Is the End Near? Pinal Partnership December 7, 2018 Presented By: - - PowerPoint PPT Presentation

Elliott D. Pollack & Company

Is the End Near?

Pinal Partnership

December 7, 2018 Presented By: Elliott D. Pollack CEO, Elliott D. Pollack & Company

Elliott D. Pollack & Company

Is the party Over?

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Are we near the edge?

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No!

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Will the economy continue to grow?

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Yes!

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At above 3%?

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Probably not for very long.

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Real Versus Potential GDP

1970-2018*

Source: Bureau of Economic Analysis

$10,000 $11,000 $12,000 $13,000 $14,000 $15,000 $16,000 $17,000 $18,000 Recession

*Data through the first quarter 2018

(Billions)

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Historical and Projected Working-age Population Growth by Educational Attainment

Source: U.S. Census; American Community Survey; The Conference Board 11.4% 8.7% 11.1% 10.8% 11.6%

3.8% 2.4%

• 1.4%
• 3.1%
• 4.7%

5.8% 4.1% 2.2% 1.2% 0.8%

• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

2002-2007 2007-2012 2012-2017 2017-2022 2022-2027

BA and Above Below BA Total

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Recovery is Old but Strong

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Strong Economy

• Tax cuts helped a lot
• Continued fiscal stimulus
• Significant Trade war unlikely
• Strong plant and equipment spending
• Few obvious imbalances

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Too early to tell how much

• f a slowdown it will be.

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It is likely to be mild.

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A Recession will happen at some point but not soon. Right now imbalances seem relatively mild.

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But things can change quickly!

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Strong economy (strong consumer spending, business investment and exports) lead to:

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Strong Growth in Demand Strong Labor Market Lower Unemployment Higher Wages Higher Rates of Inflation Fed Tightening Slower Growth Fewer Jobs

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Quantitative Easing Quantitative Tightening

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Quantitative Easing Versus Quantitative Tightening

• Bad for asset prices
• Higher short term rates
• Higher long term rates
• Flattening of the Yield Curve
• Cap rates increase
• Companies may delay investment

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Where do we stand?

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U.S. Leading Indicators

1970 – 2018*

Source: The Conference Board Recession Periods

40 50 60 70 80 90 100 110 120

*Data through September 2018

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Consumer Confidence 1978 – 2018*

Source: The Conference Board

Recession Periods

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

*Data through November 2018

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Treasury Spread:

10 year bond rate less 3 month bill rate 1959 – 2018*

Source: Federal Reserve Bank of New York

Recession Periods

• 4
• 3
• 2
• 1

1 2 3 4 5 *Data through December 2018

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Recession Probability

1959 – 2019*

Source: Federal Reserve Bank of New York

Recession Periods 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% *Data through October 2019

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Elliott D. Pollack & Company Recession Periods

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

*Data through October 2018

U.S. Unemployment Rate

1948 – 2018*

Source: Bureau of Labor Statistics

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Elliott D. Pollack & Company Recession Periods

50% 53% 56% 59% 62% 65%

*Data through October 2018

Employment-to-Population Ratio

1948 – 2018*

Source: Bureau of Labor Statistics

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U.S. Consumer Price Index Annual Percent Growth 1970 – 2018*

Source: Bureau of Labor Statistics

Recession Periods

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 14% 16% *Data through October 2018

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Personal Consumption Expenditures (excluding food and energy): Implicit Price Deflator Annual Percent Growth 1970 – 2018*

Source: Bureau of Labor Statistics

Recession Periods

• 2%

0% 2% 4% 6% 8% 10% 12% *Data through October 2018

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Federal Surplus or Deficit FY 1989-2019*

Source: U.S. Office of Management and Budget

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

$0 $200,000 $400,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (Millions) George

• H. Bush

Clinton George

• W. Bush

Obama

Recession Periods

Trump

*FY 2019 Data through October 2018

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What keeps me up at night?

