SCCAI 19 TH ANNUAL INLAND EMPIRE MARKET TRENDS SEMINAR

Transcription

1 SCCAI 19 TH ANNUAL INLAND EMPIRE MARKET TRENDS SEMINAR SEAN D. JASSO, PHD UNIVERSITY OF CALIFORNIA, RIVERSIDE SCHOOL OF BUSINESS ADMINISTRATION JUNE 2, 2016

2 PLAN OF THE TALK THE US ECONOMY CALIFORNIA ECONOMY THE REGIONAL ECONOMY THE INDUSTRY STRATEGY

3 CENTRAL THEMES SLOW US GROWTH MODEST STATE GROWTH CAUTIOUS OPTIMISM

4 YOUR ECONOMIC OMELET

5 THE US ECONOMY

6 U.S. GDP Percent Change ( ) GDP GROWTH RATE: UNDER 1% Source: Trading Economics

7 Economic Highlights and Issues UNEMPLOYMENT Unemployment (Dec Dec. 2015) Discouraged workers totaled 663,000 at the end of the year. Labor Participation Rate 62.2% Unemployment finished the year at 5% (2016) Unemployment was down by 0.6% from Source: BLS

8 Economic Highlights and Issues INFLATION Change in CPI (Nov Nov. 2015) Over the year all items increased 0.5%. CURRENT 2016 INFLATION RATE: 1.1% Source: BEA

9 Economic Highlights and Issues JOB GROWTH (Dec Dec. 2015) In December 2015, employment increased by 292,000. Employment grew by 2.7M in Professional and business services added 605,000 jobs over the year. Source: BLS

10 Economic Highlights and Issues Federal Reserve ( ) Source: Trading Economics

11 Economic Highlights and Issues Federal Reserve (Jan.2015 Jan. 2016) Source: Trading Economics

12 Economic Highlights and Issues Variables influencing increased rates Expanding economic activity U.S. oil production nearly doubled in Decreasing commodity prices. Increased consumer spending. Increased new home sales. Up 9% from 2014 (490,000). Improved labor market U.S. added 2.6 million jobs in Healthcare and social assistance (+242,000). Accommodation and food services (+129,000). Source: Beaconomics

13 Dow Jones: 17,500 (May 20, 2016)

14 S&P 500: 2,052 (May 20, 2016)

15 Economic Highlights and Issues BRICS Country Series Name Brazil GDP at market prices (Trillion US$) Brazil GDP growth (annual %) Brazil Inflation, GDP deflator (annual %) Russia GDP at market prices (Trillion US$) Russia GDP growth (annual %) Russia Inflation, GDP deflator (annual %) India GDP at market prices (Trillion US$) India GDP growth (annual %) India Inflation, GDP deflator (annual %) China GDP at market prices (Trillion US$) China GDP growth (annual %) China Inflation, GDP deflator (annual %) South Africa GDP at market prices (Billion US$) South Africa GDP growth (annual %) South Africa Inflation, GDP deflator (annual %)

16 Economic Highlights and Issues 6. MINTs Country Series Name Mexico GDP at market prices (Trillion US$) Mexico GDP growth (annual %) Mexico Inflation, GDP deflator (annual %) Indonesia GDP at market prices Billion US$) Indonesia GDP growth (annual %) Indonesia Inflation, GDP deflator (annual %) Nigeria GDP at market prices (Billion US$) Nigeria GDP growth (annual %) Nigeria Inflation, GDP deflator (annual %) Turkey GDP at market prices (Billion US$) Turkey GDP growth (annual %) Turkey Inflation, GDP deflator (annual %)

17 MORE ISSUES PUBLIC POLICY Affordable Care Act The Good: More than 16M people have health insurance. Non-elderly uninsured rate decreased by 35%. 2.3M young adults (ages 18-26) gained coverage by staying on their parents plans. The Bad: Fewer insurance options are available for small businesses. Employer mandates have caused employers to cut hours, wages, and jobs.

18 MORE ISSUES PUBLIC POLICY Dodd Frank Act The Good Requires banks to administer stress tests. Prevents excessive risk taking. Protects consumers from mortgage lenders. The Bad Limits banks lending - Banks deposited $65.1B and lent $52.5B in Q1 of 2015 ($29 to $1 Reserve Ratio) 1341 banks gone since 2010 only two new chartered limiting the competitive market Consumer Financial Protection Bureau is not run by a bipartisan commission arm of the Fed CFPB is automatic which limits checks and balances systems.

19 MORE ISSUES - POLITICAL Rising Economic Inequality Gains of financial markets have benefitted wealthiest households. Average income rates increased while median rates did not ($53,657). Disproportionate income caused by global trade and technological change. Legislators increased minimum wage in response to poverty and income inequality. Stagnant Mortgage Credit New policies (DFA) limited borrowers ability expand lines of credit.

