Bumper Car Economics—You

Know Where You Are Going But

Things Keep Bumping Into You

An Economic and Real Estate Forecast for 2012

Ted C. Jones, PhD, Chief Economist, Stewart Title http://blog.stewart.com/ted

Faster – Quicker – Better -- Accurate

Percent of Homebuyers Using

The Internet that Drove-By or

Viewed the Home Prior

To Contacting the Listing Agent

85 – Percent of Buyers Finding

Photos Very Useful

13 – Percent of Buyers Finding

Photos Somewhat Useful

81 – Percent of Buyers Finding

Detail Info Very Useful

18 – Percent of Buyers Finding

Detail Info Somewhat Useful

Mega Themes • Residential Renting vs. Owning

• Liquidity Trap

• Massive Uncertainty from

Washington, DC

• Time to Over-Weight in Real Estate

U.S. Job Numbers

0

75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05 '07 '09 '11

70

80

90

100

110

120

130

140

150

Recession

Millions of Jobs

Seasonally-Adjusted

5.33 Million

Jobs Down

From Record

U.S. Unemployment Rate

0

90 92 94 96 98 '00 '02 '04 '06 '08 '10 '12

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Recession

Percent

Seasonally-Adjusted

Joke!

128

130

132

134

136

138

'07 '08 '09 '10 '11 '12

U.S. Job Numbers

Jobs (Millions) Seasonally Adjusted

5.33 Million Fewer vs. Jan 1 2008

120,000 Gained in Mar 2012

164,000 No Longer

in Workforce

30

35

40

'07 '08 '09 '10 '11 '12

Fairbanks Jobs

Thousands -- Seasonally Adjusted

2,450

2,500

2,550

2,600

2,650

'07 '08 '09 '10 '11

Houston-Sugar Land-Baytown Jobs

Jobs (Thousands) Seasonally Adjusted

88,900 Net New Jobs in Prior 12 Months

190

200

210

220

230

240

'07 '08 '09 '10 '11 '12

Cape Coral-Ft Myers Jobs

Jobs (Thousands) Seasonally Adjusted

Job Change From the Peak in 2007-2008 to March 2012

March

Peak Jobs Jobs

Jobs 2012 Jobs Change Percent

MSA State Change

Dalton Georgia 79.0 63.1 (15.90) -20.1%

Carson City Nevada 33.3 27.6 (5.70) -17.1%

Ocala Florida 108.0 89.7 (18.30) -16.9%

Prescott Arizona 65.3 54.4 (10.90) -16.7%

Reno-Sparks Nevada 225.4 188.1 (37.30) -16.5%

St. George Utah 55.1 46.2 (8.90) -16.2%

Monroe Michigan 44.1 37.2 (6.90) -15.6%

Fort Smith Arkansas-OK 127.1 108.2 (18.90) -14.9%

Bend Oregon 72.0 61.6 (10.40) -14.4%

Brunswick Georgia 46.3 39.8 (6.50) -14.0%

Morristown Tennessee 51.0 43.9 (7.10) -13.9%

Cape Coral-Fort Myers Florida 234.5 202.2 (32.30) -13.8%

Janesville Wisconsin 70.0 60.6 (9.40) -13.4%

Thousands

Job Change From the Peak in 2007-2008 to March 2012

March

Peak Jobs Jobs

Jobs 2012 Jobs Change Percent

MSA State Change

Columbia Missouri 93.2 96.4 3.20 3.4%

Midland Texas 71.8 74.3 2.50 3.5%

Austin-Round Rock-San Marcos Texas 778.4 806.4 28.00 3.6%

Columbus Indiana 46.3 48.0 1.70 3.7%

Morgantown West Virginia 63.8 66.6 2.80 4.4%

Laredo Texas 91.1 95.1 4.00 4.4%

Fargo ND-MN 122.3 128.0 5.70 4.7%

McAllen Edinburg-Mission Texas 220.2 231.3 11.10 5.0%

Kennewick-Richland-Pasco Washington 94.8 100.0 5.20 5.5%

Lafayette Louisiana 152.9 163.5 10.60 6.9%

Bismarck North Dakota 61.2 65.8 4.60 7.5%

Odessa Texas 64.7 70.3 5.60 8.7%

Thousands

http://taxfoundation.org/files/2012_tax_foundation_index_bp62.pdf

Missouri - 15th Best Business Tax Environment

http://www.homefair.com/real-estate/cost-of-living.asp

Cost of Living Comparison Salary Level Requirement for Equal Standard of Living

Assumes Living and Working in the Same City

How Much

Required More

City Income They Pay

Salt Lake City 93,841$ -2.4%

Kansas City 100,000$ --

Oklahoma City 103,189$ -2.7%

Atlanta 116,150$ 2.4%

Denver 121,584$ 3.4%

Los Angeles 161,108$ 12.3%

Housing Has Finally

Reached the Bottom

Nationwide

With Some Markets

Rebounding (Some Markets Never Declined)

