2016 Midyear Collaborative Construction Economic Forecast August - PowerPoint PPT Presentation

2016 Midyear Collaborative Construction Economic Forecast August 15, 2016 2:00 – 3:00 p.m., EDT

2016 Midyear Collaborative Construction Economic Forecast Today’s moderator: Jeff Leieritz Senior Media Relations Manager Associated Builders and Contractors

Moving Ahead: Issues Affecting the Residential and Nonresidential Construction Outlook Kermit Baker, Hon. AIA Chief Economist The American Institute of Architects August 15, 2016

Topics • Residential issues: demographic shifts and homeownership. • Status and trends in commercial and institutional building construction, and the Architecture Billings Index. • 2016/2017 outlook for nonresidential building spending, and comparison of current forecasts to outlook as of beginning of the year. 4

Construction Recovery Continues to Plod Along, Particularly for Single-Family Residential Spending at various points in the past construction cycle ($Billions) $600 Peak Trough Current $500 $434 $400 $300 $256 $244 $230 $229 $224 $205 $200 $128 $105 $100 $53 $51 $15 $0 S-F construction MF construction Comm/Ind bldg. const Instit. bldg const. Note: Current as of Jun., 2016; Source: U.S. Census Bureau Construction Spending Put-in-Place 5 5

The Millennial Generation is Moving Into Age Ranges with Higher Headship Rates Population Growth (Millions) Headship Rate (Percent) 4 60 3 50 2 40 1 30 0 20 -1 10 -2 0 Under 25 25 to 29 30 to 34 35 to 39 40 to 44 Age Group 2005-2015 2015-2025 Headship Rate 6

The National Homeownership Rate Has Fallen to Its Lowest Level in a Half Century Homeownership Rate (Percent) 70 69 68 67 66 65 64 63 62 Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 7

Nonresidential Building Trends and Outlook 8

First Half 2016 Results Show Nonresidential Building Spending Starting to See Slower Growth Billions of $, NSA, January - June totals 2016 2015 % change Total Nonres. Bldg. Construction $219.1 $206.0 6.3% Commercial/Industrial 113.2 103.4 9.5% Lodging 12.6 10.0 26.9% Office 30.4 25.3 20.1% Commercial (retail and other) 34.2 31.2 9.6% Manufacturing 36.0 36.9 -2.6% Institutional 105.8 102.6 3.2% Health care 19.6 19.2 2.2% Educational 41.0 38.6 6.2% Religious 1.8 1.6 10.5% Public safety 3.9 4.1 -6.4% Amusement and recreation 10.2 9.2 10.2% Transportation 20.3 20.8 -2.1% Communication 9.0 9.0 0.5% Source: U.S. Census Bureau, Value of Construction Put in Place 9

Though Remaining Volatile, Pace of Growth in Architecture Billings Seems to be Slowing diffusion index: 50 = no change from previous month, seasonally adjusted 60 55 50 45 40 Source: AIA Architecture Billings Index 10

All Major Construction Sectors Seeing Healthy ABI Scores Billings scores since 2012; index: 50 = no change from previous month 60 Residential Commercial/ Industrial Institutional 55 50 45 Jan '12 Apr Jul Oct Jan '13 Apr Jul Oct Jan '14 Apr Jul Oct Jan '15 Apr Jul Oct Jan '16 Apr Source: AIA Architecture Billings Index 11

Commercial Gains Projected to Moderate as Growth Swings Over to Institutional Categories billions $ of construction spending on nonresidential buildings annual % change $400 20% $386 2015 spending level 2016 % change 14.7% $300 15% 2017 % change 11.7% $200 10% $158 7.4% 7.5% $145 5.8% 6.5% 6.5% 5.8% 6.3% 5.6% 5.2% 5.0% 4.5% $100 5% $85 $67 $56 2.3% $40 $0 0% Total Nonres. Tot. Comm. Office Retail Tot. Instit. Health Education Source: AIA Consensus Construction Forecast Panel, June, 2016 12

Economic Forecast And Outlook August 15, 2016 Robert Dietz, Ph.D. NAHB Chief Economist