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Elliott D. Pollack & Company Recession Periods 2,000 3,000 4,000 5,000 6,000 7,000 8,000 *Data through September 2018 32

Job Openings

2001 – 2018*

Source: Bureau of Labor Statistics

(1000’s)

Elliott D. Pollack & Company Recession Periods

• 6,000
• 4,000
• 2,000

2,000 4,000 6,000

Employment Labor Force

*Data through October 2018

33 Employment Versus Labor Force Growth

1970– 2018*

Source: Bureau of Labor Statistics

(1000’s)

Elliott D. Pollack & Company

Employment Cost Index

2002-2018* Source: Bureau of Labor Statistics

1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

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*Data through third quarter 2018

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Auto Loans

Elliott D. Pollack & Company

% of Balance Delinquent

Source: New York Fed Consumer Credit Panel/Equifax

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Auto Loans Credit Card

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Bear Markets

Elliott D. Pollack & Company Recession Periods

5 10 15 20 25 30 35 40 45 50

Cyclically Adjusted PE Ratio**

1950 – 2018*

Source: Robert Shiller, Yale University

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*Data through November 2018

**Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio

Elliott D. Pollack & Company

Stock Market is a bad Predictor of Recessions: Corrections since WWII

Source: Goldman Sachs

S&P 500 Corrections 36 Recession 12 No Recession 24

A Bear Market is a decrease of 20% or More in Stocks prices

No Bear Market 5 Bear Market 7 Bear Market 4 No Bear Market 20

Correction: decrease of 10% on the Market

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Treasury Spread

1977 – 2018*

Source: Federal Reserve Bank of St. Louis

Recession Periods

• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0

10 year minus 2 year 5 year minus 2 year

*Data through December 2018

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Lag Between

Yield Curve Inversion & Start of Recession

Source: Federal Reserve Bank of St. Louis; Federal Reserve Bank of New York

Start of Recession Lag Time (months) from First Inversion

10yr minus 3-month 10yr minus 2yr 2yr minus 2yr

Jan-80 14 16 17 Jul-81 9 10 9 Jul-90 13 18 18 Mar-01 8 33 30 Dec-07 16 22 24

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Pending Home Sale Index 2001-2018*

Source: National Association of Realtors Recession Periods

70 80 90 100 110 120 130

*Data through October 2018

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Trade War

Elliott D. Pollack & Company

Canadians Response to NAFTA Negotiations: Build the Wall!

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Effects of a Trade War

• 1. Higher prices on inputs
• 2. Jobs? Depends on structure. Probably a minor

plus

• 3. Intellectual Property Rights

Will have a relatively minor effect on U.S. economy

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• 23% of Chinese Exports end up in the U.S.
• 8% of U.S. exports end up in China.

.

• 20% of Chinese GDP is exports
• <10% of U.S. GDP is exports

Trade War or Negotiation?

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• So, 4.6% of China’s economy depends on

exports to the U.S.

• 0.7% of U.S. economy depends on exports to

China.

• 65% of the U.S. trade deficit is with China.

Trade War or Negotiation?

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• China needs exports to keep jobs.
• They probably don’t want a U.S. recession.

Trade War or Negotiation?

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This Cycle is No Spring Chicken

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March 1991 – March 2001 June 2009 - Present February 1961 – December 1969 November 1982 – July 1990 November 2001 – December 2007 March 1975 - January 1980 October 1949 – July 1953 May 1954 – August 1957 November 1970 – November 1973 April 1958 – April 1960 July 1980 – July 1981

120 114 106 92 73 58 45 39 36 24 12

U.S. BUSINESS CYCLE EXPANSIONS

Source: National Bureau of Economic Research

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But, it is not over!

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Expansions don't die

• f old age.

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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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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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So, where does this leave us?

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2019 will probably still be a good year.

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Tax cuts, deficit spending and plant & equipment spending should keep things going nicely.

