Economic & Real Estate Outlook

By Lawrence Yun, Ph.D.

Chief Economist, National Association of REALTORS®

Presentations at NAR Legislative Meetings

Washington, DC

May 17, 2018

Very Long Economic Expansion
-10
2
4
6

-8
-6
-4
-2
2008 - Q1
2008 - Q2
2008 - Q3
2008 - Q4
2009 - Q1
2009 - Q2
2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
2012 - Q3
2012 - Q4
2013 - Q1
2013 - Q2
2013 - Q3
2013 - Q4
2014 - Q1
2014 - Q2
2014 - Q3
2014 - Q4
2015 - Q1
GDP Growth Rate

2015 - Q2
2015 - Q3
2015 - Q4
2016 - Q1
2016 - Q2
3% in Q2 and Q3 (and Q4)

2016 - Q3
2016 - Q4
2017 - Q1
2017 - Q2
2017 - Q3
2017 - Q4
2018 - Q1
 Stock Market: S&P 500
3000
2500
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
 20000
40000
60000
80000
100000
120000

0
2000 - Q1
2000 - Q3
2001 - Q1
In $billion

2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
Record High Wealth

2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1
2015 - Q3
2016 - Q1
2016 - Q3
2017 - Q1
2017 - Q3
 Animal Spirit Revival of Consumers?
Consumer Confidence Index
140

120

100

80
2016 - 2016 - 2016 - 2016 - 2016 - 2016 - 2017 - 2017 - 2017 - 2017 - 2017 - 2017 - 2018 -
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan
 Job Gains for 90 straight months
(18 million gained from 2010)
150,000
In thousands
145,000

140,000

135,000

130,000

125,000

120,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
 Low Unemployment Rate
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Recent Employment Growth
(March 2017 to March 2018)
 100
120

0
20
40
60
80
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan
2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
2014 - Oct
2015 - Jan
West Texas Intermediate

2015 - Apr
2015 - Jul
2015 - Oct
2016 - Jan
2016 - Apr
2016 - Jul
2016 - Oct
2017 - Jan
2017 - Apr
2017 - Jul
Oil Price – Bouncing Off Lows

2017 - Oct
2018 - Jan
2018 - Apr
 Total Job Openings
6500
6000 In thousands

5500
5000
4500
4000
3500
3000
2500
2000
 Job Openings = Job Seekers
In thousands
18000
16000
14000
12000
10000
8000
6000
4000
2000
 Weekly Initial Unemployment
Insurance Filings
700 In thousands

600
500
400
300
200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
 40
45
50
55
60
65
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan

Source: ISM Institute

2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
2014 - Oct
2015 - Jan
2015 - Apr
2015 - Jul
2015 - Oct
2016 - Jan
2016 - Apr
2016 - Jul
2016 - Oct
2017 - Jan
2017 - Apr
2017 - Jul
2017 - Oct
2018 - Jan
Backlog of Orders: Breaking Higher

2018 - Apr
 0
1
2
3
4
5

-4
-3
-2
-1
2008 - Q1
2008 - Q2
2008 - Q3
2008 - Q4
2009 - Q1
2009 - Q2
2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
2012 - Q3
2012 - Q4
2013 - Q1
2013 - Q2
2013 - Q3
2013 - Q4
2014 - Q1
2014 - Q2
2014 - Q3
2014 - Q4
2015 - Q1
2015 - Q2
(year over year % growth after inflation)

2015 - Q3
2015 - Q4
2016 - Q1
2016 - Q2
2016 - Q3
Consumer Spending Growth

2016 - Q4
2017 - Q1
2017 - Q2
2017 - Q3
2017 - Q4
2018 - Q1
-20
-15
-10
0
5

-5
10
15
2008 - Q1
2008 - Q2
2008 - Q3
2008 - Q4
2009 - Q1
2009 - Q2
2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
2012 - Q3
2012 - Q4
2013 - Q1
2013 - Q2
2013 - Q3
2013 - Q4
2014 - Q1
2014 - Q2
2014 - Q3
2014 - Q4
2015 - Q1
2015 - Q2
2015 - Q3
2015 - Q4
2016 - Q1
2016 - Q2
Business Spending Growth

2016 - Q3
2016 - Q4
2017 - Q1
2017 - Q2
2017 - Q3
2017 - Q4
(Non-Residential Fixed Investment, year over year % growth after inflation)

2018 - Q1
-30
-20
-10
0
10
20
30
2008 - Q1
2008 - Q2
2008 - Q3
2008 - Q4
2009 - Q1
2009 - Q2
2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
2012 - Q3
2012 - Q4
2013 - Q1
2013 - Q2
2013 - Q3
2013 - Q4
2014 - Q1
2014 - Q2
2014 - Q3
2014 - Q4
2015 - Q1
2015 - Q2
(year over year % growth after inflation)

2015 - Q3
2015 - Q4
2016 - Q1
2016 - Q2
2016 - Q3
2016 - Q4
2017 - Q1
2017 - Q2
2017 - Q3
2017 - Q4
Commercial Construction Spending Growth

