Rising Ris isks for th the Housing Outlook LMC Forest Products - PowerPoint PPT Presentation

Rising Ris isks for th the Housing Outlook LMC Forest Products & Building Materials Expo October 24, 2018 Danushka Nanayakkara, NAHB AVP, Forecasting and Analysis

Economic ic and Housin ing Outl tlook  Tax Reform – Economic impact  Macroeconomic update  Housing demand and affordability  Supply-side factors update  Forecasts

Tax Reform rm – Poli licy Ch Changes and Im Impacts • Economic impacts • GDP • Marked up 2018 forecast to 3.0% • Estimated contribution to GDP after 10 years - $300 billion • Business investment • 1.1% higher after ten years • Labor supply and employment • 0.6% higher • 900,000 more workers in labor force

Macroeconomics

GDP Growth Stronger growth expected post-tax reform Annual Growth LT avg (‘58 - ’07) 3.4% Q/Q Percent Change, SAAR 10% 2016 1.6% 2017 2.2% 8% 2018 f 2.9% 2019 f 2.6% 6% 2020 f 1.8% 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.

Regional Real GDP Growth Percent Change, SAAR 8 4 6 3 4 2 2 1 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -2 -1 New England Mideast Great Lakes -4 -2 Plains Southeast Southwest -6 -3 Rocky Mountain Far West United States Source: U.S. Bureau of Economic Analysis (BEA)

100 120 20 40 60 80 0 Current expansion is 113 months old – second longest Exp xpansio Trough to Peak, Months Source: National Bureau of Economic Research (NBER). Dec 1854 Dec 1858 Jun 1861 Dec 1867 ion is Dec 1870 Mar 1879 is Agin May 1885 Apr 1888 ing 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 106 Feb 1961 Nov 1970 Mar 1975 Jul 1980 92 Nov 1982 120 Mar 1991 73 Nov 2001

US S Payroll ll Emplo loyment Millions 10.0% 149 9.0% 145 8.0% 108 % 7.0% 141 6.0% 138.4 +1% 5.0% 137 - 6% 4.0% 133 3.0% -2% Payroll Employment 2.0% 129 94% 1.0% 125 0.0% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Labor Statistics (BLS).

Tig Tight La Labor Mark rket How low can unemployment go? Percent, SA Percent, SA 5.0% 12% 11% 4.5% Unemployment Rate 10% 4.0% 9% 3.5% 8% 3.0% 7% 6% 2.5% 5% 2.0% 4% Job Openings Rate 1.5% 3% 1.0% 2% 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.

Labor Force Part rtic icip ipatio ion Rate Improving labor force participation key to future growth Percentage, SA 85% 68% 67% 84% 66% Overall 83% 65% 82% 64% Age 25-54 63% 81% 62% 80% 61% 79% 60% 78% 59% 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).

Payroll ll Emplo loyment Western and Southern Regions above national level M/M Percent Change (annualized), SAAR : August 2018 3.0% 2.4% 2.5% 2.1% 2.0% 1.6% 1.5% 1.3% 1.2% 1.0% 0.5% 0.0% United States Midwest Northeast South West Source: Bureau of Labor Statistics (BLS).

Recovery ry in in Emplo loyment Sin Since 2008 Recovery < 100% Recovery ≤ U.S. Recovery > U.S. Rate Source: Bureau of Labor Statistics (BLS).

Lower Oil il Pric rices Trending higher $ per Barrel (Spot) $160 1.00 0.90 $140 0.80 $120 Q2.14 0.70 $100 0.60 $80 0.50 OPEC maintains Q2.15 0.40 output levels in $60 face of soaring US 0.30 production $40 0.20 Expectations of slower $20 global growth lowers 0.10 outlook for oil demand $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

Government Defic ficit its Growin ing Post-tax reform deficits add up to 30 basis points to 10-year Treasury rate $ Trillion Share of GDP, Percent 0.8 Government Deficit (End of Fiscal Year) 4% Government Deficit as a Share of GDP (End of Fiscal Year) 0.4 2% 0.0 0% -2% -0.4 -4% -0.8 -6% -1.2 -8% -1.6 -10% 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: U.S. Treasury Department and Bureau of Economic Analysis (BEA) and NAHB forecast.

Target Federal l Funds Rate Fed will continue to raise rates 9% 9% 8% 8% 10-year Treasury 7% 7% 6.5% 6.0% 6% 6% 5.3% 5% 4.8% 5% 4% 4% 3.3% 3.3% 3.1% 2.9% 3% 3% 2.8% 2.0% 2% 2% Federal Funds Rate 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: Federal Reserve data 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.

Housing Demand and Affordability

Consumer Confid idence Contin inues Posit sitiv ive Run 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 Source: The Conference Board.

Tax Cu Cuts Help lp Disp isposable le In Income Growth Bonuses and wage growth will drive gains Billions, 2009 USD, SAAR 14,000 13,000 2.4% annual 12,000 growth rate 11,000 2.1% annual growth rate 10,000 9,000 8,000 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.

Household ld Bala lance Sh Sheets A shift in debt away from mortgages % of Disposable Inc., SA 7.5% 8 7.2% 7 7.0% 6.7% 6 Mortgage 6.5% 5 6.0% 6.3% 6.0% 5.8% 4 5.8% 5.5% 5.0% 3 Consumer 5.0% 2 4.9% 4.5% 1 4.4% 4.0% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Board of Governors of the Federal Reserve System (FRB).

Consumer Debt Rise in student and auto loans 250% 8 230% 7 Student Loans 200% 6 153% 5 Auto Loans 150% Other 4 97% 100% 3 95% 2 Credit Cards 50% 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.

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.

Ris ising Population Entering Housing Demand Years: 2017 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+

Household ld Form rmatio ion Demand for home ownership strengthening 2,500 Y/Y Change in Household Count, Thousands, NSA Owner-Occupied 2,000 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 Homeownership ip Homeownership Rates in the U.S. by County Alaska Hawaii

Exi xistin ing Home Sa Sale les Low inventory Months’ Supply (Months, NSA) Thousands 8,000 14 7,000 Months’ Supply 12 Existing Home Sales 6,000 10 5,000 8 4,000 6 3,000 4 Existing Home Inventory 2,000 2 1,000 Existing Home Sales: Single-Family & Condo & Co-op, (Ths., SAAR) Number of homes available for sale: Single-Family & Condo & Co-op, (Ths., NSA) 0 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: National Association of Realtors (NAR).

S& S&P/C /Case-Shil ille ler Natio ional l US S Home Pric rice In Index Prices growing faster than income Percent Growth, SAAR 20 15 10 5 0 -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 Source: S&P Dow Jones Indices LLC; CoreLogic, Inc. and NAHB forecast.