ELLIOTT POLLACK PRESENTATION 09.18.2017.PDF

Continued Growth.
Continued Uncertainty.
Maricopa County Board of Supervisors
September 18th, 2017
Presented By:
Elliott D. Pollack
CEO, Elliott D. Pollack & Company
Elliott D. Pollack & Company

This Cycle is No Spring Chicken
Elliott D. Pollack & Company 2

U.S. BUSINESS CYCLE EXPANSIONS
Source: National Bureau of Economic Research
March 1991 – March 2001 120
February 1961 – December 1969 106
June 2009 - Present 98
November 1982 – July 1990 92
November 2001 – December 2007 73
March 1975 - January 1980 58
October 1949 – July 1953 45
May 1954 – August 1957 39
November 1970 – November 1973 36
April 1958 – April 1960 24
July 1980 – July 1981 12
Elliott D. Pollack & Company 3

Average Annualized Quarterly GDP Growth Rates
During Economic Expansions
1949 – 2017
Source: Bureau of Economic Analysis, National Bureau of Economic Research
Expansion Period Avg. Growth Rate
October 1949 – July 1953 6.4%
April 1958 – April 1960 6.2%
February 1961 – December 1969 4.9%
March 1975 - January 1980 4.5%
November 1970 – November 1973 4.4%
November 1982 – July 1990 4.3%
May 1954 – August 1957 3.8%
March 1991 – March 2001 3.6%
July 1980 – July 1981 3.2%
November 2001 – December 2007 2.8%
June 2009 - Present 2.2%
Elliott D. Pollack & Company 4

How do things look?
Elliott D. Pollack & Company 5

Elliott D. Pollack & Company 6

U.S. Leading Indicators
1970 – 2017*
Source: The Conference Board
Recession Periods
130
120
110
100
90
80
70
60
50
Elliott D. Pollack & Company *Data through July 2017 7

Consumer Confidence
1978 – 2017*
Source: The Conference Board
Recession Periods
150
140
130
120
110
100
90
80
70
60
50
40
30
20
Elliott D. Pollack & Company *Data through August 2017 8

Treasury Spread:
10 year bond rate less 3 month bill rate
1959 – 2017* Recession Periods
Source: Federal Reserve Bank of New York
5
4
3
2
1
0
-1
-2
-3
-4
Elliott D. Pollack & Company *Data through August 2017 9

Treasury Spread:
Recession Probabilities
1960 – 2018* Recession Periods
Source: Federal Reserve Bank of New York
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
*Data through August 2018
Elliott D. Pollack & Company Note: Probability of recession in 1 year 10

Job Openings
2001 – 2017*
Source: Bureau of Labor Statistics
(1000’s) Recession Periods
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
Elliott D. Pollack & Company *Data through June 2017 11

Overall Hourly Wage
1998 – 2017*
Source: Bureau of Labor Statistics; Federal Reserve Bank of Atlanta
Recession Periods
6%
5%
4%
3%
2%
1%
0%
*Data through July 2017
Elliott D. Pollack & Company Note: 3-month moving average 12

Labor Force Participation Rate (16 years and over)
1986 – 2014
Source: Bureau of Labor Statistics
Recession Periods
72%
70%
68%
66%
64%
62%
60%
U.S. Phoenix Metro
Elliott D. Pollack & Company 13

GDP
Potential Versus Actual
2000-2017*
(Billions) Source: U.S. Congressional Budget Office; BEA Recession Periods
18,000
$17,058.2
17,000 $28.2
$17,030.0
16,000
$15,291.1
15,000 $935.5
14,000 $14,355.6
13,000 Potential
Actual
12,000
Elliott D. Pollack & Company *Data through second quarter 2017 14

GDP
Potential Versus Actual
1980-2017*
(Billions) Source: U.S. Congressional Budget Office; BEA Recession Periods
18,000
16,000
14,000
12,000
10,000
Potential
8,000 Actual
6,000
Elliott D. Pollack & Company *Data through second quarter 2017 15

