Cal Mrtg Watkins

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Slide1: 

California, Real Estate, And Economic Activity Bill Watkins July, 2006

Outline: 

Outline United States California Real Estate

Principles of Economics: 

Principles of Economics

Slide4: 

Ry Cooder says: “All the money in the world is spent on feeling good.”

“You can’t always get what you want.”: 

“You can’t always get what you want.” Mick Says:

“The future is uncertain, and death is always near.”: 

“The future is uncertain, and death is always near.” Jim Morrison Says:

Slide7: 

“Behind every silver lining, there is a dark cloud.” Ry Cooder says:

Slide8: 

David Ricardo 1772 - 1823 The Theory of Comparative Advantage More trade is better Who cares about a trade deficit

United States’ Economic Topics: 

United States’ Economic Topics

Slide10: 

World GDP Growth 0.0 1.0 2.0 3.0 4.0 5.0 6.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

“The United States’ economy has shown remarkable resiliency. It is all about Productivity, International Trade, Wealth, and a Service Economy.”: 

“The United States’ economy has shown remarkable resiliency. It is all about Productivity, International Trade, Wealth, and a Service Economy.” Bill Says:

Slide12: 

Real Consumption per Capita United States 2002 $000s

Slide13: 

United States Unemployment Rate The Unemployment Rate has been below 4.6 % only 10.5 % of the time since June 1969.

How High Are Home Prices?: 

How High Are Home Prices?

Slide16: 

Existing Single-Family Median Home Prices divided by U.S. Wealth 0.0 20.0 40.0 60.0 80.0 100.0 120.0 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 Index 1968=100

How High Are Oil Prices?: 

How High Are Oil Prices?

Slide18: 

Oil Prices in Relation to Wealth 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Index: 1966=100

“Homes are cheap and so is oil.”: 

“Homes are cheap and so is oil.” Bill Says:

What About Interest Rates?: 

What About Interest Rates?

Slide21: 

Real 10-Year Bond Rate percent

What About Inflation?: 

What About Inflation?

Fed Tightening Inverted Yield Curves and Recessions: 

Fed Tightening Inverted Yield Curves and Recessions

Slide25: 

February 2006 4.54% 4.69% 4.68% 4.67% 4.64% 4.57% 4.56% 4.57% 4.73% 3-mo 6-mo 1-yr 2-yr 3-yr 5-yr 7-yr 10-yr 20-yr United States Treasury Bond Yield Curve

“If the Fed’s overly-aggressive interest rate increases cause a recession, it will probably be in 2007, and it will be mild.”: 

“If the Fed’s overly-aggressive interest rate increases cause a recession, it will probably be in 2007, and it will be mild.” Bill Says:

There are Other Risks: 

There are Other Risks Geopolitical Risks Oil Supply Interruptions

What About the Federal Deficit?: 

What About the Federal Deficit?

What about consumer debt?: 

What about consumer debt?

Slide30: 

Delinquency Rates All Banks, SA 0 1 2 3 4 5 6 7 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 percent C&I Loans Credit Cards

Is Job Growth The Proper Metric?: 

Is Job Growth The Proper Metric?

Slide32: 

Real Gross Domestic Product Growth United States

Slide33: 

Unemployment Rate United States

Slide34: 

Real Gross Domestic Product per Capita Growth United States 2.8% 1.3% 2.5% 3.3% 3.0% 3.3% 2.6% -0.3% 0.6% 1.7% 3.0% 2.3% 1.9% 1.4% 1.7% 1994 1996 1998 2000 2002 2004 2006 2008

Slide35: 

Real Consumption Expenditures per Capita Growth United States

Slide36: 

If Things Are So Good, Why Do So Many Feel So Bad?

“Part of it is the media.”: 

“Part of it is the media.” Bill Says:

Uncertainty Is The Problem :: 

Uncertainty Is The Problem : War Security Job Tenure Competition New Competitors New Technology Pace of Change Lack of Control

Tomorrow’s Winners: 

Tomorrow’s Winners Updated Human Capital Creative Risk Taking

Houses and Bubbles: 

Houses and Bubbles

Slide41: 

Will home prices collapse and cause the end of the civilization?

Slide42: 

Bill Says: “They mean that house prices will fall, and that fall will cause a decline in consumer spending.”

Slide43: 

Chuck Maxey* Says: “Not to worry. American society is superficial and materialistic.” “Consumers will continue to spend.” *Dean, CLU School of Business

Slide44: 

Ten Most Affordable Communities in America National Association of Home Builders

Slide45: 

Housing Affordability United States 45% 50% 55% 60% 65% 1990 1992 1994 1996 1998 2000 2002 2004

California’s Economy: 

California’s Economy

Slide47: 

Keith Says: “Its only rock and roll.”

Slide49: 

Unemployment Rate California

Slide50: 

Real Gross State Product Growth California

Slide51: 

Real Gross State Product per Capita Growth California

Slide52: 

Real Retail Sales per Capita Growth California

California Impact of a FED-Induced Recession: 

California Impact of a FED-Induced Recession Less immediate than the past recession Gradual Milder than the past recession Strong home prices

California Has Some Issues:: 

California Has Some Issues: High Costs High Uncertainty Dysfunctional State Government Terrible System of Financing Local Government

California’s Assets Fit Today’s World:: 

California’s Assets Fit Today’s World: Climate Population Higher Education System Location

Two Californias: 

Two Californias

Slide57: 

Coastal California

Slide58: 

Ten Least Rapidly Growing Counties in California (2000-2004)

Slide59: 

Everywhere Else

Slide60: 

Ten Most Rapidly Growing Counties in California (2000-2004)

Four Major Migrations: 

Four Major Migrations Baby Boomers Generation X Hispanic Tradable Goods Producers

Demographic Trends: 

Demographic Trends Growing Growing Old Growing Rich

Slide63: 

Change in Age Distributions for California and U.S. 2000 to 2005 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 0-4 5-9 10- 14 15- 17 18- 20 21- 24 25- 34 35- 44 45- 49 50- 54 55- 59 60- 64 65- 74 75- up percent California United States

Slide64: 

Age Change Comparison: South Coast vs United States

Slide65: 

California versus U.S. Income Distribution Change 2000 to 2005

Slide66: 

Income Distribution Change: South Coast vs United States South Coast United States (2000 – 2005)

Slide67: 

California Population

Slide68: 

California Population Growth (People)

Slide69: 

California Population Growth Rate

Real Estate Topics: 

Real Estate Topics

Slide71: 

Ten Least Affordable Communities in America National Association of Home Builders

Slide72: 

Nominal Median Home Price California

Slide73: 

Real Median Home Price Growth California

Slide74: 

Are California Home Prices In a Bubble?

Why Do Home Prices Keep Going Up?: 

Why Do Home Prices Keep Going Up? Coastal California is not a local market Demographics Wealth accumulation Interest rates Taxes Demand Side

Why Do Home Prices Keep Going Up?: 

Why Do Home Prices Keep Going Up? Limited numbers Delay Uncertainty Fees Property rights Supply Side

Slide77: 

Housing Unit Permits per 1,000 people California

Slide89: 

Thank you. Visit us at www.ucsb-efp.com

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