The document summarizes economic trends in the US from 1990-2010, with a focus on the housing market boom and bust. It shows that the housing market experienced strong growth from 2000-2005, with rising home sales, construction, prices and ownership. However, prices began to outstrip incomes, affordability declined, and demand started to fall after 2005, indicating the housing boom could not last.
Exit Planners Guide to Building Corporate Value through Intangible Capital
Hopeful Prospects: Navigating the US and Regional Economies in 2009
1. Hopeful Prospects
Navigating the US and Regional Economies in 2009
P te C. Burle CRE
e r y,
Vic P s e Re e rc Sim s n Ho ingLLLP
e re id nt s a h, po us
Denver – February 12, 2009
2. An Important Disclaimer
The opinions expressed
are those of the Speaker
And do not necessarily reflect the
views of
Simpson Housing LLLP, its Related
Entities, Properties, Partners, Senior
Management, Maintenance
Personnel, Parking Attendants, or
Human Resources Staff,
None of whom are likely to
Agree with me anyway…
3. Another Important Disclaimer
Data and Analyses are
Compiled from
Sources Deemed
Reliable
But Not Guaranteed
No Offer or Solicitation
Implied …
Subject to Change Without
Notice…
4. In Nominal Terms, A $14 Trillion Economy
Total Gross Domestic Product (Nominal $Bil)
16000
14000 $14.4 Trillion
2008
12000
10000
8000
6000
$237 Bil
4000 1947
2000
0
1947Q1 1959Q3 1972Q1 1984Q3 1997Q1 2009Q3
Source: Moody's Economy.com; Bureau of Economic Analysis
5. Consumers & Government Make up the Lion’ s Share
Nominal Contribution to GDP (Pct, Q1:2009)
70
60
50
40
30
20
10
0
-10
on en
t ies rts nt
pti tm tor po me
um nv
es
nv
en t Ex v ern
ns dI I Ne Go
Co xe ate
al F i riv
rson nP
Pe ei
ang
Ch
Source: BEA, Moody's Economy.com
6. Consumers & Government Make up the Lion’ s Share
Nominal Contribution to GDP (Pct, Q1:2009)
72
70
Personal Consumption
68
66
64
62
60
1947Q1 1959Q3 1972Q1 1984Q3 1997Q1
Source: BEA, Moody's Economy.com
7. In Inflation Adjusted Terms, an $11 Trillion Economy
Total Gross Domestic Product (Bil 2000 $, SAAR)
12000
11500 Tech Slump
11000 and 9/11
10500
10000 The
Current
9500 Unpleasantness
9000
1990-91
8500 Recession
8000
7500
7000
1990Q1 1992Q3 1995Q1 1997Q3 2000Q1 2002Q3 2005Q1 2007Q3 2010Q1
Source: Moody's Economy.com; Bureau of Economic Analysis
14. Some Important Unemployment Definitions
•“Officially” Unemployed – In the Labor Force
and working or actively looking for work
•Discouraged Workers – Have a Job-market
Related reason for not currently looking
•Marginally Attached – Have Worked Recently,
Aren’t Looking, But are Available
•Underemployed - P.T. for Economic Reasons;
Have Settled for Part Time Work, Prefer Full-Time
16. Critical Dynamics in the Economy
The US Housing Market – Boom to Bust
The Subprime Crisis & Mortgage Market Meltdown
The Business Environment
Workers & Households
A Consumer Crisis
28. It Couldn’ t Last: Prices Outstrip Incomes
Annualized Growth Income vs Home Prices
25
20
15
Median Home Price
10
5
0
Median Household Income
-5
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1
Source: Moody's Economy.com;NAR;Census
29. It Couldn’ t Last: Affordability Began to Slide
140
Housing Affordability Index
135
130
125
120
115
110
105
100
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2
Source: Moody's Economy.com; NAR