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Probability of a recession still relatively low

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We’re probably in the 8th inning

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Welcome to Phoenix

Elliott D. Pollack & Company

The New Norm

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7 12 11 17 9 2 3 1 Jobs growing Jobs declining Top 10 Hawaii 18 4 31 Alaska 50 6 5

Job Growth 2018

YTD October 2018 vs. YTD October 2017

Source: U.S. BLS

8 62 10

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Year Rank 2008 46 2009 49 2010 49 2011 27 2012 9 2013 9 2014 18 2015 11 2016 7 2017 5 2018* 7 Year Rank 1997 2 1998 1 1999 2 2000 5 2001 9 2002 10 2003 4 2004 2 2005 2 2006 2 2007 17

Arizona Employment Growth Arizona’s Rank Out of 50 States

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

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*YTD October 2018 vs YTD October 2017

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Employment Growth

From Bottom of Recession to Now Seasonally Adjusted

Source: BLS

Area % Change % of Arizona Growth 2017 Annual Wages United States 14.9% $55,331 Arizona 21.4% 100.0% $49,752 Greater Phoenix 26.3% 87.4% $52,043 Greater Tucson 9.7% 6.7% $43,584 Balance of State 8.9% 5.9% $37,579

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Note: Wages for Private industries Bottom of Recession Sept. 2010 to October 2018

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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

Year Rank # MSA’s 1997 2 22 1998 1 23 1999 3 24 2000 7 25 2001 7 26 2002 5 25 2003 3 25 2004 3 25 2005 1 26 2006 1 27 2007 10 29

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*YTD October 2018 vs YTD October 2017

Year Rank # MSA’s 2008 25 29 2009 23 24 2010 23 23 2011 14 25 2012 10 28 2013 7 29 2014 15 31 2015 10 32 2016 7 34 2017 5 34 2018* 5 35

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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% 3.4% 2.8% 3.2% 2.8%

• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0%

Greater Phoenix Employment* Annual Percent Change 1988–2019**

Source: Office of Economic Opportunity

Pre-2008 Avg. 3.8% Recession Periods

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. **2018 & 2019 forecasts from Elliott D. Pollack & Co. as of November 2018.

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53.9 23.821.8

• 3.5

11.2 49.8 70.8 82.188.8 70.575.1 66.8 53.7 20.0

• 0.1

24.1 64.4 104.5 97.4 31.6

• 47.9
• 146.8
• 32.2

25.6 43.0 51.3 41.1 62.064.6 54.9 65.158.8

• 160.0
• 120.0
• 80.0
• 40.0

0.0 40.0 80.0 120.0

Greater Phoenix Employment* Net Annual Growth Change 1988–2019**

Source: Office of Economic Opportunity

Recession Periods (000’s)

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. **2018 & 2019 forecasts from Elliott D. Pollack & Co. as of November 2018.

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Employment: Greater Phoenix to U.S. Annual Growth Rate

1990-2017

Source: Bureau of Labor Statistics

• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0%

U.S. Greater Phoenix

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Recession Periods

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Pinal County

• Nikola Motors
• Approximately 1,750+ new jobs by 2025
• Lucid Motors
• Approximately 2,000+ new jobs by 2025

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Pinal County

• Potentially 3,900 jobs from Nikola Motors and

Lucid Motors

• Taking the multiplier ripple effect into account, this

could equate to up to 10,000 total jobs

• 2018 average 59,900 nonfarm jobs
• Many of those indirect and induced jobs could

locate nearby.

• The opportunity for Pinal County is there.

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Pinal County Largest Employment

Source: Arizona COG/MPO Employer Database

Rank Business Name Locations Employees

1 State of Arizona 25 2,840 2 Walmart 7 2,290 3 Pinal County 59 2,160 4 Corecivic Inc 6 1,920 5 Casa Grande Union High School District No 82 19 1,180 6 Harrah’s Ak-chin Hotel and Casino 1 800 7 Pinal County Community College District 1 760 8 Banner Health 7 680 9 Fry’s Food Stores 6 680 10 Florence Unified School District 8 650

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Pinal County’s Pipeline

Source: Pinal County Economic Development Department

Target Industry Project

Phoenix Mart IPAZ Intermodal Facility Lucid Motors LKQ Nikola Motors Severtson Movie Screens Health Services Sun Health Clinic/Pharmacy International Diplomatic Security Company High Tech Military Testing Resolution Copper Solar Farm & Battery Storage ASARCO Expansion Florence Copper Mine Filtering Plant Bio Gas Facility Attesa Dreamport Villages Casino Resort Transportation/ Logistics Manufacturing Aerospace & Defense Natural & Renewable Resources Tourism

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Jobs in Phoenix?