2018 - Q1
 10
20

-30
-20
-10
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
Exports (Red)
Imports (Blue)

2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
(year over year % growth after inflation)

2013 - Q3
2014 - Q2
2015 - Q1
2015 - Q4
Export and Import Growth Rates

2016 - Q3
2017 - Q2
2018 - Q1
 1000
1500
2500
3000

2000
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
(in $ billion 2009 Prices)

2013 - Q3
2014 - Q2
2015 - Q1
Exports and Imports

2015 - Q4
2016 - Q3
2017 - Q2
2018 - Q1
Exports
Imports
-10
0
2
4
6
8

-8
-4
-2
10
12

-6
2008 - Q1
2008 - Q2
2008 - Q3
2008 - Q4
2009 - Q1
2009 - Q2
2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
2012 - Q3
2012 - Q4
2013 - Q1
2013 - Q2
2013 - Q3
2013 - Q4
2014 - Q1
2014 - Q2
2014 - Q3
2014 - Q4
2015 - Q1
2015 - Q2
(year over year % growth after inflation)

2015 - Q3
2015 - Q4
2016 - Q1
2016 - Q2
2016 - Q3
2016 - Q4
2017 - Q1
2017 - Q2
2017 - Q3
National Defense Spending Growth

2017 - Q4
2018 - Q1
 3.0
4.0
5.0

-3.0
-2.0
-1.0
0.0
1.0
2.0
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
2014 - Jan
2014 - May
2014 - Sep
(year over year % growth)

2015 - Jan
2015 - May
2015 - Sep
2016 - Jan
2016 - May
2016 - Sep
2017 - Jan
2017 - May
2017 - Sep
Producer Prices on Materials for Construction

2018 - Jan
 5000
5500
6000
6500
7000
7500
8000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
In thousands

2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
Construction Workers

2014 - Jul
2015 - Jan
2015 - Jul
2016 - Jan
2016 - Jul
2017 - Jan
2017 - Jul
2018 - Jan
 50

0
100
150
200
250
2002 - Jan
2002 - Jul
2003 - Jan In thousands
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
(12-month moving average)

2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
2015 - Jan
Construction Job Openings

2015 - Jul
2016 - Jan
2016 - Jul
2017 - Jan
2017 - Jul
2018 - Jan
 1.0
2.0
3.0
4.0
5.0
6.0

0.0
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
2014 - Jan
Construction

2014 - May
2014 - Sep
All
(year over year % growth)

2015 - Jan
2015 - May
2015 - Sep
2016 - Jan
2016 - May
2016 - Sep
2017 - Jan
2017 - May
Construction Job Wage Increase

2017 - Sep
2018 - Jan
US CRE fundamentals on upswing…
OFFICE
• Office demand strong, due to rising
employment
• Mobile workforce; increased
telecommuting
• Flexible space layouts
• Moderate supply leads to 13%
vacancy
RETAIL
• Department stores lose ground
• Malls close/redevelop
• Small/discount grocery stores heat up:
Aldi
• Amazon moves into grocery space with
Whole Foods
• Completions remain low
• Rents experience solid growth
INDUSTRIAL
• Increased trade & rising e-commerce place
industrial sector on hot streak
• “Last mile” distribution + Intermodal logistics
• Panama Canal; East coast ports
• Net absorption remains strong
• Net rent growth reaches record
APARTMENT
• Mixed-use urban development; live/work/play
• Class A supply; small floorplans; amenities
• Demand remains robust; 12-mo net
absorption: 230,000 units
• 12-mo Completions: 260,000 units
• Vacancy moves up to 5%; moderates rent
growth (2.0% YoY in Q1.18)
 Retail Sales
15 % change from one year ago

10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-5 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

-10
-15
 E-commerce Retail Sales
(Growing 4 times as fast as traditional retail sales)
50 % change from one year ago

40
30
20
10
0
2001 - Q1 2004 - Q1 2007 - Q1 2010 - Q1 2013 - Q1 2016 - Q1
-10
-20
 100
200
250
300

150
2000 - Q1
2000 - Q3

Source: Federal Reserve

2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
(85% gain in 7 years)

2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1
Commercial Property Price – New Highs

2015 - Q3
2016 - Q1
2016 - Q3
2017 - Q1
2017 - Q3
 50
70
110
130
150

90
2000 - Jan
2000 - Jul

Source: Federal Reserve

2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
(More Than Doubled in 7 years)

2014 - Jul
2015 - Jan
2015 - Jul
Commercial Appraisal Price – Topping Off

2016 - Jan
2016 - Jul
2017 - Jan
2017 - Jul
2018 - Jan
 NCREIF Cap Rates –
Likely Already Hit Cyclical Low
8 %
6.9
7 6.3
6.1 6.0 6.0 5.9
6 5.7 5.6 5.7 5.5
5.1 5.1 5.1
5
4
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
 1.0
3.0
4.0
5.0
6.0
7.0

