Ec Economic Update: Partly y Sunny y with Headwinds NAHB - PowerPoint PPT Presentation

Ec Economic Update: Partly y Sunny y with Headwinds NAHB Building Systems Council October 10th, 2017 Robert Dietz, Ph.D. NAHB Chief Economist

Hurricane E Hu e Effec ects ts Local impacts but smaller national effects Annual GDP Growth 8% New Orleans Louisiana US 6% 4% 2% 0% BP OIL SPILL KATRINA -2% -4% -6% -8% -10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Hu Hurricanes a es and S Sof oftw twood ood L Lumber er P Prices es Small positive effects – larger drivers are economic cycles and trade policy 300 50 45 250 40 35 200 30 150 25 20 100 15 10 50 5 0 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Recessions All Hurricanes PPI: Lumber and wood products - Softwood lumber, (Index 1982=100, NSA)

Hu Hurricanes a es and R Roof oofing M Mater erials Asphalt shingles are tied to oil prices 300 50 45 250 40 35 200 30 150 25 20 100 15 10 50 5 0 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Macro Outlook

GD GDP Gr Growth Curb Your Enthusiasm Annual Growth LT avg (‘58-’07) 3.4% Q/Q Percent Change, SAAR 10% 2015 2.9% 2016 1.5% 8% 2017 f 2.2% 2018 f 2.3% 6% 2019 f 1.9% 4% 2% f f 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

Re Recession In Indicator or Using Conference Board and bond spreads Composite Index of Leading Indicators, (Index 2010=100, SA) Basis Points 20% 400 15% 300 10% 200 5% 100 0% 0 -5% -100 -10% -200 -15% -300 4 Quarter Change -20% -400 10Yr-3M Treasury Spread -25% -500 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Pr Probability of US Recession Rates suggest recession probability small for 2018 100% 90% Aug 2018 = 9.9858% 80% 70% 60% 50% 40% 30% 20% 10% 0% 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Ti Tight Labor r Ma Mark rket Rise of unfilled jobs Percent, SA Percent, SA 4.5% 12% Unemployment Rate 4.0% 10% 3.5% 8% 3.0% 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

Av Average Hourly Wages Wages growing slowly Y/Y Percent Change, SAAR 4.0% 3.5% 3.0% 2.5% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 03/2007 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 03/2014 03/2015 03/2016 03/2017

Interest Rates and Demand

Ta Target Federal Fu Funds Rate Fed will continue to raise rates 8% 7.0% 7% 6.5% 6% 5.5% 5.5% 5.5% 5.5% 5.3% 5.3% 4.8% 5% 4.3% 4.3% 4.0% 4% 3.0% 3.0% 3% 2.4% 2.3% 1.9% 1.8% 2% 1.3% 1.1% 1.0% 1% 0.6% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.2% 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

Federal Reserve Balance Sheet Fe Reduction in balance starts October 2017 Federal Reserve Balance Sheet ($Tr.) $5.0 50% $4.5 45% $4.0 40% Agency- and GSE-MBS $3.5 35% Share $3.0 30% $2.5 25% $2.0 20% $1.5 15% $1.0 10% US Treasury Securities $0.5 5% All Else $0.0 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

30 30-Ye Year Fixed Rate and 10-Ye Year Treasury Rates will rise due to Fed and if growth prospects improve 12% 12% October 31, 10% 30-Year Fixed Rate Mortgage 10% 2016 8% 8% 6% 6% 10-Year Treasury 4% 4% 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

Hou Househ sehol old B Balance S e Shee eets: ts: L Loa oan-to to-Va Value Ratio Aggregate market risk remains contained Percent Trillions 100% $16 Owners' equity in real estate 90% $14 80% $12 70% The Share of owners' equity in real estate $10 60% 50% $8 40% $6 30% $4 20% Loan-to-value (LTV) Ratio $2 10% 0% $- 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Co Consumer Debt Rise in student and auto loans 250% 8 220% 7 Student Loans 200% 6 147% 5 Auto Loans 150% Other 4 100% 3 92% 2 Credit Cards 50% 1 0% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Househ Hou sehol old F For ormati tion on 1,500 Y/Y Change in Household Count, Thousands, NSA Owner-Occupied 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 Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership Rates.