0

2

4

6

8

10

Feb '1

1M

arApr

May Ju

nJu

l

Aug

Sep O

ctNov

Dec

12-J

an Feb Mar

Months Inventory of Existing Homes

National Association of REALTORS®

Months -- Seasonally-Adjusted Sales and Inventory

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

March Existing Home Sales Seasonally Adjusted Annualized Rate -- Thousands

National Association of REALTORS®

3.0

4.0

5.0

6.0

7.0

8.0

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

US Existing Home Sales Sold (Millions) Average Per Month For Prior 12 Months

Includes Re-Stated NAR Sales Data

National Association of REALTORS®

$8,000

Tax

Credit

Normal

Bubble

Seasonally

Adju

ste

d A

nnualiz

ed R

ate

$140

$160

$180

$200

$220

$240

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

U.S. Existing Home Sales Median Price -- $ Thousands -- Average for Prior 12 Months

National Association of REALTORS®

Current Median Down 26.7 Percent from Peak in July 2006

U.S. Residential Building Permits

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

80 82 84 86 88 90 92 94 96 98 '00

'02

'04

'06

'08

'10

Single Family Multi

Number of Dwelling Units -- Millions

Months Inventory

Number of Active Listings

Number Sold in Prior 12 Months x 12 =( )

Less Than 5 Months is a Seller’s Market

6 to 7 Months is Normal

More Than 8 Months Buyer’s Market

Months Inventory$1 to $1.5 Million

Months

Number Average Number Average Inventory

Royden Oaks 3 1,123,872$ 1 1,350,000$ 4

River Oaks 16 1,127,000$ 11 1,199,682$ 8.3

Tanglewood 13 1,176,827$ 14 1,271,500$ 12.9

Houston 187 1,163,232$ 150 1,260,502$ 9.6

Montgomery 8 1,055,625$ 17 1,245,670$ 25.5

Sugar Land 9 1,142,514$ 9 1,242,378$ 12

Bunker Hill 6 1,181,750$ 2 1,472,500$ 4

West University 23 1,159,982$ 10 1,167,890$ 5.2

Royal Oaks 5 1,206,800$ 7 1,301,857$ 16.8

Hunters Creek 2 1,142,500$ 4 1,246,000$ 24

Sold Listings

20 Percent Plus

Down Payments

Made 34 Percent of

the Time in 2011

Short Sales in January

Made up 23.9 Percent of

All Transactions vs. 19.3

Percent Foreclosures

http://money.cnn.com//2012/04/19/real_estate/short-sale-

rise/index.htm?section=money_realestate&utm_source=feedburner&utm_m

edium=feed&utm_campaign=Feed%3A+rss%2Fmoney_realestate+%28Re

al+Estate%29

Shadow Inventory Down 10 Percent

From A Year Ago

–

For Every Two Current Homes Listed

There is One Home Still in the

‘Shadows’

http://www.housingwire.com/news/us-shadow-inventory-levels-down-year-ago

Debt Forgiveness Tax Implications Primary Dwelling

Mortgage Debt Not to Exceed Original

Loan Amount + Improvements

January 1 2007 – December 31 2012

No Income Tax on Debt Forgiveness

January 1 2013 and Forward

Forgiven Debt Taxed at Ordinary Income

Tax Rates

Cash on Hand Will

Fuel a Rocketing

Recovery Nationwide

WHEN Consumer

Confidence Returns

$0

$300

$600

$900

$1,200

$1,500

$1,800

$2,100

$2,400

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

Money Supply – M1 $ Billions – Seasonally Adjusted

Federal Reserve

Currency, Checking Accounts, Demand Deposits

Velocity of Money Supply M1

7

8

9

10

11

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Percent

9 Times Annual Turnover Average

Number of times one dollar

is used to purchase final

goods and services included

in GDP

$0

$20

$40

$60

$80

$100

$120

$140

72 75 78 81 84 87 90 93 96 99 '02 '05 '08 '11

4

6

8

10

12

14

16

18

Oil Prices

30-Year

Mortgage

Rate %

Oil Prices & 30-Year Mortgage Rates

March 2012 Dollars

$20

$40

$60

$80

$100

$120

$140

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

$0.85

$1.05

$1.25

$1.45

$1.65

Oil Prices

Dollars

Per

Euro

Oil Prices & Exchange Rates $US Per Euro

Oil in March 2012 Dollars

Oil Price

Green Shoots

Of Recovery

are Sprouting

Everywhere

0

4

8

12

16

20

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Light Weight Vehicle Sales Millions – Seasonally Adjusted Annual Rate

