WHATS ON THE HORIZON? Whats on the Horizon? Mark Sprague, Director - - PowerPoint PPT Presentation

Mark Sprague  State Director of Information Capital Mark Sprague  State Director of Information Capital www.IndependenceTitle.com

WHAT’S ON THE HORIZON?

Mark Sprague, Director of Information Capital

What’s on the Horizon?

Mark Sprague  State Director of Information Capital

What do you think?

Will the market in 2018 be Better? Same? Worse?

Mark Sprague  State Director of Information Capital

US Economic Outlook

Mark Sprague  State Director of Information Capital

Job Growth Remains Strong

Mark Sprague  State Director of Information Capital

National job market is strong enough to support employees quitting for better opportunity.

Mark Sprague  State Director of Information Capital

Education matters! With job openings above pre crisis levels, some cannot find jobs

Mark Sprague  State Director of Information Capital

Wage growth does not reflect strong labor market.

Mark Sprague  State Director of Information Capital

Slow GDP Growth the ‘new normal’?

– Last 7 years growth average 2.1% – 2016 GDP growth 1.5%; 2017 stronger.

Mark Sprague  State Director of Information Capital

Gross Domestic Product Take Away

–National GDP: +3.3% (Q3 2017) –Texas GDP: +3.3% (Q3 2017)

GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-

• wned companies. If they are located

within the country's boundaries, the government counts their production as GDP. GDP is the blood pressure of our nation.

Mark Sprague  State Director of Information Capital

2018 U.S. Economic Outlook

• The national economy continues to improve through 2018.
• Slower growth economy the ‘new norm’, last 7 years avg. 2.1%; 2016 GDP growth 1.5%;

2017 2.2%.

• Federal fund rate continues to improve, raising lending costs.
• Inflation improving. 2017 2%- 2.5%.
• U. S. housing improving, not fully recovered.
• Bigger question is can they build affordable where needed?
• Employment better, national, regional and local unemployment rates below 5.0%.

However wages are not improving as quickly.

• Looking for a ‘Driver’ for expansion.
• Longer path to a soft landing. Historical economic data suggests that the US is due for a

correction, yet most analysts cite a continued strong economic path rater than a nose dive.

• Retail is changing. Department store deconstruction and obsolescence. Over built.

Overall retail maturity end of cycle. Changes in consumer habits; shopping, apparel needs, preferences. Retail technology advances.

• Tax Reform – the overhaul has numerous impacts (intended and unintended) on the real

estate world.

Mark Sprague  State Director of Information Capital

U.S. Economic challenges and issues

• U.S. economic growth has been low and unequal,

relative to historical performance

• Headwinds facing the US economy:
• Nation is only about 45% recovered from recession.
• Out of top 50 US metros, only 8 have fully recovered. 4 are in
• Texas. *(full recovery of GDP, real estate values & employment)
• Weak productivity growth. (industrial and manufacturing)
• Low unemployment (below 5%)

– Lack of qualified applicants – Falling labor force participation – Lack of wage growth

• US housing improving, not fully recovered
• Looking for an ‘economic driver’ for expansion
• Increasing polarized income distribution
• Tax Reform 2017

Mark Sprague  State Director of Information Capital

Texas Economic Outlook

Mark Sprague  State Director of Information Capital

Texas & U.S. Economic Growth

Annual Percent Change in Real GDP+

Mark Sprague  State Director of Information Capital

Texas Employment Has Outpaced U.S.

Mark Sprague  State Director of Information Capital

Texas Employment Broad based

Mark Sprague  State Director of Information Capital

Texas Economic Outlook

• Texas economy better in 2017; energy rebounded, healthcare, business and

professional services up. 2018 will be somewhat the same.

• Energy sector downturn impact mostly over; not the negative of 2016.
• Texas job growth picked up, outpacing U.S.
• Population expansion continues.
• Texas manufacturing and service sector continue to expand.
• Construction activity slowing:

– Multi family and single family building have slowed.

• Concessions disappeared after Harvey.

– Construction and material costs rose significantly and should continue through 2018. – Houston and Austin close to overbuilding. – Shortages for homes under $300K dragged down state total home sales. – Office and Warehouse construction strong,

• Office construction and rent growth should slow as vacancy rate gets closer to natural rate (15 to 19%).
• Texas employment strong; however, Austin and Houston much slower job

growth from previous 5 years. San Antonio about the same pace.

• Local growth and regulation issues becoming more pressing, causing strain
• n value vs. cost of labor and materials.

Mark Sprague  State Director of Information Capital

What to watch?

• Job Growth
• Gross Domestic Product
• Population Growth
• Consumer Confidence
• Real Estate
• Interest Rates

Mark Sprague  State Director of Information Capital

Job Growth

• The gross number of payroll

jobs created in the American economy in the previous month reported by The Bureau of Labor Statistics.

– Self employed people are not included in this number: that includes Realtors!

Mark Sprague  State Director of Information Capital

Job Growth

• Unemployment is a phenomenon

that occurs when a person who is actively searching for employment is unable to find work.