30. It Couldn’t Last: Demand Began to Ebb
9 New & Existing Home Sales (Mil Units, SAAR)
8.5
8 Mil Units
.5
8 Q3 0 5
:2 0
7.5
5 Mil Units
.3
7 Q1:2 0
09
6.5
6
5.5
5
4.5
Existing New
4
1 1 1 1
04
Q 5Q 6Q 7Q Q1 9Q
1
0Q
1
20 00 20
0
20
0 08 00 01
2 20 2 2
Source: Moody's Economy.com; NAR; Census
31. It Couldn’t Last: Sales Slowed Across the Country
2.8
Existing Home Sales (Mil. Units, SAAR)
2.6
2.4
2.2
2
1.8
South
1.6
1.4
West
1.2
1 Midwest
0.8 Northeast
0.6
2005 2007 Nov Jan Mar May Jul Sept Nov p
Source: Nat'l Assoc Realtors
33. The US Housing Market: The Drop in Prices
Median Existing Home Price ($Ths, SAAR)
230
220
210
-22.5%
2005-2009
200
190
180
170
-7.8%
2009-2010
160
Q 1 Q2 Q3 Q4 Q1
04 05 06 00
7 09
20 20 2 0 2 20
Source: NAR; Moody's Economy.com
34. The US Housing Market: Prices Around the USA
Boston
Chicago % change year ago
% change from peak
Denver
Las Vegas
Los Angeles
Miami
New York
San Diego
San Francisco
Washington
-40 -35 -30 -25 -20 -15 -10 -5 0
Change in Home Prices (Pct, Year Ago, Peak)
Source: Moody's Economy.com; S&P/Case Shiller
35. The US Housing Market: Prices Around the USA
Boston
Chicago % change year ago
% change from peak
Denver
Las Vegas
Los Angeles
Miami
New York
San Diego
San Francisco
Washington
-40 -35 -30 -25 -20 -15 -10 -5 0
Change in Home Prices (Pct, Year Ago, Peak)
Source: Moody's Economy.com; S&P/Case Shiller
36. Inventories of Unsold Homes Have Risen Sharply
12
Months of Supply Existing Home Inventory
10
8
6
4
2
0
l t
20
05 2006 2007 v c n b r r y
No De Ja Fe Ma Ap Ma Ju
n Ju Aug Sep ct r ov p
O N
Soure: Nat'l Assoc Realtors
37. Builders Have Pulled Back … Way Back
2.4
Starts & Permits (Mil. Units, SAAR)
2.2
2
1.8
1.6
Permits
Starts
1.4
1.2
1
0.8
0.6
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4
Soure: Moody's Economy.com; Census
38. Builders Have Pulled Back … Way Back
7.8
Construction Employment (Mil, SA)
7.6
7.4
7.2
7
6.8
6.6
6.4
6.2
6
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
02 03 04 05 06 07 08 09
20 20 20 20 20 20 20 20
Source: Moody's Economy.com; BLS
40. Subprime Lending Made Home Buying Easy
•Credit to borrowers who do not meet prime underwriting guidelines.
•Heightened perceived risk of default due to:
history of loan delinquency or default
bankruptcy
limited debt experience
•Almost All Made as ARMs, Subject to Reset
•Most Packaged and Traded as High-Yield Asset-Backed Securities
41. Subprime Lending Made Home Buying Easy
350
Subprime Mortgage Originations ($Bil)
300
250
200
150
100
50
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Fed. Res. Bank NY
42. Until Adjustable Rate Mortgages Started to Reset
Mortgage Interest Rates (%,, NSA)
7
30-Year Fixed
6.5
6
5.5
Adjustable
5
4.5
4
3.5
2003Q1 2004Q2 2005Q3 2006Q4 2008Q1
Source: Moody's Economy.com; Freddie Mac
43. And Some Borrowers Were Not Prepared
Total Loans Overdue (%,SA)
22
20
18
16
14
Subprime
12
10
8
6
All Loans
4
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4
Source: Moody's Economy.com; MBA
44. And Homes Were Being Lost
Subprime Loans in Foreclosure (%,SA)
5
4.5
4
3.5
3
2.5
2
1.5
1
1998Q1 1999Q2 2000Q3 2001Q4 2003Q1 2004Q2 2005Q3 2006Q4 2008Q1
Source: Moody's Economy.com; MBA
45. Subprime Lending And Convoluted Debt Swaps
"With this complicated intertwining of bets of great magnitude,
no one could be sure of the financial position of anyone else-or
even of one's own position.
