WHAT’S ON THE HORIZON? What’s on the Horizon? Mark Sprague, Director of Information Capital Mark Sprague State Director of Information Capital Mark Sprague State Director of Information Capital www.IndependenceTitle.com
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 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- owned 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. – National GDP: +3.3% (Q3 2017) – Texas GDP: +3.3% (Q3 2017) 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 on 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 Texas Unemployment Compared to Other States • 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. Mark Sprague State Director of Information Capital
Job Growth Texas Metro Unemployment Mark Sprague State Director of Information Capital
Job Growth Take Away • 2.5% to 4.0% job growth is healthy! • San Antonio preceding 12 months = 30,800 jobs – Positive direction 3.0% growth. Simply put, job growth equals home sales / rentals. Mark Sprague State Director of Information Capital
Gross Domestic Product Current State of the US Economy Green indicates states with both the highest predicted GDP and Job Rate growth! Mark Sprague State Director of Information Capital
Gross Domestic Product takeaway • GDP economic growth is the measurement of two economic factors, the growth of 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 The rate of population growth means the change of population size in a given unit of time, usually one year. • Population size is affected by the birth rate, the death rate, immigration rate and the (Death Rate + Emigration) emigration rate. - – Immigration is to come into (Birth Rate + Immigration) another country to live = permanently. Population Growth – Emigration means to leave one's country to live in another. Mark Sprague State Director of Information Capital
Population Growth Where Does America Live? • Half of the US population lives in the shaded Counties! National economy 44+% recovered from the recession+ with only 2% of the population participating! 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 ones shed residents, and use them as instant proxies for a decline, a boom, or 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
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