Desert Hot Springs Economy Period of Adjustment, 2008 John Husing, Ph.D. Economics & Politics, Inc. 4/30/2008 1
Inland Empire Job Growth, 2006 Employment Change, California Markets Annual Average, 2005-2006 Source: CA Employment Development Department 274,158 47,067 174,508 99,650 7,008 18,042 29,025 48,150 68,592 4/30/2008 Ventura Co.San Diego Co.Orange Co. Inland Empire L.A. Co. So. California California No. California2
Inland Empire Job Growth, 2008 Job Change, California Markets Inland Empire & Coastal Counties, March 2007-2008 Source: CA Employment Development Department 57,700 3,200 (21,400) (21,300) (13,800) (6,000) (1,700) (3,300) (61,000) 4/30/2008 Inland EmpireOrange Co.Los Angeles Co. Ventura Co.San Diego Co.Imperial Co. So. California California No. California 3
Unemployment Exhibit 5.-Unemployment Rates, 1983-2008 Annual, Inland Empire & California 12% 11% 10% 9% 8% 7% 6% 5% 4% A Housing Correction... Now is the Time But It Hurts! 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 4/30/2008 4 Source: CA Employment Development Department
How Coachella Valley Economy Has Worked? Secondary Tier Primary Tier 4/30/2008 5
Looking Ahead: 6 million more Southern Californians by 2030 Southern California Population Growth Composition, 2000-2006 Foreign 871,562 43.3% Natural Gain 1,131,655 56.3% Domestic 7,963 0.4% 4/30/2008 Source: California Department of Finance 6
People Prefer To Live Near The Coast 4/30/2008 7
Baby Boomers: Here They Come Born 1946 Current Age: 62! 4/30/2008 8
What is your ideal home? 86% Single Family Detached Would you prefer a detached home EVEN if you must drive? + = 66% YES 4/30/2008 9
Looking Ahead: Dirt Theory 1. Affordable Housing & Population Serving Jobs I 5 2. Industrial Projects & Blue Collar Jobs Ventura I 405 Los Angeles County State Hwy 2 I 15 I 215 State Hwy 247 3. County Expensive Housing, Skilled Workers Rancho I-15 Cucamonga & Freeway High Mall Paying Site Jobs San Bernardino County I 605 State Hwy 91 State Hwy 215 I 10 I 110 Orange County Riverside County 4/30/2008 10 San Diego County
Not Enough Land Or Inadequate Zoning Prices Drive People Outward Home Price Advantage, Inland Empire & So. California Markets Median Priced New & Existing Home, 1st Quarter 2008 Median All Home Price Desert Hot Springs Advantage $453,000 $464,000 $485,000 $568,000 $354,000 $214,000 $303,000 $239,000 $250,000 $271,000 $89,000 Desert Hot Springs Inland Empire San Diego Los Angeles Ventura Orange 4/30/2008 11 Source: Dataquick
BUILD FREEWAYS & THEY LL COME Don t Build Them & They ll Come Anyway! 4/30/2008 12
Inland Empire Population Growth, 2000-2020! Forecasted Population Growth, 2000-2020 Inland Empire & Top 12 States (000) 8,335 7,783 7,424 44 U.S. 3,326 2,660 2,657 2,136 States! 1,839 1,538 1,454 1,201 1,091 California Texas Florida Arizona North Carolina Georgia Inland Empire 4/30/2008 Source: U.S. Bureau of Census, Southern California Association of Governments 2008 RTP 13 Virginia Washington Nevada Maryland Tennessee
Where Is L.A. s Edge In 2008? I 5 I 15 Ventura County I 405 Los Angeles County State Hwy 2 I-15 Freeway Rancho Cucamonga Mall Site I 215 State Hwy 247 San Bernardino County I 605 Metropolitan Southern California Now In Beaumont State Hwy 91 State Hwy 215 I 10 I 110 Orange County Riverside County 4/30/2008 14 San Diego County