0.0
2.0
200001
200006
200011
200104
200109
200202
200207
200212
200305
200310
200403
200408
200501
200506
200511
200604
200609
200702
200707
200712
200805
200810
200903
200908
201001
Treasury 10-Year Note: Interest Rate (%)

201006
201011
201104
201109
201202
201207
201212
201305
201310
201403
201408
Federal Open Market Committee: Fed Funds Target Rate (EOP, %)

201501
201506
201511
201604
201609
201702
Fed Rate Hikes and 10-Year Treasury Yield

201707
201712
Sources: Federal Reserve Board, Bureau of Public Debt
 Low Cap Rates … Except in Hotel
Cap Rates
Off Ret Ind Apt Htl
9.0%

8.0%

7.0%

6.0%

5.0%
'13 '14 '15 '16 '17 '18
Source: Real Capital Analytics
 Commercial Investment Sales of Large Properties
(Properties valued at $2.5 million and over)
571 547
470 489
423 424 450
362 355
299
212 233
174 147
130
67

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
 REALTORS® CRE sales advance in 2017…
Q4.2017 Investment
Q4.2017 Percentage of REALTORS® Volume

+9.1%
REALTORS® Most Pressing Challenges
Who Closed a Sale Transaction

75%
100%

90%
Q4.2017 Investment
Inventory
Prices 80%
46% 42%
+6.9% 70%
Shortage
60%
Pricing Gap:
Direction of Business Opportunity (QoQ) 50%
23% Buyers vs
8%
40%
21%
6% Sellers
4% 30%
2%
9% 13% Local
0% 20%
12% 8% Economy
-2%
10% 10%
-4% 10%
1% 3%
-6% 0%
-8% 2017.Q4 2017.Q3
-10%
-12%
Source: National Association of Realtors®
 Multifamily Housing Starts
450
In thousand units
400
350
300
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
 -0.5
1
2
3

0
0.5
1.5
2.5
3.5
4
4.5
2010 - Jan
2010 - Apr
2010 - Jul
2010 - Oct
2011 - Jan
2011 - Apr
2011 - Jul
2011 - Oct
2012 - Jan
2012 - Apr
2012 - Jul
2012 - Oct
2013 - Jan
2013 - Apr
2013 - Jul
2013 - Oct
2014 - Jan
2014 - Apr
2014 - Jul
2014 - Oct
2015 - Jan
% change from one year ago

2015 - Apr
2015 - Jul
2015 - Oct
2016 - Jan
2016 - Apr
2016 - Jul
2016 - Oct
Rent Growth Topping Off?

2017 - Jan
2017 - Apr
2017 - Jul
2017 - Oct
2018 - Jan
 Apartment Vacancy To Rise
%
Rent Change Vacancy
10

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-5

-10
Source: CBRE via ULI
 Office Vacancy To Fall
%
Rent Change Vacancy
20
15
10
5
0
-5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-10
-15
Source: CBRE via ULI
 Industrial-Warehouse to Fall
%
Rent Change Vacancy
20
15
10
5
0
-5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-10
-15
Source: CBRE via ULI
 Retail to Hold Steady
%
Rent Change Vacancy
15

10

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-5

-10
Source: CBRE via ULI
Forecast
 OLD Economic Forecast
2015 2016 2017 2018
Forecast Forecast

GDP Growth 2.6% 1.5% 2.1% 2.5%

Job Growth +2.6 +2.0 +2.1 +2.4

million million million million

CPI Inflation 0.3% 1.2% 2.5% 2.5%

OLD Commercial Real Estate Forecast for 2017
Vacancy Rent

Apartment Rising Rising Slowly

50 to 80 basis points 3% per year

Office Stable 2.5% per year

Industrial Stable 4% per year

Retail Stable 2% per year

 New Economic Forecast
U.S. ECONOMIC OUTLOOK — May 2018

2016 2017 2018 2019

Annual Growth Rate, %
Real GDP 1.5 2.3 2.7 2.8

Nonfarm Payroll Employment 1.8 1.4 1.6 1.6

Consumer Prices 1.3 2.1 2.9 2.8
Level
Consumer Confidence 100 120 127 129
Percent
Unemployment 4.9 4.4 4.0 4.0
Fed Funds Rate 0.4 1.0 1.8 2.4
3-Month T-bill Rate 0.3 1.0 1.9 2.5
Prime Rate 3.5 4.1 5.0 5.6
10-Year Gov’t Bond 1.8 2.3 3.1 3.5
30-Year Gov’t Bond 2.6 2.9 3.3 3.8

Source: National Association of REALTORS®

 10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0

0.0
5.0
2008 - Jan
2008 - May
2008 - Sep
2009 - Jan
2009 - May
2009 - Sep
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
2014 - Jan
2014 - May
2014 - Sep
2015 - Jan
2015 - May
2015 - Sep
2016 - Jan
2016 - May
2016 - Sep
Probability of Recession
(NY Fed: based on interest rate spread)

2017 - Jan
2017 - May
2017 - Sep
2018 - Jan
2018 - May
2018 - Sep
2019 - Jan
Thank You !