2015 Residential Market Update Presentation. Stephen Slifer

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The World Has Not Ended!

Stephen SliferNumberNomicswww.NumberNomics.com

The Highlights

The Highlights1. GDP growth moderate – 2.6% -- but uneven.


2. Consumers/housing great. Manuf./trade weak.



3. Labor Market. At full employment.




4. Inflation poised to rise.





5. Fed to raise rates very slowly.





5. Fed to raise rates very slowly.

6. No recession until 2019 at the earliest.

Consumption60%

Government15.0%

Trade10.0%

Investment15%

GDP Components

50.0

60.0

70.0

80.0

90.0

100.0

110.0

Jan 2000 Jan 2002 Jan 2004 Jan 2006 Jan 2008 Jan 2010 Jan 2012 Jan 2014

Consumer Sentiment

Recession

Consumer confidence has held up welldespite fears of slower growth in China.

No sign of slower spending.

$40.0

$45.0

$50.0

$55.0

$60.0

$65.0

$70.0

$75.0

$80.0

$85.0

$90.0

Consumer Net Worth

Net worth is at a record high level andclimbing at about a 5.0% pace.

600

800

1000

1200

1400

1600

1800

2000

2200

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/7/2

015

1/7

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16

S&P 500

The stock market had a 10% correctionin September, recovered, and has declined8% in the early part of this year.

The trigger in both cases has been China.

10

12

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16

18

20

22

24

Jan

20

10

Mar

20

10

May

20

10

Jul 2

01

0

Sep

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10

No

v 2

01

0

Jan

20

11

Mar

20

11

May

20

11

Jul 2

01

1

Sep

20

11

No

v 2

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1

Jan

20

12

Mar

20

12

May

20

12

Jul 2

01

2

Sep

20

12

No

v 2

01

2

Jan

20

13

Mar

20

13

May

20

13

Jul 2

01

3

Sep

20

13

No

v 2

01

3

Jan

20

14

Mar

20

14

May

20

14

Jul 2

01

4

Sep

20

14

No

v 2

01

4

Jan

20

15

Mar

20

15

May

20

15

Jul 2

01

5

Sep

20

15

No

v 2

01

5

Jan

20

16

P/E Ratio -- S&P 500

But in both cases the stock markethad become overvalued.

Probably close to the bottom.

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

-2.7%

-1.7%

-0.7%

0.3%

1.3%

2.3%

Home Prices

Year-Over-Year (R)

Case Shiller Home Price Index

Home prices continue to climb which furtherbolsters net worth.

14.50

15.00

15.50

16.00

16.50

17.00

17.50

18.00

18.50 Financial Obligations Ratio

Trend

Consumer debt in relation to income isthe lowest it has been since the 1980’s.

We have the ability to pick up the paceof spending if we choose to do so.

3.0

4.0

5.0

6.0

7.0

8.0Ja

n-0

0

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Jan

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Jul-

01

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Jul-

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Jan

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Jul-

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Jul-

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Jan

-15

Jul-

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Jan

-16

30-year Mortgage Rate

At 3.9% 30-year mortgage rates are close to the lowest in 50 years.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%A

pr

20

11

Jun

20

11

Au

g 2

011

Oct

20

11

Dec

20

11

Feb

20

12

Ap

r 2

012

Jun

20

12

Au

g 2

012

Oct

20

12

Dec

20

12

Feb

20

13

Ap

r 2

013

Jun

20

13

Au

g 2

013

Oct

20

13

Dec

20

13

Feb

20

14

Ap

r 2

014

Jun

20

14

Au

g 2

014

Oct

20

14

Dec

20

14

Feb

20

15

Ap

r 2

015

Jun

20

15

Au

g 2

015

Oct

20

15

Dec

20

15

Consumer Loans (%)

Consumer Loans (L)

Year-over-year (R)

Consumer loans becoming more easily attainable.

Risen 5.2% in last year. 7.0% in past three months.

-900

-700

-500

-300

-100

100

300

500

Ap

r 1

974

Au

g 1

974

Dec

19

74

Ap

r 1

975

Au

g 1

975

Dec

19

75

Ap

r 1

976

Au

g 1

976

Dec

19

76

Ap

r 1

977

Au

g 1

977

Dec

19

77

Ap

r 1

978

Au

g 1

978

Dec

19

78

Ap

r 1

979

Au

g 1

979

Dec

19

79

Ap

r 1

980

Au

g 1

980

Dec

19

80

Ap

r 1

981

Au

g 1

981

Dec

19

81

Ap

r 1

982

Au

g 1

982

Dec

19

82

Ap

r 1

983

Private Employment

Private Employ.

