economic and commercial real estate outlook
DESCRIPTION
Lawrence Yun's presentation at the Commercial Real Estate & Economic Trends Forum at the 2013 REALTORS® Conference and Expo.TRANSCRIPT
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Economic and Commercial Real Estate Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Annual ConferenceCommercial Real Estate & Economic Trends Forum
San Francisco, CA
November 8, 2013
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GDP Growth … Unimpressive but no Fresh Recession
(Could be on the verge of recession if not for housing recovery)
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
-5-4-3-2-1012345
% growth from one year ago
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U.S. Total Payroll Jobs(8 million lost … 7 million gained)
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan124000
126000
128000
130000
132000
134000
136000
138000
140000In thousands
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States with Fast Job Growth State Job Growth Rate
1 North Dakota 3.2%2 Utah 2.7%3 Idaho 2.5%4 Texas 2.4%5 Colorado 2.3%6 Minnesota 2.3%7 Georgia 2.1%8 Washington 2.1%9 Arizona 2.0%
10 New Jersey 2.0%
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Unemployment Rate
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr0
2
4
6
8
10
12
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Employment Rate
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr54
56
58
60
62
64
66
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Labor Force Participation Rate:Record Low for Men and Cyclical Low for Women
(Adults 20 years old and up)
1970 - Jan 1975 - Jul 1981 - Jan 1986 - Jul 1992 - Jan 1997 - Jul 2003 - Jan 2008 - Jul4045505560657075808590
Women Men
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Well Shy of Long Run Trend (6 to 8 million more jobs needed)
1970 - Jan 1975 - Jul 1981 - Jan 1986 - Jul 1992 - Jan 1997 - Jul 2003 - Jan 2008 - Jul60
70
80
90
100
110
120
130
140
150In millions
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Consumer Spending Growth(2% growth; not 3% or 4%)
1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q4
-4
-2
0
2
4
6
8
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Business Spending Growth(3% growth; not sustained 5% to 10%)
1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q4
-20
-15
-10
-5
0
5
10
15
20
25
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Monetary and Fiscal Policies
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Monetary Policy by Federal Reserve (zero rate policy to 2015 ?)
20052006
20072008
20092010
20112012
2013 foreca
st
2014 foreca
st0
1
2
3
4
5
6
Fed Funds %
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Federal Reserve Balance Sheet from Quantitative Easing
2005 - Jan 2006 - Apr 2007 - Jul 2008 - Oct 2010 - Jan 2011 - Apr 2012 - Jul0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
Total Asset Purchase
$ million
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Consumer Price InflationLess than 2%
(% change from one year ago)
2003 - Jan 2004 - Jun 2005 - Nov2007 - Apr 2008 - Sep 2010 - Feb 2011 - Jul 2012 - Dec
-3-2-10123456
Core Overall
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Rising Renters’ and Homeowners’ Rent Growth (Above 2% and On the Way to 3%)
2003 - Jan 2004 - Jun 2005 - Nov2007 - Apr 2008 - Sep 2010 - Feb 2011 - Jul 2012 - Dec-1
0
1
2
3
4
5
Owners' Equivalent Rent Renters' Rent
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Household Net Worth
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
40000
45000
50000
55000
60000
65000
70000
75000$ billion
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Federal Government Spending(Stimulus … Flat … Decline)
2005 - Jan 2006 - Apr 2007 - Jul 2008 - Oct 2010 - Jan 2011 - Apr 2012 - Jul2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80$ trillion
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Shrinking Budget Deficit(in $billion)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
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Federal Government Annual Spending/Revenue
1992 - Jan1995 - Oct 1999 - Jul 2003 - Apr2007 - Jan2010 - Oct0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Tax RevenueGovt Spending
$ trillion
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Federal Debt Held By Public(Cumulative Accumulation as % of GDP)
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20140
10
20
30
40
50
60
70
80
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Germany
• Too High Trade Surplus• No Stimulus• Budget Surplus in 2013 (though still has high
debt from prior deficits)• Blame Germany for holding back the World
Economy?
