Economic and Commercial Real Estate Outlook

Lawrence Yun, Ph.D.Chief Economist

NATIONAL ASSOCIATION OF REALTORS®

Presentation at NAR Annual ConferenceCommercial Real Estate & Economic Trends Forum

San Francisco, CA

November 8, 2013

GDP Growth … Unimpressive but no Fresh Recession

(Could be on the verge of recession if not for housing recovery)

U.S. Total Payroll Jobs(8 million lost … 7 million gained)

In thousands

States with Fast Job Growth

State Job Growth Rate1 North Dakota 3.2%2 Utah 2.7%3 Idaho 2.5%4 Texas 2.4%5 Colorado 2.3%6 Minnesota 2.3%7 Georgia 2.1%8 Washington 2.1%9 Arizona 2.0%

10 New Jersey 2.0%

Unemployment Rate

Employment Rate

Labor Force Participation Rate:Record Low for Men and Cyclical Low for Women

(Adults 20 years old and up)

Well Shy of Long Run Trend (6 to 8 million more jobs needed)

In millions

Consumer Spending Growth(2% growth; not 3% or 4%)

Business Spending Growth(3% growth; not sustained 5% to 10%)

Monetary and Fiscal Policies

Monetary Policy by Federal Reserve (zero rate policy to 2015 ?)

%

Federal Reserve Balance Sheet from Quantitative Easing

$ million

Consumer Price InflationLess than 2%

(% change from one year ago)

Rising Renters’ and Homeowners’ Rent Growth (Above 2% and On the Way to 3%)

Household Net Worth

Federal Government Spending(Stimulus … Flat … Decline)

Shrinking Budget Deficit(in $billion)

Federal Government Annual Spending/Revenue

$ trillion

Federal Debt Held By Public(Cumulative Accumulation as % of GDP)

Germany

• Too High Trade Surplus• No Stimulus• Budget Surplus in 2013 (though still has high

debt from prior deficits)• Blame Germany for holding back the World

Economy?

• Or Emulate Germany’s Economic Reforms?

International Sovereign Borrowing CostCountry 10-year Government Borrowing Cost

Japan 0.6%

Switzerland 1.1%

Germany 1.7%

France 2.3%

Canada 2.4%

U.S. 2.5%

Britain 2.6%

China 4.0%

Spain 4.1%

Italy 4.2%

Russia 7.5%

India 8.6%

Greece 8.7%

Brazil 11.6%

Consumer ConfidenceNow and About Future

Productivity and Income DoublingProductivity Growth Years for Income to

Double Examples

1% 72 years U.S. today?

2% 36 years 1970 to 2007 (pre-financial market crash)

3% 24 years U.S. post-war to 1970

5% 14 years Asian Tigers

GDP Forecast

Commercial Market Activity

Transactions Up 27% YoY – 2013 YTD

Source: Real Capital Analytics

CRE Prices Advance – CBD Off & Apt Lead

Source: Real Capital Analytics

Spreads Remain Elevated

Source: Real Capital Analytics

REALTOR® Markets Deal Size

Source: NAR

REALTOR® CRE Markets Rebound

Prices Accelerate in REALTOR® Markets

Small Banks Important to REALTORS®

SIOR Markets in Recovery

CCIM Quarterly Market Trends

Apartment Fundamentals

Apartment Rents

Apartment Vacancy Comparison

Apartment Investments

Source: Real Capital Analytics

Renter Households In thousands

Homeowner Households has not Grown since 2006 … but Primed to Grow

In thousands

Household Formation Bursting Out(in millions)

Office Fundamentals

Office Rents

Office Vacancy Comparison

Office Investments

Source: Real Capital Analytics

Jobs in Professional Business and Financial Services … at New PeakIn millions

Retail Fundamentals

Retail Rents

Retail Vacancy Comparison

Retail Investments

Source: Real Capital Analytics

Jobs in Retail Trade(Still Below Prior Peak)

Spending Effect from Higher Home Prices18% cumulative gains over 2 years

Median Existing Home Price

Industrial Fundamentals

Industrial Rents

Industrial Vacancy Comparison

Industrial Investments

Source: Real Capital Analytics

Jobs in Wholesale Trade(Still Below Prior Peak)

In millions

U.S. International TradeLong-Term Growth

U.S. International TradeBut No Growth in Recent Years

International Dimension

International CRE Investment in U.S.

Source: Real Capital Analytics

Volume of International Transactions (April 2012 to March 2013)

REALTORS® Working With International Clients

• In Past 12 Months, 27 Percent of REALTORS® Have Worked with an International Client.– Clients Residing in Another

Country: 51 Percent.– Clients Residing in this Country:

49 Percent.– A Niche Market on Buyer Side:

Facility with languages and cultures very helpful.

– On Sellers Side—Understanding of foreign cultures helpful.

Percent of Total U.S. International Sales by CountryTop Countries—2013 Report

*China includes PROC, Hong Kong, Taiwan

Top State Destinations—2013 Report

Majority of International Buyers Pay All Cash

Impact of the Value of the Dollar on Foreign Purchases

U.S. Dollar vs. Chinese Yuan(Yuan per $)

U.S. Dollar vs. Euro($ per Euro)

Broad U.S. Dollar Strength/Weakness(Broad Trade Weighted)

REALTORS® Working With International Clients