Population Growth 42.0% Exhibit 2.-Population Growth Rates Coachella Valley & Other Major Areas, 2000-2007 32.0% 25.3% 11.2% 8.5% 7.7% Desert Hot Spr. Coachella Valley Inland Empire California Los Angeles County U.S. Note: Assumes Coachella Valley unincorporated grows at 16.5% of city growth rate in 2007 Source: CA Department of Finance, U.S. Census Bureau 4/30/2008 15
Desert Hot Springs Feeling L.A. Exhibit 1.-Population Growth Desert Hot Springs, 1990-2007 23,544 2000-2007 22,163 Up 6,962 or 42% 19,479 17,979 14,200 14,550 15,100 15,500 15,900 16,200 16,400 16,582 16,776 16,982 17,394 13,350 12,400 11,668 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 4/30/2008 16 Source: CA Department of Finance
Population Growth By City, 2000-2007 Exhibit 4.-Population Growth By City Coachella Valley Communities, 2000-2007 Indio 22,538 La Quinta 14,646 Coachella 12,483 Cathedral City Palm Desert 8,434 8,384 Desert Hot Spr. 5,429 Palm Springs Rancho Mirage 3,632 3,423 Indian Wells 1,049 4/30/2008 17 Source: CA Department of Finance, U.S. Census Bureau
Population By City, Coachella Valley Exhibit 3.-Population By City Coachella Valley Cities, 2007 Indio 77,146 Cathedral City Palm Desert Palm Springs 46,858 52,115 49,752 La Quinta Coachella 38,486 41,092 Desert Hot Spr. 23,544 Rancho Mirage 16,944 Indian Wells 4,942 4/30/2008 Source: CA Department of Finance, U.S. Census Bureau 18
Desert Hot Springs Area Growth Forecast City Only 19,386 Population Growth Forecast Desert Hot Springs Area, 2005-2035 64,206 71,136 77,872 84,364 90,964 50,922 31,014 2005 2010 2015 2020 2025 2030 2035 4/30/2008 Source: Southern California Association of Governments, 2008 19
Home Prices Declining $375,000 $350,000 $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 Existing Homes: -38.5% vs. IE -27.1% 4/30/2008 Source: Dataquick 20 1988 Exhibit 25.-Existing Home Prices, Quarterly Desert Hot Springs, Not Seasonally Adjusted, By Quarter, 1988-2007 $175,000 $173,621 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 New Homes: -9.3% vs. IE -19.2% $0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 $318,000 2004 $282,355 2005 $350,563 2006 2007 2008
Remember: Foreclosures Now Driving Market 38.4% of CA Sales In March 2008 4/30/2008 21
Housing Volume Setting A Floor 32,000 400 30,000 28,000 350 26,000 24,000 300 22,000 20,000 250 18,000 16,000 14,000 200 12,000 10,000 150 8,000 6,000 100 4,000 2,000 50 0 1988 1989 1990 Existing Exhibit & New Homes 22.-New Sales, Home Inland Sales Empire Data Desert Hot Seasonally Springs, Seasonally Adjusted, by Adjusted, quarter, 1988-2007 By Quarter, 1988-2008 A -60.3% v. -61.5% 1991 1992 1993 1994 1995 1996 1997 4/30/2008 Source: Dataquick 22 1998 1999 2000 2001 2002 2003 2004 11,397 2005 2006 29,570 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Dataquick, Economics & Politics, Inc. Seasonality 368 146 2007 2008
Market Shares By Area Share of Southern California Home Sales Inland Empire, 1994-2008 33% 32% 34% 34% 37% 36% 37% 40% 20% 22% 22% 21% 24% 26% 26% 27% 45% 28% 48% 50% 52% 28% 31% 32% 54% 32% 45% 45% 28% 32% Orange Co. 18% to 9% San Diego Co. 23% to 18% 1994 1995 1996 1997 1998 1999 2000 2001 4/30/2008 Source: Dataquick 23 LA Co. 15% to 25% 2002 2003 2004 2005 2006 2007 2008