20 CALIFORNIA ECONOMY

21 CALIFORNIA IS DIFFERENT California outpaced national job growth 40 consecutive months CA surpassed the national job growth (June 2015). Labor market is growing half-again as fast as the nation overall. Nation s largest contributor for job expansion. Source: Beaconomics

22 CALIFORNIA IS STRONGER California surpassed national wage growth Fastest growing state through % annual wage growth in California. 3.1% annual wage growth for the nation overall. Source: Beaconomics

23 CALIFORNIA IS IMPROVING California quality of jobs improved Professional, scientific and technical services have accounted for 17% of new jobs. 25,000 newly added jobs had an average salary of $100,000. Source: Beaconomics

24 CALIFORNIA IS GROWING Leading cities for employment growth San Jose and San Francisco lead with an average growth in excess of 4%. Inland Empire expanded its employment by 3.6%. Source: Beaconomics

25 CALIFORNIA IS CREATING VALUE California Home Sales Home sales have increased by 9.8% since Median home prices have risen by more than 82% since Less than 9% of homes are worth less than outstanding principle balance. Source: Beaconomics

26 CALIFORNIA IS LENDING California Home Sales Conventional mortgage rates fell below 4%. Banks increased lending by 2.4% through the first quarter of Forecasts show a 7% to 10% increase in home sales through Source: Beaconomics

27 CALIFORNIA IS BUILDING Manufacturing sector was slow growing California manufacturing increased by 2.9%, where national growth was 8.3%. CA business environment is not attractive for most manufacturing operations. Construction sector continued to suffer 155,000 new jobs were added since ,000 former construction workers are unemployed or changed industries. Source: Beaconomics, Fall 2015

28 2016 PREDICTIONS THE ENTIRE ECONOMY

29 The Economic Horizon expected to have opposite patterns from 2015 Interest rates will gradually increase, but still remain low. The U.S. dollar will become stronger. Exchange Rate Quarterly Forecast USD to RMB Currency Exchange Q Q Q Q Q Q Q Q Average

30 The Economic Horizon 2. Price growth will stabilize Oil prices will stabilize making forecasts more accurate. S&P is expected to rise 5% to 2200 in In 10 years S&P is expected to reach 3500 implying annual price returns of 6%. 3. GDP Forecast 2015 expected GDP growth rate is 2.89% GDP is forecasted to grow a little more than 3%. 4. Unemployment Forecast Gradually accelerate to 5.31% by the end of 2017.

31 The Economic Horizon 5. Money supply growth will continue to be constrained. Source: Trading Economics

32 The Economic Horizon 6. Themes for 2016 High Quality Stocks More attractive for the next 1 to 10 years. Perform better in volatile markets. Harmony Gold Mining Co, Nautilus Inc., Milacron Holdings Corp Dividend Growth Stocks Historically perform better in markets with rising rates. Inexpensive, globally diversified, and offer solid earnings growth potential. AbbVie Inc., WEC Energy Group

33 The Economic Horizon Liquidity over leverage Companies with conservative balance sheets and abundant capital will lead markets. Perform better in downturns, grow dividends, and take advantage of depressed markets. Pricing Power Pricing power may put traditional firms at risk. Airbnb, Lyft, and Uber may pressure traditional lodging and transportation pricing. Fast fashion may pressure traditional Retailers. Zara Spanish clothing and accessories retailer. Netflix may pressure traditional cable providers.

34 The Economic Horizon Source: Beaconomics

35 The Economic Horizon Source: Beaconomics, Fall 2015

36 U.S. Real Estate Market RESIDENTIAL AND COMMERCIAL

37 U.S. Real Estate Markets U.S. New Home Sales March ,000 new home sales overall % decrease of sales in the west % increase of sales in the Midwest 5% increase of sales in the South. Sales remained flat in Northeast. Source: Trading Economics

38 U.S. Real Estate Markets Source: Google Finance

39 Commercial Construction Building 2016 Source: IBIS, 2016

40 Commercial Construction Building 2016 Source: IBIS, 2016

41 Commercial Construction Building 2016 Mature stage of its life cycle Characterized by complete market acceptance, low levels of technological change and slow enterprise growth and merger activity Source: IBIS, 2016

42 Commercial Construction Building 2016 Source: IBIS, 2016

43 Real Estate Appraiser Industry 2016 Industry will benefit from increased home prices, transaction activity, and construction activity Increases in credit available for borrowing will support solid growth over the next five years Source: IBIS, 2016

44 Real Estate Appraiser Industry 2016 Financial institutions and brokers are expected to make up a greater proportion of revenue due to Growing consumer demand for property and minimizing risk Source: IBIS, 2016

45 Real Estate Appraiser Industry 2016 Source: IBIS, 2016

46 California Real Estate Market

47 California Real Estate Market California Home Prices Housing markets maintained upward trend in terms of prices, sales, and new construction Median home price was $403,600 in 2015 an increase of 5.5% from 2014 Source: Beaconomics, Spring 2016

48 California Real Estate Market California Home Sales Home sales rose by 10.5% in 2015 after a decrease of 8.7% in 2014 Home sales have been constrained by lean inventories throughout CA Source: Beaconomics, Spring 2016

49 California Real Estate Market California Residential Permits Although home prices and sales have increased, new home building was constrained Total permits rose in 2015, but failed to meet the 100,000 threshold Source: Beaconomics, Spring 2016

