Supply-Side Factors and Housing Affordability CoreLogic-NAHB - PowerPoint PPT Presentation

Supply-Side Factors and Housing Affordability CoreLogic-NAHB Residential Construction Roundtable December 12, 2018 Robert Dietz, Ph.D. NAHB Chief Economist

Housin ing Affordabil ilit ity – NAHB/W /Well lls Fargo HOI CoreLogic transaction data and NAHB estimates find significant declines 90 80 78 70 National 60 56 50 40 30 20 Q1_04 Q1_05 Q1_06 Q1_07 Q1_08 Q1_09 Q1_10 Q1_11 Q1_12 Q1_13 Q1_14 Q1_15 Q1_16 Q1_17 Q1_18 Source: NAHB/Wells Fargo Housing Opportunity Index.

New Home Sales and Months’ Supply Thousands, SAAR Months Supply, SA 1,600 14 1,400 12 1,200 10 1,000 8 800 6 600 4 400 2 200 Months Supply at Current Sales Rate, (mo. SA) New Home Sales: New single-family houses sold, (Ths. #, SAAR) 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: U.S. Census Bureau (BOC).

Household ld Form rmatio ion Demand for home ownership strengthened 2,000 Y/Y Change in Household Count, Thousands, NSA Owner-Occupied 1,500 1,000 500 0 -500 -1,000 2,500 Renter-Occupied 2,000 1,500 1,000 500 0 -500 -1,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.

Homeownership ip Rate Percentage, Quarterly, SA 71% 1.00 69.4% 70% 0.90 69% 0.80 68% 0.70 67% 0.60 66% 0.50 65% 0.40 64.4% 64% 0.30 63% 0.20 62% 0.10 61% - 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.

Geography of f Homeownership ip Wide variation Homeownership Rates in the U.S. by County Alaska Hawaii

Determin inants of Homeownership ip Modeling Results Increase average age in county by 5 years • Adds 3 percentage points to rate Increase share of married households by 10% • Added 5.1 percentage points to rate Increase local incomes by $10,000 • Adds 0.6 percentage points to rate Decrease housing costs by $75,000 • Adds 4.1 percentage points to rate

Sh Share of f Young Adult lts Livi Living with ith Parents Almost doubled 60% 25% 58% 23% 56% Ages 18 to 24 21% 54% 19% 52% 50% 17% Ages 25 to 34 48% 15% 46% 13% 44% 11% 42% 40% 9% 1990 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: US Census 1990, 2000, PUMS, 2000-2016 ACS, PUMS, NAHB Estimates.

Consumer Debt Rise in student and auto loans 250% 8 236% 7 Student Loans 200% 6 156% Auto Loans 5 150% 9/30/2008, Other 100% 4 98% 100% 3 97% 2 50% Credit Cards 1 0% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Federal Reserve Bank of New York.

GDP Growth Near-term growth with slowing ahead Annual Growth LT avg (‘58 - ’07) 3.4% Q/Q Percent Change, SAAR 10% 2016 1.6% 2017 2.2% 8% 2018 f 3.0% 2019 f 2.6% 6% 2020 f 1.3% 4% 2% 0% -2% -4% -6% -8% -10% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.

30 30-Year Fix ixed Rate Mort rtgage and 10-Year Treasury ry Rates will rise due to Fed policy and tight labor markets 12% 12% 10% 30-Year Fixed Rate Mortgage 10% October 31, 2016 8% 8% 6% 6% 10-Year Treasury 4% 4% Mortgage Risk Premium (Difference) 2% 2% 0% 0% 90 91 92 93 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 19 20 Source: Federal Reserve and Freddie Mac data and NAHB forecast.

Risi ising Popula latio ion Enteri ring Housin ing Demand Years Millions 5.0 Headship rates increase from 15% to 45% v Avg=4.3 4.5 4.0 3.5 Silent 3.0 Greatest Generation: Generation: Born 1928-1945 2.5 Born Before 1928 2.0 1.5 1.0 Gen Z: Millennials: Gen X: Baby Boomers: Born After 1997 Born 1981-1997 Born 1965-1980 Born 1946-1964 0.5 0.0 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100+

Supply-Side Factors

Bu Build ildin ing Materia ials ls – Lu Lumber Pric rices Since January 2017, lumber prices decreased 5%; 63% at peak $ per thousand board feet $600 582 $550 $500 $450 1/6/2017, 357 $400 $350 $300 11/16/2018, 340 $250 2015 2016 2017 2018 Source: NAHB Analysis; Random Lengths Composite Index.