3-mo. average

Jobs rising by 200 thousand per month.

Jobs generate the income necessaryto boost spending.

$1.80

$2.30

$2.80

$3.30

$3.80

Gasoline Prices

Gasoline prices have declined 70% from theirpeak.

The money saved can be spent on othergoods and services.

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

Consumption spending

Year-over-Year

Consumption Spending (%)

Consumer spending should continue toclimb at about a 3.0% pace during 2016.

What is the Outlook for Housing?

3,300

3,800

4,300

4,800

5,300

Jan

20

08

Ap

r 2

008

Jul 2

00

8

Oct

20

08

Jan

20

09

Ap

r 2

009

Jul 2

00

9

Oct

20

09

Jan

20

10

Ap

r 2

010

Jul 2

01

0

Oct

20

10

Jan

20

11

Ap

r 2

011

Jul 2

01

1

Oct

20

11

Jan

20

12

Ap

r 2

012

Jul 2

01

2

Oct

20

12

Jan

20

13

Ap

r 2

013

Jul 2

01

3

Oct

20

13

Jan

20

14

Ap

r 2

014

Jul 2

01

4

Oct

20

14

Jan

20

15

Ap

r 2

015

Jul 2

01

5

Oct

20

15

Existing Home Sales

The housing market is doing fine.

Existing home sales are close to thefastest pace thus face in the cycle(despite recent drop caused by“Know Before You Owe” rule).

-300

200

700

1,200

1,700

2,200

2,700

Apr2001

Apr2002

Apr2003

Apr2004

Apr2005

Apr2006

Apr2007

Apr2008

Apr2009

Apr2010

Apr2011

Apr2012

Apr2013

Apr2014

Apr2015

Household FormationDuring and after the recession younger adults choseto live at home. Were not forming households.

But now they are venturing out on their own.

They need a place to live. It could be a houseor an apartment.

3,300

3,800

4,300

4,800

5,300

Jan

20

08

Ap

r 2

008

Jul 2

00

8

Oct

20

08

Jan

20

09

Ap

r 2

009

Jul 2

00

9

Oct

20

09

Jan

20

10

Ap

r 2

010

Jul 2

01

0

Oct

20

10

Jan

20

11

Ap

r 2

011

Jul 2

01

1

Oct

20

11

Jan

20

12

Ap

r 2

012

Jul 2

01

2

Oct

20

12

Jan

20

13

Ap

r 2

013

Jul 2

01

3

Oct

20

13

Jan

20

14

Ap

r 2

014

Jul 2

01

4

Oct

20

14

Jan

20

15

Ap

r 2

015

Jul 2

01

5

Oct

20

15

Existing Home Sales

As a result, home sales have surged.

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0Ja

n 2

00

9

Ap

r 2

009

Jul 2

00

9

Oct

20

09

Jan

20

10

Ap

r 2

010

Jul 2

01

0

Oct

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Ap

r 2

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1

Oct

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Jan

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r 2

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Jul 2

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r 2

013

Jul 2

01

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Oct

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Jan

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r 2

014

Jul 2

01

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Oct

20

14

Jan

20

15

Ap

r 2

015

Jul 2

01

5

Oct

20

15

Existing Homes -- Inventory

That pickup in sales has created a shortageof available properties for sales.

Demand continues to exceed supply.

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

-2.7%

-1.7%

-0.7%

0.3%

1.3%

2.3%

Home Prices

Year-Over-Year (R)

Case Shiller Home Price Index

Given strong demand, home prices shouldrise by about 5.0% this year.

4.5

5.5

6.5

7.5

8.5

9.5

10.5

1980:Q1 1985:Q1 1990:Q1 1995:Q1 2000:Q1 2005:Q1 2010:Q1 2015-Q1

Rental Vacancy Rate

There is an acute shortage of rental properties available.

The vacancy rate for rental units is the lowest it hasbeen in 20 years!