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Greater Phoenix 2018*

Net Job Growth and Wages

• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Other Services Natural Resources and Mining Information Government Financial Activities Manufacturing Leisure and Hospitality Trade, Transportation, and Utilities Professional and Business Services Construction Educational and Health Services

(1000’s)

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*Data through October 2018; 2017 private wages

$51,700 $56,408 $56,940 $47,404 $25,004 $73,952 $53,828 $73,882 $50,605 $38,901 $69,822

Elliott D. Pollack & Company

Greater Phoenix 2018*

% Job Growth and Wages

• 2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Natural Resources and Mining Other Services Government Trade, Transportation, and Utilities Financial Activities Information Professional and Business Services Leisure and Hospitality Educational and Health Services Manufacturing Construction

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*Data through October 2018; 2017 private wages

$56,408 $73,952 $51,700 $25,004 $56,940 $69,822 $47,404 $53,828 $38,901 $50,605 $73,847

Elliott D. Pollack & Company

Pinal County 2018*

Net Job Growth and Wages

• 0.15 -0.1 -0.05 0

0.05 0.1 0.15 0.2 0.25 0.3

Other services Education and health services Information Financial activities Government Professional and business services Mining and Construction Manufacturing Leisure and hospitality Trade, transportation, and utilities

(1000’s)

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*Data through October 2018; 2017 private wages

$34,608 $18,073 $53,076 $46,617 $45,559 $48,357 $34,250 $41,170 $30,552 $40,581

Elliott D. Pollack & Company

Pinal County 2018*

% Job Growth and Wages

• 9.0%
• 6.0%
• 3.0%

0.0% 3.0% 6.0% 9.0% Information Other services Education and health services Government Financial activities Professional and business services Trade, transportation, and utilities Leisure and hospitality Manufacturing Mining and Construction

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*Data through October 2018; 2017 private wages

$46,617 $53,076 $18,073 $34,608 $45,559 $40,581 $41,170 $30,552 $34,250 $48,357

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Where are the Inflows of Population?

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Population Growth after Recessions

Greater Phoenix

Source: Office of Economic Opportunity

Years % Growth APR 1975-1980 20.1% 3.7% 1981-1990 35.5% 3.4% 1991-2001 46.0% 3.9% 2001-2007 21.6% 3.3% 2009-2017 8.7% 1.3%

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Growth itself is an economic driver in Greater Phoenix–

People moving to the State create demand for goods and services that create more jobs. When you grow around 1.8% instead of 3.6%, the part of the economy that is based on servicing new population becomes much smaller.

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Greater Phoenix Population

Source: U.S. Bureau of Census; Office of Economic Opportunity; UofA Forecasting Project

Period Ending Population Change APR

1970 1,039,807 3.5% 1980 1,600,093 560,286 4.4% 1990 2,249,116 649,023 3.5% 2000 3,275,362 1,026,246 3.8% 2010 4,200,427 925,065 2.5% 2015 4,482,906 282,479 1.3% 2020* 4,903,717 420,811 1.8% 2025* 5,339,441 435,724 1.7%

*Forecasts from UofA 1970-2010 10 year period 2010-2025 5 year period

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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% 0.7% 1.2% 1.5% 1.6% 1.6% 1.7% 1.7% 1.8% 1.9%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Pre-2008 Avg. 3.4%

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Recession Periods

Greater Phoenix Population Annual Percent Change 1988–2019*

Source: Office of Economic Opportunity, EDPCo

*Estimates for 2011, 2012, 2013, 2014, 2015 and 2016 and forecasts for 2018 and 2019 from Elliott D. Pollack & Co. as of September 2018.

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60.1 54.9 29.7 54.6 64.5 83.8 104.2 118.6 111.9 115.6 111.0 130.4 133.6 84.7 92.0 105.9 127.7 141.6 141.5 118.6 79.6 19.1 14.3 29.4 52.4 65.9 71.372.5 78.378.9 83.7 89.9

0.0 40.0 80.0 120.0 160.0

Greater Phoenix Population Annual Net Change 1988–2019*

Source: Office of Economic Opportunity, EDPCo

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Recession Periods (000’s) *Estimates for 2011, 2012, 2013, 2014, 2015 and 2016 and forecasts for 2018 and 2019 from Elliott D. Pollack & Co. as of September 2018.

