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Elliott D. Pollack & Company
2016: More of the Same.
But, with Much More Drama.
W. P. Carey School’s
Annual Economic Outlook Luncheon
May 11th
, 2016
Presented By:
Elliott D. Pollack
CEO, Elliott D. Pollack & Company
Elliott D. Pollack & Company
Can the Recovery Last?
2
Elliott D. Pollack & Company
Yes!
3
Elliott D. Pollack & Company
Is the Sky Falling?
4
Elliott D. Pollack & Company
Most Likely, No.
5
Elliott D. Pollack & Company
Where We Stand–
• The recovery is starting to show signs of
middle age.
6
YOU ARE
SOMEWHERE
AROUND HERE
Elliott D. Pollack & Company
Mortgage Equity Withdrawal
as a share of Disposable Income-Single Family
U.S.: 1958 – 2015 Source: Bureau of Economic Analysis, Federal Reserve
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Recession Periods
7
Elliott D. Pollack & Company
Bottom Line Slow Intermediate Term Growth
8
Elliott D. Pollack & Company 9
Arizona &
Greater Phoenix (73% total non-farm Employment
in the state)
Elliott D. Pollack & Company
Employment Growth From Bottom of Recession to Now
Seasonally Adjusted Source: BLS
Area % Change % of Arizona
Growth
2014 Annual
Wages
United States 10.1% $51,296
Arizona 13.5% 100.0% $46,541
Greater Phoenix 16.3% 85.3% $48,867
Greater Tucson 7.0% 7.7% $41,434
Balance of State 6.7% 7.0% $35,186
Note: Start of Recession Sept. 2010 to Mar. 2016
Wages for Private industries
10
Elliott D. Pollack & Company
Arizona–
The State has had a significant recovery in
both absolute and relative terms.
It is only when we compare ourselves to
previous Arizona recoveries that we look so
bad.
11
Elliott D. Pollack & Company 12
The World has Changed…
Pre-2007 Post-2007
Elliott D. Pollack & Company
Year Rank
2005 2
2006 2
2007 17
2008 46
2009 49
2010 49
2011 27
2012 9
2013 10
2014 16
2015 11
2016* 7
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 March 2016 vs. YTD March 2015 13
Elliott D. Pollack & Company
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* 4 32
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 March 2016 vs. YTD March 2015 14
Elliott D. Pollack & Company
Why has Arizona growth
in this cycle been
subpar relative to its
historical norm?
15
Elliott D. Pollack & Company
(1) Sub normal national recovery
(2) Slowdown in
population flows
(3) Slow housing recovery
(4) Local factors
16
Elliott D. Pollack & Company
What has changed?
17
Elliott D. Pollack & Company 18
Growth itself is an economic
driver in Arizona–
People moving to the State creates demand
for goods and services that create more
jobs.
When you grow at 1.8% instead of 3.2%, the
part of the economy that is based on
servicing new people shrinks.
Elliott D. Pollack & Company
Fewer people mean fewer houses
& less commercial construction.
19
Elliott D. Pollack & Company
Less need for migrants
(international and national)
chasing jobs.
20
Elliott D. Pollack & Company
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 March 2016 21
Elliott D. Pollack & Company
Employment Growth From Bottom of Recession (Start of Recovery)
Greater Phoenix Employment, Seasonally Adjusted Source: BLS
22
Recession
Emp.
Trough
66 mos.
Later
% Growth
1974-1975 Dec-74 Jun-80 43.3%
1981-1982 Sep-82 Mar-88 42.5%
1991 Aug-91 Feb-97 35.7%
2001 Dec-01 Jun-07 21.6%
2007-2009 Sep-10 Mar-16 16.3%
Elliott D. Pollack & Company
Population Growth after Recessions Greater Phoenix
Source: ADOA
23
Start of
Recovery
Population
Population
6 years later
% Growth
1975 1,377,700 1,658,988 24.0%
1981 1,658,988 2,102,571 26.7%
1991 2,301,825 2,900,325 26.0%
2001 3,360,062 4,087,390 21.6%
2009 4,186,130 4,482,906 7.1%
Elliott D. Pollack & Company
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%3.4%3.6%
-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 April 2016.
Recession Periods
Pre-2008 Avg. 4.8%
24
Elliott D. Pollack & Company
Where are the Inflows of
Population?
25
Elliott D. Pollack & Company
For the U.S. as a Whole
• 2001 – 2005
• 2011 – 2015
26 Note: Does not include in-state movers
Total Movers down 24%
• Movers from abroad (down 16.3%)
• Movers from other states (down 35%)
• Movers from other counties
in the state (down 14.7%)
Elliott D. Pollack & Company
Arizona Capture Rate (from abroad and between states)
• 2001 – 2005 = 8.1%
• 2011 – 2015 = 3.5%
27 Note: Does not include in-state movers
Elliott D. Pollack & Company 28
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
has also been reduced.
2. It has taken longer to absorb the excess
inventory of single family, office, etc.
Construction employment has suffered.
Thus, the economy would have been stronger.