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%Ja

n 2

00

7

Ap

r 2

007

Jul 2

00

7

Oct

20

07

Jan

20

08

Ap

r 2

008

Jul 2

00

8

Oct

20

08

Jan

20

09

Ap

r 2

009

Jul 2

00

9

Oct

20

09

Jan

20

10

Ap

r 2

010

Jul 2

01

0

Oct

20

10

Jan

20

11

Ap

r 2

011

Jul 2

01

1

Oct

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11

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Ap

r 2

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01

2

Oct

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Ap

r 2

013

Jul 2

01

3

Oct

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20

14

Ap

r 2

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Jul 2

01

4

Oct

20

14

Jan

20

15

Ap

r 2

015

Jul 2

01

5

Oct

20

15

Shelter -- Rent

The shortage of available housing Is pushing up rents.

They are currently rising at 3.2% pace.

525

725

925

1125

1325

1525

1725

1925

Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016

Housing Starts

Trend

Housing Starts (Projected)

Builders have been trying to step up the paceof production but cannot find enough skilled workers.

Should continue to climb to perhaps 1.5 million by the end of 2016.

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jan

20

05

May

20

05

Sep

20

05

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20

06

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20

06

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15

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Sep

20

15

Car & Truck SalesIn addition to home sales, car and trucksales have been soaring. Fastest pace in adecade. This is a big deal.

Houses and cars are the two biggest ticketitems in the consumer’s budget.

Consumption60%

Government15.0%

Trade10.0%

Investment15%

GDP Components

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Nonresidential Invest.

Year-over-year

Nonresidential Investment

Investment spending had been cruising alongat about an 8% pace until October of 2014.slowed dramatically

But oil prices collapsed which weakened spending in the oil patch.

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Crude Oil Spot Prices

Oil prices have dropped 70% from $107 per barrel in October 2014 to $33 per barrel.

650

850

1050

1250

1450

1650

1850

2050

2250

Rig Count

As oil prices dropped producers shut down 65% of the oil rigs in operation since October 2014.

They cut spending on oil drilling equipment and services,oil exploration and research.

Big hit on investment spending portion of the economy.

3800

4800

5800

6800

7800

8800

9800

Jan

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, 20

07

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, 20

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, 20

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, 20

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, 20

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, 20

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, 20

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, 20

15

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, 20

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, 20

15

Crude Oil Production

But despite fewer wells in operation, oilproduction has doubled since 2007.

That is a permanent increase in the supplyof oil which implies permanently lower prices

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Oil prices will no longer trade between $80-110 per barrel.

New range should be between $30-60 per barrel.

$30

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$120

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The EIA expects oil prices to rise to around $50 per barrel in 2016. If so, then the drop in the energy sector is behind us.

But is that forecast right?

If so, the drop in oil prices is behind us.

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Nonresidential Invest.

Year-over-year

Nonresidential Investment

If the oil sector stabilizes we expect nonresidential investment to climb byabout 4.5% in 2016.

Consumption60%

Government15.0%

Trade10.0%

Investment15%

GDP Components

-800.000

-700.000

-600.000

-500.000

-400.000

-300.000

-200.000

20

07

q1

20

07

q3

20

08

q1

20

08

q3

20

09

q1

20

09

q3

20

10

q1

20

10

q3

20

11

q1

20

11

q3

20

12

q1

20

12

q3

20

13

q1

20

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q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

-Q1

20

16

-Q3

Net Exports

The trade deficit has widened and should continue to widen in 2016

Two reasons for this.

5

6

7

8

9

10

11

12

13

14

15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

China -- GDP %

Chinese growth has slowed from a double-digitpace a couple years ago to 6.8% last year and to6.3% in 2016.

We believe the bulk of the slowdown is behind us.

But markets worry that growth could be muchslower than anticipated. We are not so sure.

1700

2200

2700

3200

3700

4200

4700

5200

5700

Shanghai Composite

Fear of extremely slow growth triggered a 40% drop in the Chinese stock market last summer and a renewed drop early this year.

But from October 2014 until June it rose 135%.

Its current level is 40% higher than where it was in October 2014.

A 40% increase in 15 months does not suggest that the Chinese economy is collapsing.

Also, Alibaba sold $10 billion in a single day.

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

Jan2001

Jan2002

Jan2003

Jan2004

Jan2005

Jan2006

Jan2007

Jan2008

Jan2009

Jan2010

Jan2011

Jan2012

Jan2013

Jan2014

Jan2015

Jan2016

Trade-weighted Value of the Dollar

Second, the dollar has risen 20% during the course of the past 18 months.

