[PPT] - Im just glad the Election is over Elliott D. Pollack & Company PowerPoint Presentation

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Elliott D. Pollack & Company

“I’m just glad the Election is over”

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Elliott D. Pollack & Company

Bef Befor

re No

e Nov. 8th . 8th 2017 2017: T : The Y he Year o ear of the the Snail Economy (Again!). Snail Economy (Again!).

Pinal Pinal Par artner tnership ship

December 9th, 2016 Presented By: Elliott D. Pollack CEO, Elliott D. Pollack & Company

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Elliott D. Pollack & Company

After After No

Nov. 8th

. 8th Will T ill Trump M ump Mak ake a D e a Dif iffer erence ence? You Bet!

u Bet!

Pinal Pinal Par artner tnership ship

December 9th, 2016 Presented By: Elliott D. Pollack CEO, Elliott D. Pollack & Company

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If done correctly, his economic policies can make a huge difference.

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Can the Expansion Last?

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Yes!

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Is the Sky Falling?

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Most Likely, No.

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United States Real Gross Domestic Product*

Annual Growth 1970 - 2017**

Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators

0.2% 3.3% 5.2% 5.6%

0.5%-0.2%

5.4% 4.6% 5.6% 3.2%

0.2%

2.6%

1.9%

4.6% 7.3% 4.2% 3.5% 3.5% 4.2% 3.7% 1.9%

0.1%

3.6% 2.7% 4.0% 2.7% 3.8% 4.5% 4.5% 4.8% 4.1% 0.9% 1.8% 2.8% 3.8% 3.4% 2.7% 1.8%

0.3%
2.8%

2.5% 1.6% 2.2% 1.7% 2.4% 2.6% 1.5% 2.2%

4%
2%

0% 2% 4% 6% 8%

1 9 7 1 9 7 2 1 9 7 4 1 9 7 6 1 9 7 8 1 9 8 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 2 2 2 4 2 6 2 8 2 1 2 1 2 2 1 4 2 1 6

* Based on chained 2009 dollars. ** 2016 and 2017 are a forecast from the Blue Chip Economic Indicators, November 2016.

Recession Periods 3.5% = 40-year avg. during expansion 3.0% = 20-year avg. during expansion

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Expansion Period # of Months

October 1949 – July 1953 45 May 1954 – August 1957 39 April 1958 – April 1960 24 February 1961 – December 1969 106 November 1970 – November 1973 36 March 1975 - January 1980 58 July 1980 – July 1981 12 November 1982 – July 1990 92 March 1991 – March 2001 120 November 2001 – December 2007 73 June 2009 - Present 90

U.S. BUSINESS CYCLE EXPANSIONS

Source: National Bureau of Economic Research

*Data through December 2016

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Expansion Period

Avg. Growth Rate

October 1949 – July 1953 6.4% May 1954 – August 1957 3.8% April 1958 – April 1960 6.2% February 1961 – December 1969 4.9% November 1970 – November 1973 4.4% March 1975 - January 1980 4.5% July 1980 – July 1981 3.2% November 1982 – July 1990 4.3% March 1991 – March 2001 3.6% November 2001 – December 2007 2.8% June 2009 - Present 2.1%

Average Annualized Quarterly Growth Rates During Economic Expansions 1949 – 2016*

Source: Bureau of Economic Analysis, National Bureau of Economic Research

*Data through the third quarter 2016

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RISKS

Higher now that we are deeper into

the expansion.

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But, the Expansion can last.

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Where We Stand–

The expansion is starting to show signs
f middle age.

12 YOU ARE SOMEWHERE AROUND HERE

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Expansions don't die

f old age.

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As recoveries get older, they become more vulnerable to shocks... …Just as people get older they become more vulnerable to diseases.

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They die because an economy becomes vulnerable to exogenous shocks or asset bubbles or a tightening in the credit market.