US Payroll Employment Total jobs slightly below trend Millions 145.0 1.00 -.2% 0.90 104% 141.0 0.80 138.4 0.70 +1% 137.0 0.60 0.50 -7% 133.0 0.40 -2% 0.30 129.0 0.20 93% 0.10 125.0 - 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Household Formations Average yearly growth of household formations has doubled Thousands 2,500 1,918 2,000 Avg: 1.4 million 1,750 (12% renters) 1,652 1,481 1,500 Avg: 1.0 million (109% renters) Avg: 0.5 million 944 (130% renters) 1,000 577 495 500 0 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Low Housing Inventory Existing home inventory flat Thousands, NSA Thousands, NSA 700 3,500 3,010 600 3,000 537 500 2,500 400 2,000 1,550 300 1,500 1,610 235 200 1,000 148 100 500 New Home Sales: Single-Family Houses for Sale Number of single-family homes available for sale 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Constraints on Building Growth The Three L’s

Labor Unfilled construction jobs rising 5.0% 1.00 Job openings rate - Construction 4.5% 0.90 12-month moving average 4.0% 0.80 3.5% 0.70 3.0% 0.60 2.5% 0.50 2.0% 0.40 1.5% 0.30 1.0% 0.20 0.5% 0.10 0.0% - 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Lots Housing Starts (Area) and Low/Very Low Lot Supply (bars) Starts (Thousands) Low Supply 2,100 70% 1,800 60% 1,500 50% 1,200 40% 900 30% 600 20% 300 10% 0 0% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Median Lot Value and Size Lot size declining --- lot value increasing Square Feet 9,800 $55,000 9,600 $50,000 Median Lot Value $[VALUE] (Single-Family Starts) 9,400 $45,000 9,200 $40,000 9,000 $35,000 Median Lot Size (For Sale: Single-Family Detached) 8,800 $30,000 8,600 $25,000 8,589 8,400 $20,000 8,200 $15,000 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: 2015 Survey of Construction (SOC), NAHB Economics Estimates.

Lending - AD&C Access Better Worse Source: Senior Loan Officer Opinion Survey (SLOOS), The Federal Reserve Board.

Forecasts

Residential Remodeling Billions 2009 USD, SAAR 185 Year Percent Change 2016 2.3% 2017 0.5% 2018 1.3% 160 Adjusted 135 Actual 110 85 60 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Multifamily Housing Starts Leveling off Thousands of units, SAAR “ Normal ” 1995-2003 331,000 550 2013 308,000 2014 355,000 15% 500 2015 395,000 12% 450 2016 386,000 -2% 2017 392,000 2% Avg=344,000 400 2018 372,000 -5% 350 2018Q4: 2016Q2: 110% of 300 120% of “Normal” “Normal” 250 76% fall 200 150 Trough to Current: 4 th Q 09 = 82,000 100 2 nd Q 16 = 397,000 +340% 50 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

NAHB/Wells Fargo Housing Market Index The song remains the same Index Thousands, SAAR 80 2,000 1,800 70 1,600 59 60 1,400 50 1,200 40 1,000 Single-Family Starts 800 30 HMI 600 20 400 14 10 200 8 0 0 05 06 07 08 09 10 11 12 13 14 15 16

Single-Family Starts Growing pains Thousands of units, SAAR 2,000 “ Normal ” 2000-2003 1,343,000 2013 620,000 1,800 2014 647,000 4% 2015 713,000 10% 1,600 2016 793,000 11% 2018Q4: 77% of 2017 888,000 12% 1,400 “Normal” 2018 992,000 12% 1,200 2016Q2: 57% of 80% fall “Normal” 1,000 800 600 Trough to Current: Mar 09 = 353,000 400 Jun 16 = 778,000 +120% 200 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Home Size Market Shift

2016 Midyear Collaborative Construction Economic Forecast Anirban Basu Chief Economist Associated Builders and Contractors

40.0 60.0 30.0 45.0 50.0 35.0 55.0 Source: The American Institute of Architects Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Architecture Billings Index Jan-10 January 2008 through June 2016 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 June 2016: 52.6 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16

ABC’s National Construction Backlog Indicator (CBI) Average 2009Q1 through 2016Q1 9.0 8.8 8.7 8.7 8.6 8.5 8.4 8.5 8.5 8.5 8.2 8.2 8.3 8.1 8.1 8.1 8.0 8.0 7.9 8.0 7.8 Months of Backlog 7.7 7.3 7.4 7.5 7.2 7.0 7.1 7.0 6.5 6.5 6.1 6.0 5.9 5.8 6.0 5.5 5.0 Source: ABC

Nonresidential Construction Put-in-Place December 2006 through June 2016 800 Oct-08: June-16: $719.5B Public $682.0B Private 700 Jan-11: $506.8B 600 500 SAAR ($billions) 400 300 200 100 0 Source: U.S. Census Bureau