Vir iral Recession and Housing Home Builders Association of - PowerPoint PPT Presentation

Vir iral Recession and Housing Home Builders Association of Virginia April 14, 2020 Robert Dietz, Ph.D. NAHB Chief Economist

Vir iral l Uncertain inty Hard to model the effects of a virus outbreak Virus: no vaccine, easily spread, severity rate 2-months, 2-quarters, and 2-years Stock market declines Supply-chain impacts Declining consumer confidence Sharp mid-year decline, bounce back after

Two-Month Co Consid ideratio ions Event, school and business closures Test for the @home economy Consumption: 40% goods economy; 60% services (half social) Hospital limits (beds and machines) – flatten the curve Economy pause is only a pause to ramp up medical infrastructure Medically-induced coma for the economy (recession) Home building and remodeling as “essential services”

Flatten the Curve….But Raise the Line Too!!!

Two-Quarter Consid ideratio ions Virus cases subside Financial markets stabilize Terrible 2Q, decline in 3Q, rebound in 4Q Aggressive fiscal policy Federal Reserve finances restoration and recovery Spring forward after the Fall

Two-Year r Co Consid ideratio ions Vaccine Interest rate normalization (low until then) Baby boom??? Checkerboard pauses? Changes for how we live?

GDP Growth – Sh Sharp Recess ssio ion Virus mitigation will bring on a significant recession with declines in Q1, Q2 and Q3 Q/Q Percent Change, SAAR 15% 10% 5% 0% -5% Annual Growth LT avg (‘58 - ’07) 3.4% 2018 2.9% -10% 2019 2.3% 2020 f -4.6% -15% 2021 f 4.6% 2022 f 3.2% -20% -25% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.

Su Sudden La Labor r Mark rket Reversal Unemployment is rising sharply but starts recovery during second half of 2020 Percent, SA Percent, SA 5.0% 14% 4.5% Unemployment Rate 12% 4.0% 10% 3.5% 3.0% 8% 2.5% 6% 2.0% Job Openings Rate 4% 1.5% 1.0% 2% 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.

Fed Funds Rate – Fed All ll In In on Su Supportin ing Economy Lender and buyer of last resort 10% 10% 9% 9% 10-Year Treasury 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% Federal Funds – Top Rate 2% 2% 1% 1% 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: U.S. Board of Governors of the Federal Reserve System (FRB).

30 30-Year Fix ixed Rate Mort rtgage and 10-Year Treasury ry Low interest rates thanks to aggressive Federal Reserve action 12% 12% October 31, 10% 30-Year Fixed Rate Mortgage 10% 2016 8% 8% 6% 6% 4% 4% 10-Year Treasury 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 21 22 Source: Federal Reserve and Freddie Mac data and NAHB forecast.

Consumer Confid idence Dropped Sh Sharply ly in in March Declines ahead Index 1985=100, SA 1 160 0.9 140 0.8 120 0.7 100 0.6 0.5 80 0.4 60 0.3 40 0.2 20 0.1 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: The Conference Board.

Supply-Side Factors

Viru irus Rela lated Bu Busin iness Ch Chall llenges Source: NAHB Survey

NAHB/Well lls Fargo HMI I Sp Specia ial l Analy lysis is 21% builders report supply disruptions due to coronavirus concerns in other countries Yes to a major extent 1% Yes to a minor extent 20% No 79% 0% 20% 40% 60% 80% 100% Source: NAHB/Wells Fargo HMI Survey, Special Analysis, March 2020.

Sh Share of f Bu Build ildin ing Materia ials ls Im Imports in in 2019 Totally $65 billion imports in 2019 and 31% from China China Mexico 15.2% 1.6% Canada 2.1% 31.0% Taiwan 2.2% Germany 2.7% Japan 3.5% South Korea 3.7% Thailand 6.0% Italy 16.1% 16.0% Brazil Others Source: NAHB Analysis of U.S. International Trade Commission data.

