Economic and Housing Outlook Home Builders Association of Virginia - - PowerPoint PPT Presentation

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Economic and Housing Outlook Home Builders Association of Virginia - - PowerPoint PPT Presentation

Aug 23, 2022 186 likes •680 views

Economic and Housing Outlook Home Builders Association of Virginia June 22, 2018 Robert Dietz, Ph.D. NAHB Chief Economist Housin ing Mark rket Growin ing; ; Sin Single le-Famil ily La Lags Tax reform changes Macroeconomics

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Economic and Housing Outlook

Home Builders Association of Virginia June 22, 2018 Robert Dietz, Ph.D. NAHB Chief Economist

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SLIDE 2

Housin ing Mark rket Growin ing; ; Sin Single le-Famil ily La Lags

  • Tax reform changes
  • Macroeconomics post-tax reform
  • Signs of growth momentum
  • Signs of a future slowdown
  • Housing demand and affordability
  • Demographics positive
  • Supply-side headwinds
  • State-level economic measures
  • Forecasts
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SLIDE 3

Macroeconomics Post-Tax Reform

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SLIDE 4

Tax Reform rm – Poli licy Ch Changes and Im Impacts

  • Economic impacts
  • GDP
  • Marked up 2018 forecast to 2.7%
  • Dynamic scoring model suggests 0.8% more GDP after 10 years
  • Business investment
  • 1.1% higher after ten years
  • Labor supply and employment
  • 0.6% higher
  • 0.9 million more workers in labor force
  • Reduced home price growth to a positive 2.9% growth rate in 2018
  • Incoming data shows no such effect
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SLIDE 5

Tax Reform rm Boosts Potentia ial l GDP

Source: Congressional Budget Office. 100 200 300 400 500 600 700 800 2,500 5,000 7,500 10,000 12,500 15,000 17,500 20,000 22,500 25,000 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27 Difference June, 2017 April, 2018 Billions, 2009 USD Billions USD

Added economic efficiencies yield more room to grow

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SLIDE 6

Tax Cu Cuts Help lp Disp isposable le In Income Growth

Billions, 2009 USD, SAAR Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast. 8,000 9,000 10,000 11,000 12,000 13,000 14,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

2.4% annual growth rate 2.1% annual growth rate

Bonuses and wage growth will drive gains

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GDP Growth

Stronger growth expected post-tax reform

Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.

  • 10%
  • 8%
  • 6%
  • 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 Q/Q Percent Change, SAAR Annual Growth LT avg (‘58-’07) 3.4% 2016 1.5% 2017 2.3% 2018f 2.9% 2019f 2.7% 2020f 1.8%

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SLIDE 8

Expansion is is Aging

Current expansion is 108 months old – second longest

106 92 120 73 20 40 60 80 100 120 Dec 1854 Dec 1858 Jun 1861 Dec 1867 Dec 1870 Mar 1879 May 1885 Apr 1888 May 1891 Jun 1894 Jun 1897 Dec 1900 Aug 1904 Jun 1908 Jan 1912 Dec 1914 Mar 1919 Jul 1921 Jul 1924 Nov 1927 Mar 1933 Jun 1938 Oct 1945 Oct 1949 May 1954 Apr 1958 Feb 1961 Nov 1970 Mar 1975 Jul 1980 Nov 1982 Mar 1991 Nov 2001 Trough to Peak, Months Source: The National Bureau of Economic Research (NBER).

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Labor Force Part rtic icip ipatio ion Rate

Improving labor force participation key to future growth

Source: U.S. Bureau of Labor Statistics (BLS). 78% 79% 80% 81% 82% 83% 84% 85% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 59% 60% 61% 62% 63% 64% 65% 66% 67% 68% Percentage, SA

Overall Age 25-54

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Tig Tight La Labor Mark rket

Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast. 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Job Openings Rate Unemployment Rate

Percent, SA Percent, SA

How low can unemployment go?

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Cu Cumula lativ ive Ch Change in in Emplo loyment by Age Group

  • 10
  • 5

5 10 15 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Millions of Employees, SA

55 and Older Under 55

Source: U.S. Bureau of Labor Statistics (BLS).