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U.S. Leading Indicators

1960 – 2016*

Source: The Conference Board Recession Periods

50 60 70 80 90 100 110 120 130

*Data through October 2016

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Consumer Confidence 1978 – 2016*

Source: The Conference Board

Recession Periods

20 30 40 50 60 70 80 90 100 110 120 130 140 150

*Data through November 2016

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Treasury Spread:

10 year bond rate less 3 month bill rate 1959 – 2016*

Source: Federal Reserve Bank of New York

Recession Periods

4
3
2
1

1 2 3 4 5 *Data through December 2016 18

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Treasury Spread:

Recession Probabilities 1960 – 2017*

Source: Federal Reserve Bank of New York

Recession Periods 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% *Data through November 2017

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Excess inventory, mainly in autos.

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Average Age of Auto Fleet (all light vehicles)

2016 – 11.6 years
2015 – 11.5 years
2014 – 11.4 years
2010 – 10.6 years
2005 – 9.5 years
2000 – 8.9 years
1995 – 8.4 years

Source: R.L. Polk Company, IHS 21

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Consumers

Debt burden low

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Financial Obligation Ratio* 1980 – 2016**

Source: Federal Reserve

14.0% 15.0% 16.0% 17.0% 18.0% 19.0%

1980 Q1 1981 Q1 1982 Q1 1983 Q1 1984 Q1 1985 Q1 1986 Q1 1987 Q1 1988 Q1 1989 Q1 1990 Q1 1991 Q1 1992 Q1 1993 Q1 1994 Q1 1995 Q1 1996 Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 *Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income. **Data through the second quarter 2016

Recession Periods

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U.S. Consumer Credit 1980 – 2016*

Source: Federal Reserve

Revolving credit remains more than $40.5 billion below its 2008 peak.

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Non-Revolving Credit Revolving Credit (Trillions)

Recession Periods *Data through October 2016

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Consumer Liquidity Improving

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No irrational exuberance

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Net worth improved

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Real income growth

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Inflation low

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No capacity issues

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Government

Not a drag on economy

TOO BUSY TO MESS UP THE COUNTRY TODAY

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Fed policy still expansive

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Housing

Prices up, but modestly

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Conclusion

The possibility of a recession today is

higher than it was earlier in the cycle. But Still Low!

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“Thank goodness the election is

ver!”

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The Effect of the Election

President Trump and a Republican

congress This could get interesting

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Price Changes

GDP Implicit Price Deflator
2008: 99.2
2016: 111.1
Increase of 12%
CPI
2008: 215.2
2016: 239.4
Increase of 11.2%

*2016 data YTD average

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Obama Administration’s Legacy

Military Budget Outlays
FY 2008: $594.7 billion
FY 2016: $565.4 billion
Decrease of 5%

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Obama Administration’s Legacy

Social Security, Medicaid and Medicare
FY 2008: $1.5 trillion (10.3% of GDP)
FY 2016: $2.4 trillion (13.0% of GDP)
Increase of 53%

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Obama Administration’s Legacy

Federal Outlays
FY 2008: $3.0 trillion
FY 2016: $3.9 trillion
Increase of 30%
Total Public Debt Outstanding
FY 2008: $ 10.0 trillion
FY 2016: $ 19.5 trillion
Increase of 95%

If interest rates go up 100 basis points, the Treasury will pay $195 billion more in interest on the debt. 40

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Long term growth is positively affected by:

Lower Tax Rates
Less Burdensome and Capricious

Regulation

Limit legislation that creates Quasi-

monopolies (Crony Capitalism)

Reduce Barriers to International Trade
Reduce Barriers to Credit Creation

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President Trump’s Plan

Lower Personal Taxes
3 brackets down from 7
<$50,000 0%
$50,000 to $75,000 12%
$75,000 to $225,000 25%
>$225,0000 33%
Max rate 33%, down from 39.6%
Lowest rate 12%, down from 15%
Higher standard deductions
Cap on itemized deductions

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President Trump’s Plan

Corporate taxes rate goes to 15% from

39%

Repatriated profits pay a 10% tax

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President Trump’s Plan

Reduce regulation

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President Trump’s Plan

Limit ability of former members of cabinet

& congress to lobby

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President Trump’s Plan

End parts of Dodd-Frank that inhibit

lending.

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President Trump’s Plan

FED?

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President Trump’s Plan

Massive infrastructure spending
Opening oil, gas & coal

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President Trump’s Plan

International Trade is the biggest Potential

problem with his Plan.