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

Jan2001

Jan2002

Jan2003

Jan2004

Jan2005

Jan2006

Jan2007

Jan2008

Jan2009

Jan2010

Jan2011

Jan2012

Jan2013

Jan2014

Jan2015

Jan2016


Makes U.S. exports more expensive for foreigners to buy.Makes foreign goods cheaper for Americans to buy.

Slower growth in exports, faster growth in imports.

Why has the dollar risen?

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

Jan2001

Jan2002

Jan2003

Jan2004

Jan2005

Jan2006

Jan2007

Jan2008

Jan2009

Jan2010

Jan2011

Jan2012

Jan2013

Jan2014

Jan2015

Jan2016


Global nervousness is likely to continue.

Global GDP growth favors U.S. vs. rest of the world.

Rising U.S. interest rates and falling rates elsewhere will also cause the dollar to strengthen.

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

Jan 2001 Jul 2002 Jan 2004 Jul 2005 Jan 2007 Jul 2008 Jan 2010 Jul 2011 Jan 2013 Jul 2014 Jan 2016


The dollar rose 20% in the past 18 months andis expected to climb an additional 7% this year.

-800.000

-700.000

-600.000

-500.000

-400.000

-300.000

-200.000

20

07

q1

20

07

q3

20

08

q1

20

08

q3

20

09

q1

20

09

q3

20

10

q1

20

10

q3

20

11

q1

20

11

q3

20

12

q1

20

12

q3

20

13

q1

20

13

q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

-Q1

20

16

-Q3

Net Exports

If the dollar strengthens a bit more:

The deficit for next exports subtracted 0.7%from GDP growth in 2015.

Should subtract 0.3% from growth in 2016.

Consumption60%

Government15.0%

Trade10.0%

Investment15%

GDP Components

-17.0%

-12.0%

-7.0%

-2.0%

3.0%

8.0%

13.0%

Federal Government

Year-over-year

Federal Government

Federal government spending shouldbe little changed in the quarters ahead.

Consumption60%

Government15.0%

Trade10.0%

Investment15%

GDP Components

2015-2016 Forecasts

2014 2015 2016GDP 2.5% 2.3% 2.6%

The days of 3.5% GDP Growth are Over –

2.0% More Likely

Economic Speed Limit

Growth in Labor Force + Productivity


Labor Force + Productivity = Speed Limit1990’s

1.5% + 2.0% = 3.5%



1.5% + 2.0% = 3.5%

20150.5% + 1.5% = 2.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Jan

19

90

Jan

19

91

Jan

19

92

Jan

19

93

Jan

19

94

Jan

19

95

Jan

19

96

Jan

19

97

Jan

19

98

Jan

19

99

Jan

20

00

Jan

20

01

Jan

20

02

Jan

20

03

Jan

20

04

Jan

20

05

Jan

20

06

Jan

20

07

Jan

20

08

Jan

20

09

Jan

20

10

Jan

20

11

Jan

20

12

Jan

20

13

Jan

20

14

Jan

20

15

Labor Force

In the 1990’s the labor force grew by about 1.5%.

Today is growing by 0.5%. Why?

The baby boomers are retiring.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1990-Q1 1993-Q1 19946Q1 1999-Q1 2002-Q1 2005-Q1 2008-Q1 2011-Q1 2014-Q1

Nonfarm Productivity

In the 1990’s the productivity grew by about 2.0%.

Today is barely growing. Not clear why so slow.

Longer-term 1.5%?



1.5% + 2.0% = 3.5%

20150.5% + 1.5% = 2.0%

Don’t Worry About SlowerGrowth in Productivity

Technology Gains Will Keep Economy Going

Technology Gains Will Keep Economy Going

1. Oil Industry2. Uber – 2010, 58 countries, 300 cities3. The Cloud4. Apps5. Bio-technology6. Nano-technology7. 3-D Printing

Private Sector is Doing Just Fine

Our Biggest Business is Government

Our Biggest Business is Government

It Refuses to Change

The Genie Is Out of the Bottle

Embrace Technology -- Thrive

Fight It -- Struggle

2015-2016 Forecasts

2014 2015 2016GDP 2.5% 2.3% 2.6%

Let’s Talk Jobs

-900

-700

-500

-300

-100

100

300

500

Ap

r 1

974

Au

g 1

974

Dec

19

74

Ap

r 1

975

Au

g 1

975

Dec

19

75

Ap

r 1

976

Au

g 1

976

Dec

19

76

Ap

r 1

977

Au

g 1

977

Dec

19

77

Ap

r 1

978

Au

g 1

978

Dec

19

78

Ap

r 1

979

Au

g 1

979

Dec

19

79

Ap

r 1

980

Au

g 1

980

Dec

19

80

Ap

r 1

981

Au

g 1

981

Dec

19

81

Ap

r 1

982

Au

g 1

982

Dec

19

82

Ap

r 1

983

Private Employment

Private Employ.