Bureau of Economic Analysis

0

4

8

12

16

20

'04 '05 '06 '07 '08 '09 '10 '12

Light Weight Vehicle Sales Millions – Seasonally Adjusted Annual Rate

Bureau of Economic Analysis

0

10

20

30

40

50

60

70

80

90

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Business Bankruptcy Filings

Number of Filings -- Thousands

0

300

600

900

1,200

1,500

1,800

2,100

2,400

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Consumer Bankruptcy Filings

Number of Filings -- Thousands

Bank Failures

0

100

200

300

400

'70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09

Number of Institutions Per Year

FDIC

$140

$150

$160

$170

$180

$190

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

U.S. Real Retail & Food Service Sales

$Billions – Seasonally Adjusted

Federal On-Budget Deficit Forecast

-$1,600.0

-$1,400.0

-$1,200.0

-$1,000.0

-$800.0

-$600.0

-$400.0

-$200.0

$0.0

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

$ Billions – Baseline ($10.7 Trillion Total Debt 12-31-08)

$7.6 Trillion 2011-2020

$10.7 Trillion

Cumulative Debt

Dec 31 2008

$15.2 Trillion

Dec 31 2011

2012 Budget Portends $26 Trillion Deficit in 2021

Interest Expense on Federal Debt

$0

$200

$400

$600

$800

$1,000

$1,200

88 92 96 '00

'04

'08

'12

'16

'20

$ Billions 2011

$438 Billion

2020

$1.1 Trillion

CBO Forecast

Forecast Assumes

• No Added Federal Spending Programs

Not Already in the Budget

• Healthcare Funding is Adequate (taxes)

Operation Twist

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

Percent Treasury Yield Rates

Federal Resave

Owns $1+ Trillion

of Treasuries

Sell These

Buy These

Early 1960s Operation Twist Saw

Long-Term Rates Decline 0.15 Percent

Yield Curve Data as of Apr 23 2012

US Energy Consumption

0

20

40

60

80

100

'50

'54

'58

'62

'66

'70

'74

'78

'82

'86

'90

'94

'98

'02

'06

'10

Consumption – Quadrillion BTUs

Oil

Natural Gas Hydro

Nuclear

Other

Coal

President Obama – 80 Percent Clean Energy by 2035

Nuclear Power Plants 104

Annual Quadrillion BTUs 8.44

Quadrillion BTUs Per Plant 0.0812

Annual

Quadrillion

Current Energy Source BTUs 10% 20% 30% 40% 50%

Coal 20.71 26 51 77 102 128

Oil 35.97 44 89 133 177 222

Gas 24.67 30 61 91 122 152

Coal + Oil + Gas 81.35 100 200 301 401 501

Required Number of New Nuclear Plants

To Replace Respective Percent of Each

U.S. Nuclear Power Production

Texas Wind Energy Summary Thursday 08/11/2011 Houston Chronicle

Wind – 11 percent of Texas Power Capacity

9,500 Megawatts Installed Base

ERCOT Expects 800 Megawatts from the 9,500 megawatts 8.4 Percent

Wind contributed 1,300 to 2,400 megawatts (13.7 percent to 25.3 percent of

capacity) Mid July to Early August

Last Wednesday wind accounted for 2,000 megawatts of the 68,294

megawatts used (2.93 percent of power used and 21.05 percent of capacity)

―Most of Texas' wind farms are in West Texas and reach peak output in

the evening, when the winds blow hardest. They do little for the state's

needs during the hottest afternoon hours and are so far removed from

the areas of heaviest demand that they often have little to no impact. ―

404 Megawatt Plant Received $222.8 Million Federal Stimulus Payments

2012 Economic Concerns

• Washington DC (Congress & Prez)

• Jobs – Stimulus Did Not Work

GDP = Consumption + Investment +

Government Spending + Exports - Imports

• Rural Land Bubble

• Liquidity Trap

• Energy: US Imports 50+ Percent of Oil

• Government Can’t Fix Everything

Newton’s Third Law of Motion

Ted

’s F

ore

cast

12-1

-20

12

to

12-3

1-1

3

Big 2013

Upside…

30-Year Rates

Ted’s Blog

http://blog.stewart.com/ted

Ted C. Jones, PhD Chief Economist

Stewart Title Guaranty Company http://blog.stewart.com/ted

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