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Florida Entered the New Year with Strong Economic Momentum: A Positive Environment for South Florida Real Estate Tony Villamil Economic Outlook: It’s the Economy! Get Smart on What to Expect in 2015 January 28, 2015 www.weg.com Economic Drivers and Long-Term Fundamentals of South Florida* are Mostly Positive for 2015 and Beyond US Economic Activity/ Financial Indicators Global Economic Performance Florida Business Climate West Palm Beach Broward Miami-Dade South Florida Fundamentals *Comprised of Miami-Dade, Broward and Palm Beach Counties. www.weg.com Florida “Operating on All Cylinders” as we Enter 2015: US and Global Economies, Together with State Business Climate, are Key Drivers of South Florida Economic Driver Outlook 2015 US Economy Economy growing at 3% plus this year: Positive for key industries of Florida and South Florida such as Wholesale Trade, Construction, Retail, Tourism, Professional Services and Manufacturing Global Economy A mixed performance continuing in 2015. Euro Zone slow growth. Canada, Asia and most of Latin America countries experiencing moderate growth Florida Business Climate Pro-growth Governor and Legislature. Election results solidify top business climate. Low and stable taxes, positive fiscal situation, aggressive recruitment, retention and expansion of companies by Governor/EFI www.weg.com US Financial Indicators: Positive for South Florida in 2015 www.weg.com Household Net Worth: Positive for Consumer Spending Increasing in 2015 $90 $85 $79 $80 $80 $81 $81 $75 $70 $ Trillion $70 $65 $60 $63 $57 $58 2008 2009 $64 Up $24 Trillion Since ‘08 $55 $50 $45 $40 2010 2011 2012 2013 2014-Q1 2014-Q2 2014-Q3 Source: Federal Reserve Bank, Flow of Funds Accounts, Flows and Outstandings, 3Q-2014 (Dec 11, 2014). www.weg.com US Non-Financial Debt: Households Borrowing Prudently, Business Debt Growing Years Households Business State & Local Governments Federal Financial and Housing “Bubbles” 2005 2006 2007 11.2 9.7 6.7 9.0 10.9 13.6 5.8 3.9 5.5 7.0 3.9 4.9 The “Great Recession” and the Aftermath 2008 2009 2010 2011 2012 2013 -0.2 -1.7 -2.6 -1.5 0.2 1.5 6.3 -2.3 1.5 4.7 6.0 5.1 0.6 4.0 2.3 -1.7 -0.2 -1.3 24.2 22.7 20.2 11.4 10.9 6.5 2014:Q1 2014:Q2 2014:Q3 2.3 3.4 2.7 6.0 5.0 5.2 -1.3 1.2 -2.8 6.0 2.5 7.2 Keynes Lives! Source: Federal Reserve Bank, Flow of Funds Accounts, Flows and Outstandings, 3Q-2014 (Dec 11, 2014). www.weg.com Monetary Base: Record Breaking Growth: Exit Strategy of FED Keeps Me “Awake in Miami!” $4,500 $4,000 $ Billions $3,500 $3,000 $2,500 $2,000 Ample Liquidity $1,500 $1,000 $500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Federal Reserve Bank of St. Louis Economic Research. Jan 2002-Dec 2014. Shaded areas indicate US Recessions. www.weg.com Velocity of M2 Money Stock: Opportunity Cost of Holding Money is Very Low 𝑴 ∙ 𝑽 ≡ 𝑷 ∙ 𝑸! 2.1 2.0 Ratio 1.9 1.8 1.7 1.6 1.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Federal Reserve Bank of St. Louis Economic Research. Q1:2002-Q3:2014. Shaded areas indicate US recessions. www.weg.com US Economic Activity Likely to Gain Moderate Momentum in 2015: A Positive Development for South Florida Real Estate Industries US Real GDP Growth (Annual Average) 3.0% 2.5% 2.0% "Great Recession" 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -3.5% -4.0% 2009 2013 2014E 2015F Sources: BEA and The Washington Economics Group, Inc. (WEG) for