Building Data

Mo Modular r Homes Start rted in 2016 U.S. Total: 15,140 80% east of the Mississippi Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Ma Mark rket Penetration of Mo Modular r Constru ruct ction by Di Division Modular Share of All Single-family Homes Started in 2016 8.2% U.S. Overall: 15,140/779,082= 1.9% 5.5% 3.4% 2.7% 2.1% 1.4% 0.8% 0.5% 0.2% New Middle East North East South South West North Mountain West South Pacific England Atlantic Central Central Atlantic Central Central Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Pa Panelized/Precut Homes Started in 2016 U.S. Total: 12,058 60% in 3 Eastern Divisions Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Ma Mark rket Penetration of Pa Panelized Co Construction by by Division Panelized/Precut Share of All Single-family Homes Started in 2016 4.5% U.S. Overall: 12,058/779,082 = 1.5% 2.2% 1.8% 1.2% 1.0% 1.0% 1.0% 0.9% 0.6% Middle South Pacific West North East South New East North Mountain West South Atlantic Atlantic Central Central England Central Central Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

2016 S 2016 Single-fa family Starts Inside and Outside Metro Ar Areas Site Built Modular Panelized 67,396 1,409 6,882 8,243 10,637 681,451 In a Metropolitan Statistical Area (MSA) Not In a MSA Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Siz Size of New ew Homes St Star arted d in in 2016 2016 Median Square Footage of Finished Floor Space 2,847 2,430 1,728 Site Built Modular Panelized/Precut Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Foundation Ty Fo Type Single-family Homes Started in 2016 Full or Partial Basement Crawl Space Slab Other 1% 1% 17% Large share of modular 43% and panelized 15% 57% new homes in northeastern divisions 26% where 15% basements are common 15% 42% 42% 27% National Modular Panelized/Precut Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Bu Builders Cu Currently y Using Various Co Construction Methods Timber Frame 12% Whole House Panelization 7% Whole House Concrete 4% Modular 3% Log Home 1% Source: Survey for the NAHB/Wells Fargo Housing Market Index (HMI), September 2015

Bu Builders Cu Currently y Using Pre-fa fabricated Components Engineered roof trusses 95% Wall panels 13% SIP's 9% Floor panels 6% Other pre-fabricated components 9% Source: Survey for the NAHB/Wells Fargo Housing Market Index (HMI), September 2015

Po Potential Single-fa family Market Single-family Builders Currently Using or Likely to Use… 23% Somewhat Likely 21% Extremely Likely Currently Using 6% 14% 12% 3% 11% 8% 6% 2% 6% 12% 5% 2% 2% 7% 4% 2% 3% 1% Timber Frame Whole House Whole House Modular Log Home Panelization Concrete Source: Survey for the NAHB/Wells Fargo Housing Market Index (HMI), September 2015

Po Potential Single Family Market by Size of Builder Builders Currently Using or Likely to Use… 36% <25 Starts 35% 25-99 Starts 100+ Starts 25% 18% 18% 15% 14% 13% 10% 9% 8% 8% 6% 5% 3% Timber Frame Whole House Whole House Modular Log Home Panelization Concrete Source: Survey for the NAHB/Wells Fargo Housing Market Index (HMI), September 2015

Se Sele lected d Reas asons ns for Not Us Using ing Modular dular Cons nstruc uctio ion By Size of Builder < than 25 Starts 43% 25 to 99 Starts 36% 100+ Starts 29% 15% 14% 10% Insufficient manufacturing capacity to supply needed Worried about cost and reliability of delivery components Source: Survey for the NAHB/Wells Fargo Housing Market Index (HMI), September 2015

Se Sele lected d Reas asons ns for Not Us Using ing Pane aneliz lized d Cons nstruc uctio ion By Size of Builder 38% 37% < than 25 Starts 25 to 99 Starts 100+ Starts 25% 22% 17% 13% Insufficient manufacturing capacity to supply needed Think it costs too much components Source: Survey for the NAHB/Wells Fargo Housing Market Index (HMI), September 2015

Ce Census Data on Co Construction Time Average Time from Start to Completion for Single-family Homes Completed in 2016 6.6 months 5.8 months 5.1 months Site built Modular Panelized/Precut Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.

Supply-Side Issues