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What keeps me up at night?

1. Trade War
2. How close to full employment are we?

How many people who left the labor force will come back?

3. Elasticity of tax revenues due to tax cuts.
4. 138 months expansion? Any recession is

likely to be mild

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Share of Total Non-farm Employment

Source: Bureau of Labor Statistics

Industry Manufacturing Professional and Business Services Educational and Health Services 1975 21.9% 7.8% 7.1% 1980 20.7% 8.3% 7.8% 1985 18.3% 9.1% 8.9% 1990 16.2% 9.9% 10.1% 1995 14.7% 10.9% 11.4% 2000 13.1% 12.6% 11.6% 2005 10.6% 12.6% 13.2% 2010 8.8% 12.8% 15.3% 2015 8.7% 13.9% 15.5%

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What to Expect Under President Trump

Faster Growth
GDP
Jobs
Higher Interest Rates
Higher Inflation
Higher after Tax Profits
Deficit??
International Trade??
Construction Labor??

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What to Expect Under President Trump

Larger Military
Higher Spending on Weapons
Some Allies pay for Protection
Carried Interest goes away
Estate Taxes mostly go away
Political Correctness declines
Recession in the next 4 years??

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President Trump’s Plan

We’re facing the potential for a significant

change in Economic Growth

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Arizona and Greater Phoenix

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Employment Growth

From Bottom of Recession to Now Seasonally Adjusted

Source: BLS

Area % Change % of Arizona Growth 2015 Annual Wages United States 11.2% $52,876 Arizona 14.5% 100.0% $47,492 Greater Phoenix 17.5% 85.4% $49,903 Greater Tucson 7.4% 7.6% $41,676 Balance of State 7.2% 7.0% $35,733

Note: Start of Recession Sept. 2010 to October 2016 Wages for Private industries

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Arizona and Greater Phoenix

The State has had a significant recovery in both absolute and relative terms. It is only when we compare ourselves to previous recoveries that we look so bad.

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The World has Changed…

Pre-2007 Post-2007

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Year Rank 2005 2 2006 2 2007 17 2008 46 2009 49 2010 49 2011 27 2012 8 2013 9 2014 17 2015 11 2016* 8 Year Rank 1993 5 1994 2 1995 2 1996 2 1997 2 1998 1 1999 2 2000 5 2001 9 2002 10 2003 4 2004 2

Arizona Employment Growth Arizona’s Rank Out of 50 States

Source: Arizona State University, U.S. Bureau of Labor Statistics

* YTD October 2016 vs. YTD October 2015 59

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Year Rank # MSA’s 2005 1 26 2006 1 27 2007 10 29 2008 25 29 2009 23 24 2010 23 23 2011 14 25 2012 10 28 2013 7 29 2014 15 31 2015 11 32 2016* 7 33 Year Rank # MSA’s 1993 2 19 1994 1 19 1995 1 20 1996 1 21 1997 2 22 1998 1 23 1999 3 24 2000 7 25 2001 7 26 2002 5 25 2003 3 25 2004 3 25

Phoenix-Mesa-Scottsdale Employment Growth

(Ranking among all metro areas greater than 1,000,000)

Source: Arizona State University, U.S. Bureau of Labor Statistics

*YTD October 2016 vs. YTD October 2015 60

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Why has Arizona growth in this cycle been subpar relative to its historical norm?

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(1) Sub normal national recovery (2) Slowdown in population flows Nationally and in Greater Phoenix

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What has changed?

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Growth itself is an economic driver in Arizona and Greater Phoenix–

People moving to the State creates demand for goods and services that create more jobs. When you grow around 1.6% instead of 3.2%, the part of the economy that is based on servicing new people shrinks.