Headwinds
• Auto Sales
• Widening Trade Deficit
Elliott D. Pollack & Company 16

Unknowns in Policy
Elliott D. Pollack & Company 17

Current Administration’s Expected
Tax and Economic Proposals
• We’re facing the potential for a positive
change in Economic Growth Prospects.
• It’s too early to tell how much will get
through congress and how much will be
implemented.
• So, the jury is still out.
Elliott D. Pollack & Company 18

If Expected Tax and Economic
Proposals Pass
• Short-term effects – faster growth due to
personal and corporate tax cuts, reduced
regulations and infrastructure spending.
• Long-term effects – depend on the extent of the
tax cuts, especially corporate tax cuts.
Elliott D. Pollack & Company 19

If Expected Tax and Economic
Proposals Pass
• Higher Interest Rates and Higher Cap Rates
• Higher Inflation
• Higher after Tax Profits
• Larger Deficits
• Construction and Other Labor?
Elliott D. Pollack & Company 20

Can the Expansion Last?
Elliott D. Pollack & Company 21

Yes!
Elliott D. Pollack & Company 22

Expansions don't die
of old age.
Elliott D. Pollack & Company 23

They die because an
economy becomes vulnerable
to exogenous shocks or asset
bubbles or a tightening in
the credit market.
Elliott D. Pollack & Company 24

As recoveries get older, they
become more vulnerable to
shocks...
…Just as people get older
they become more vulnerable
to diseases.
Elliott D. Pollack & Company 25

What keeps me up at night?
Elliott D. Pollack & Company 26

What keeps me up at night?
1. Lack of political capital
2. Lack of consistency on immigration policy.
3. How close to full employment are we? How
many people who left the labor force will come
back? Where will construction and high tech
workers come from?
4. Recovery/expansion was 91 months long when
Trump was inaugurated. Can it last another 48
months?
Elliott D. Pollack & Company 27

If done correctly, his economic
policies can make a significant
difference.
If not, the change will be less
significant.
Elliott D. Pollack & Company 28

Where does the economy
currently stand
Elliott D. Pollack & Company 29

Consumers
Elliott D. Pollack & Company 30

Financial Obligation Ratio*
1980 – 2017**
Source: Federal Reserve
Recession Periods
19.0%
18.0%
17.0%
16.0%
15.0%
14.0%
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income. 31
Elliott D. Pollack & Company **Data through the first quarter 2017

Credit Use Under Control
Elliott D. Pollack & Company 32

U.S. Consumer Credit
1980 – 2017*
Source: Federal Reserve
(Trillions) Recession Periods
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
Non-Revolving Credit Revolving Credit *Data through July 2017
Elliott D. Pollack & Company Revolving credit is 26 billion below its 2008 peak. 33

Consumer Liquidity Improving
Elliott D. Pollack & Company 34

U.S. Household Financial Assets
(Billions of Dollars, NSA)
1970 - 2017*
Source: Board of Governors of the Federal Reserve System
Recession Periods
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
Elliott D. Pollack & Company *Data through first quarter 2017 35

No irrational exuberance
Elliott D. Pollack & Company 36

Cyclically Adjusted PE Ratio**
1950 – 2017*
Source: Robert Shiller, Yale University
Recession Periods
50
45
40
35
30
25
20
15
10
5
0
**Price earnings ratio is based on average inflation-adjusted earnings *Data through September 2017 37
Elliott D. Pollack & Company from the previous 10 years, known as the Cyclically Adjusted PE Ratio

Net worth improved
Elliott D. Pollack & Company 38

U.S. Household Net Worth
(Billions of Dollars, NSA)
1970 – 2017* Recession Periods
Source: Board of Governors of the Federal Reserve System
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
Elliott D. Pollack & Company *Data through the first quarter of 2017 39

Real income growth
Elliott D. Pollack & Company 40

Real Disposable Personal Income Per Capita
1970-2017*
Source: Bureau of Economic Analysis
Recession
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
Elliott D. Pollack & Company *Data through the second quarter 2017 41

Inflation low
Elliott D. Pollack & Company 42

U.S. Consumer Price Index
Annual Percent Growth
1960 – 2017*
Source: Bureau of Labor Statistics Recession Periods
15%
13%
11%
9%
7%
5%
3%
1%
-1%
-3%
Elliott D. Pollack & Company *Data through July 2017 43