Housing Prices Took Off For Sound Reasons Demand Rising With Demographics Supply Restrained Prices Had To Take-Off To Eliminate Buyers Exhibit 13.-Price Trend, New & Existing Homes Inland Empire, 1988-2007, Quarterly 460,000 440,000 420,000 400,000 380,000 360,000 340,000 320,000 300,000 280,000 260,000 240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 New Existing 1993-2003 8.4% per year 4/30/2008 24 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Source: Dataquick 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real Problems Sub-Prime & Now This We Financed Have High Cut This Supply Prices 4/30/2008 25
We re Confused 4/30/2008 26
Housing Forecast What If Price Went Up At 6% per year in 2004, 2005 and 2006? ow much must Prices Fall, to get to where they would have been by 2007? New Homes: 13.6% lower Developers Can Adjust Home Size Existing Home Prices: 20% lower Home Owners Forced to Sell Remember: Every Home Sale Right Now Is A Distressed Sale 4/30/2008 27
Fed Trying to get Mortgage Rates Down. But, Lender Fear is Keeping Rates Unusually High. Exhibit 12.-30 Year Mortgage Rate & 10 Year Bond 9.00% 8.50% 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 30 Yr. Fixed Mortg. 10-Year Bond Difference 2000 2001 2002 2003 2004 2005 2006 2007 2008 4/30/2008 28 Sources: Federal Reserve Bank, Federal Home Loan Mortgage Corporation 5.88%
Home Financing after Home Price & Interest Rate decline $214,190 Local 1st Time Buyers Afford Home, 10% Down 5.88% Fixed 30- Rate, 30% of Income, 2008 $53,243 $44,887 $1,122*12=$13,466 Median Home Price Annual Payments Income Needed Median Income 4/30/2008 Source: CA Association of Realtors 29
New Affordability Levels 53% Share Able To Buy Median Price Home Inland Empire, 2000-2008 45% 58% 35% 18% 2000 2002 2005 2008 DHS 4/30/2008 Source: CA Association of Realtors & John Husing 30
25.0 Months of Supply: Housing Inventories 44 mos Months of Housing Inventory 20.0 15.0 10.0 9 mos 5.0 0.0 So Cal Coast San Francisco Cent Cal Coast Reno, NV San Diego Las Vegas Salt Lake City Denver Sacramento Atlanta Maryland Colorado Spgs Minneapolis South Florida Raleigh-Durham Northern Virginia Northern Colorado Inland Empire Boise Chicago Phoenix Cent Cal Valley Austin Tampa Dallas/Ft Worth Charlotte Orlando Naples 4/30/2008 31 Northern Virginia-C Maryland-C Sarasota Houston Albuquerque/Santa Fe San Antonio Jacksonville Tuscon
7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Months of Finished Vacant Inventory Months of Supply of Finished 8.0 Vacant New Units 4/30/2008 32
Interest Rates Decline Will Help, But: FHA Loan Guarantees Rise From $362,790 to $500,000 BUT Does Not Have The Staff For The Huge Volume FNMA, Freddie Mac, Ginny MAE: $417,000 to $500,000 BUT + 0.25% for loans over $417,000 +0.25% if Market has dropped 3% +0.25% if FICO Score Under 700 +0.25% if don t have 20% equity 4/30/2008 33
U.S. Congress: Ideas FHA Given Greater Funding To Insure Questionable Mortgages Lower Loan Balance To Value of House Note Would Give Upside Back to Lender If Home Value Restored 4/30/2008 34
Route Out of Housing Recession Real Difficulties Resolved Market Psychology Changes Federal Action To Reduce Foreclosures Refinancing As Interest Rates Fall & Loan Guarantees Rise Affordability as Prices & Interest Rates Fall, Income Rises Underlying Housing Shortage Means Pent-Up Demand 4/30/2008 35
Assessed Valuation, 1990-2007 Exhibit 43.-Assessed Valuation (millions) Desert Hot Springs, July 1, 1990-2007 2000-2007 Assessed Valuation Growth $1.6 billion or 346.5% Inflation: 27.9% $1,697 $2,115 $997 $363 $400 $434 $460 $477 $488 $476 $477 $453 $456 $474 $500 $544 $603 $719 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 4/30/2008 36 Source: Riverside County Assessor's Office