Elliott D. Pollack & Company
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
29
Elliott D. Pollack & Company
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%1.8%
1.9%
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 December 2015.
Pre-2008 Avg. 3.5%
30
Elliott D. Pollack & Company
Greater Phoenix Population
Annual Net Change 1975–2017* Source: AZ Dept. of Administration, EDPCo
35.828.7
50.559.6
69.8
60.052.7
49.753.2
75.6
94.581.3
89.3
60.154.9
29.7
54.664.5
83.8
104.2
118.6
111.9115.6
111.0
130.4133.6
84.7
92.0
105.9
127.7
141.6141.5
118.6
79.6
19.1
14.3
27.2
46.3
64.866.2
78.080.7
86.7
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
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 December 2015. 31
Elliott D. Pollack & Company
Arizona Domestic Migration Ranking 2000-2015
Source: U.S. Census Bureau
2 2 2 2 2 2 3 4 3
11
6
11
3
6
3 4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
32
Elliott D. Pollack & Company
Arizona International Migration Ranking 2000-2015
Source: U.S. Census Bureau
10 8 8 7
9 7 8 7 8 8
18 17 17 17 17 17
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
33
Elliott D. Pollack & Company
In terms of national migration, we
are doing O.K. But, there is less
migration overall
In terms of international migration,
we are doing poorly. And, there is
also less international migration.
34
Elliott D. Pollack & Company
How quickly are population
flows going to recover?
35
Elliott D. Pollack & Company
SLOWLY!
36
Still buffering, seriously?
Elliott D. Pollack & Company
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 2015 Q4 4,482,906 4,563,598 4,650,307
Net Change 78,018 80,692 86,708
% Change 1.8% 1.8% 1.9%
U of A Forecasting Project Forecast as of 2016 Q2 4,482,906 4,569,590 4,666,992
Net Change 78,018 86,684 97,402
% 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%
37
Elliott D. Pollack & Company
APS: Slowest Growth in over 50 years
1954 – 2016*
0%
1%
2%
3%
4%
5%
6%
7%
8%
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Re
sid
en
tia
l C
us
tom
ers
Ov
er
Pri
or
Ye
ar
Source: APS
*Data through the first quarter 2016 38
Elliott D. Pollack & Company
SRP Residential Utility Hookup Growth
Greater Phoenix 2003 – 2015* Source: SRP
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Jan
-03
Ap
r-0
3
Jul-
03
Oct-
03
Jan
-04
Ap
r-0
4
Jul-
04
Oct-
04
Jan
-05
Ap
r-0
5
Jul-
05
Oct-
05
Jan
-06
Ap
r-0
6
Jul-
06
Oct-
06
Jan
-07
Ap
r-0
7
Jul-
07
Oct-
07
Jan
-08
Ap
r-0
8
Jul-
08
Oct-
08
Jan
-09
Ap
r-0
9
Jul-
09
Oct-
09
Jan
-10
Ap
r-1
0
Jul-
10
Oct-
10
Jan
-11
Ap
r-1
1
Jul-
11
Oct-
11
Jan
-12
Ap
r-1
2
Jul-
12
Oct-
12
Jan
-12
Ap
r-1
3
Jul-
13
Oct-
13
Jan
-14
Ap
r-1
4
Jul-
14
Oct-
14
Jan
-15
Ap
r-1
5
Jul-
15
Oct-
15
Recession Period
*Data through September 2015 39
Elliott D. Pollack & Company
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* 4,975,050 2.1%
2025* 5,486,091 2.0%
*Forecasts as of 2016 Q2 40
Elliott D. Pollack & Company
If you believe that
population forecast,
it implies an average of
about 20,000 single family units will
be built each year
from 2015 through 2020.
41
Elliott D. Pollack & Company
How quickly will housing
recover?
42
Elliott D. Pollack & Company 43
Parade of Horribles Housing
Elliott D. Pollack & Company
What is keeping potential buyers out of the
housing market?
Parade of horribles:
(1) Negative Equity
(2) FHA Loan Limit
(3) Foreclosures
(4) Short Sales
(5) Millennials
(6) Student Loans
(7) Tougher Loan Standards
44
Elliott D. Pollack & Company
U.S. and Greater Phoenix
Negative Equity Share
2010–2015 Source: CoreLogic
24.5% 24.4% 22.0%
13.3%
10.4% 8.1%
41.1%
23.2%
19.3%
14.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3
U.S. Greater Phoenix
Greater Phoenix data prior to 2012 Q2 not available. 45
Elliott D. Pollack & Company
FICO Score Distribution
Percent of Population
April 2015 Source: Fair Isaac Corporation
4.9%
7.6%
9.4% 10.3%
13.0%
16.6%
18.2%
19.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
300-499 500-549 550-599 600-649 650-699 700-749 750-799 800-850
19% under FHA 580 minimum
39% under FHA 677 average
25% under Fannie/Freddie 620 minimum
60% under Fannie/Freddie 744 average 46
Elliott D. Pollack & Company
Maricopa County Foreclosure Lag
2002–2023 Source: Information Market
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
CompletedForeclosures
7-Year Lag (Fannie/Freddie)
April 2016
Recession Periods
47
Elliott D. Pollack & Company
Mortgage Credit Availability Index
2012 – 2016* March 2012 = 100
Source: Mortgage Bankers Association Recession Periods
125
135
115
105
95
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 March 2016
2014 2013
48
2016
Elliott D. Pollack & Company
Mortgage Credit Availability Index
2004 – 2016* March 2012 = 100
Source: Mortgage Bankers Association Recession Periods
750
1,000
500
250
0
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 March 2016
49
Elliott D. Pollack & Company
Good news for housing.