No capacity issues
Elliott D. Pollack & Company 44

Capacity Utilization Rate
1970 – 2017*
Source: Board of Governors of the Federal Reserve System
Recession Periods
90
85
80
75
70
65
Elliott D. Pollack & Company *Data through July 2017 45

Fed policy still expansive
Elliott D. Pollack & Company 46

Housing
Elliott D. Pollack & Company 47

U.S. National Case-Shiller Index
1987 – 2017*
Source: S&P CoreLogic Case-Shiller Indices
Recession Periods
200
180
160
140
120
100
80
60
Elliott D. Pollack & Company *Data through June 2017 48

Conclusion
• Near term outlook remains positive but
keep your eyes open!
Elliott D. Pollack & Company 49

Maricopa
County
Elliott D. Pollack & Company 50

Employment Growth
From Bottom of Recession to Now
Source: BLS; OEO
% of Arizona 2016 Average
Area % Change Growth Annual Wages
United States 12.0% $53,515
Arizona 13.0% 100.0% $48,089
Greater Phoenix 17.1% 93.4% $50,508
Maricopa County 15.7% 83.7% $50,862
Greater Tucson 3.1% 3.5% $42,021
Balance of State 2.8% 3.1% $35,890
Note: NSA data; 51
Elliott D. Pollack & Company Start of Recession Sept. 2010 to July 2017.

Arizona Employment Growth
Arizona’s Rank Out of 50 States
Source: Arizona State University, U.S. Bureau of Labor Statistics
Year Rank Year Rank
1994 2 2006 2
1995 2 2007 17
1996 2 2008 46
1997 2 2009 49
1998 1 2010 49
1999 2 2011 27
2000 5 2012 8
2001 9 2013 9
2002 10 2014 17
2003 4 2015 11
2004 2 2016 9
2005 2 2017* 10
Elliott D. Pollack & Company *YTD July 2017 vs. YTD July 2016 52

Phoenix-Mesa-Scottsdale Employment Growth
(Ranking among all metro areas greater than 1,000,000)
Source: Arizona State University, U.S. Bureau of Labor Statistics
Year Rank # MSA’s Year Rank # MSA’s
1994 1 19 2006 1 27
1995 1 20 2007 10 29
1996 1 21 2008 25 29
1997 2 22 2009 23 24
1998 1 23 2010 23 23
1999 3 24 2011 14 25
2000 7 25 2012 10 28
2001 7 26 2013 7 29
2002 5 25 2014 15 31
2003 3 25 2015 11 32
2004 3 25 2016 9 33
2005 1 26 2017* 10 34
Elliott D. Pollack & Company *YTD July 2017 vs. YTD July 2016 53

Why has Maricopa
County’s growth in this
cycle been subpar relative
to its
historical norm?
Elliott D. Pollack & Company 54

(1) Sub normal national recovery
(2) Slowdown in population flows
Nationally and in Arizona
(3) Other (Unknowns)
Elliott D. Pollack & Company 55

Growth itself is an economic driver
in Maricopa County–
People moving to the State and County create
demand for goods and services that create
more jobs.
When you grow around 1.8% instead of 3.5%,
the part of the economy that is based on
servicing new people shrinks.
Elliott D. Pollack & Company 56

Employment Growth
Trough to Peak
Greater Phoenix Employment, Seasonally Adjusted
Source: BLS
Emp. Emp. % Monthly
Recession Trough Peak Growth Growth Rate
1974-1975 Jun-75 Aug-81 53.7% 0.58%
1981-1982 Sep-82 Jun-90 50.7% 0.44%
1991 Aug-91 Mar-01 60.7% 0.41%
2001 Dec-01 Aug-07 21.7% 0.29%
2007-2009 Sep-10 July-17 19.5% 0.22%
Elliott D. Pollack & Company *Data through July 2017 57