Assessed Valuation Growth Exhibit 44.-Assessed Valuation Growth Desert Hot Springs & Coachella Valley Cities, 1990-2007 Desert Hot Springs Coachella Valley 70% 39% 19% 25% 19% 21% 16% 13% 9% 10% 10% 8% 6% 6% 6% 4% 2% 4% 0% 2% 2% 0% 1% 7% 13% 12% 12% 11% 10% 11% 9% 4% 6% -0% -2% -5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 4/30/2008 37 Source: Riverside County Assessor's Office
Population Migration Slowing Domestic Migration Inland Empire, 2000-2007 86,406 84,496 80,630 64,486 60,289 68,241 39,928 34,670 2000 2001 2002 2003 2004 2005 2006 2007 4/30/2008 38 Source: CA Department of Finance, Demographic Research Unit
Soaring Oil Prices Apr-08 $111.76 West Texas Intermediate Crude Oil Prices Monthly Average. 1985-2008 $115 $105 $95 $85 $75 $65 $55 $45 $35 $25 $15 $5 Jan-07 106.1% $54.23 4/30/2008 39 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Total Taxable Sales, 1990-2007 Exhibit 33.-Taxable Retail Sales (000) Desert Hot Springs, 1990-2006 $44,183 2000-2006 Retail Sales Up $33.1 million or 52.1% Inflation: 22.7% $44,390 $46,919 $50,228 $48,924 $50,033 $47,935 $49,665 $52,998 $58,491 $63,475 $66,584 $65,974 $71,943 $82,056 $94,182 $96,553 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 4/30/2008 Source: CA Board of Equalization 40
Taxable Sales Growth Rates, 1990-2006 Exhibit 34.-Taxable Sales Growth Desert Hot Springs & Coachella Valley, 1990-2006 Desert Hot Spr. Coachella Valley 15% 14% 14% 14% 15% 9% 6% 0% 6% 1% 7% 3% 3% 2% 4% 6% 4% 9% 7% 11% 10% 9% 5% 3% 3% 11% 9% 9% 3% 5% -6% -3% -4% -1% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 4/30/2008 41 Source: CA Board of Equalization
2007-2008 Are Weak 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% California Riverside San Bernardino Taxable Sales Growth Rates Quarterly, California & Inland Empire, 1992-2008 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 4/30/2008 42 Source: CA Board of Equalization, CA Dept. of Finance, SANBAG, RCTC
Blue Collar Jobs About Dirt 4/30/2008 43
Adult Educational Level, 2006 Share of Adults, No College Class & BA or Above Southern California Counties, People 25 & Over, 2006 49.7% 52.1% 50.9% 48.0% 36.9% 36.3% Palm Spr. Sch. Dist. San Bdno. Riverside Los Angeles Orange San Diego Source: 2006 American Community Survey 4/30/2008 44
Exactly What Shippers Want To Distribution Centers AndMade by Trucks Shipped inat Containers Transported on Trains International Supply Goods in Asia Unloaded our Ports Chain Management 4/30/2008 45
1. Soaring International Containers Thru So. Calif. Exhibit 6.-Port Container Traffic Ports of Los Angeles & Long Beach, 1990-2007 & 2025e (million TEUs) 2006 43.9% U.S. Imported Containers 25.4% U.S. Exported Containers 42.5 3.7 3.8 4.1 4.4 5.1 5.4 5.8 6.5 7.5 8.2 9.5 9.6 10.6 11.8 13.1 14.2 15.8 15.7 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TEU=20 foot equivalent container units 4/30/2008 46 Source: Ports of Los Angeles & Long Beach; forecast: Moffatt & Nichol Engineers 2001 2002 2003 2004 2005 2006 2007 2025e
2. Ports On West Coast Nearest Asia Los Angeles Long Beach 4/30/2008 47
3. Deep Water Ports As Ships Draw Over 50 feet of Water 8,000-Container Post-Panamax Ships 4/30/2008 48
4. Competitors Much Smaller L.A.-Long Beach Ports Triple NY-NJ, the second largest complex 4/30/2008 49