Mind the Gen-X gap

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Government Defic ficit its Growin ing

Post-tax reform deficits add up to 30 basis points to 10-year Treasury rate

Source: U.S. Treasury Department and Bureau of Economic Analysis (BEA) and NAHB forecast.

  • 10%
  • 8%
  • 6%
  • 4%
  • 2%

0% 2% 4%

  • 1.6
  • 1.2
  • 0.8
  • 0.4

0.0 0.4 0.8 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 Government Deficit (End of Fiscal Year) Government Deficit as a Share of GDP (End of Fiscal Year) $ Trillion Share of GDP, Percent

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30 30-Year Fix ixed Rate Mort rtgage and 10-Year Treasury ry

Rates will rise due to Fed policy and tight labor markets

Source: Federal Reserve and Freddie Mac data and NAHB forecast. 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% 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

October 31, 2016

30-Year Fixed Rate Mortgage 10-Year Treasury Mortgage Risk Premium (Difference)

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SLIDE 14

Housing Demand and Affordability

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Ris ising Population Entering Housing Demand Years: 2017

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 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+ Avg=4.3 Millions Gen Z: Born After 1997 Gen X: Born 1965-1980 Baby Boomers: Born 1946-1964 Silent Generation: Born 1928-1945

v

Headship rates increase from 15% to 45% Greatest Generation: Born Before 1928 Millennials: Born 1981-1997

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Consumer Debt

151%

80%

97% 226% 95%

1 2 3 4 5 6 7 8

0% 50% 100% 150% 200% 250% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Auto Loans Student Loans Credit Cards Other

Rise in student and auto loans

Source: Federal Reserve Bank of New York.

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Exi xistin ing Home Sa Sale les

2 4 6 8 10 12 14 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Existing Home Sales: Single-Family & Condo & Co-op, (Ths., SAAR) Number of homes available for sale: Single-Family & Condo & Co-op, (Ths., NSA) Thousands Months’ Supply (Months, NSA)

Months’ Supply Existing Home Sales Existing Home Inventory

Low inventory

Source: National Association of Realtors (NAR).

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S& S&P/C /Case-Shil ille ler Natio ional l US S Home Pric rice In Index

Source: S&P Dow Jones Indices LLC; CoreLogic, Inc. and NAHB forecast.

Prices growing faster than income

  • 20
  • 15
  • 10
  • 5

5 10 15 20 87 88 89 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 Percent Growth, SAAR

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Housin ing Affordabil ilit ity – NAHB/W /Well lls Fargo HOI

Source: NAHB/Wells Fargo Housing Opportunity Index.

78 62

20 30 40 50 60 70 80 90 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

National

Affordability declining

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Sim Simula latin ing Futu ture Affordabil ilit ity Co Condit itio ions

Source: NAHB/Wells Fargo Housing Opportunity Index. 78 62 Q2 2019, 56, with 5% mortgage rate 20 30 40 50 60 70 80 90 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 Q1_19 Q1_20

National

Distribution of MSAs by change in the HOI using forecast prices, income, and interest rates

Declines of more than 10% 37% Declines of 5 to 10% 25% No change to 4% decline 36% Gain of 1 to 5% 1%

HOI declines due to higher rates and costs/prices despite rising incomes

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Supply-Side Headwinds

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Build ildin ing Materia ials ls – So Softwood Lumber

263

150 170 190 210 230 250 270 2012 2013 2014 2015 2016 2017 2018 Index 1982=100, NSA Source: U.S. Bureau of Labor Statistics (BLS).

Since January 2017, Random Lengths Framing Composite Price Index up 63%

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La Labor

Elevated count of unfilled construction jobs

  • 0.10

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Job openings rate - Construction 12-month moving average Source: U.S. Bureau of Labor Statistics (BLS).