Population Growth after Recessions
Maricopa County
Source: Office of Economic Opportunity
Population at the Population at the %
Years Start of recovery End of recovery Growth APR
1975-1980 1,253,900 1,566,036 20.8% 3.9%
1981-1990 1,566,036 2,130,400 36.0% 3.5%
1991-2001 2,180,800 3,173,219 45.5% 3.8%
2001-2007 3,173,219 3,753,413 18.3% 2.8%
2009-2016 3,821,136 4,137,076 8.3% 1.1%
Elliott D. Pollack & Company 58

Fewer people mean fewer houses
& less commercial construction.
Elliott D. Pollack & Company 59

Maricopa County Employment*
Annual Percent Change FY 1980–2019**
Source: Office of Economic Opportunity
14%
12% 10.5% 10.3%
10%
8% 6.8% 7.0% 6.2% 7.5%7.0% 6.3% 6.4% Pre-2008 Avg. 4.5%
6% 5.5%5.3% 5.4%
4% 3.0% 3.8% 3.4% 2.4%2.4% 2.7% 4.3% 2.9% 2.4% 3.0% 2.8% 2.8% 2.6% 3.1% 2.7%2.5%2.2%
2% 1.6% 1.0% 1.1% 1.0% 0.1% 0.4% 2.0%
0%
-2% -0.3% -0.4%
-4%
-6% -6.1%-5.8%
-8%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2018 forecasts from Elliott D. Pollack & Co.
Elliott D. Pollack & Company 60

Where are the Inflows of
Population?
Elliott D. Pollack & Company 61

Maricopa County Population
Source: U.S. Bureau of Census; Office of Economic Opportunity
Decade
Ending Population APR
1970 979,800 4.0%
1980 1,515,100 4.5%
1990 2,130,400 3.5%
2000 3,092,927 3.8%
2010 3,824,058 2.1%
2015 4,076,438 1.3%
2020* 4,480,899 1.9%
2025* 4,885,981 1.7%
*Forecasts from OEO
1970-2010 10 year period 62
Elliott D. Pollack & Company 2010-2025 5 year period

Total U.S. Movers
Source: U.S. Census Bureau Recession Periods
(1000’s)
20,000
19,000
18,000
17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
Note: Includes all movers except movers within
Elliott D. Pollack & Company same county 63

Total Movers as a % of
Total U.S. Population
Source: U.S. Census Bureau Recession Periods
8%
7%
6%
5%
4%
3%
Note: Includes all movers except movers within
Elliott D. Pollack & Company same county 64

Arizona Capture Rate
Source: U.S. Census Bureau
Recession Periods
12%
10%
8%
6%
4%
2%
0%
Note: Does not include in-state movers; 65
Elliott D. Pollack & Company Net migration numbers.

Effect of Slower Migration on
Employment Growth in Arizona
Source: U.S. Census Bureau; Office of Economic Opportunity; EDPCo
2014 2015 2016
Actual Job Growth Rate 2.0% 2.6% 2.6%
Potential Job Growth 3.7% 4.1% 3.8%
Estimated using 2001-2005 average
migration patterns and Arizona’s capture
Elliott D. Pollack & Company rate 66

Conclusion:
• Due to the lack of national, international,
and in state population flows:
1. Jobs that would have been created by the
domestic demand from people moving here
slowed.
2. It took longer to absorb the excess inventory
of single family, office, etc. Construction
employment has suffered.
Elliott D. Pollack & Company 67

Population Growth 2016
Alaska Source: U.S. Census Bureau
20
5
13
6
3
46
2
32 19 1 7
Hawaii 8 41 10
Growing 9
Top 10 4
Declining
Elliott D. Pollack & Company 68

Maricopa County Population
Annual Percent Change 1975–2018*
Source: Office of Economic Opportunity, EDPCo
Recession Periods
6%
5.3%
4.9%
4.5% 4.7%
4.4% 4.4% 4.2% 4.2% 4.3% 4.2%
3.9% 4.0% 4.1%4.1%
4% 3.8%
3.4% 3.2% 3.5% 3.4%3.2% Pre-2008 Avg. 3.5%
3.0% 2.9% 2.9% 2.8% 2.8% 2.8%
2.6% 2.6% 2.4% 2.4%
2.4%
2.1%
1.9%
2% 1.6%1.7% 1.8%
1.4% 1.5% 1.4%1.5%
1.1%
0.5%
0.3%
0.1%
0%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*Forecasts for 2017 and 2018 from Elliott D. Pollack & Co. as of July 2017.
Elliott D. Pollack & Company 69