3-mo. average

Jobs rising by 200 thousand per month.

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0 Unemployment Rate

Full Employment

The unemployment rate has fallenmore rapidly than expectedand now stands at 5.0%.

But Yellen says this rate is misleading.

It does not include people who are“underemployed”.

200

400

600

800

1000

1200Ja

n-0

5

May

…

Sep

-…

Jan

-06

May

…

Sep

-…

Jan

-07

May

…

Sep

-…

Jan

-08

May

…

Sep

-…

Jan

-09

May

…

Sep

-…

Jan

-10

May

…

Sep

-…

Jan

-11

May

…

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-…

Jan

-12

May

…

Sep

-…

Jan

-13

May

…

Sep

-…

Jan

-14

May

…

Sep

-…

Jan

-15

May

…

Sep

-…

Jan

-16

Discouraged Workers

“Discouraged workers” are peoplewho have been searching for a job forso long that they have given up looking.

Higher than it was at beginning of recession.

4000

5000

6000

7000

8000

9000

10000

Part Time - Economic Reasons

Also includes people who are workingpart time but would like a full time position.

Also higher than it was at beginning of recession.

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

Broad vs. Official Unemploy. Rate

Yellen says we are supposed to be watchingthe broad unemployment rate which includesall these people.

It is at 9.9%; official rate is at 5.0%.

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0


The broad rate is always much higher thanthe official rate.

If full employment for the official rate is 5.0%then full employment for the broad measureshould be about 9.0%.

The broad measure is at 9.9%.

3.0

4.0

5.0

6.0

7.0

8.0

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10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0


Full Employment

Full Employment

By midyear both unemploymentrates will be below full employment.

1.5

2.0

2.5

3.0

3.5

4.0

Jan

20

07

May

20

07

Sep

20

07

Jan

20

08

May

20

08

Sep

20

08

Jan

20

09

May

20

09

Sep

20

09

Jan

20

10

May

20

10

Sep

20

10

Jan

20

11

May

20

11

Sep

20

11

Jan

20

12

May

20

12

Sep

20

12

Jan

20

13

May

20

13

Sep

20

13

Jan

20

14

May

20

14

Sep

20

14

Jan

20

15

May

20

15

Sep

20

15

Job Openings and Hires

Openings

Hires

Job openings are rising fast.

Hires are rising but more slowly

55.0%

65.0%

75.0%

85.0%

95.0%

105.0%

115.0%

Dec2000

Dec2001

Dec2002

Dec2003

Dec2004

Dec2005

Dec2006

Dec2007

Dec2008

Dec2009

Dec2010

Dec2011

Dec2012

Dec2013

Dec2014

Openings /Hires RatioThe ratio of openings/hires has never been higher.

Plenty of jobs available.

But the unemployed and underemployed workers that are available do not have the skill set thatemployers today are seeking.

Can only be solved by education. Takes time.

2015-2016 Forecasts

2014 2015 2016GDP 2.5% 2.3% 2.6%Unemploy. Rate 5.6% 5.0% 4.6%

Why Will Inflation Accelerate?

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0


Full Employment

Full Employment

With the economy at full employmentlabor costs have begun to rise.

Firms have to poach workers from other firmsvia higher wages or more attractive benefits.

Wages represent 2/3 of a firm’s total cost.

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

20

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q2

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q3

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q3

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q2

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q3

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q4

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-Q3

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-Q4

20

15

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-Q2

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15

-Q4

Employment Cost IndexEmploy. Cost Index

Year-over-Year

The employment cost index has climbedfrom 1.6% a year ago to 2.0% and ispoised to climb further.

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4.0%Ja

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Shelter -- RentThe shortage of available housing Is pushing up rents.

They are currently rising at 3.2% pace.

Rents are 1/3 of the entire CPI.

90

110

130

150

170

190

210O

ct 2

01

0

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Ap

r 2

011

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g 2

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r 2

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Au

g 2

012

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Ap

r 2

013

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Au

g 2

013

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Dec

20

13

Feb

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14

Ap

r 2

014

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20

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Au

g 2

014

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14

Dec

20

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Feb

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15

Ap

r 2

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g 2

015

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Dec

20

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Feb

20

16

Commodities

Non-fuel

Commodity Prices -- All vs. Non-Fuel

Commodity prices are the remaining 1/3 of a firm’s costs.