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Greater Phoenix Unemployment Rate 1990 – 2016*

Source: Bureau of Labor Statistics

Recession Periods

2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

*Data through October 2016 65

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Employment Growth

From Bottom of Recession (Start of Recovery) Greater Phoenix Employment, Seasonally Adjusted

Source: BLS

Recession Emp. Trough 73 mos. Later % Growth

Avg. Monthly

Gain 1974-1975 Dec-74 Jan-81 46.5% 0.65% 1981-1982 Sep-82 Oct-88 44.1% 0.62% 1991 Aug-91 Sep-97 38.9% 0.55% 2001 Dec-01 Jan-08 21.3% 0.30% 2007-2009 Sep-10 Oct-16 17.5% 0.25%

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Population Growth after Recessions

Greater Phoenix

Source: ADOA

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Start of Recovery Population Population 6 years later % Growth

Avg. Annual

Growth 1975 1,337,700 1,658,988 24.0% 4.0% 1981 1,658,988 2,102,571 26.7% 4.5% 1991 2,301,825 2,900,325 26.0% 4.3% 2001 3,360,062 4,087,390 21.6% 3.6% 2009 4,186,130 4,482,906 7.1% 1.2%

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Fewer people mean fewer houses & less commercial construction.

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Greater Phoenix Employment* Annual Percent Change 1976–2017**

Source: Arizona Department of Administration

4.9% 8.7% 13.3% 10.4% 3.7% 3.0%

0.1%

5.8% 11.2% 9.3% 4.8% 3.5% 5.9% 2.5% 2.2%

0.4%

1.1% 4.9% 6.6% 7.2% 7.3% 5.4% 5.4% 4.6% 3.5% 1.3% 0.0% 1.5% 3.9% 6.2% 5.4% 1.7%

2.5%
7.8%
1.9%

1.5% 2.5% 2.9% 2.3% 3.3% 3.2% 3.5%

8%
6%
4%
2%

0% 2% 4% 6% 8% 10% 12% 14%

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. **2016 & 2017 forecasts from Elliott D. Pollack & Co. as of November 2016.

Recession Periods Pre-2008 Avg. 4.8%

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60% 62% 64% 66% 68% 70% 72%

U.S. Phoenix Metro

Recession Periods

Labor Force Participation Rate (16 years and over)

1986 – 2014

Source: Bureau of Labor Statistics

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Pinal County

Lucid Motors Automotive Manufacturer
Hiring of about 400 starts in 2017.
Expected to hire more than to 2,000

employees by 2022.

Attessa Motorsports
2,360-acre cost estimated between $250-310 million
PhoenixMart
1.5-million-square-foot expo center
$1 billion dollar project
4,500 new jobs

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Pinal County Employment

2001-2016* Source: ADOA

56.1 56.3 56.5 55.9 55.5

30.0 35.0 40.0 45.0 50.0 55.0 60.0

*Data through October 2016 72

(1,000’s)

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Pinal County Permits

1990-2016* Source: U.S. Census Bureau

2,000 4,000 6,000 8,000 10,000 12,000

MF SF

*Data through October 2016 73

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Where are the Inflows of Population?

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For the U.S. as a Whole

2001 – 2005
2011 – 2015

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Note: Does not include in-state movers

Total Movers down 25.9%

Movers from abroad (down 21.3%)
Movers from other states (down 35.9%)
Movers from other counties

in the state (down 16.2%)

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U.S. Population Flows

Source: U.S. Census Bureau 76

Year % of Pop Moved % of Population moving

ut of a local area

2000 16.1% 7.0% 2005 13.9% 6.0% 2010 12.5% 3.8% 2015 11.6% 4.3%

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Arizona Capture Rate

(from abroad and between states)

2001 – 2005 = 7.6%
2011 – 2015 = 3.2%

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Note: Does not include in-state movers

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Arizona Capture Rates

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Year Capture Rate

2000 6.4% 2005 10.4% 2010 2.4% 2015 3.7%

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Conclusion:

Due to the lack of national, international,

and in state population flows:

1. Jobs that would have been created by the

domestic demand from people moving here slowed.

2. It took longer to absorb the excess

inventory

f single family, office, etc.

Construction employment has suffered.