Maricopa County Population
Annual Net Change 1975–2018*
Source: Office of Economic Opportunity, EDPCo
Recession Periods
140.0
123.0124.9
120.0 112.6 112.7110.5
107.4
104.9 104.0
100.0 91.8 97.6 92.7 89.5
85.9 88.0 86.8
76.8 77.7 80.3 80.0
80.0 67.9 73.0 70.7 74.5
65.6
59.1 58.3 57.0 60.1 55.4 60.7
60.0 49.8 50.9 52.1 53.3 50.4 55.4
45.8 41.3
40.0 36.5
28.6
26.1
19.3
20.0 12.3
2.9
0.0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*Forecasts for 2017 and 2018 from Elliott D. Pollack & Co. as of July 2017.
Elliott D. Pollack & Company 70

How quickly are population
flows going to recover?
Elliott D. Pollack & Company 71

SLOWLY!
Still buffering, seriously?
Elliott D. Pollack & Company 72

Maricopa County Population
Source: Office of Economic Opportunity
Year Population % change
2010 3,824,058 0.1%
2011 3,843,370 0.5%
2012 3,884,705 1.1%
2013 3,940,062 1.4%
2014 4,000,739 1.5%
2015 4,066,351 1.6%
2016 4,137,076 1.7%
2017* 4,217,250 1.9%
2018* 4,299,279 1.9%
Elliott D. Pollack & Company EDPCo *Forecast Re-benched from OEO Estimates 2013-2016 73

Housing Market Outlook
Elliott D. Pollack & Company 74

The Parade of Horribles for
Housing has become a parade
of Positives
Elliott D. Pollack & Company 75

What is keeping potential buyers out of the
housing market?
Parade of positives:
(1) Negative Equity
(2) Foreclosures
(3) Millennials
(4) Student Loans
(5) Tougher Loan Standards
Elliott D. Pollack & Company 76

U.S. and Arizona
Percent of Borrowers with more than 20% Home Equity
2010–2017
Source: CoreLogic
85.0%
80.0% 78.8%
75.0% 73.5%
71.3%
70.0% 70.1%
66.3% 65.4%
65.0%
59.0% 60.8%
60.0%
56.7%
55.0% 52.8% 52.9% 53.5%
50.0%
46.2%
45.0%
40.0%
2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1
U.S. Arizona
Elliott D. Pollack & Company 77

U.S. and Arizona
Negative Equity Share
Plus Near Negative Equity Share
2011–2017
60.0% Source: CoreLogic
56.5%
50.0% 48.4%
40.0%
35.8%
30.0% 27.7% 28.6%
24.7% 23.7%
20.0% 20.2%
16.2% 15.5%
13.0% 11.4%
10.0% 10.3% 7.7%
0.0%
2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1
U.S. Arizona
Elliott D. Pollack & Company Near Negative Equity: Loan-to-value ratio equals 95 to less than 100 78

Maricopa County Foreclosure Lag
2002–2024
Source: Information Market
Recession Periods
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
Sept. 2017
0
Completed 7-Year Lag (Fannie/Freddie)
Foreclosures
Elliott D. Pollack & Company 79

Millennials
Elliott D. Pollack & Company 80

U.S. Birth Index
1909-2016
Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies
4,500,000
4,000,000
3,500,000
3,000,000
Baby Boomers Gen X Millennials
1945-1964 1965-1984 1985-2004
(Ages 50-69) (Ages 30-49) (Ages 10-29)
2,500,000 78.7 M 69.5 M 79.4 M
2,000,000
Elliott D. Pollack & Company 81