While oil prices have been falling, commodity pricesother than oil – copper, lead, zinc, gold, silver, beef, fish--have also been falling.

Partly caused by slower growth in China.

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Feb

20

07

May

20

07

Au

g 2

007

No

v 2

00

7

Feb

20

08

May

20

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Au

g 2

008

No

v 2

00

8

Feb

20

09

May

20

09

Au

g 2

009

No

v 2

00

9

Feb

20

10

May

20

10

Au

g 2

010

No

v 2

01

0

Feb

20

11

May

20

11

Au

g 2

011

No

v 2

01

1

Feb

20

12

May

20

12

Au

g 2

012

No

v 2

01

2

Feb

20

13

May

20

13

Au

g 2

013

No

v 2

01

3

Feb

20

14

May

20

14

Au

g 2

014

No

v 2

01

4

Feb

20

15

May

20

15

Au

g 2

015

No

v 2

01

5

Feb

20

16

May

20

16

Au

g 2

016

No

v 2

01

6

CPIEx Food & Energy

CPI -- Projected

CPI getting upward boost because of rising wagesand rents, partly offset by falling commodity prices.

If oil prices level off, inflation is poised to rise.

2015-2016 Forecasts

2014 2015 2016GDP 2.5% 2.3% 2.6%Unemploy. Rate 5.6% 5.0% 4.6%Inflation Rate 1.6% 2.2% 2.4%

What Is the Fed Going to Do?

The Fed Will Raise Rates Rise Slowly

In Conclusion

2014 2015 2016GDP 2.5% 2.3% 2.6%Unemploy. Rate 5.6% 5.0% 4.6%Inflation Rate 1.6% 2.2% 2.4%Fed Funds Rate 0.1% 0.3% 1.5%

0

1

2

3

4

5

6

7

8

9

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

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

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Fed Funds Rate -- ProjectedIf the Fed raises rates slowly it will takeuntil late 2018 for rates to be “neutral”.

How high is “neutral”?

A “neutral rate” should be about 3.5%.

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Jan

-61

Au

g-6

2

Mar

-64

Oct

-65

May

-67

Dec

-68

Jul-

70

Feb

-72

Sep

-73

Ap

r-7

5

No

v-76

Jun

-78

Jan

-80

Au

g-8

1

Mar

-83

Oct

-84

May

-86

Dec

-87

Jul-

89

Feb

-91

Sep

-92

Ap

r-9

4

No

v-9

5

Jun

-97

Jan

-99

Au

g-0

0

Mar

-02

Oct

-03

May

-05

Dec

-06

Jul-

08

Feb

-10

Sep

-11

Ap

r-1

3

No

v-1

4

Real Funds Rate

If Fed has an inflation target of 2.0%, a neutral ratewould be 1.5% higher than that or 3.5%.

Over the past 50 years the funds ratehas averaged 1.5% higher than inflation.

0

1

2

3

4

5

6

7

8

9

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

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Jan

-97

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

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Fed Funds Rate -- Projected

If the Fed begins to raise rates in Decemberand raises rates slowly thereafter it will takeuntil late 2018 for rates to be “neutral”.

A “neutral rate” should be about 3.5%.

0.0

5.0

10.0

15.0

20.0 Fed Funds Rate

The U.S. economy has never goneinto recession unless the funds ratehas been higher than “neutral”.

0

1

2

3

4

5

6

7

8

9

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

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

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Fed Funds Rate -- Projected

If the Fed begins to raise rates in Decemberand raises rates slowly thereafter it will takeuntil late 2018 for rates to be “neutral”.

Earliest date for a recession? 2019?

The longest expansion on record

In Conclusion

2014 2015 2016GDP 2.5% 2.3% 2.6%Unemploy. Rate 5.6% 5.0% 4.6%Inflation Rate 1.6% 2.2% 2.4%Fed Funds Rate 0.1% 0.3% 1.5%10-year Note 2.2% 2.2% 2.8%30-year Mortgage 3.9% 4.0% 4.5%

Not Too Shabby

2015 Residential Market Update Presentation. Stephen Slifer

Real Estate

Transcript of 2015 Residential Market Update Presentation. Stephen Slifer