Estimate (E) and Forecast (F). www.weg.com Global Economy Continues to Underperform Again in 2015: But There are Significant Country Differences World Output Growth (Annual Average) 4.0% 3.5% 3.0% 3.3% 3.3% 2013E 2014E 3.5% 2.5% 2.0% 1.5% "Great Recession" 1.0% 0.5% 0.0% -0.5% -1.0% -1.0% -1.5% 2009 2015F Source: International Monetary Fund, World Economic Outlook, January 20, 2015 Revision. www.weg.com Top Business Climate, Low-Interest Rates and Declining Energy Prices are Propelling Florida and South Florida to Another Strong Economic Year www.weg.com Florida’s Real GDP Growing Faster than National Average: State Likely to Grow Faster than Texas this Year! Florida’s Real GDP Growth (Annual Average) 4.0% 3.0% 2.0% 3.1% "Great Recession" 3.5% 2.2% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -5.0% -6.0% 2009 2013 2014E 2015F Sources: Bureau of Economic Analysis and The Washington Economics Group, Inc. (WEG) for Estimate (E) and Forecast (F). www.weg.com Economic Activity Accelerated in South Florida During 2014: Additional Gains Expected this Year www.weg.com South Florida Payroll Employment Growth Rose Strongly in 2014: Continued Solid Growth Expected this Year in a Variety of Industries Over the Year Change Over the Year % Change 2,487,200 +72,800 3.0% 2,105,500 2,177,200 +71,700 3.4% Trade, Transportation & Utilities 575,500 590,600 +15,100 2.6% Professional & Business Services 378,700 396,700 +18,000 5.0% Education & Health Services 352,700 363,100 +10,400 3.0% Leisure & Hospitality 293,400 301,700 +8,300 3.0% Financial Activities 167,300 172,700 +5,400 3.2% 97,200 104,900 +7,700 8.0% Category Total Payroll Employment Total Private Construction Dec 2013 Employment Dec 2014 Employment 2,414,400 Source: DEO, FREIDA, December 2014 Current Employment *Comprised of Miami-Dade, Broward and Palm Beach Counties. www.weg.com South Florida* Housing Activity Consistent with Steady Growth: Preferably to “Boom and Bust” Housing Indicators 2012 2013 2014 Housing Starts 11,477 17,225 21,311 Single-Family Home Sales 39,232 42,501 44,903 $202,200 $250,000 $265,000 46,754 48,406 46,317 $103,000 $129,000 $145,000 Single-Family Homes (Months Supply Inventory) 4.9 4.9 5.4 Multifamily Homes (Months Supply Inventory) 5.4 5.9 6.8 Median Single-Family Home Price ($) Multifamily Home Sales Multifamily Median Home Price ($) Sources: Florida Realtors and US Census Bureau. *Comprised of Miami-Dade, Broward and Palm Beach Counties. www.weg.com Long-Term Fundamentals of South Florida Remain Strong for 2015 and Beyond: Strengthening the Cyclical Upturn Global “Brand” positive for expansion of key South Florida industries Corporate relocations and growing technology hub of State Higher education cluster MIA/Fort Lauderdale airports Port of Miami post Panama ships Strong Fundamentals Strengthen the Outlook for A Strong 2015 Economic Year www.weg.com “Bottom Line” 2015 Florida likely to outperform National economy again this year Top performing State among “The Big Four” South Florida has become a leading region of Florida Continued low-interest rates, declining energy prices and pro-growth State, add to the fundamental strengths of Florida and South Florida Downside risks to monitor: FED Policy Euro Zone and Japan “malaise” Middle East The “Executive Order” WH www.weg.com Happy Business Hunting, with Moderation! www.weg.com Visit us at: www.weg.com Twitter: @tonyvillamil www.weg.com