Not surprisingly, the credit markets froze."
Joseph Stiglitz
46. Critical Dynamics in the Financial & Economic Crisis
Excess Inventory Price Declines Refinancing Issues
Bank Capital Bank Losses Mtg Foreclosures
Depleted
Bank Failures Liquidity Crunch
Fed Actions
Econ Stim '08
Hope Now
TARP More Fed Action
Other H.O. Programs
62. Cutting Back, Preserving Workforce, Reducing Costs
Reduced Raises
Half of 620 Companies surveyed
By Hewitt Associates
Report that average raises will
Drop below 3%
Source: L.A. Times, 1/ 2009
15/
63. Cutting Back, Preserving Workforce, Reducing Costs
Unpaid Furloughs
State of California
Gannett Co. Publishing
64. Layoffs Remain the Favored Strategy
Major Layoff Annoucements (#)
2400
Mass Layoff Events – All Industries (#,SA)
2200
2000
1800
1600
1400
1200
1000
Source: Moody’ s Economy.com; BLS
800
06 N 07 N 08 N C
'20 JU '20 JU '20 JU DE
Source: Bureau of Labor Statistics
65. Who is Laying Off This Month ?
Selected Layoff Announcements in January/February 2009
Circuit City – 30,000 Saks – 1,100
Caterpillar – 20,000 Walgreens – 1,000
Nissan – 20,000 Schlumberger – 1,000
Pfizer – 19,500 Cummins - 800
Alcoa – 13,500 Autodesk - 750
Boeing – 10,000 Logitech - 500
GM – 10,000 Neiman Marcus - 375
TDK – 8,000 Ethan Allen - 350
Sprint Nextel – 8,000 New York & Co - 350
Home Depot – 7,000 Barnes & Noble - 100
ING – 7,000 Google - 100
Macy’ s – 7,000 World Wrestling Ent - 60
Philips Electronics – 6,000
Motorola – 4,000
Hertz – 4,000
Honda – 3,100
EMC – 2,400
Barclay’ s – 2,100
Cessna – 2,000
Source: CNN/
Reuters
MeadWestvaco Corp – 2,000
Cigna – 1,100
66. The Result of Mounting Layoffs is Mounting UE Claims
Initial Claims for Unemployment Benefits (#/Wk,
600000
550000
500000
450000
400000
350000
300000
250000
1 01 02 v-0
3
v-0
4 05 06 p-0
7
p-0
8
a n-0 ec- ec- o o ct- ct- e e
7-J 23
-D 8-D 23-N 7-N 23
-O 8-O 23-S 7-S
Source: Moody's Economy.com; Employment Training Admin.
67. Employers are Cutting Back
300 Thousands of Jobs
200
100
0
-100
-200
-300
-400
-500
-600
5 9 1 5 9 1 5 9 1
6M 6M 07
M
07
M 7 M
08
M
08
M 8M 9 M
2 00 2 00 20 20 2 00 20 20 2 00 2 00
Source: Moody's Economy.com
79. Monetary Policy Actions: A Near Zero Funds Rate
Federal Funds Rate (%)
7
6
5
4
3
2
1
0
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4
Source: Moody's Economy.com; FRB
80. The Troubled Asset Relief Program (TARP)
Designed to Provide Relief to Financial Institutions
by Acquiring Troubled Mortgage-Backed Assets,
Guaranteeing Assets,
And Recapitalizing Banks Through Preferred Stock
(or Not…..)