Air Cargo Increase by 4-Fold Exhibit 61.-Changing Shares of Trade Los Angeles Customs District, 2005-2030 (billions) Breakbulk Ship $54.5 18.5% 2005: $293.9 billion Air Cargo $73.8 25.1% Land Based $2.1 0.7% Breakbulk Ship $93.4 11.7% 2030: $796.2 billion Air Cargo $228.1 28.6% Land Based $6.1 0.8% Containerized Ship $163.5 55.6% Containerized Ship $468.7 58.9% 4/30/2008 Source: Los Angeles Customs District & Economics & Politics, Inc. 50
LAX Near Cargo Capacity Exhibit 17.-Air Cargo Tonnage For SCAG Area Airports 2030 Constrained Demand (1,000s tons) 2,252 2,340 43 87 128 137 504 1,024 1,092 1,117 545 24.2% 2006: 2,103 89.9% JWA BUR PSP LGB SCLA PMD SBD MAR ONT LAX 4/30/2008 Source: SCAG 2004 Regional Transportation Plan 51
Low Cost Industrial Dirt (400,000 SF) $412,000 Difference in Lease Rate = $8.2 million in Sales @ 5% Return On Sales Orange-South San Diego-Escondido L.A. - North San Diego-San Marcos San Diego-Vista L.A. - South Bay Orange-West Orange-North Orange-Airport L.A. - Mid Cities San Gabriel Vly LA-Central Industrial Space Costs Southern California, Sub-Markets, 400,000 SF, December 2007 $4,032,000 $3,648,000 $3,600,000 $3,408,000 $3,120,000 $3,072,000 $3,072,000 $2,976,000 $2,736,000 $2,688,000 $2,496,000 $4,512,000 Inland Empire $2,084,000 nnn=net of taxes, insurance, common area fees 4/30/2008 Source: Grubb & Ellis 52
Quarterly Industrial Absorption, 1991-2007 Exhibit 17.-Industrial Space Gross Absorption Inland Empire, 1991-2007 (moving 4-quarter total) 47,500,000 42,500,000 37,500,000 32,500,000 27,500,000 22,500,000 17,500,000 20 million Sq.Ft. 12,500,000 7,500,000 1991 1992 1993 1994 1995 1996 1997 1998 4/30/2008 Source: Grubb & Ellis & Economics & Politics, Inc. 53 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Inland Empire, 82.1% of So. Calif. Industrial Construction Market Exhibit 15.-Industrial Space Under Construction Southern California Market, December 2007 Inland Empire 23,139,031 82.1% Orange County 703,875 2.5% San Diego 1,197,401 4.2% Los Angeles 3,134,559 11.1% 4/30/2008 Sources: Grubb & Ellis 54
Industrial Vacancy Rate Very Low 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1991 1992 1993 1994 Exhibit 8-2.-Industrial Space Availability Rate Inland Empire, 1991-2007 1995 1996 1997 1998 1999 4/30/2008 55 2000 2001 Source: Grubb & Ellis 2002 2003 2004 2005 2006 2007 4.8% 2008
East Valley Winning So Far Exhibit 19.-Location of Increased Industrial Occupancy Inland Empire Sub-Markets, June 2005-Dec. 2007 (Sq. Ft.) 44.6% 28.8% 20.7% 3.0% 1.7% 1.1% East Valley Westend-SB March JPA Corona SW Riverside Co. High Desert Source: Economics & Politics Inc. using Grubb & Ellis data 4/30/2008 56
Where Industrial Space Being Built? Where is Industrial Space Being Built Inland Empire, December 2007 Westend 7,744,177 29.7% High Desert 430,097 1.6% East Valley 9,528,277 36.5% March JPA 8,391,447 32.2% Sources: Grubb & Ellis 4/30/2008 57
Where Is L.A. s Edge In 2008? I 5 I 15 Ventura County I 405 Los Angeles County State Hwy 2 I-15 Freeway Rancho Cucamonga Mall Site I 215 State Hwy 247 San Bernardino County I 605 Industrial In SB-Redlands & March JPA I 110 State Hwy 91 Orange County State Hwy 215 I 10 Riverside County 4/30/2008 58 San Diego County
Coachella Valley Is Not In The Goods Movement Discussion It Needs To Be 4/30/2008 59
Colorful History Powerful Potential Future! 4/30/2008 60
. www.johnhusing.com 4/30/2008 61