Homeownership Rates by Age Group
Source: 2015 American Community Survey 1-Year Estimates
Householder Age % of Total Current Population
15 to 24 years 12.1% 43,511,027
25 to 34 years 34.5% 44,677,243
35 to 44 years 51.7% 40,470,156
45 to 54 years 64.2% 42,786,679
55 to 59 years 71.1% 21,980,108
60 to 64 years 75.5% 19,483,036
65 to 74 years 81.8% 28,630,330
75 to 84 years 81.7% 14,233,534
85 years and over 70.2% 6,380,331
Total 60.5% 262,152,444
Elliott D. Pollack & Company 82

Household Formation
1990-2017
(1000’s) Source: U.S. Census Bureau
2,500
2,000
1,500
1,000
500
0
*Data through second quarter 2017 83
Elliott D. Pollack & Company Not a continuous series

Net change in Household Formation
2002-2017
(1000’s) Source: U.S. Census Bureau
2,500
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
Owner-Occupied Renter-Occupied
Elliott D. Pollack & Company 84

Baby Boomers Versus Millennials
Aged 25-34
Source: Bowling Green State University; 1980 Decennial Census; 2015 American Community Survey
Baby Boomers Millennials
(1980) (2015)
Married 68% 40%
Separated/Divorced 12% 7%
Never Married 20% 53%
Live in Independent Households 84% 59%
Lived with
Parents/Grandparents 9% 22%
Home Ownership 60% 43%
Elliott D. Pollack & Company 85

When you delay marriage you
delay children. That delays
housing. That delays demand for
housing “stuff”.
Elliott D. Pollack & Company Single Married 86

Total Student Loan Debt Has
Quintupled!
Elliott D. Pollack & Company 87

Total Student Loan Balances
Billions of Dollars
Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
Year Total
2004 Q2 $262.9
2005 Q2 $374.4
2006 Q2 $438.9
2007 Q2 $514.0
2008 Q2 $586.3
2009 Q2 $675.4
2010 Q2 $761.7
2011 Q2 $851.4
2012 Q2 $914.0
2013 Q2 $994.0
2014 Q2 $1,118.0
2015 Q2 $1,190.0
2016 Q2 $1,259.0
2017 Q2 $1,344.0
Elliott D. Pollack & Company 88

% of Adults
with Outstanding Student Loan
Source: Pew Research Center
All Adults 16
Ages 18-29 37
30-44 22
45-59 7
60 and over 2
Elliott D. Pollack & Company 89

Median Loan Debt Amount
by Education Level
Source: Pew Research Center
Education Level Amount Owed
All borrowers $17,000
Less than bachelor’s $10,000
Bachelor’s degree $25,000
Postgraduate degree $45,000
Elliott D. Pollack & Company 90

Expenses that Delayed Saving for a Down Payment or
Home Purchase - 2017
By Age
Source: National Association of Realtors 2017
All 36 and
Buyers younger 37 to 51 52 to 61 62 to 70
Those who said “Saving for
Downpayment was Most Difficult
Task in Buying Process”: 13% 23% 13% 4% 3%
Reasons Why:
Student Loans 49% 55% 29% 9% 7%
Credit Card Debt 40% 31% 41% 29% 31%
Car Loan 34% 32% 21% 14% 10%
Child Care Expenses 18% 12% 15% 1% 4%
Health Care Costs 14% 9% 10% 13% 11%
Other 15% 18% 26% 52% 48%
Median Years Delayed 3 3 4 3 4
Elliott D. Pollack & Company 91

Student Loan Impact on Economy
If people are paying student loan debt, they are
not buying houses, furniture, beers, etc. Unless
incomes are higher because of their degree.
Elliott D. Pollack & Company 92

Credit Availability
Elliott D. Pollack & Company 93

Mortgage Credit Availability Index
2012 – 2017*
March 2012 = 100
Source: Mortgage Bankers Association
185
165
145
125
105
85
2012 2013 2014 2015 2016 2017
*A decline in the MCAI indicates that lending standards are tightening,
while increases in the index are indicative of loosening of credit.
Elliott D. Pollack & Company *Data through July 2017 94

