Economic and Commercial Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist, National Association of REALTORS ® Presentation at NAR Annual Meetings San Diego, CA November 13, 2015

Commercial Property Price Index Source: Federal Reserve

Green Street Property Price Index – Even Higher

Dow Jones Industrial Average (Doubling since 2009)

Lifetime Wealth at All-Time High

Consumer Confidence Index

Median Household Income (Inflation Adjusted)

Annual GDP … Below 3% for 10 straight years

Sluggish Growth + Gap after Recession ($1.7 trillion gap … $5,000 per person) 3% Growth Line 2.2% Growth Line

GDP Component on Commercial Construction and Sales More inconsistent

Jobs (8 million lost … 13 million gained) In thousands

Fresh Unemployment Insurance Claims In thousands

Unemployment Rate Falling

But Employment Rate Not Rising

Part-time and Underemployment (in thousands)

Which State is Hot in Jobs? Year-on-year Growth as of Sept 2015

Top and Bottom States for Jobs The Best% Gain in 12 months Utah3.9 Idaho3.2 South Carolina3.1 Florida3.0 Washington3.0 California2.9 Nevada2.8 Oregon2.7 North Carolina2.4 The Worst% Gain in 12 months Louisiana0.0 Alaska-0.2 Wyoming-0.9 West Virginia-1.7 North Dakota-1.8

Dallas Still Creating Jobs; Houston Not (job growth rate from a year ago)

Fed Rate Hike in December?

Fed Rate Hike in December then again in March

Fed Rate Hike in December then again in March then again in August then again in …

Fed Policy and Mortgage Rate

What Determines Bond Yields? Federal Reserve’s short-term rate changes Inflation and erosion of purchasing power Foreign capital flow and demand for dollar Savings rate U.S. budget deficit Printing of money …

Federal Deficit - Shrinking ( $ million, 12 month total)

Federal Debt … Cumulative ( $ million; debt held by public excluding intra-governmental holdings)

U.S. Dollar Reversing the Decline … Stronger and Stronger

No CPI Inflation – Yet

Oil Price

Supply and Demand: Oil in U.S

Rents Rising at 7-year high

Rental Vacancy Rate (30-year low)

Multifamily Oversupply?

Renters (8 million more households)

Homeowners (2.5 million fewer households)

Commercial Real Estate

Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over)

REALTOR ® Deal Size (Not $2.5 million Properties)

CRE Financing: Small vs. Large CRE Markets

REALTORS ® CRE Lending

Administrator Maria Contreras-Sweet SBA Loan for Small Business and Commercial Real Estate New … streamlined process Match.com concept

CRE Sales: Small vs. Large Markets Sources: NAR, Real Capital Analytics

REALTORS ® Vacancy Rates Source: National Association of REALTORS ®

REALTORS ® CRE Construction Picks Up Source: National Association of REALTORS ®

CRE Prices: Small vs. Large Markets Sources: NAR, Real Capital Analytics

CRE Spreads: Small vs. Large CRE Markets Sources: NAR, Real Capital Analytics ®

SIOR CRE Index Source: SIOR, NAR

CCIM Quarterly Market Trends

Forecast and Risks

Economic Forecast Forecast 2016 Forecast GDP Growth2.2%2.6%2.3%3.0% Job Growth+2.3 million+3.0 million+2.4 million+2.7 million CPI Inflation1.5%1.6%0.3%3.2% Consumer Confidence year Treasury2.5%2.6%2.2%3.3%

REALTORS ® CRE Outlook Commercial Real Estate Vacancy Forecast (%) 2014.Q32014.Q42015.Q12015.Q22015.Q32015.Q42016.Q12016.Q22016.Q32016.Q Office Industrial Retail Multifamily Source: NAR Commercial Property Price Indices Forecast NCREIF Green St. Advisors Sources: NAR, NCREIF, Green Street Advisors

2/3 of Members used 1031 Like-Kind Exchanges

1031 and Economic Impact

Like-Kind Exchanges: Potential Repeal REALTORS ® reported that 40% of transactions would not have occurred, absent IRC Section 1031