The Markets August 15, 2013

Pension Risk Transfer Index Slips

The Dietrich Pension Risk Transfer Index, which tracks the relative attractiveness of annuitizing pension liabilities, slipped to 92.66 as of August 1.
Reported by

The modest 0.88-point loss is a result of narrowing credit spreads and slightly increased pension funding levels, according to Dietrich Associates. The index’s current annuity discount rate proxy of 3.05% is down 2 basis points from a month ago. 

“We anticipated a market correction from the reaction to Chairman Bernanke’s update on the economy, primarily his prediction as to the future of the Fed’s quantitative easing initiative, in June,” said Geoff Dietrich, vice president of Dietrich & Associates. While long-term interest rates are holding steady and equity markets continue to boost pension plan funding levels, the correction came in the form of narrowing credit spreads. “There is a science to valuing long-term liabilities such as pension obligations, and there is an art to the timing of a pension risk transfer; the intent of our index is to marry the two dynamics and help plan sponsors eliminate the guessing.”

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The Dietrich Pension Risk Transfer Index provides a dynamically constructed, monthly directional data-point regarding the market conditions that affect settlement costs. Higher index values indicate a reduction in the settlement cost environment. The index was designed to provide pension stakeholders a thoughtful mechanism for monitoring settlement market conditions and to support effective plan governance and decisionmaking.

The index can be found at  https://www.dietrichassociates.com.

Diversions August 15, 2013

Bye-Bye, ’Burbs. Hello, Downtown

Less commuting, more walking, diversity and being closer to shopping are on people’s wish lists for a residential setting.   
Reported by

Demographic groups on the rise, including Generation Y, African-Americans and Latinos, are reshaping urban growth and spurring development of compact, mixed-use communities that offer reliable, convenient public transportation, according to a report from the Urban Land Institute in San Diego. In other words, people are choosing urban environments over suburbia.

Demand will continue to grow for residential development that is less car-dependent and to wane for isolated development in outlying suburbs, the survey suggests. About two-thirds of respondents (61%) said they would prefer a smaller home with a shorter commute over a larger home with a longer commute. Fifty-three percent want to live close to shopping, 52% prefer mixed-income housing and 51% would like access to public transportation.

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Gen Y—the largest and most racially and ethnically diverse group in the survey, and the one not yet immersed in the housing and jobs market—is likely to have the most profound impact on land use. Fifty-nine percent of Gen Y respondents said they prefer diversity in housing choices; 62% prefer developments with a mix of shopping, dining and office space; and 76% place high value on walkability in communities.

Sixty-three percent of the Gen Y respondents also said they plan to move in the next five years, along with 63% of African-Americans, 54% of Latinos and 56% of those now living in a large city. Preferences of Gen Y are similar to those of people of color across all the generations.

Seventy-five percent of African-Americans prefer mixed-use developments, 63% prefer mixed-income communities and 56% a mix of housing types; 77% want access to public transit. Of the African-Americans surveyed, nearly half (47%) are part of Gen Y.

Fifty-eight percent of Latinos said they prefer to live in a mixed-use community, 48% in mixed-income communities, and half prefer a mix of housing. More than half (54%) of Latinos surveyed are Gen Yers.

The tendency to prefer city life, to rent rather than own and to use public transportation is highest among Gen Y, African-Americans and Latinos. Forty percent of Gen Yers, 43% of Latinos and 35% of African Americans indicated a desire to live in a medium to large city.

Fifty-four percent of the Gen Yers surveyed are renters, as are 63% of African-Americans and 52% of Latinos. 

While the survey found an overwhelming reliance on cars for commuting—85% of all respondents said they drive to work or school—use of public transportation was highest among African-Americans (32%), Latinos (20 %) and Gen Y (18%). More than half the Gen Y respondents placed a high priority on proximity to public transportation; 23% reported walking to destinations, the highest percentage of walkers among the generations.

The nationwide survey of 1,202 adults includes responses from Gen Y (representing 30% of the total), Gen X (23%), Baby Boomers (31%), War Babies (12% and born between 1932 and 1946) and the Silent Generation (3% and born before 1932).

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