• Or Emulate Germany’s Economic Reforms?
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International Sovereign Borrowing CostCountry 10-year Government Borrowing Cost
Japan 0.6%
Switzerland 1.1%
Germany 1.7%
France 2.3%
Canada 2.4%
U.S. 2.5%
Britain 2.6%
China 4.0%
Spain 4.1%
Italy 4.2%
Russia 7.5%
India 8.6%
Greece 8.7%
Brazil 11.6%
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Consumer ConfidenceNow and About Future
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr0
20406080
100120140160180200
Expectations Present
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Productivity and Income DoublingProductivity Growth Years for Income to Double Examples
1% 72 years U.S. today?
2% 36 years 1970 to 2007 (pre-financial market crash)
3% 24 years U.S. post-war to 1970
5% 14 years Asian Tigers
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GDP Forecast
2014 2015 2016 2017 2018 2019 2020 2021 2022 20232.0
2.5
3.0
3.5
4.0
4.5
5.0
CBOWhite HouseBlue Chip Consensus
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Commercial Market Activity
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Transactions Up 27% YoY – 2013 YTD
Source: Real Capital Analytics
'06 '07 '08 '09 '10 '11 '12 '13$0
$20,000,000,000
$40,000,000,000
$60,000,000,000
$80,000,000,000
$100,000,000,000
$120,000,000,000
$140,000,000,000
$160,000,000,000
$180,000,000,000 Individual Portfolio Entity
'06 '07 '08 '09 '10 '11 '12 '13-100%
-50%0%
50%100%150%200%
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CRE Prices Advance – CBD Off & Apt Lead
'07 '08 '09 '10 '11 '12 '1375
125
175
225Moody’s/RCA CPPI
Apartment
Industrial
Retail
CBD-Office
Sub - Office
Source: Real Capital Analytics
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Spreads Remain Elevated
Source: Real Capital Analytics
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
100
200
300
400
500
600
700
10yr UST* Cap Rate Spread (bps)
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REALTOR® Markets Deal Size
< $250,000
$250,000 - $500,000
$500,000 - $1,000,000
$1,000,000 - $2,000,000
$2,000,000 - $5,000,000
$5,000,000 - $10,000,000
> $10,000,000
21%
22%
26%
17%
12%
1%
2%
2013 CRE Lending Survey: Value of most recent sales transaction
Source: NAR
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REALTOR® CRE Markets Rebound
2008.Q4
2009.Q1
2009.Q2
2009.Q3
2009.Q4
2010.Q1
2010.Q2
2010.Q3
2010.Q4
2011.Q1
2011.Q2
2011.Q3
2011.Q4
2012.Q1
2012.Q2
2012.Q3
2012.Q4
2013.Q1
2013.Q2
2013.Q3
-100%
-50%
0%
50%
100%
150%
200%
Sales Volume (YoY % Chg)
Major CRE Markets Realtor CRE Markets
Sources: NAR, Real Capital Analytics
Deals > $2.5M
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Prices Accelerate in REALTOR® Markets
2008.Q4
2009.Q1
2009.Q2
2009.Q3
2009.Q4
2010.Q1
2010.Q2
2010.Q3
2010.Q4
2011.Q1
2011.Q2
2011.Q3
2011.Q4
2012.Q1
2012.Q2
2012.Q3
2012.Q4
2013.Q1
2013.Q2
2013.Q3
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Sales Prices (YoY % Chg)
Moody’s/RCA CPPI - Major Markets Realtor CRE Markets
Sources: NAR, Real Capital Analytics
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8%
17%
25%
7%6%
4%
18%
1% 11%
3%Current sources of financing for commercial dealsNational banks (“Big four”)Regional banksLocal banksCredit unionsLife insurance companiesREITsPrivate investorsPublic companiesSmall Business AdministrationOther, please specify
Source: NAR
Small Banks Important to REALTORS®
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SIOR Markets in Recovery
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0SIOR Commercial Real Estate Index
Northeast Midwest South West
Source: SIOR, NAR
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CCIM Quarterly Market Trends
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Apartment Fundamentals
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
U.S. Apartment Fundamentals
Completions Net Absorption Vac %
Source: NAR, Reis
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Apartment Rents
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Asking Rent $ Asking Rent % Chg
Source: Reis
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Apartment Vacancy Comparison
New Haven
Syracuse
New York
San Diego
Minneapolis
Oakland-East Bay
Buffalo
U.S. NATIO
NAL
Greensboro
/Winsto
n-SalemAtla
nta
Columbia
Jackso
nville
Houston
Little Rock
