1. Modest Recession Modest Recovery
Elliott D. Pollack & Company
RALLY SUCCESS
Coldwell Banker Success Realty
January 28th, 2003

2. United States Real Gross Domestic Product. Annual Growth 1970 - 2004
United States Real Gross Domestic Product* Annual Growth ** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators
* Based on chained 1996 dollars.
** are forecasts from the Blue Chip Economic Indicators, January 2003
Recession Periods

3. 30-Year Conventional Mortgage Rates. 1972 – 2002
30-Year Conventional Mortgage Rates* 1972 – 2002** Source: Federal Reserve Bank of St. Louis
Fixed-rate mortgages
** Data through December 2002
Recession Periods

4. U. S. Single Family Housing Starts Percent Change Year Ago 1980 - 2002
U.S. Single Family Housing Starts Percent Change Year Ago * Source: National Association of Home Builders, U.S. Census Bureau
Recession Periods
*Data through December 2002.

5. U. S. Auto and Light Truck Sales 3-Month Moving Average 1977 – 2002
U.S. Auto and Light Truck Sales 3-Month Moving Average 1977 – 2002** Source: Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics
Note: Series changed from SIC to NAICS classification in January 1992.
*Data through December 2002.
Recession Periods

6. Pent up demand?

7. U.S. Consumer Price Index ( =100) Percent Change from Year Ago 1991 – 2002* Source: U.S. Department of Labor, Bureau of Labor Statistics
* Data through December 2002.

8. 40 years later,
still depends
on drugs….
But now there is
a $30 co-pay!

9. U.S. Leading Indicators 1971 – 2002* Source: The Conference Board
* Data available through December 2002.
Recession Periods

10. Consumer

11. U.S. Consumer Confidence 1982 – 2002* Source: The Conference Board
December 2002 = 80.3
*Data through December 2002.

12. U. S. Real Personal Income Percent Change Year Ago 1971 – 2002
U.S. Real Personal Income Percent Change Year Ago 1971 – 2002* Source: Bureau of Economic Analysis
Recession Periods
* Data through third quarter 2002

13. Total Debt Service Payments As a Percent of Disposable Income 1980 – 2002* Source: Board of Governors, Federal Reserve Board
*Data through third quarter 2002.

14. U. S. Personal Savings Rate 1959 – 2002. Source: U. S
U.S. Personal Savings Rate 1959 – 2002* Source: U.S. Bureau of Economic Analysis
*Data through November 2002.

15. Bear Markets Ranking of Peak to Trough Declines S&P Composite Stock Price Index
Trough October 9, 2002

16. U. S. Unemployment Rates. 1970 – 2002. Source: U. S
U.S. Unemployment Rates* 1970 – 2002** Source: U.S. Bureau of Labor Statistics
*Seasonally adjusted
**Data through December 2002.

17. Unemployment persists….
…but some are
soon rehired

18. Unemployment persists….
…and some
remain without
jobs

19. NBER Recession Trough = 100
U.S. Employment Index*
NBER Recession Trough = 100
Source: Bureau of Labor Statistics, Elliott D. Pollack & Co.
*Seasonally adjusted Indexed growth for the 12 months prior and 24 months post to a recession trough.

20. Mortgage Refinancing Activity MBA Market Refi Index 1990 – 2002
Mortgage Refinancing Activity MBA Market Refi Index 1990 – 2002** Source: Mortgage Bankers Association
** Data through December 2002.

21. Mortgage Equity Withdrawal as a share of Disposable Income U. S
Mortgage Equity Withdrawal as a share of Disposable Income U.S.: – 2002* Source: Bureau of Economic Analysis
* Data through third quarter 2002
Recession Periods

22. How Households Are Using Their Refi Money
Source: Federal Reserve; Business Week, January 27, 2003
Repayment of other debt 26%
Home Improvements 35%
Consumer Expenditures 16%
Financial Investments 11%
Real Estate or Business Investment 10%
Taxes %

