1 / 35

The Economic Outlook for Real Estate Investors

Explore the economic forecast for real estate investors in 2019 with insights from Dr. Mark G. Dotzour. Learn about industry peaks, corporate earnings, economic indicators, and employment trends. Prepare for a potential slowdown and strategize for the future. Contact mdotzour@gmail.com for more information.

sak
Download Presentation

The Economic Outlook for Real Estate Investors

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Economic Outlook for Real EstateInvestors Dr. Mark G. Dotzour College Station, TX mdotzour@gmail.com

  2. Clear Sailing Ahead A Year Ago

  3. 2018 Has Emerged into An Economic BoomA time of prosperityTo progress swiftly and vigorouslyA sudden increase in growth Six months ago

  4. Beginning our Initial Approachfor this Flight Now

  5. Still at high altitude at rapid speed, starting a gradual descent Not a crash Not touching down

  6. Why 2019 Will Be Slower • Housing industry appears to have peaked • Auto industry appears to have peaked • Smart phone sales declined in 2017 for first time • Low oil prices will pressure oil and gas • Heavy duty trade negotiations with China • Businesses not using tax benefits to expand • Congress won’t be interested in growth • Downdraft in stocks due to lower earnings growth

  7. Why 2019 Will Be Slower • Corporate earnings growth may have peaked • Defense spending may have peaked • Federal budget deficits can’t get too much higher • Companies “buying ahead” inventory in front of tariffs • 3% Interest on the 10-Year Treasury

  8. States With Most Employment GrowthIn the 21st century 2,742,414 Texas 2,031,864 California 1,792,590 Florida 655,684 Arizona 643,179 North Carolina 584,698 Georgia 547,395 Virginia 544,388 Washington 500,825 Colorado

  9. States With Least Employment GrowthIn the 21st century -377,273 Michigan -125,967 Ohio • 56,537 Illinois • 42,461 Mississippi - 28,284 West Virginia 1,499 Rhode Island 8,559 Kentucky 8,661 Maine 11,511 Vermont

  10. San Antonio Business-Cycle Index1983 to present

  11. Texas Leading Index1980 to present Recent weakness due to strong dollar impacts on Texas exports. Source: Federal Reserve Bank of Dallas

  12. Index of Leading Economic Indicators Source: Federal Reserve Bank of St. Louis

  13. Cass Freight Index Cass Freight Index Report – August 2018 “Demand is exceeding capacity in most modes of transportation…pricing power has erupted in those modes to levels that spark inflationary concerns in the broader economy.” “…..many modes are reporting limited amounts of capacity or even no capacity at any price shippers are willing to pay.”

  14. Consumer Confidence IndexAugust 1980 to present Source: The Conference Board

  15. Household Net Worthsince 1980 Now exceeds $109 trillion 3Q/2018 Source: Federal Reserve Bank of St. Louis

  16. Monthly Increase in Jobs2005 to present Source: Bureau of Labor Statistics; Federal Reserve Bank of St. Louis

  17. Rate of Wage Growth1965 to present Source: Federal Reserve Bank of St. Louis

  18. Job Openings in AmericaLooking for Workers Source: Bureau of Labor Statistics BLS release on September 11, 2018

  19. Corporate Profits Corporate profits were up 16.1% in the 2nd quarter. Taxes paid by US companies was down 33% from a year ago. Source: Federal Reserve Bank of St. Louis

  20. Small Business Confidence:“Now is a Good Time to Expand” Source: National Federation of Independent Business

  21. Small Business Confidence:“Hiring Plans in the Next Three Months” Source: National Federation of Independent Business

  22. Large Corporate Hiring Plans: Next 6 Months Source: Business Roundtable

  23. Longest U.S. Economic ExpansionsCurrent expansion began in June, 2009 • Mar 1991 to Mar 2001 120 months • Feb 1961 to Dec 1969 106 months • Nov 1982 to Jul 1990 92 months • Jun 1938 to Feb 1945 80 months • Nov 2001 to Dec 2007 73 months Current expansion as of January 2019 is 115 months HOW LONG CAN IT LAST?

  24. Longest U.S. Economic ContractionsAverage contraction since 1945 lasts 11 months • Dec 2007 to Jun 2009 18 months • Jul 1981 to Nov 1982 16 months • Nov 1973 to Mar 1975 16 months • Dec 1969 to Nov 1970 11 months • Nov 1948 to Oct 1949 11 months Source: National Bureau of Economic Research

  25. Revenue Act of 1964Enacted February 26, 1964 • Recovery from recession of 1958 was slow. • JFK campaigned in 1960 with the slogan of "getting America moving again." • Proposed cutting individual tax rates from a range of 20-91% to 14-65% • Proposed cutting the corporate tax rate from 52% to 47%.

  26. Percentage Change in EmploymentAfter the Kennedy Tax Cuts Enacted Feb1964 Peak Jun 1966 1960 1971 Source: Federal Reserve Bank of St. Louis

  27. Tax Reform Act of 1986Enacted October 22, 1986 Top rate for individuals cut from 50% to 38.5%. Major reduction of depreciation for real estate Raised tax rates on capital gains. Corporate tax rate lowered from 50% to 35%.

  28. Index of Leading Economic IndicatorsAfter Reagan Tax Cuts Peak Nov 1988 Enacted Oct 1986 Source: Federal Reserve Bank of St. Louis

  29. Where Do Interest Rates Go From Here?

  30. The Bond Market Super-CycleTen-Year Treasury rate 1981 to Present 15.84% 36-year decline in the 10-year Treasury rate 1.46% Source: Federal Reserve Bank of St. Louis

  31. The Bond Market Super-CycleTen-Year Treasury rate 1981 to Present 18.37% mortgage 15.84% 36-year decline in the 10-year Treasury rate 3.42% mortgage 1.46% Source: Federal Reserve Bank of St. Louis

  32. End of the Bond Market “Super Cycle”We Will See Q: What is the Effective Lower Bound? A: Fed lowers policy rate back to zero. Q: What else can the Fed do at the ELB? A1: Forward guidance A2: Buy mortgages and treasury bonds Source: Minutes of the Federal Open Market Committee August 2018

  33. Tension Between White House and Fed Truman and McChesney Martin Johnson and McChesney Martin Reagan and Volcker Bush and Greenspan Clinton and Greenspan Trump and Powell

  34. The Neutral Rate of Interest “It is very difficult to know where that so-called neutral rate is. But we probably will know it when we are there because we will observe a certain degree of balance, which we had not perceived before, which would suggest that we are somewhere very close to where that is.” Alan Greenspan, Financial Advisor News, June 9, 2005

  35. Conclusions • Positive job growth will continue to fill commercial real estate space. • Tight supply and limited new single-family construction will continue to fuel demand for apartments. • Industrial demand from e-commerce continues. • Interest rates unlikely to increase further. • Intense appetite for commercial real estate continues. • Little upward pressure on cap rates.

More Related