Memphis0.01.02.03.04.05.06.07.08.09.0
APARTMENT Vacancy Rates
Source: NAR, Reis
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Apartment Investments
Avg. PPU (K)
Source: Real Capital Analytics
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0% Avg. Cap Rate
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
$- $5,000,000,000.0
$10,000,000,000.0 $15,000,000,000.0 $20,000,000,000.0 $25,000,000,000.0 $30,000,000,000.0 $35,000,000,000.0 $40,000,000,000.0
$ Volume
2013 YTD: $45.3 B
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Renter Households
1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q425,000
27,000
29,000
31,000
33,000
35,000
37,000
39,000
41,000In thousands
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Homeowner Households has not Grown since 2006 … but Primed to Grow
1980 - Q11984 - Q21988 - Q31992 - Q41997 - Q12001 - Q22005 - Q32009 - Q450,000
55,000
60,000
65,000
70,000
75,000
80,000In thousands
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Household Formation Bursting Out(in millions)
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
20120.000.200.400.600.801.001.201.401.601.802.00
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Office Fundamentals
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-150,000,000
-100,000,000
-50,000,000
0
50,000,000
100,000,000
150,000,000
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
U.S. Office Fundamentals
Completions Net Absorption Vac %
Squa
re F
eet
Source: NAR, Reis
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Office Rents
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Asking Rent $ Asking Rent % Chg
Source: Reis
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Office Vacancy Comparison
Distric
t of C
olumbia
New York
Little Rock
Birmingham
Nashville
New Orle
ans
San Francisco
U.S. NATIO
NALDalla
s
San Bernard
ino/Riversi
de
Memphis
Las V
egas
Phoenix
Detroit
Dayton0.0
5.0
10.0
15.0
20.0
25.0
30.0
OFFICE Vacancy Rates
Source: NAR, Reis
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Office Investments
Source: Real Capital Analytics
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0% Avg. Cap Rate
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
$- $10,000,000,000.0 $20,000,000,000.0 $30,000,000,000.0 $40,000,000,000.0 $50,000,000,000.0 $60,000,000,000.0 $70,000,000,000.0 $80,000,000,000.0 $90,000,000,000.0
$ Volume
2013 YTD: $31.5B
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Jobs in Professional Business and Financial Services … at New Peak
2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0In millions
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Retail Fundamentals
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-30,000,000
-20,000,000
-10,000,000
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
0.0
2.0
4.0
6.0
8.0
10.0
12.0
U.S. Retail Fundamentals
Completions Net Absorption Vac %
Squa
re F
eet
Source: NAR, Reis
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Retail Rents
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Asking Rent $ Asking Rent % Chg
Source: Reis
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Retail Vacancy Comparison
San Francisco
Fairfield County
Long Isl
and
Orange County
Northern
New Jerse
y
Los A
ngeles
San Jose
U.S. NATIO
NAL
Indianapolis
Chattanooga
Cleveland
Columbus
Colorado Springs
DaytonTulsa
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
RETAIL Vacancy Rates
Source: NAR, Reis
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Retail Investments
Source: Real Capital Analytics
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0% Avg. Cap Rate
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
$-
$5,000,000,000.0
$10,000,000,000.0
$15,000,000,000.0
$20,000,000,000.0
$25,000,000,000.0
$30,000,000,000.0
$35,000,000,000.0 $ Volume
2013 YTD: $23.5B
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Jobs in Retail Trade(Still Below Prior Peak)
2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul13.5
14.0
14.5
15.0
15.5
16.0 In millions
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Spending Effect from Higher Home Prices18% cumulative gains over 2 years
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000 Median Existing Home Price
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Industrial Fundamentals