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Population: Greater Phoenix to U.S. Annual Growth Rate

1990-2017

Source: U.S. Census Bureau; Office of Economic Opportunity; EDPCo 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

U.S. Greater Phoenix

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Moving???

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3% 4% 5% 6% 7% 8%

Note: Includes all movers except movers within same county

Total Movers as a % of Total U.S. Population

Source: U.S. Census Bureau

Recession Periods

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1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Same State Different State Abroad

Movers from an Outside Area 1981-2018

Source: U.S. Census Bureau

Recession Periods

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(1,000’s)

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

Arizona Capture Rate

Source: U.S. Census Bureau

Note: Does not include in-state movers; Net migration numbers.

Recession Periods

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2017 Population Growth Rank By County

Source: U.S. Census Bureau

Rank County Population Net Chg. Percent Chg. 1 Maricopa, AZ 4,307,033 73,650 1.7% 2 Clark, NV 2,204,079 47,355 2.2% 3 Riverside, CA 2,423,266 36,744 1.5% 4 Harris, TX 4,652,980 35,939 0.8% 5 Tarrant, TX 2,054,475 32,729 1.6% 6 King, WA 2,188,649 32,687 1.5% 7 Bexar, TX 1,958,578 30,831 1.6% 8 Dallas, TX 2,618,148 30,686 1.2% 9 Denton, TX 836,210 27,911 3.5% 10 Collin, TX 969,603 27,150 2.9%

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Housing Market Outlook

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Overview of Single Family Housing

• Current conditions in the single family market

are the polar opposite of 2007-2011

• No signs of over supply
• Signs of strong pent-up demand
• With rising prices and rising interest rates,

affordability becomes more of an issue

• While the housing market will be under pressure
• ver the near term, the outlook over the next 5

years is excellent

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Affordability is a key-concern, for millennials entering the marketplace and for the retirement population moving to Phoenix.

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Housing Opportunity Index 2018 Q3

Source: NAHB/Wells Fargo

67 66.7 56.6 56.4 52.3 47.6 42.9 35.6 14.1 7.6

10 20 30 40 50 60 70 80

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Arizona 95

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Housing Opportunity Index 1992-2018

Source: NAHB/Wells Fargo

20 30 40 50 60 70 80 90

U.S. Greater Phoenix

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Maricopa County Median Price of New & Resale Homes 2000-2018*

Source: Information Market

Note: refers to single family homes and condominiums

Recession Periods $311,928 $198,136 $348,990 $253,418 $112,000 $258,000 $100,000 $125,000 $150,000 $175,000 $200,000 $225,000 $250,000 $275,000 $300,000 $325,000 $350,000 $375,000

New Home Sales Resale Home Sales

*Data through October 2018.

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Resales Pinal County

Number of Resales

Source: Cromford Report 2,000 4,000 6,000 8,000 10,000 12,000

*Data through November 2018.

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Resales Pinal County

Median Sales Price

Source: Cromford Report

$0 $50,000 $100,000 $150,000 $200,000 $250,000

*Data through November 2018.

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Greater Phoenix Month’s Supply

2002-2018 Source: ARMLS

2 4 6 8 10 12 14 16 18 20

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 *Data through October 2018

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Months of Supply by Metro

Source: Zillow

3.4 2.8 2.5 2.3 2.2 1.9 1.9 1.9 1.8 1.1 1.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

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Greater Phoenix Single Family Days on Market

Source: Cromford Report 20 40 60 80 100 120 140 160 Recession Periods

102

*Data through November 2018

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Greater Phoenix Single Family Resales - Days on Market Under $250,000

Source: Cromford Report 20 40 60 80 100 120 140 160 Recession Periods

103

*Data through November 2018

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New Home Inventory

Source: Zonda by Meyers Research

22 24 26 28 30 32 34 36 38 40 42 44 46

39,160 40,940 42,720 44,500 46,280 48,060 49,840 51,620 53,400 55,180 56,960 58,740 60,520

Total Remainding Units Months of Supply

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Vacant Developed Lots

Source: Zonda by Meyers Research

35,000 37,500 40,000 42,500 45,000 47,500 50,000

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Foreclosure: Residential Notices Maricopa County

Source: Information Market

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000

*Data through October 2018

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Builders are facing supply side constraints:

• Cost of buildable lots
• Increasing construction material costs
• Sufficient labor???