23. Average monthly savings with refinancing is $135.

24. U. S. Retail Sales less Automobiles Percent Change Year Ago
U.S. Retail Sales less Automobiles Percent Change Year Ago* 1979 – 2002** Source: U.S. Census Bureau
Note: Series changed from SIC to NAICS classification in January 1992.
*Nominal data through November 2002.
Recession Periods

25. U. S. Auto and Light Truck Sales 3-Month Moving Average 1977 – 2002
U.S. Auto and Light Truck Sales 3-Month Moving Average 1977 – 2002** Source: Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics
Note: Series changed from SIC to NAICS classification in January 1992.
*Data through December 2002.
Recession Periods

26. Retail Inventory to Sales Ratio 1990 – 2002. Source: U. S
Retail Inventory to Sales Ratio 1990 – 2002* Source: U.S. Census Bureau
Total Retail
Excluding Motor Vehicles
*Seasonally adjusted data through October 2002.

27. Business

29. Industrial Production (1992=100) Percent Change Year Ago 1980 – 2002
Industrial Production (1992=100) Percent Change Year Ago 1980 – 2002* Source: The Conference Board
Data available through December 2002.
Recession Periods

30. Capacity Utilization Rate 1970 – 2002* Source: The Conference Board
* Data through December 2002.
Recession Periods

31. Total Real Equipment & Software Spending Percent Change Year Ago 1970 – 2002* Source: Bureau of Economic Analysis
Y2K
* Data through third quarter 2002.
Recession periods

32. Government

33. Federal Funds Rate 1961 – 2002* Source: Federal Reserve
* Data through December 2002.
Recession Periods

34. M2 Stock – Seasonally Adjusted Percent Change Year Ago 1970 – 2002
M2 Stock – Seasonally Adjusted Percent Change Year Ago 1970 – 2002* Source: Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics
* Data available through December 2002.
Recession Periods

35. Fiscal Stimulus
$674 billion proposed by President Bush over the next decade
$100 billion of that is in 2003

36. Fiscal Stimulus
Contribution to 2003

37. U.S. OUTLOOK Inventory/sales favorable Pent-up housing demand ??
Pent-up auto demand ??
Business plans: capital spending recovery to be slow
Consumer spending to recover slowly
Business, especially high-tech, bottoming out
Fiscal stimulus will help spur recovery
Long-term outlook remains good

38. What is different this time around?
Less pent-up demand for autos and housing
Will interest rates decline as economy picks up steam?
Most excess capacity in 18 years

39. Possible, but would require a shock
DOUBLE DIP?
Possible, but would require a shock

40. SHOCKS Terrorist event War in Iraq / North Korea
Continued stock market decline
Credit crunch
Oil Price
Decline in real incomes

41. Still the most likely scenario
SLOW GROWTH
Still the most likely scenario

42. GREATER PHOENIX OUTLOOK
U.S. economy modest positive
High-tech manufacturing recovery to be slow
Commercial and residential real estate past peak. Big drop in commercial construction in 2002.
Services sector weak – especially tourism and business services

43. Phoenix-Mesa Employment Growth (Ranking among all metro areas greater then 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics
YEAR RANK # of MSAs
2002*
*Data through November 2002

44. Arizona 33rd in Job Growth (Percent Growth November 2002)49 10 9 3 11 10 13 13 4 8 14 1 5 48 9 6 7 33 5
36 States
In Red
Lost Jobs 50 2
Alaska 12

45. Recession & 9/11 Effects on Phoenix
Housing
Commercial construction
Commercial aviation
Tourism
Semiconductors

46. Phoenix-Mesa MSA Employment. Annual Percent Change 1972–2004
Phoenix-Mesa MSA Employment* Annual Percent Change 1972–2004** Source: Arizona Department of Economic Security
*Non-agricultural wage & salary employment
** forecasts are from Elliott D. Pollack & Company.
= National recessions

47. Phoenix-Mesa MSA Employment. Annual Change 1975–2004
Phoenix-Mesa MSA Employment* Annual Change 1975–2004** Source: Arizona Department of Economic Security
Thousands
*Non-agricultural wage & salary employment
** 2003 – 2004 forecasts are from Elliott D. Pollack & Company.
= National recessions

48. Year-over-year comparisons easier after October 2002.

49. Phoenix-Mesa MSA Employment Index* NBER Recession Trough = 100
Source: Bureau of Labor Statistics, Elliott D. Pollack & Co.
*Seasonally adjusted Indexed growth for the 12 months prior and 24 months post to a recession trough.