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8 32 16 2 10 44 9 3 11 6 Hawaii 19 7 15

Population Growth 2015

Source: U.S. Census Bureau

4 Alaska 39 1 5 Growing Declining Top 10 80

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Greater Phoenix Population Annual Percent Change 1975–2017*

Source: AZ Dept. of Administration, EDPCo

2.7% 2.1% 3.7% 4.2% 4.7% 3.9% 3.3% 3.0% 3.1% 4.3% 5.1% 4.2% 4.4% 2.9% 2.5% 1.3% 2.4% 2.8% 3.5% 4.3% 4.6% 4.2%4.2% 3.8% 4.3% 4.3% 2.6% 2.7% 3.1% 3.6% 3.8% 3.7% 3.0% 1.9% 0.5% 0.3% 0.6% 1.1% 1.5%1.5% 1.8% 1.9% 2.0%

0% 2% 4% 6% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Recession Periods *2016 and 2017 forecasts from Elliott D. Pollack & Co. as of November 2016. Pre-2008 Avg. 3.5%

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Greater Phoenix Population Annual Net Change 1975–2017*

Source: AZ Dept. of Administration, EDPCo

35.8 28.7 50.5 59.6 69.8 60.0 52.7 49.7 53.2 75.6 94.5 81.3 89.3 60.1 54.9 29.7 54.6 64.5 83.8 104.2 118.6 111.9 115.6 111.0 130.4133.6 84.7 92.0 105.9 127.7 141.6 141.5 118.6 79.6 19.1 14.3 27.2 46.3 64.866.2 78.0 85.2 91.4

0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0 1 9 7 5 1 9 7 7 1 9 7 9 1 9 8 1 1 9 8 3 1 9 8 5 1 9 8 7 1 9 8 9 1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 9 9 9 2 1 2 3 2 5 2 7 2 9 2 1 1 2 1 3 2 1 5 2 1 7

Recession Periods *2016 and 2017 forecasts from Elliott D. Pollack & Co. as of November 2016. 82

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How quickly are population flows going to recover?

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SLOWLY!

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Still buffering, seriously?

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Greater Phoenix Population

Source: U.S. Census Bureau; AZ Dept. of Administration; University of Arizona Forecasting Project; EDPCo

Greater Phoenix Population Estimates and Projections

Population 2015 2016 2017 EDPCo Forecast as of November 2016 4,482,906 4,568,081 4,659,443

Net Change 78,018 85,175 91,362 % Change 1.8% 1.9% 2.0%

U of A Forecasting Project Forecast as of 2016 Q4 4,482,906 4,565,876 4,662,024

Net Change 78,018 82,970 96,148 % Change 1.8% 1.9% 2.1%

Arizona Dept. of Administration Forecast as of 2015 Q4 4,482,906 4,569,800 4,661,600

Net Change 78,018 86,894 91,800 % Change 1.8% 1.9% 2.0%

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Greater Phoenix Population

Source: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project

Year Population APR

1960 726,183 6.9% 1970 1,039,807 3.7% 1980 1,600,093 4.4% 1990 2,238,498 3.4% 2000 3,251,876 3.8% 2010 4,192,887 2.6% 2015 4,482,906 1.3% 2020* 4,954,811 2.0% 2025* 5,445,742 1.9%

*Forecasts as of 2016 Q4

86 Too low?

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What If Greater Phoenix Population Growth Rates Increase

Source: U.S. Bureau of Census; Arizona Department of Administration; EDPCo

Year Population APR

1960 726,183 6.9% 1970 1,039,807 3.7% 1980 1,600,093 4.4% 1990 2,238,498 3.4% 2000 3,251,876 3.8% 2010 4,192,887 2.6% 2015 4,482,906 1.3% 2020* 5,010,444 2.25% 2025* 5,600,061 2.25% 87

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What If Greater Phoenix Population Growth Rates Increase

Source: U.S. Bureau of Census; Arizona Department of Administration; EDPCo

Year Population APR

1960 726,183 6.9% 1970 1,039,807 3.7% 1980 1,600,093 4.4% 1990 2,238,498 3.4% 2000 3,251,876 3.8% 2010 4,192,887 2.6% 2015 4,482,906 1.3% 2020* 5,071,997 2.50% 2025* 5,738,499 2.50% 88

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Housing Market Outlook

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Parade of Horribles for

Housing is Less Scary

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What is keeping potential buyers out of the housing market? Parade of horribles:

(1) Negative Equity (2) Foreclosures (3) Millennials (4) Student Loans (5) Tougher Loan Standards 91

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Unforeseen Positives
1. Faster employment growth leads to higher

population flows to AZ

2. Millennials

How this effects housing permits

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If you believe that population will grow at 2.0%, it implies an average of about 33,000 single family permits in Greater Phoenix will be filed each year over the next 10 years.