And demand side constraints of rising mortgage interest rates The result is upward pressure on housing prices and reduced affordability. 107

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Pricing by Builder in Greater Phoenix

Source: Belfiore

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Subdivision Name Builder Name Net Pricing Range

Express at Santa Rosa Springs

• D. R. Horton

$182,990 - $252,990 Cactus at Parkside Pulte Homes $164,870 - $214,870 Express at Tartesso

• D. R. Horton

$178,660 - $237,660 Magma Ranch Unit 8

• D. R. Horton

$150,005 - $203,005 Harmony at Meridian William Lyon Homes $291,040 - $304,040 Cactus at Desert Oasis Pulte Homes $217,185 - $268,185 Inspiration at Solana Lennar $231,190 - $239,190 Cactus at Festival Foothills Pulte Homes $206,002 - $310,002 Coldwater Retreat Courtland Communities $212,012 - $250,012 Juniper at Desert Pass KB Home $161,990 - $184,990

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Top-seller are mostly smaller-lot, lower- priced new home communities- communities target entry-level and value–oriented buyers.

Source: Belfiore, KnowledgeBase Current and Future Market Insights

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Millennials

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U.S. Most new Housing demand over the next 10 years will come from millennials

Source: JCHS tabulations of 2016 JCHS Household Projections, Harvard

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5 10 15 20 25 30 35 40 45 50

Millenial (1985-2005) Gen-X (1965-1984) Baby-Boomer (1945-1964)

Number of Households

2015 2025

(Millions)

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Greater Phoenix Most new Housing demand over the next 10 years will come from millennials

Source: ACS; MAG; EDPCo

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50 100 150 200 250 300 350 400 450 500

Millenial (1985-2005) Gen-X (1965-1984) Baby-Boomer (1945-1964)

Number of Households

2015 2025

(1000’s)

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Millennials

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Baby Boomers

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Baby Boomers Versus Millennials Aged 25-34

Source: Bowling Green State University; 1980 Decennial Census; 2015 American Community Survey; CDC

Baby Boomers (1980) Millennials (2015)

Married 68% 40% Never Married 20% 53% Age first marriage Males 25 ≈30 Age first marriage Females 22 ≈28 Mean Age at First Child 23 ≈27 Live in Independent Households 84% 59% Lived with Parents/Grandparents 9% 22%

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Greater Phoenix Homeownership Rates by Age Group

Source: 2017 American Community Survey 1-Year Estimates; OEO

Householder Age % of Total Occupied Current Population 10 Years from Now 15 to 24 years 13.9% 626,087 858,758 25 to 34 years 40.1% 679,718 850,678 35 to 44 years 55.6% 617,153 751,644 45 to 54 years 65.3% 596,066 704,419 55 to 64 years 76.6% 544,408 698,575 65 to 74 years 82.3% 426,671 644,944 75 to 84 years 82.9% 218,059 382,887 85 years and over 70.0% 79,972 138,025 Total 63.7% 3,788,134 5,029,930

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Pinal County Homeownership Rates by Age Group

Source: 2017 American Community Survey 1-Year Estimates; OEO

Householder Age % of Total Occupied Current Population 10 Years from Now 15 to 24 years 42.9% 50,330 83,305 25 to 34 years 57.8% 56,710 84,579 35 to 44 years 60.6% 56,254 67,240 45 to 54 years 70.4% 48,248 73,621 55 to 64 years 83.7% 50,901 56,781 65 to 74 years 86.3% 52,565 49,187 75 to 84 years 92.7% 25,883 32,957 85 years and over 85.6% 6,914 8,634 Total 74.5% 347,805 456,303

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Greater Phoenix Renter-Occupied Housing by Age and Tenure