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Construction Sect ctor Productivity

Lagging overall economy

0.4 0.6 0.8 1.0 1.2 1.4 1.6 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 Construction Worker Productivity Overall Worker Productivity Index, 1993 = 1

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SLIDE 25

Regula latory ry Co Costs Risi ising – Up 29% Over La Last 5 Years

Total effect of building codes, land use, environmental and other rules

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SLIDE 26

Regula latio ions - 32% of f Multif ltifamil ily Develo lopment Co Costs

4.8% 7.3% 2.3% 2.3% 4.2% 5.5% 4.0% 5.3% 3.9% 5.4%

5.9% 8.4% 5.2% 7.0% 7.1%

Lower Quartile Average Upper Quartile

Cost increases from changes to building codes over the past 10 years Development requirements that go beyond the ordinary Fees charged when building construction is authorized Cost of applying for zoning approval Other (non-refundable) fees charged when site work begins Cost of complying with OSHA requirements Others 21.7%* 32.1% 42.6%*

Government Regulations as a Share of Multifamily Development Costs

Note: * For quartiles, all types of costs do not sum to the total. Source: NAHB/Wells Fargo HMI survey.

New NAHB-NMHC research

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SLIDE 27

A Local Look

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Virginia GDP Growth

  • 8%
  • 6%
  • 4%
  • 2%

0% 2% 4% 6% 8% 05 06 07 08 09 10 11 12 13 14 15 16 17 Q/Q Percent Change (annualized), SAAR

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SLIDE 29

309,338 311,644 313,993 316,235 318,623 321,040 323,406 325,719 8,025 8,108 8,189 8,262 8,317 8,367 8,414 8,470

7,800 7,900 8,000 8,100 8,200 8,300 8,400 8,500 8,600 2010 2011 2012 2013 2014 2015 2016 2017 300,000 305,000 310,000 315,000 320,000 325,000 330,000 IUSA Virginia Thousands Thousands

2010 2011 2012 2013 2014 2015 2016 2017 U.S.

0.8% 0.7% 0.8% 0.7% 0.8% 0.8% 0.7% 0.7%

Virginia

1.3% 1.0% 1.0% 0.9% 0.7% 0.6% 0.6% 0.7%

Popula latio ion Growth

Virginia population grew slower in recent years

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Payroll ll Emplo loyment

Virginia above pre-recession peak

3,789

3,300 3,400 3,500 3,600 3,700 3,800 3,900 4,000 4,100 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Thousands, SA

105% 95%

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Exi xistin ing House Pric rice In Index

Virginia below pre-recession peak

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 100 120 140 160 180 200 220 2000Q1 = 100, SA

United States

Relative to Pre-recession Peak US Virginia Recession-era Low 81% 83% Current 110% 98%

Virginia

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Forecasts

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Household ld Form rmatio ion

  • 1,000
  • 500

500 1,000 1,500 2,000 Y/Y Change in Household Count, Thousands, NSA

Owner-Occupied

  • 1,000
  • 500

500 1,000 1,500 2,000 2,500 2010 2011 2012 2013 2014 2015 2016 2017 2018

Renter-Occupied

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.

Demand for home ownership strengthening

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Homeownership ip Rate

69.4% 64.2%

  • 0.10

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

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NAHB/Well lls Fargo Housin ing Mark rket In Index

70

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 10 20 30 40 50 60 70 80 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Index Thousands, SAAR

Single-Family Starts HMI

Nearly two-decade high for builder confidence

Source: Census Bureau and NAHB/Wells Fargo HMI survey.

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200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Thousands of units, SAAR

80% fall

2018Q1: 66% of “Normal” 2020Q4: 76% of “Normal” 2000-2003 1,343,000 “Normal” 2015 713,000 2016 785,000 10% 2017 852,000 9% 2018 910,000 7% 2019 959,000 5% 2020 1,003,000 5%

Sin Single le-Famil ily St Start rts

Modest growth ahead

Trough to Current: Mar 09 = 353,000 Apr 18 = 894,000 +153%

Source: Census Bureau and NAHB forecast.