Build ildin ing Materia ials ls – Lumber Pric rices Lumber prices rose 63% to a peak from January 2017; declined 13% since January 2018 $ per thousand board feet $600 582 $550 $500 $450 $400 1/5/2018, 436 $350 3/27/2020, 381 $300 $250 2015 2016 2017 2018 2019 2020 Source: NAHB Analysis; Random Lengths Composite Index

Residential Construction as an “Essential” Business: April 9 Source: NAHB; https://www.nahb.org/Advocacy/Industry-Issues/Emergency-Preparedness-and-Response/Coronavirus-Preparedness/Stay-on-the-Jobsite

NAHB/Well lls Fargo Housin ing Mark rket In Index (H (HMI) I) Sharp drop for HMI in April Index Thousands, SAAR 80 1,200 HMI 70 1,000 72 60 800 50 40 600 30 400 Single-Family Starts 20 200 10 0 0 2013 2014 2015 2016 2017 2018 2019 2020 Source: Census Bureau and NAHB/Wells Fargo HMI survey

Construction Outlook

Multi ltifamil ily Housin ing St Starts Sharp decline and a return to trend Thousands of units, SAAR Year Units % Change 550 2017 357,000 -9% 2018 377,000 6% 500 2019 404,000 7% 2020 f 356,000 -12% 450 2021 f 406,000 14% Avg=344,000 400 2022 f 411,000 1% 350 300 250 76% fall 200 Trough to Current: 150 4 th Q 09 = 82,000 100 4 th Q 19 = 470,000 +474% 50 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: U.S. Census Bureau (BOC) and NAHB forecast

Resid sidentia ial l Remodeli ling Remodeling market weakening along with other housing metrics, existing home sales Billions, USD, SAAR 250 Year Percent Change 2017-2019 Avg 5% 2020 f -9% 200 2021 f Actual 9% 2022 f 4% 150 100 Adjusted 50 0 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 21 22 Source: U.S. Census Bureau (BOC) and NAHB forecast Note: In the analysis, 1-year moving average is used for adjusted data to smooth the trend

Sin Single le-Famil ily St Start rts Sharp declines in the near-term due to coronavirus mitigation efforts Thousands of units, SAAR Year Units % Change 2,000 2017 852,000 8% 2018 873,000 2% 1,800 2019 894,000 2% 1,600 2020 f 728,000 -19% 2021 f 923,000 27% 1,400 2022 f 1,018,000 10% 1,200 80% fall 1,000 800 Trough to Current: 600 Mar 09 = 353,000 400 Feb 20 = 1,072,000 +204% 200 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: U.S. Census Bureau (BOC) and NAHB forecast

Sin Single le-Famil ily St Start rts by Decade: : Popula latio ion Adju justed Starts per Million Population (averaged) 60,000 53,138 47,998 50,000 41,588 41,710 41,671 40,000 30,000 21,288 20,000 10,000 0 1960s 1970s 1980s 1990s 2000s 2010s Source: Census Bureau and NAHB analysis

New NAHB Home Buil ildin ing Geography In Index 60.9% of single-family construction takes place in Red Counties Red counties represent 45.3% of U.S. population Q4 2019 4-Quarter MA of YOY growth rate: 1.9% in red counties -1.4% in blue counties Source: NAHB Analysis of Census data (Building Permits)

New NAHB Home Buil ildin ing Geography In Index 68.2% of multifamily construction takes place in Blue Counties Blue counties represent 54.7% of U.S. population Q4 2019 4-Quarter MA of YOY growth rate: 24.3% in red counties 7.2% in blue counties Source: NAHB Analysis of Census data (Building Permits)

Economic ic/Housin ing Conclu lusio ions Currently modeling an 8 week pause for the economy High level of fear – calm and perspective are needed Virus spread will end Baby boom??? Keep in mind the 2-month, 2-quarter, 2-year targets Very weak mid-year economic performance, bounce back after

Thank you Questions? rdietz@nahb.org @dietz_econ eyeonhousing.org housingeconomics.com