Source: 2017 American Community Survey

Under 35 35 to 64 65 and Over

Single Family 31.7% 49.7% 35.7% Multi-Family 66.1% 46.4% 59.0% Other 15.7% 3.9% 5.3% Total 100% 100% 100%

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75 80 85 90 95 100 105

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

Arizona Population by Age

2017 Source: U.S. Census Bureau

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(1,000’s)

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Arizona Number of Persons vs. Home-Purchase Loan Applications 2017

Source: U.S. Census Bureau

5 10 15 20 25 30 35 40

80.0 85.0 90.0 95.0 100.0 105.0

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(1,000’s)

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Arizona Number of Persons vs. Home-Purchase Loan Applications 2022

Source: U.S. Census Bureau

5 10 15 20 25 30 35 40

80.0 85.0 90.0 95.0 100.0 105.0

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(1,000’s)

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Median Household Income by Age Group 2017

Source: U.S. Census Bureau

$40,093 $62,294 $78,368 $80,671 $68,567 $41,125 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 15-24 25-34 35-44 45-54 55-64 65+

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Millennials were hit with several factors that, for many, delayed home buying from their 20’s and 30’s.

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These Factors Include:

• The Great Recession and the lack of job opportunities
• Greater acceptance of larger amounts of student debt
• Social mores are changing and becoming acceptable:
• Delay of Marriage
• Living with Mommy and Daddy
• Becoming less materialistic

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Many of those changes are coming to an end as millennials start to:

• Pay off student loan debt
• Benefit from a strong economy
• Realize they are subject to the laws of biology

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Student Loans

Source: Federal Reserve; Citizens Financial Group

• 70% of students leave college with debt
• Standard repayment plan is 10 years
• 60% of students are expected to pay off their

loan in their 40’s

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Balance Number of Borrowers 2017 Q4 Under $25,000 28,250,100 $25,000-$50,000 8,609,700 $50,000-$100,000 5,293,600 $100,000 and over 2,562,100

Student Debt Distribution

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

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Student Loan or Mortgage Payment

Original Amount Monthly Payment Potential Mortgage $200,000 $2,121 $395,161 $150,000 $1,591 $296,371 $100,000 $1,061 $197,581 $75,000 $795 $148,185 $50,000 $530 $98,790 $25,000 $265 $49,395 $10,000 $106 $19,758

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Assumptions: Monthly Payment 10 years 5% interest rate Potential Mortgage 30-year mortgage 5.0% Interest rate

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Student Loan Debt Delaying Homeownership

Source: Bankrate Money Pulse Survey

30% of 18-40 years old with student loan debt have delayed buying a home.

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Millennials Rent for Life?

Source: Fannie Mae

According to Fannie Mae’s Renters Survey:

• 37% are renting in order to get ready to buy a home
• 46% said their biggest obstacle to doing so is saving up

for a down payment and closing costs

• 95% said they plan to own someday

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Housing Conclusion:

.

Significant pent up demand.

.

Outlook remains positive despite near term pressures.

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Single Family Permits Greater Phoenix 1975–2019*

Source: RL Brown & Elliott D. Pollack & company

8.7 11.1 22.3 28.9 18.8 11.5 10.6 11.6 19.4 18.1 22.6 23.2 17.9 15.1 12.0 10.6 13.7 18.4 22.7 27.4 28.5 29.6 31.7 36.0 35.3 34.7 36.2 38.9 47.7 60.9 63.6 42.4 31.2 12.6 8.0 6.86.8 11.6 12.8 10.8 15.9 18.0 19.3 23.0 24.0

10 20 30 40 50 60 70

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

# Permits (000) *2018 and 2019 forecast is from Elliott D. Pollack & Company

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Pinal County Permits

1990-2018*

Source: U.S. Census Bureau

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

MF SF

*Data through October 2018 134

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.

Rate of growth likely to slow somewhat in 2019. But 2019 should still be a good year. Beyond 2019 it’s too early to tell.

Overall Conclusions

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Nothing indicates an imminent recession.

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We are in the bottom of the 7th or the top of the 8th inning of what has been a very long game. Could go to extra innings???

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