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% M I N V I L A Z M N C O C A F L G A O H I N M O W I N H C T R I O R N J M D I D K Y U T A K K S M A V T N M N C M E H I V A N Y P A T N I A W V W A D C N E D E S C S D M S N D A R T X A L O K M T L A W Y Current Trough Housing Starts / Average 2000-03 Starts

US

Sin Single le Family ily Housin ing St Starts– Trough and Current

Source: Census Bureau.

National average single family starts bottomed out at 27% in early 2009 and reached 66% of normal in 2018Q1.

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Sin Single le-Famil ily Build ildin ing Perm rmit its – Vir irgin inia ia

49,959 15,625 22,497

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 10,000 20,000 30,000 40,000 50,000 60,000 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 Number of Units Source: U.S. Census Bureau (BOC).

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Sin Single le Family ily Perm rmit its 12-Months Growth Rate

Blacksburg- Christiansburg- Radford, VA Charlottesville, VA Harrisonburg, VA Lynchburg, VA Richmond, VA Staunton- Waynesboro, VA Virginia Beach-Norfolk-Newport News, VA-NC Washington- Arlington-Alexandria, DC-VA-MD-WV Winchester, VA-WV

Rank

Growth Rate < 0 0 < Growth Rate < U.S. Growth Rate > U.S. Kingsport-Bristol- Bristol, TN-VA

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SLIDE 40

Home Pric rices of New and Exi xistin ing Homes

Wide gap since 2012

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $0 $60,000 $120,000 $180,000 $240,000 $300,000 $360,000 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 Median Sales Price Difference

1990-2008 Avg: $20,000

New Homes Existing Homes

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SLIDE 41

Typic ical l New Home Siz Size

1600 1700 1800 1900 2000 2100 2200 2300 2400 2500 2600 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

SF Starts: Median Floor Area SF Starts: Median 1 Year MA

Square Feet

Decline after market shift

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SLIDE 42

Townhouse Mark rket Exp xpandin ing

0% 2% 4% 6% 8% 10% 12% 14% 16% 10 20 30 40 50 60 70 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 SF Starts: Attached Townhouse Share: 1-Year Moving Average Thousands, NSA

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Multi ltifamil ily Housin ing St Starts

Leveling off

1995-2003 331,000 “Normal” 2015 394,000 2016 393,000 0% 2017 356,000

  • 9%

2018 377,000 6% 2019 354,000

  • 6%

2020 351,000

  • 1%

Source: Census Bureau and NAHB forecast 50 100 150 200 250 300 350 400 450 500 550 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Trough to Current: 4th Q 09 = 82,000 1st Q 18 = 427,000 +421%

2018Q1: 129% of “Normal” Thousands of units, SAAR

76% fall Avg=344,000

2020Q4: 105% of “Normal”

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National average multifamily starts bottomed out at 25% in late 2009 and were 129% of normal in 2018Q1.

Multi ltifamil ily Housin ing St Starts – Trough and Curr rrent

Source: Census Bureau.

  • 25%

0% 25% 50% 75% 100% 125% 150% 175% 200% 225% M I A Z N V C O A K G A I D O R N M R I F L S C O H M T N E I L W I C A W A M N M S K S K Y H I I N O K T X I A W V P A T N M O W Y L A U T N C M D N Y A L V T M E V A A R S D M A N D N H D C N J C T D E Current Trough Housing Starts / Average 1995-2003 Starts

US

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Multi ltifamil ily Build ildin ing Perm rmit its – Vir irgin inia ia

14,230 4,843 11,263

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 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 Number of Units Source: U.S. Census Bureau (BOC).

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SLIDE 46

Resid sidentia ial l Remodeli ling

Strong market conditions

25 50 75 100 125 150 175 200 225 250 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 Billions, SAAR

Adjusted Actual

Year Percent Change 2016 11% 2017 17% 2018f 7% 2019f 8% 2020f 6%

Source: Census Bureau and NAHB forecast.

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SLIDE 47

Th The Age of f th the Housin ing St Stock

Typical home is almost 40 years old

32% 12% 16% 15% 17% 9% 38% 15% 13% 15% 16% 3%

45 years old or more 35-45 25-35 15-25 5-15 5 years old or less 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2005 2015

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Thank you

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