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Phoenix MSA Annual Homeownership Rates

1986–2015

Source: U.S. Census Bureau 61.8 72.5 61.0

60.0 62.0 64.0 66.0 68.0 70.0 72.0 74.0 Recession Periods

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U.S. and Arizona Negative Equity Share Plus Near Negative Equity Share 2010–2016

Source: CoreLogic

29.8% 27.5% 27.0% 18.4% 13.7% 11.2% 9.0% 56.9% 55.8% 44.7% 28.7% 22.6% 18.6% 14.3% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2

U.S. Arizona

Near Negative Equity: Loan-to-value ratio equals 95 to less than 100

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Maricopa County Foreclosure Lag 2002–2023

Source: Information Market

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500

Completed Foreclosures 7-Year Lag (Fannie/Freddie)

Nov. 2016

Recession Periods

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Mortgage Credit Availability Index 2012 – 2016*

March 2012 = 100

Source: Mortgage Bankers Association 160 180 140 100 80 2012 2015 *A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening of credit. *Data through November 2016 2014 2013

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2016 120

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Mortgage Credit Availability Index 2004 – 2016*

March 2012 = 100

Source: Mortgage Bankers Association Recession Periods 750 1,000 500 250 2004 2006 2008 2010 2012 2014 *A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening of credit. *Data through October 2016

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Millennials

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U.S. Birth Index 1909-2015

Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 Millennials 1985-2004 (Ages 10-29) 79.4 M Baby Boomers 1945-1964 (Ages 50-69) 78.7 M Gen X 1965-1984 (Ages 30-49) 69.5 M

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Percent of 18-33 Year Olds Married

Source: Pew Research

In 1960 - 64% were married (Silent Generation)
In 1980 - 49% were married (Baby Boomers)
In 1997 - 38% were married (Gen X)
In 2014 - 28% were married (Millennials)

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When you delay marriage you delay children. That delays

housing. That delays demand for

housing “stuff”.

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Percent of 18-34 Year Olds Living With Parents U.S.: 1983 – 2016

Source: US Census Bureau 26.7% 32.1%

25.0% 27.0% 29.0% 31.0% 33.0% 35.0%

Recession Periods

In 2015 18-34 year olds represent 23.4% of total population (75.2 million persons). 4.1 million more 18-34 year olds now living with parents.

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Total Student Loan Debt Has Quadrupled!

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Total Student Loan Balances

Billions of Dollars

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Year TOTAL 2004 Q3 $330.0 2005 Q3 $378.0 2006 Q3 $447.0 2007 Q3 $529.0 2008 Q3 $611.0 2009 Q3 $695.0 2010 Q3 $778.0 2011 Q3 $870.0 2012 Q3 $956.0 2013 Q3 $1,027.0 2014 Q3 $1,126.0 2015 Q3 $1,203.0 2016 Q3 $1,279.0

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Expenses that Delayed Saving for a Down Payment or Home Purchase - 2015 By Age

Source: National Association of Realtors 2015

All Buyers 35 and younger 35 to 50 51 to 60 61 to 69 70 to 90 Student Loans 51% 53% 31% 9% 5% 3% Credit Card Debt 47% 35% 44% 36% 23% 19% Car Loan 35% 31% 20% 17% 7% 6% Child Care Expenses 18% 14% 18% 6% 2% * Health Care Costs 13% 10% 9% 13% 13% 11% Other 17% 17% 24% 46% 62% 71% Median Years Delayed 3 3 4 5 6 5

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Student Loan Impact on Economy

If people are paying student loan debt, they are not buying houses, furniture, beers, etc. Unless incomes are higher because of their degree.

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The housing recovery is likely to continue.

