHOLD DEBT SERVICE PAYMENTS

AS A PERCENT OF DISPOSABLE PERSONAL INCOME

THE BUSINESS SECTOR

CORPORATE PROFITS
(WITH INVENTORY VALUATION ADJUSTMENT & CAPITAL CONSUMPTION ADJUSTMENT)

$1,600 $1,400 $1,200 Billions $1,000 $800

$600
$400 $200 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Source: Department of Commerce

SMALL BUSINESS OUTLOOK

PLANNING TO HIRE PEOPLE IN THE NEXT THREE MONTHS
25 20

Net % of Respondents

15 10 5 0 -5

-10
Jan-98

Jan-99

Jan-00

National Federation of Independent Business

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Corporate Hiring Plans: Next 6 Months

Q2-12 More Jobs 36% Q1-12 42% Q4-11 35% Q3-11 36%

Less Jobs

20%

16%

24%

24%

CAPACITY UTILIZATION: MANUFACTURING

INFLATION OUTLOOK

THE ECONOMY: WAGE RATES INCREASE SLOWLY

MONEY SUPPLY AND VELOCITY: HUGE MONETARY BASE COULD FUEL INFLATION

MONEY SUPPLY AND VELOCITY: VELOCITY AT HISTORIC LOW LEVELS

MONEY SUPPLY AND VELOCITY: MONEY SUPPLY BARELY INCREASING

INFLATION RATE: CPI REMAINS LOW DESPITE FOOD/FUEL

WHY INTEREST RATES CANT RISE

Federal budget eaten up with interest payments Underwater, performing CRE loans stop performing FDIC interest costs on securitized CRE causes budget problems for them Fannie, Freddie and Federal Reserve would incur huge paper losses on mortgages they own. All homeowners with ARM loans lose spending power