• The most frequent measure of

unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labor force.

• 4% unemployment is considered

full employment.

Texas Unemployment Compared to Other States

Mark Sprague  State Director of Information Capital

Job Growth

Texas Metro Unemployment

Mark Sprague  State Director of Information Capital

Job Growth Take Away

Simply put, job growth equals home sales / rentals.

• 2.5% to 4.0% job growth is healthy!
• San Antonio preceding 12 months =

30,800 jobs

– Positive direction 3.0% growth.

Mark Sprague  State Director of Information Capital

Green indicates states with both the highest predicted GDP and Job Rate growth!

Gross Domestic Product

Current State of the US Economy

Mark Sprague  State Director of Information Capital

Gross Domestic Product takeaway

• GDP economic growth is the measurement of two economic factors, the growth
• f jobs and the productivity of those employed.
• A rise in real GDP (national, regional or local) effectively means a rise in

income, output and total money spent. Economic growth should enable a rise in living standards and greater consumption of goods and services. As a result, economic growth is often seen as the 'holy grail' of macroeconomics.

• A rise in GDP growth can help various macroeconomic objectives:

✓Reduced Unemployment ✓Increase attraction for corporate resettlement. ✓Reduction in poverty ✓Improved public services ✓Economic growth will encourage investment as firms seek to benefit from rising demand ✓Confidence to invest. Higher growth encourages firms to take risks - innovate and invest in future products and productive capacity.

Mark Sprague  State Director of Information Capital

Population Growth

• Population size is affected by

the birth rate, the death rate, immigration rate and the emigration rate.

– Immigration is to come into another country to live permanently. – Emigration means to leave

• ne's country to live in another.

(Death Rate + Emigration)

• (Birth Rate + Immigration)

= Population Growth

The rate of population growth means the change of population size in a given unit of time, usually one year.

Mark Sprague  State Director of Information Capital

Population Growth

• Half of the US

population lives in the shaded Counties!

National economy 44+% recovered from the recession+ with only 2% of the population participating! Where Does America Live?

Mark Sprague  State Director of Information Capital

Population Growth Take Away

• You either grow or don’t grow. Whether through birth or immigration,

continued population growth is necessary for a healthy market.

• Every year, the U.S. Census Bureau releases its latest data on cities and

population growth. The reaction is always the same: News outlets, analysts, and economists look at the numbers showing which places gained and which

• nes shed residents, and use them as instant proxies for a decline, a boom,
• r a turnaround in cities all over the country.
• Population loss can become a symbol for other things people feel is going

wrong in a city, such as rising poverty and unemployment rates, vacant and blighted housing, increased violent crime, the exit of pro sports franchises, etc.

• Age, population trends, and gender do matter in the home buying process.

Someone in their early 20s probably can't afford a 3,500-square foot home on 5 acres in Virginia with a stable, and someone in their 80s probably doesn't want it anymore, or may want a cottage out back.

Mark Sprague  State Director of Information Capital

Interest Rate Forecast

For every 1% the interest rate increases a buyer’s purchasing power may decrease somewhere between 9 & 11%!

For every 1% increase in rates, there is a 12% loss of buying power.

Mark Sprague  State Director of Information Capital

Consumer Confidence

• A statistical measure of consumers
• ptimism in the state of the economy. It’s

used as an overall state of the economy. Monthly survey of 5,000 households.

• A decline in consumer expectations can

be a leading indicator of slowing economic activity.

Primary driver of demand in the US Economy. When people are uncertain about the future, they buy less! Consumer spending is 70% of the GDP

Mark Sprague  State Director of Information Capital

Consumer Confidence

National/Regional Consumer Confidence Strong

Mark Sprague  State Director of Information Capital

Consumer Confidence Takeaway

• The baseline for consumer confidence is 100. A healthy index

number is somewhere between 90 to 110.

• Consumer confidence retreated in December after reaching a

17-year high in November 2017.

• The decline in confidence was fueled by a somewhat less
• ptimistic outlook for business and job prospects in the coming
• months. Despite the decline in confidence, consumers’

expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.

• Renewed gains in incomes as well as rising home and equity

values have acted to counterbalance the negative impacts from the hurricanes.

Mark Sprague  State Director of Information Capital

Real Estate

Real estate is property comprised of land and the buildings on it. Real estate can be grouped into three broad categories based on its use: residential, commercial and industrial.

Mark Sprague  State Director of Information Capital

Real Estate

• Rising house prices, generally

encourage consumer spending and lead to higher economic growth.

• A sharp drop in house prices

adversely affects consumer confidence, construction and leads to lower economic growth.

The Real Estate Market Affects the Economy!

Mark Sprague  State Director of Information Capital

Residential Real Estate Volume

Mark Sprague  State Director of Information Capital

Real Estate

A prime indicator of sales growth is job growth! Without job growth, there are no home sales. Historically for every 3 jobs there is 1 home start.

• In the preceding 12 months, San Antonio has had 11,000

home starts and created 30,800 jobs. The good news is that of all the Texas metros, San Antonio is not

• verbuilding. The other three are at eh point of
• verbuilding.
• As evidenced by rental concessions on 30% of

apartment rentals, San Antonio had overbuilt multifamily (apartments) properties.

