The Economic Outlook for Real Estate Investors and Decision

Makers

Dr. Mark G. DotzourChief Economist

Real Estate Center at Texas A&M UniversityCollege Station, Texas

Read Dotzour Blogs at http://blog.recenter.tamu.edu/

Topics for Today

•The outlook for job growth and the economy•The investment environment

Austin Business-Cycle Index

Employment Growth Rates

-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.0

Feb-05M

ay-05Aug-05N

ov-05Feb-06M

ay-06Aug-06N

ov-06Feb-07M

ay-07Aug-07N

ov-07Feb-08M

ay-08Aug-08N

ov-08Feb-09M

ay-09Aug-09N

ov-09Feb-10M

ay-10Aug-10N

ov-10Feb-11M

ay-11Aug-11N

ov-11Feb-12M

ay-12Aug-12N

ov-12Feb-13M

ay-13Aug-13N

ov-13

U.S. Texas Austin

AUSTIN – ROUND ROCK – SAN MARCOS EMPLOYMENT

Industry Dec-13 Dec-12 %ChangeTotal Nonfarm 865,900 842,200 2.81%Mining/Logging/Construct. 45,500 43,500 4.60%Manufacturing 51,200 51,300 -0.19%Wholesale Trade 46,400 44,800 3.57%Retail Trade 97,500 95,300 2.31%Trans/Warehse/Util. 15,000 14,300 4.90%Information 22,900 22,200 3.15%Financial Activities 46,600 46,100 1.08%Prof./Bus.Serv. 138,200 127,400 8.48%Education/Health 101,800 99,700 2.11%Leisure/Hospitality 98,600 94,800 4.01%Government 165,800 167,000 -0.72%Federal 10,700 11,000 -2.73%State 73,400 73,900 -0.68%Local 81,700 82,500 -0.97%

Existing Home SalesAustin

1000

1500

2000

2500

3000

3500

4000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

2012

20132014

Source: Real Estate Center

Inventory of Unsold HomesAustin

1

2

3

4

5

6

7

8

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-14M

onth

s

Source: Real Estate Center

`

Jan. 1997 to present

Single-Family Building Permits Austin, TX

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Source: Real Estate Center

9,240 through Dec., 2013

Multi-Family Building Permits5+ Units per Building

Austin, TX

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Source: Real Estate Center - Permits for Buildings with 5+ Units

11,509 through Dec., 2013

Job Openings in AmericaLooking for Workers

Source: Bureau of Labor Statistics BLS release on Feb. 11, 2014

Total Job Openings 3,990,000Construction 143,000

Manufacturing 297,000Trade, Transportation, Utilities 773,000Professional & Business Services 721,000Education & Health Care 592,000Leisure & Hospitality 550,000Government 346,000

Source: The Conference Board

Consumer Confidence Index

30405060708090

100110120130140150

Aug-00Feb-01Aug-01Feb-02Aug-02Feb-03Aug-03Feb-04Aug-04Feb-05Aug-05Feb-06Aug-06Feb-07Aug-07Feb-08Aug-08Feb-09Aug-09Feb-10Aug-10Feb-11Aug-11Feb-12Aug-12Feb-13Aug-13

Personal Consumption Expenditures

General Merchandise Retail SalesSame Store Sales % Change from Year Earlier

-5

-3

-1

1

3

5

7

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

Source: Redbook Instinet Research Updated 2/14/14 Haver

Consumers Paying Down Debtfor First Time in 50 Years

Household Net Worth RecoveringAfter Stock Market Rally

Households Have Lost Almost $8 Trillion in Real Estate Equity

Light Weight Vehicle Sales: Autos & Light Trucks

Internet Sales Exploding

Household Debt Service Payments as a Percent of Disposable Personal Income

The Business Sector

Corporate Profits(With Inventory Valuation Adjustment &

Capital Consumption Adjustment)

$200$400$600$800

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

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Billi

ons

Source: Department of Commerce

National Federation of Independent Business Updated 2/14/14 Haver

Small Business Outlook“Planning To Hire People In The Next Three

Months”

-10

-5

0

5

10

15

20

25

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-14N

et %

of R

espo

nden

ts

Q4-13 Q3-13 Q2-13 Q1-13

More Jobs 34% 32% 32% 29%

Less Jobs 22% 24% 26% 25%

Corporate Hiring Plans:Next 6 Months

Source: Business Roundtable

Manufacturers’ New Orders:Nondefense Capital Goods Excluding Aircraft

Capacity Utilization: Manufacturing

The Government Sector

Federal Government Employment

State Government Employment

Local Government Employment

The Economy:Wage Rates Increase Slowly

Money Supply and Velocity:Actual Money Supply Increasing Modestly

Inflation Rate:CPI Remains Low Despite Food/Fuel

University of Michigan Inflation Expectation

People Who Plan to Buy a Homein the Next Six Months

0.0

2.0

4.0

6.0

8.0

10.0

12.0

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%

of R

espo

nden

ts

Source: The Conference Board Updated 2/14/14 Haver

Builders Sentiment “Current Sales Are Good”

5152535455565758595

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%

of R

espo

nden

ts

Source: National Association of Home Builders

Updated 2/14/14 Haver

The Investment Environment

Source: Standard and Poor’s

Corporate Earnings Per Share S&P 500 Operating Earnings

-$5

$0

$5

$10

$15

$20

$25

$30

Q1-95

Q4-95

Q3-96

Q2-97

Q1-98

Q4-98

Q3-99

Q2-00

Q1-01

Q4-01

Q3-02

Q2-03

Q1-04

Q4-04

Q3-05

Q2-06

Q1-07

Q4-07

Q3-08

Q2-09

Q1-10

Q4-10

Q3-11

Q2-12

Q1-13

Margin DebtDebit Balances at Broker/Dealers

100000

150000

200000

250000

300000

350000

400000

450000

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

Mill

ions

Source: Standard and Poor’s

Updated 2/14/14

Haver

Mar 2000 Dow 11,234Mar 2001 Dow 9,106Mar 2002 Dow 7,415

Jul 2007 Dow 14,021Jul 2008 Dow 10,827Jul 2009 Dow 8,087