Mortgage Credit Availability Index
2004 – 2017*
March 2012 = 100
Source: Mortgage Bankers Association Recession Periods
1,000
750
500
250
0
2005 2007 2009 2011 2013 2015 2017
*A decline in the MCAI indicates that lending standards are tightening,
while increases in the index are indicative of loosening of credit.
Elliott D. Pollack & Company *Data through July 2017 95

The housing recovery is likely to
continue.
Elliott D. Pollack & Company 96

Single Family Permits
Greater Phoenix 1975–2018*
Source: RL Brown & Elliott D. Pollack & company
# Permits
(000)
70
63.6
60.9
60
50 47.7
42.4
38.9
40 31.736.035.3 34.7 36.2
29.6 31.2
30 28.9 23.2 27.4 28.5
22.3 18.8 19.4 22.6 17.9 22.7 20.5 22.5
20 18.1 15.1 18.4 18.0
11.5 11.6 12.0 13.7 12.6 12.8 15.9
8.7 11.1 10.6 10.6 8.0 11.6 10.8
10 6.86.8
0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*2017 and 2018 forecast is from Elliott D. Pollack & Company
Elliott D. Pollack & Company 97

Multi-Family
Elliott D. Pollack & Company 98

Apartments
Births 26 year lag
1955-2038
4,500,000 Source: U.S. Census Bureau
2017
4,000,000
3,500,000
3,000,000
2,500,000
Baby Boomers Gen X Millennials
2,000,000
Elliott D. Pollack & Company 99

U.S. Median Age at First Marriage
1890-2016
Source: U.S. Census Bureau
30
28
26
24
22
20
Baby Boomers Gen X Millennials
18
Men Women
Elliott D. Pollack & Company 100

Retirement Home Cycle
Births 65 year lag
1994-2076
4,500,000 Source: U.S. Census Bureau
4,000,000
3,500,000
2017
3,000,000
2,500,000
Baby Boomers Gen X Millennials
2,000,000
Elliott D. Pollack & Company 101

Greater Phoenix Multi-Family Average Rent
Percent Change a Year Ago
2004 – 2017* Recession Periods
Source: RealData Inc.
9.0%
7.0%
5.0%
3.0%
1.0%
-1.0%
-3.0%
-5.0%
Elliott D. Pollack & Company *Data through the second quarter 2017 102

Multi-Family Year-End Vacancy Rates
Greater Phoenix 1975–2018*
Source: ASU Realty Studies / Berkadia**
Recession Periods
18%
15% 14.1%
13.0% 13.4% 13.4%
12.5%
12% 10.6% 10.8%
10.1% 10.0% 10.2%
9.5% 9.4%9.6%
9% 7.7% 8.0% 8.2% 7.9% 7.8% 7.5%
6.2% 6.1% 6.1% 6.9% 5.1% 6.8% 6.8% 6.6%
6% 3.9% 4.5% 4.5%4.8% 5.9% 6.3% 5.9%5.4% 5.4%5.4% 5.6%
4.1% 4.4% 4.0% 3.8%
3.3%
2.8%
3%
0%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*2017 & 2018 are forecasts from Elliott D. Pollack & Co.
**Data prior to 2005 is from ASU
Elliott D. Pollack & Company 103

Multi-Family Pipeline
Source: Anonymous
Potential
Year New Supply
2017 6,125
2018 6,841
2019 6,309
Elliott D. Pollack & Company 104

OFFICE
Elliott D. Pollack & Company 105

Office Space Year-End Vacancy Rates
Greater Phoenix 1986–2018*
Source: CBRE Recession Periods
35%
30% 26.7% 26.7% 26.4%
25.4% 26.2%25.5%
25% 22.8% 24.0% 22.7% 24.5% 23.9%
22.4% 21.3%
20% 18.8% 18.8% 18.3% 19.1% 19.4%
14.8% 16.0% 16.4% 17.4%
15% 12.6% 13.9% 14.5% 15.6%
11.7% 9.5% 11.1%
9.5% 9.2% 10.0%9.9%
10%
5%
0%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
*2017 & 2018 are forecasts from CBRE.
Elliott D. Pollack & Company 106

As of 2017, the following markets
have vacancy rates under 10%
• Deer Valley/Airport
• Tempe
• Scottsdale South
• PS Peak
Source: Paul Johnson
Elliott D. Pollack & Company 107