(1) Economic growth is good in Greater Phoenix
(2) Mortgage rates are low & lending is loosening up a bit
(3) Affordability is still good
50
Elliott D. Pollack & Company
Millennials
51
Elliott D. Pollack & Company
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
52
Elliott D. Pollack & Company
U.S. Median Age at First Marriage
1890-2015 Source: U.S. Census Bureau
18
20
22
24
26
28
30
Men Women
Baby Boomers Gen X Millennials
53
Elliott D. Pollack & Company
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)
54
Elliott D. Pollack & Company
When you delay marriage you
delay children. That delays
housing. That delays demand for
housing “stuff”.
55
Elliott D. Pollack & Company
Total Student Loan Debt Has
Quadrupled!
56
Elliott D. Pollack & Company
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
57
Elliott D. Pollack & Company
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.
58
Elliott D. Pollack & Company
Positions Builders are Having Trouble Filling
Roofers
Plumbers
Painters
Electricians
Masons
Framers
Carpenters
40.0%
45.0%
46.0%
46.0%
53.0%
67.0%
68.0%
Source: National Association of Home Builders, June 2015
59
Elliott D. Pollack & Company 60
Who do we hire if there is a
construction labor shortage?
Elliott D. Pollack & Company
Arizona Population:
Foreign-Born, Non-Citizen Source: American Community Survey
300,000
350,000
400,000
450,000
500,000
550,000
600,000
-1.9% 9.5%
9.2%
6.0%
3.6%
9.8%
6.1%
-8.5%
-6.4%
-13.8% -2.4% -1.9%
2.3%
Recession Periods
61
Elliott D. Pollack & Company
Illegal Alien Apprehensions FY 2000-2015
Source: U.S. Border Patrol
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Mexico All
(000’s)
In 2000, 97.6% of
All apprehensions
were from Mexico
In 2015, only 55.8%
of All apprehensions
were from Mexico
62
Elliott D. Pollack & Company
E-Verify
Number of Participating Employers FY 2001-2014
Source: U.S. Citizenship and Immigration Services (000’s)
0
100
200
300
400
500
600
20012002200320042005200620072008200920102011201220132014
63
Elliott D. Pollack & Company
U.S. Unauthorized Immigrant Population FY 1995-2014
Source: Pew Research Center
(Millions)
5.7
12.2 11.3
0
2
4
6
8
10
12
14
64
Elliott D. Pollack & Company 65
The housing recovery is likely to
continue.
Elliott D. Pollack & Company
Multi-Family
66
Elliott D. Pollack & Company
Apartments
Births 26-27 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
67
Elliott D. Pollack & Company
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
68
Elliott D. Pollack & Company
Multi-Family Year-End Vacancy Rates
Greater Phoenix County 1975–2017* 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%5.6%
6.3%6.2%
0%
3%
6%
9%
12%
15%
18%
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
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
*2016 & 2017 are forecasts from Elliott D. Pollack & Co.
**Data prior to 2005 is from ASU
Recession Periods
69
Elliott D. Pollack & Company
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
70
Elliott D. Pollack & Company
Multi-Family Pipeline Source: Anonymous
Year
Potential
New Supply
2016 6,564
2017 4,754
71
Elliott D. Pollack & Company
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Multi-Family Average Rent Percent Change a Year Ago
2004 – 2016* Source: RealData Inc. Recession Periods
72 *Data through first quarter 2016
Elliott D. Pollack & Company
Multi-Family Outlook
Higher population growth and continued
weak homeownership suggests the
outlook for apartments is excellent.
73
Elliott D. Pollack & Company
OFFICE
74
Elliott D. Pollack & Company
Under any reasonable
employment growth scenario,
we believe it will be at least
2017-2018 before any significant
office construction occurs (although some sub-markets like
Tempe and Downtown Scottsdale
will be sooner).
75
Elliott D. Pollack & Company
INDUSTRIAL
76
Elliott D. Pollack & Company 77
RETAIL
Elliott D. Pollack & Company
CONCLUSIONS:
How will it all turn out?
78
Elliott D. Pollack & Company 79
The World has Changed…
Pre-2007 Post-2007
Elliott D. Pollack & Company
Economy should continue
to grow.
Real estate outlook rapidly
improving.
80
Elliott D. Pollack & Company
Greater Phoenix–
No boom in Greater Phoenix
until population increases
more rapidly and real estate
makes a more meaningful
recovery.
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Elliott D. Pollack & Company
In fact, given where we are
in the cycle, this could be
the new “Boom!”
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Elliott D. Pollack & Company
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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