Resid sidentia ial l Co Constructio ion Emplo loyment Co Contin inues to Grow Employment gain of 873,500 since 2011; 175,900 increase since 2017 Employment, Thousands 4000 25% Residential Builders Residential Specialty Trade Contractors Construction Unemployment Rate 3500 20% 3000 2500 15% 2000 10% 1500 1000 5% 500 0 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Bureau of Labor Statistics (BLS).

La Labor Elevated count of unfilled construction jobs 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 17 18 Source: U.S. Bureau of Labor Statistics (BLS).

Labor Force Changing labor force Millions 70 1.00 0.90 College Graduates 60 0.80 High School Graduate 50 0.70 0.60 40 0.50 30 0.40 Associate Degree and Other Two Year Programs 0.30 20 0.20 10 Did Not Finish High School 0.10 0 - 92 93 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 Source: U.S. Bureau of Labor Statistics (BLS).

Construction Sect ctor Productivity Lagging overall economy Index, 1993 = 1 1.6 Construction Worker Productivity Overall Worker Productivity 1.4 1.2 1.0 0.8 0.6 0.4 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: U.S. Bureau of Labor Statistics (BLS).

Le Lendin ing – AD&C Access Loans growing but at a slower rate Millions $200,000 20% 1-4 unit Residential Construction Loans $180,000 18% Year-over-Year Growth Rates $160,000 16% $140,000 14% $120,000 12% $100,000 10% $80,000 8% $60,000 6% $40,000 4% $20,000 2% $- 0% 07 08 09 10 11 12 13 14 15 16 17 18 Source: Federal Deposit Insurance Corporation.

Lo Lots ts 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 17 18 Source: Census Bureau and NAHB/Wells Fargo HMI survey.

Median Lot t Value and Siz ize Lot size declining --- lot value increasing Square Feet 9,800 $55,000 9,600 Median Lot Value $50,000 $47,400 (Single-Family Starts) 9,400 $45,000 9,200 $40,000 9,000 $35,000 8,800 $30,000 Median Lot Size (For Sale: Single-Family Detached) 8,600 $25,000 8,560 8,400 $20,000 8,200 $15,000 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: 2017 Survey of Construction (SOC) and NAHB Economics Estimates.

Regula latory ry Co Costs Risi ising – Up 29% over r 2011-2016 Total effect of building codes, land use, environmental and other rules

Regula latio ions - 32% of f Multif ltifamil ily Develo lopment Co Costs NAHB-NMHC research Government Regulations as a Share of Multifamily Development Costs 42.6%* Cost increases from changes to building 7.1% codes over the past 10 years 32.1% Development requirements that go beyond 8.4% the ordinary 7.0% Fees charged when building construction is authorized 5.4% 5.9% Cost of applying for zoning approval 5.3% 3.9% Other (non-refundable) fees charged when 21.7%* 4.0% 5.5% site work begins 5.2% Cost of complying with OSHA requirements 4.2% 2.3% 2.3% 7.3% Others 4.8% Lower Quartile Average Upper Quartile Note: * For quartiles, all types of costs do not sum to the total. Source: NAHB/Wells Fargo HMI survey.

Construction Outlook

NAHB/Well lls Fargo Housin ing Mark rket In Index Declining builder confidence as housing affordability issue expands Index Thousands, SAAR 80 2,000 1,800 70 HMI 1,600 60 60 1,400 50 1,200 Single-Family Starts 40 1,000 800 30 600 20 400 10 200 0 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: U.S. Census Bureau and NAHB/Wells Fargo HMI survey.

Sin Single le-Famil ily St Start rts Slowing growth ahead Thousands of units, SAAR 1,343,000 “Normal” 2000-2003 2,000 2015 713,000 1,800 2016 785,000 10% 2017 852,000 9% 1,600 2018 884,000 4% 2019 917,000 4% 2020Q4: 1,400 2020 933,000 2% 69% of “Normal” 1,200 2018Q3: 65% of 80% fall “Normal” 1,000 800 Trough to Current: 600 Mar 09 = 353,000 400 Oct 18 = 865,000 +145% 200 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: U.S. Census Bureau (BOC) and NAHB Forecast.

Growth in in Sin Single le-Famil ily Perm rmit its September 2018 YTD vs. September 2017 YTD Rank Decline in Growth rate Growth rate < U.S. Growth rate ≥ U.S. Source: U.S. Census Bureau (BOC).