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-100,000,000
-50,000,000
0
50,000,000
100,000,000
150,000,000
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
U.S. Industrial Fundamentals
Completions Net Absorption Vac %
Squa
re F
eet
Source: NAR, Reis
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Industrial Rents
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$4.30
$4.40
$4.50
$4.60
$4.70
$4.80
$4.90
$5.00
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0Asking Rent $ Asking Rent % Chg
Source: Reis
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Industrial Vacancy Comparison
Orange County
Los A
ngeles
Miami
Seattle
St. Louis
Palm Beach
San Bernard
ino/Riversi
de
U.S. NATIO
NAL
Charlotte
Atlanta
Richmond
Memphis
Raleigh-Durh
am
San Jose
Boston
0.02.04.06.08.0
10.012.014.016.018.020.0
INDUSTRIAL Vacancy Rates
Source: NAR, Reis
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Industrial Investments
Avg. PSF
Source: Real Capital Analytics
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0% Avg. Cap Rate
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
$- $2,000,000,000.0 $4,000,000,000.0 $6,000,000,000.0 $8,000,000,000.0
$10,000,000,000.0 $12,000,000,000.0 $14,000,000,000.0 $16,000,000,000.0 $18,000,000,000.0 $20,000,000,000.0
$ Volume
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Jobs in Wholesale Trade(Still Below Prior Peak)
2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan 2010 - Jul 2012 - Jan 2013 - Jul5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
6.0
6.1In millions
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U.S. International TradeLong-Term Growth
1992 - Jan 1995 - Jan 1998 - Jan 2001 - Jan 2004 - Jan 2007 - Jan 2010 - Jan 2013 - Jan0
50000
100000
150000
200000
250000
Exports Imports
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U.S. International TradeBut No Growth in Recent Years
2007 - Jan
2007 - May
2007 - Sep
2008 - Jan
2008 - May
2008 - Sep
2009 - Jan
2009 - May
2009 - Sep
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
0
50000
100000
150000
200000
250000
Exports Imports
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International Dimension
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International CRE Investment in U.S.
Source: Real Capital Analytics
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Volume of International Transactions (April 2012 to March 2013)
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REALTORS® Working With International Clients
• In Past 12 Months, 27 Percent of REALTORS® Have Worked with an International Client.– Clients Residing in Another
Country: 51 Percent.– Clients Residing in this Country:
49 Percent.– A Niche Market on Buyer Side:
Facility with languages and cultures very helpful.
– On Sellers Side—Understanding of foreign cultures helpful.
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Percent of Total U.S. International Sales by CountryTop Countries—2013 Report
*China includes PROC, Hong Kong, Taiwan
CanadaChina
MexicoIndia
United KingdomGermany
ArgentinaIsrael
AustraliaKoreaBrazil
FranceVenezuela
Russia
23%12%
8%5%
5%3%
3%2%2%2%
2%2%2%
2%
Shares of the Top Countries of Origin to Total Reported International Transactions
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Top State Destinations—2013 Report
Top 10 Destinations
Florida
California
Arizona
Texas
New York
Virginia
Nevada
Hawaii
Illinois
Michigan
Georgia
23%
17%
9%
9%
3%
3%
2%
2%
2%
2%
2%
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Majority of International Buyers Pay All Cash
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Impact of the Value of the Dollar on Foreign Purchases
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U.S. Dollar vs. Chinese Yuan(Yuan per $)
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr5
5.5
6
6.5
7
7.5
8
8.5
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U.S. Dollar vs. Euro($ per Euro)
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
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Broad U.S. Dollar Strength/Weakness(Broad Trade Weighted)
2000 - Jan2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan2008 - Oct 2010 - Jul 2012 - Apr80
90
100
110
120
130
140
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REALTORS® Working With International Clients