As of the second quarter 2017,
there were 1.5 million square
feet of total office space under
construction including over
700,000 square feet of
speculative office space.
Source: CBRE
Elliott D. Pollack & Company 108

INDUSTRIAL
Elliott D. Pollack & Company 109

Industrial Space Vacancy Rates
Greater Phoenix 1980 – 2018*
Source: CBRE
Recession Periods
20%
16.4% 16.1%
15.2% 14.8%
14.6% 14.7%
15% 13.2% 14.0% 13.6%
12.8% 12.8% 12.5% 12.4%
11.1% 10.8% 11.4%
10.3% 10.9% 11.0%
9.4% 9.7% 9.8% 9.7% 10.1%
10% 8.4% 7.4% 8.1% 8.5% 8.4% 8.6%
7.1% 7.4% 8.0%
6.6% 7.0% 6.7% 7.2%
5.7% 5.6%
5%
0%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Elliott D. Pollack & Company *2017 & 2018 are forecasts from CBRE 110

As of the second quarter 2017,
there was 4.6 million square feet
of total industrial space under
construction including
2.7 million square feet
of speculative industrial space.
Source: CBRE
Elliott D. Pollack & Company 111

RETAIL
Elliott D. Pollack & Company 112

Retail Space Vacancy Rates
Greater Phoenix 1985–2018*
Source: CBRE** Recession Periods
20%
15% 13.1% 14.2% 13.5%
11.8% 12.7% 12.2%12.2%
10.0% 11.1% 11.4% 11.0% 10.2%
10% 8.9% 9.8%8.7% 9.6%9.1%8.9%8.2%
7.9%7.5% 7.5% 8.3%
6.6% 6.3% 5.3%6.6%7.3%7.4% 6.1%5.3% 6.2%
5.5% 5.1%
5%
0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
*2017 & 2018 are forecasts from CBRE
** Data prior to 1992 is from Grubb & Ellis
Elliott D. Pollack & Company 113

As of the second quarter 2017,
there were 1.2 million square
feet of total retail space
under construction.
Source: CBRE
Elliott D. Pollack & Company 114

E-Commerce Retail Sales
as a Percent of Total Sales
2000 – 2017* Recession Periods
Source: U.S. Census Bureau
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Elliott D. Pollack & Company *Data through the second quarter 2017 115

Super-Stores and Internet Sales Cannibalization
Percentage of total sales by retailer type
1992 - 2017
Source: U.S. Census Recession Periods
60%
50%
40%
30%
20%
10%
0%
Department Stores Warehouse Grocery Internet
Elliott D. Pollack & Company *Data through June 2017 116

Cap Rates by Product Type
1984 – 2017*
Source: ACLI
Recession Periods
11%
10%
9%
8%
7%
6% Office
5% Industrial
Apartment
4% Retail
3%
Elliott D. Pollack & Company *Data trough March 2017 117

Overall Conclusions:
Elliott D. Pollack & Company 118

Continued Expansion
for now!
Elliott D. Pollack & Company 119

Elliott D. Pollack & Company 120

How rapid growth will be
is up in the air.
Elliott D. Pollack & Company 121

Until new policies are put in place
not much will change.
Elliott D. Pollack & Company 122

Stay tuned!
Elliott D. Pollack & Company 123

Maricopa County Forecasts
Most Likely (Trend)
Actuals Forecast
FY17 FY18 FY19 FY20 FY21 FY22
Population 1.9% 2.0% 1.9% 2.1% 2.1% 2.0%
Employment 2.7% 2.5% 2.2% 2.8% 3.0% 2.9%
Retail Sales 4.6% 3.6% 3.3% 3.6% 3.5% 3.5%
Total Permits 2.9% 9.5% 8.0% 5.0% 3.2% 2.9%
Elliott D. Pollack & Company 124

For a quick analysis of
important economic data released
each week, subscribe to the
Monday Morning Quarterback
www.arizonaeconomy.com
(Click on Subscribe to MMQ)
Elliott D. Pollack & Company 125