50. Phoenix-Mesa MSA Manufacturing Employment
Phoenix-Mesa MSA Manufacturing Employment* Annual Percent Change 1975–2002** Source: Arizona Department of Economic Security
*Non-agricultural wage & salary employment
** Year-to-date through December 2002.
= National recessions

51. Maricopa County 42.5% Arizona 37.2% United States 14.6%
HIGH-TECH MANUFACTURING
EMPLOYMENT 2002*
As a Percent of Total Manufacturing Employment
Source: Arizona Department of Economic Security
and U.S. Department of Labor Statistics
Maricopa County %
Arizona %
United States %
*Year-to-date through second quarter 2002

52. Phoenix-Mesa MSA Construction Employment
Phoenix-Mesa MSA Construction Employment* Annual Percent Change 1972–2002** Source: Arizona Department of Economic Security
*Non-agricultural wage & salary employment
** Year-to-date through December 2002.
= National recessions

53. FACTORS AFFECTING GREATER PHOENIX
Construction of commercial and
residential real estate is past a peak.
Significant decline in commercial construction in 2002 and 2003.

54. Maricopa County Retail Sales Annual Percent Change 1982–2004
Maricopa County Retail Sales Annual Percent Change 1982–2004* Source: Arizona Department of Revenue
** 2002 – 2004 forecasts from the Greater Phoenix Blue Chip
= National recessions

55. Arizona 2nd in Population
Growth for 9th Year 9 1 7 6 10 2 5 8 4
ALASKA 3
Percent Change 2002

56. States Ranked by Domestic
Migration: 8 3 10 7
MARYLAND 6 2 9 5 4
Lost Domestic Population 1

57. Domestic Migration: 2002
Five States Attracted About 2/3 of All Domestic Migrants
Florida 177,000
Arizona 67,000
Nevada 43,000
Texas 41,000
Georgia 36,000

58. International Migration: 2001 - 2002
States Ranked by
International Migration: 3 6 1 5 10 9 8 7
Alaska 2 4
Bottom Ten

59. Population Rank: 2002 2nd in Domestic Migration
2nd Fastest Growth Rate
2nd in Domestic Migration
8th in International Migration
20th Largest State

60. Single Family Permits Maricopa County 1975–2004
Single Family Permits Maricopa County 1975–2004* Source: Phoenix Metropolitan Housing Study
# Permits
Note: Data does not include townhouses and condominiums
* are forecasts from the Greater Phoenix Blue Chip

61. Single Family Median Price Maricopa County 1986–2002
Single Family Median Price Maricopa County 1986–2002* Source: Phoenix Metropolitan Housing Study
Total
Resale
Note: Total includes new and resale units.
* Data through third quarter 2002.

62. Single Family Units Sold Maricopa County 1986–2002
Single Family Units Sold Maricopa County 1986–2002* Source: Phoenix Metropolitan Housing Study
Total
Resale
Note: Total includes new and resale units.
*Four quarters ending the third quarter 2002.

63. 4 Factors Affecting Housing
Population flows
Interest rates
Demographics
Investment value appreciation

64. Every time the population increases by 2
Every time the population increases by 2.8 people, a new housing unit is needed.