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Greater Phoenix Population Change to Single Family Permit Ratio

1975-2015

Source: UofA Forecasting Project, U.S. Census Bureau, ADOA 1.0 2.0 3.0 4.0 5.0 6.0 7.0

Recession Periods

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Pre-2007 Avg. 3.4%

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Greater Phoenix Population Change to Total Permits Ratio

1975-2015

Source: UofA Forecasting Project, U.S. Census Bureau, ADOA 1.0 2.0 3.0 4.0 5.0

Recession Periods

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Pre-2007 Avg. 2.5%

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Homeownership Rates by Age Group

Source: 2015 American Community Survey 1-Year Estimates

Householder Age % of Total 15 to 24 years 12.1% 25 to 34 years 34.5% 35 to 44 years 51.7% 45 to 54 years 64.2% 55 to 59 years 71.1% 60 to 64 years 75.5% 65 to 74 years 81.8% 75 to 84 years 81.7% 85 years and over 70.2% Total 60.5%

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Multi-Family

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Apartments Births 26 year lag 1955-2038

Source: U.S. Census Bureau 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 Baby Boomers Gen X Millennials 2016

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Retirement Home Cycle Births  65 year lag 1994-2076

Source: U.S. Census Bureau 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 2016 Baby Boomers Gen X Millennials

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U.S. Median Age at First Marriage 1890-2016

Source: U.S. Census Bureau

18 20 22 24 26 28 30

Men Women

Baby Boomers Gen X Millennials

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5.0%
3.0%
1.0%

1.0% 3.0% 5.0% 7.0% 9.0%

Greater Phoenix Multi-Family Average Rent Percent Change a Year Ago 2004 – 2016*

Source: RealData Inc.

Recession Periods

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*Data through third quarter 2016

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Multi-Family Year-End Vacancy Rates Greater Phoenix 1975–2018*

Source: ASU Realty Studies / Berkadia**

6.2% 4.1% 3.3% 2.8% 3.9% 6.1% 4.4% 6.1% 6.9% 7.7% 10.1% 10.6% 13.0% 14.1% 13.4% 10.0% 9.5% 8.0% 4.0% 3.8% 4.5% 4.5% 4.8% 5.1% 5.9% 6.8% 8.2% 9.4% 9.6% 7.9% 6.8% 7.8% 10.2% 12.5% 13.4% 10.8% 7.5% 6.3% 6.6% 5.9% 5.3% 5.8%5.7% 5.6%

0% 3% 6% 9% 12% 15% 18% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 *2016, 2017 & 2018 are forecasts from Elliott D. Pollack & Co. **Data prior to 2005 is from ASU

Recession Periods

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Multi-Family Housing Market

Source: PMHS, Kasten Long, and RealData

Absorption Completions 2007 (5,846) 4,637 2008 (4,466) 7,037 2009 (5,319) 6,737 2010 20,743 698 2011 2,154 910 2012 3,028 2,031 2013 4,822 4,452 2014 4,716 5,658 2015 3,728 6,720 118

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Multi-Family Pipeline

Source: Anonymous 119

Year Potential New Supply 2016 5,669 2017 4,537 2018 5,148

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OFFICE

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As of 2016, the following markets have vacancy rates under 10%

Deer Valley/Airport
Tempe
Scottsdale South
PS Peak

Source: Paul Johnson 121

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INDUSTRIAL

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RETAIL

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E-Commerce Retail Sales as a Percent of Total Sales

2000 – 2016*

Source: U.S. Census Bureau Recession Periods

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

*Data through the third quarter of 2016 124

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OVERALL CONCLUSIONS: How will it all turn out?

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The World has Changed…

Pre-2007

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The World has Changed…

Post-2007

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Greater Phoenix– No traditional boom in Greater Phoenix until population increases more rapidly.

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Bef Befor

re

e No Nov. . 8th 8th

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Given where we are in the cycle, this is the new “Boom!”

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Bef Befor

re

e No Nov. . 8th 8th

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“It’s as good as it gets!”

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Bef Befor

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e No Nov. . 8th 8th

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Probably not!

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After After No Nov. . 8th 8th

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For a quick analysis of important economic data released each week, subscribe to the Monday Morning Quarterback

www.arizonaeconomy.com

(Click on Subscribe to MMQ)

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