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52 California Real Estate Market Growing Housing Demand Multiple driving forces to increase housing demand over the next two years 1. Combination of job and income growth 2. Low, but rising mortgage rates 3. Demographic force Millennials delayed in forming households, becoming homeowners, and starting families Large number of Millennials should drive new construction and lift the housing market Source: Beaconomics, Spring 2016

53 California Real Estate Market Nonresidential Real Estate Markets Nonresidential real estate construction increased by 6.8% in 2015 Permit valuations increased for 2015 Hotels 5.5% increase industrial 0.6% increase Retail 5.6% decrease Recurring Themes Economic prosperity, home prices rise and affordability plummets State revenues are pro-cyclical with the economy and financial markets Source: Beaconomics, Spring 2016

54 Inland Empire Real Estate Market

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59 Inland Empire Economic Output Inland Empire represented the 5 th largest economy in CA Amazon will be opening their 5 th fulfillment center in Inland Empire Inexpensive land and close to ports and markets Source: Beaconomics, Spring 2016

60 Inland Empire Real Estate Major Contributors for Economic Growth Inland affordability over coastal regions Strong logistics sector Logistics accounted for one-third of overall regional growth in 2015 Q4 Real gross metropolitan product (GMP) grew at a 3.7% annualized rate over 2015 Q3 California s real gross state product grew by 1.9% in 2015 Q4 Fifth largest metropolitan area with expected growth due to affordable land prices Source: Multi Regional Multiple Listing Service, Inc.

61 Construction Contribution to Economic Growth Contributed 0.8% points to overall growth Inland Empire added 9,381 residential permits 75% of permits were for single-family homes Nonresidential decreased 6.8% but marked 2 nd strongest year since the recession Source: Beaconomics, Spring 2016

62 Inland Empire Real Estate Single Family Median Home Price & Sales March 2016, median price of single-family homes totaled $416,000 5% increase from March 15 March 2016, 7,784 single-family homes sold 2.5% increase from March 15 March 2016, condo price totaled $375, % increase from Feb 16 March 2016, condo sales total of 1,879 units 37.8% increase from Feb 16 Source: Multi Regional Multiple Listing Service, Inc.

63 Inland Empire Real Estate Single Family Median Home Price March 2015 March 2016 Source: Multi Regional Multiple Listing Service, Inc.

64 Inland Empire Real Estate Monthly Properties Sold March 2015-March 2016 Source: Multi Regional Multiple Listing Service, Inc.

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70 Inland Empire Real Estate Home Ownership Rates Inland Empire home ownership rates were just under 63% in 2015 The state average was 54% in 2015 Increasing rates are due to the creation of higher paying jobs Source: Riverside Housing Indicators, 2016

71 Inland Empire Real Estate Mar-16 Multi Regional Multiple Listing Service, Inc. Regional Sales and Price Activity Source: Multi Regional Multiple Listing Service, Inc.

72 Inland Empire Real Estate Mar-16 Multi Regional Multiple Listing Service, Inc. Regional Sales and Price Activity Source: Multi Regional Multiple Listing Service, Inc.

73 STRATEGY

74 STRATEGY 2016 GOAL: MAXIMIZE GROWTH 1. STRATEGIC AUDIT 2. CAUTIOUS OPTIMISM 3. CONTINGENCY PLAN 4. REVISIT CORP POLICIES 5. KNOW THE LAWS 6. REDUCE INEFFICIENCIES 7. ADD CONSUMER VALUE

75 References Bureau of Labor Statistics. (n.d.). Databases, Tables & Calculators by Subject. Retrieved from Central Intelligence Agency. (n.d.). World Factbook. Retrieved from FRB: Economic Research & Data. (2015, December 1). Retrieved from Home Depot Inc. (n.d.). Retrieved from Inland Empire Area Market Report Mar-16. (n.d.). Retrieved from International Monetary Fund. (2014, October). World economic outlook: Legacies, clouds, uncertainties. Washington, D.C: International Monetary Fund. Retrieved from Nightingale, S. (2016, May). Inland Southern California Economy Shows Strong Growth. Retrieved May 19, 2016, from Rivera, E. (2016, March). Real Estate Appraisal in the US: Market Research Report. Retrieved from Riverside Housing Indicators. (2016, March). Retrieved May 19, 2016, from Thornberg, C., & Levine, J. (2015). Beaconomics: An economic forecast for the U. S. and California (No. 3, Vol. 8, Spring 2016, Rep.). Trading Economics. (n.d.). TRADING ECONOMICS INDICATORS FROM 196 COUNTRIES. Retrieved from The World Bank. (n.d.). Data The World Bank. Retrieved from U.S. Economy at a Glance: Perspective from the BEA Accounts. (2015, December 1). Retrieved, from

76 SCCAI 19 TH ANNUAL INLAND EMPIRE MARKET TRENDS SEMINAR SEAN D. JASSO, PHD UNIVERSITY OF CALIFORNIA, RIVERSIDE SCHOOL OF BUSINESS ADMINISTRATION JUNE 2, 2016