65. Greater Phoenix Population Annual Percent Change 1970–2004
Greater Phoenix Population Annual Percent Change 1970–2004* Source: Arizona State University & Arizona Department of Economic Security
* forecasts are from the Greater Phoenix Blue Chip
= National recessions

66. Greater Phoenix Population Annual Change 1970–2004
Greater Phoenix Population Annual Change 1970–2004* Source: Arizona State University & Arizona Department of Economic Security
Thousands
* forecasts are from Elliott D. Pollack & Company

67. 30-Year Conventional Mortgage Rates. 1972 – 2002
30-Year Conventional Mortgage Rates* 1972 – 2002** Source: Federal Reserve Bank of St. Louis
Fixed-rate mortgages
** Data through December 2002.
Recession Periods

68. 30-Year Conventional Mortgage Rates
30-Year Conventional Mortgage Rates* Recession Source: Federal Reserve Bank of St. Louis
Fixed-rate mortgages
Recession Periods

69. 30-Year Conventional Mortgage Rates
30-Year Conventional Mortgage Rates* 1980 and 1982 Recession Source: Federal Reserve Bank of St. Louis
Fixed-rate mortgages
Recession Periods

70. 30-Year Conventional Mortgage Rates
30-Year Conventional Mortgage Rates* 1991 Recession Source: Federal Reserve Bank of St. Louis
Fixed-rate mortgages
Recession Periods

71. 30-Year Conventional Mortgage Rates
30-Year Conventional Mortgage Rates* 2001 Recession Source: Federal Reserve Bank of St. Louis
Fixed-rate mortgages
Recession Periods

72. While the appreciation in housing prices is expected to slow over the next few years….

73. …it is still likely to be positive, and….

74. …at the present time, there appears to be no bubble in the Greater Phoenix market.

75. Housing is a market of markets.
Remember
Housing is a market of markets.
What happens in San Diego, New York City or San Jose has nothing to do with what is going on in Phoenix

76. Cost of a $100,000 Mortgage Interest Rate Payment 2000 8.5% $769
% $878
% $769
% $603

77. Housing Affordability in Maricopa County
Mortgage that can be afforded % of Median Payment today Income .
$ $143, %
$ $125, %
$ $100, %

78. Arizona Population by Age Net Change 2000 - 2010 Source: Arizona Department of Economic Security
Thousands

79. Starter Home Buying Cycle Net Change in Population Ages 25 to 34 Maricopa County: – 2030 Source: Arizona Department of Economic Security

80. Trade-Up Home Buying Cycle Net Change in Population Ages 35 to 44 Maricopa County: – 2030 Source: Arizona Department of Economic Security

81. Vacation Home Buying Cycle Net Change in Population Ages 45 to 54 Maricopa County: – 2030 Source: Arizona Department of Economic Security

82. Retirement Home Buying Cycle Net Change in Population Ages 55 to 69 Maricopa County: – 2030 Source: Arizona Department of Economic Security

83. Single Family Median Price Maricopa County 1986–2002
Single Family Median Price Maricopa County 1986–2002* Source: Phoenix Metropolitan Housing Study
Note: Includes new and resale units.
* Data through third quarter 2002.

84. Single Family Median Price Percent Change Year Ago Source: Phoenix Metro Housing Study

85. Investment Return Housing vs. Stock Market
Housing Stock Market
% %
% %
% %
% %
2002* % %
* Year-to-date through November 2002.
^ Based on S&P 500
Source: Phoenix Metro Housing Study; FreeLunch.com

86. The long-term dynamics of have not changed.

90. GREATER PHOENIX OUTLOOK
Greater Phoenix is at the end employment recession.
Manufacturing employment up in 2003.
Construction employment to be under pressure.
Services employment to recover slowly
Population growth
No rebound from housing.
Slow recovery in tourism.
OVERALL, THE RATE OF GROWTH WILL SLOWLY ACCELERATE…

91. Greater Phoenix Forecast 2001 - 2004
POPULATION % % % %
EMPLOYMENT % % % 3.6%
HOUSING PERMITS
SINGLE FAMILY , , , ,471
MULTI-FAMILY , , , ,688
PERSONAL INCOME % % % %
RETAIL SALES % % % %
Source: AZ DES; AZ Dept of Revenue; Greater Phoenix Blue Chip; Elliott D. Pollack & Co.

92. ELLIOTT D. POLLACK & Company WWW.ARIZONAECONOMY.COM INFO @ EDPCO.COM
Economic and Real Estate Consulting
EDPCO.COM
7505 East Sixth Avenue, Suite Scottsdale, Arizona 85251
P F