• Due to post-Harvey demand, these concessions

have disappeared in San Antonio and other Texas

• Metros. However, this is temporary and will not

continue.

• Labor and material costs were going up 1+% a

month before Hurricane Harvey hit. As a result of Harvey, we should began to see these costs appreciate dramatically. Dallas and Houston lead the nation in home starts 1 and 2. Austin and San Antonio are in the top 25 in home starts.

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

Mark Sprague  State Director of Information Capital

San Antonio Multifamily

Mark Sprague  State Director of Information Capital

San Antonio Office

Mark Sprague  State Director of Information Capital

New Braunfels Office

Mark Sprague  State Director of Information Capital

14 16 18 20 22 24 26 28

$14.00 $16.00 $18.00 $20.00 $22.00 $24.00 $26.00 $28.00

1Q2001 1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013 1Q2014 1Q2015 1Q2016 1Q2017 1Q2018

Austin DFW Houston San Antonio

Overall Office Rent Rates

(Gross Asking Rates)

Source: CoStar and NAI REOC; Real Estate Center at Texas A&M University

Mark Sprague  State Director of Information Capital

San Antonio Retail

Mark Sprague  State Director of Information Capital

New Braunfels Retail

Mark Sprague  State Director of Information Capital

10 12 14 16 18 20 22

$10.00 $12.00 $14.00 $16.00 $18.00 $20.00 $22.00

1Q2001 1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013 1Q2014 1Q2015 1Q2016 1Q2017 1Q2018

Austin DFW Houston San Antonio

Retail Rent Rates

(Triple-Net Asking Rent Overall)

Source: CoStar and NAI REOC; Real Estate Center at Texas A&M University

Mark Sprague  State Director of Information Capital Mark Sprague  State Director of Information Capital www.IndependenceTitle.com

San Antonio MSA Industrial

Mark Sprague  State Director of Information Capital

3 4 5 6 7 8 9

$3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00

1Q2001 1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013 1Q2014 1Q2015 1Q2016 1Q2017 1Q2018

Austin DFW Houston San Antonio

Industrial Warehouse Rent Rates

(Triple-Net Asking Rent Overall)

Source: CoStar and NAI REOC; Real Estate Center at Texas A&M University

Mark Sprague  State Director of Information Capital

• 11,000 home start this year.
• 9,030 listings on the market.
• 3.3 months of inventory.
• 160,448 total rental units in San Antonio

– 89.6% occupancy = 14,736 units available + 11,500 units under construction to be completed in next 12 months. – Total of 26,236 rental units available in the next 12 months.

• Total shelter 35,266 units available.

The Numbers

• Total annual new job creating of 28,000.
• Total annual immigration of 72,800+.
• Total units needed of 10,000+.

Mark Sprague  State Director of Information Capital

Economic Forecast for 2017/2018

• 2018 should be as strong as 2017!
• Real Estate values maintain.
• Sales slow.
• What should we pay attention to?

– Unemployment numbers . – Cooling in employment growth. – Slowing of GDP growth. – Tax reform unintended consequences.

Mark Sprague  State Director of Information Capital

• Texas employment growth between 2.5- 3.0 through 2018.
• Slowed in 2016. 2017 saw energy, healthcare, business and professional services improve.
• Energy sector downturn impact mostly over. Seems to be stabilizing with WTI per barrel improving.
• More of the same, on multiple fronts, 2018 will be much like 2017. ( home sales

values )

• Local growth issues in the four Texas metros becoming more pressing. New

codes, approval process, etc. causing delays forcing values up unintentionally.

• Tight inventory in all real estate channels.
• Good news for investors, rental concessions disappeared late 2017. 2018 should

maintain that strength.

• Labor and materials should increase 15 to 25% in 2018 due to supply and

demand.

• Affordability in all metros being challenged.
• Repair and remolding constriction explodes.
• Consumers staying longer in homes (10 years+) due to all the above.
• Tight labor market across all employment sectors. (lack of qualified applicants a

local, regional and national issue.)

• One of the reasons why many people feel concerned about the Texas markets is

because we’re seeing one of the longest expansive price growth runs in our collective memories.

Economic Forecast for 2018

Mark Sprague  State Director of Information Capital

• Increased sales of 3-5%+ in San Antonio area in 2018.

– Home values will continue to improve, just not as aggressively. – Commercial will continue to be challenged to keep up with demand, but more cautious on rent values. – 2017 inventories climbed to 5+ month point, but have moved closer to 2.5 months supply (sellers market). Caution, certain price points and neighborhoods will be challenged as buyers markets due to values. – Regional psychology remained positive, but cautious in 2018. – Home sales a tad better than 2017. – One of the reasons why many people feel concerned about the San Antonio and Texas markets is because we’re seeing one of the longest expansive price growth runs in our collective memories.

Where are we headed?

2017 Was A Good Year!

Mark Sprague  State Director of Information Capital

There is not a better time to buy!