$700 Billion
($350 Billion X 2)
81. The Troubled Asset Relief Program (TARP)
Outlays Through January 30, 2009
Citigroup - $50 B in Preferred Stock; $306 B Guarantees
B of A - $45 B in Preferred Stock; $118B in Guarantees
AIG - $40B in Preferred Stock
JP Morgan Chase - $25B In Preferred Stock
Wells Fargo - $25B in Preferred Stock
Goldman Sachs - $10B in Preferred Stock
Morgan Stanley - $10B in Preferred Stock
PNC Fin Svcs - $7.5B in Preferred Stock
US Bancorp - $6.6B in Preferred Stock
GMAC - $5 B in Preferred Stock
Capital One - $3.5B in Preferred Stock
American Express - $3.4B in Preferred Stock
Bank of New York Mellon - $3B in Asset Guarantees
82. The Troubled Asset Relief Program (TARP)
Oh, Yeah…..
General Motors - $13.4 B in Preferred Stock
Chrysler - $4 B in Preferred Stock
83. Term Asset-Backed Securities Loan Facility (TALF)
Designed to Stimulate Credit Markets
By Issuing Loans on Asset-Backed Securities
Loans May be Auto Loans, Student Loans,
Credit Card Loans or Small Business Loans
$200 Billion
(beginning February 2009)
84. American Recovery and Reinvestment Act of 2009
Combined Direct Stimulus and Tax Cuts To:
Generate Renewed Demand
Create Employment
Invest in Economic Growth
$800 - $900 Billion
85. American Recovery and Reinvestment Act of 2009
Proposed Elements of the Stimulus Plan
• Infrastructure Improvements
• (Education Facilities Modernization)
• Renewable Energy Investment
• (Health Care Records Modernization)
• Science, Research Technology
• Medicaid Assistance to States
• Unemployment Benefits Extensions
• COBRA Credits
• Food Stamps
• Household Tax Cuts/Credits
• Business Tax Credits and Offsets
86. The Likely Effects of the Stimulus Plan
•
Create Jobs, Boost Incomes
•
Hiring Incentives w/ Business Tax Cuts, Credits, etc.
•
Boost Spending
100. The View from Denver: A Well-Diversified Economy
Constrn
Mfg
TCU
Wholesale
Denver
Retail
Information US
Financial
Pro/Bus Svc
Edu/Hlth Svc
Leisure Svc
Other Svc
Govt
0 2 4 6 8 10 12 14 16 18
Percent of Total Employment
Source: Moody's Economy.com; BLS
101. The View from Colorado: Denver Is a Popular Destination
Survey says Denver is most popular place to live
Percentage of Americans who say they want to live in this city or metropolitan area:
Most popular Least popular
Denver: 43% Detroit: 8%
San Diego: 40% Cleveland: 10%
Seattle: 38% Cincinnati: 13%
Orlando: 34% Kansas City: 15%
San Francisco: 34% Pittsburgh: 17%
Tampa: 34% Minneapolis: 16%
Source: Pew Research Center
104. The View from Denver: Incomes Swing Cyclically
Median Household Income (YOY%)
12
10
Denver
8
6
US
4
2
0
-2
-4
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4
Source: Moody's Economy.com;BOC
105. The View from Denver: Home Sales Track Nation
Single Family Home Sales (YOY%)
30
20
Denver
10
US
0
-10
-20
-30
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4
Source: Moody's Economy.com; NAR;BOC
106. The View from Denver: Home Prices Did Not Boom
Median Single Family Home Price (YOY%)
20
15
US
10
5
0
Denver
-5
-10
-15
-20
2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4
Source: Moody's Economy.com; NAR
107. The View from Denver: Foreclosures Briefly Spiked Here
6000
Foreclosure Filings
5000
4000
3000
2000
1000
0
88 0 0 06 007
19 20 20 2
Source: OED/Policy Group, March 2008