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

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

Dec 10, 2023 173 likes •511 views

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

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SLIDE 1

Supply-Side Factors and Housing Affordability

CoreLogic-NAHB Residential Construction Roundtable December 12, 2018 Robert Dietz, Ph.D. NAHB Chief Economist

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SLIDE 2

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

Source: NAHB/Wells Fargo Housing Opportunity Index.

78 56

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

CoreLogic transaction data and NAHB estimates find significant declines

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SLIDE 3

New Home Sales and Months’ Supply

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

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SLIDE 4

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 strengthened

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SLIDE 5

Homeownership ip Rate

69.4% 64.4%

  • 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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SLIDE 6

Geography of f Homeownership ip

Alaska Hawaii Homeownership Rates in the U.S. by County

Wide variation

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SLIDE 7

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
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SLIDE 8

Sh Share of f Young Adult lts Livi Living with ith Parents

9% 11% 13% 15% 17% 19% 21% 23% 25% 40% 42% 44% 46% 48% 50% 52% 54% 56% 58% 60% 1990 2000 2002 2004 2006 2008 2010 2012 2014 2016

Ages 18 to 24 Ages 25 to 34

Source: US Census 1990, 2000, PUMS, 2000-2016 ACS, PUMS, NAHB Estimates.

Almost doubled

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SLIDE 9

Consumer Debt

Rise in student and auto loans

Source: Federal Reserve Bank of New York.

156% 98% 236%

9/30/2008, 100%

97%

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

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SLIDE 10

GDP Growth

Near-term growth with slowing ahead

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 1.6% 2017 2.2% 2018f 3.0% 2019f 2.6% 2020f 1.3%

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SLIDE 11

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 12

Risi ising Popula latio ion Enteri ring Housin ing Demand Years

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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SLIDE 13

Supply-Side Factors

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SLIDE 14

Bu Build ildin ing Materia ials ls – Lu Lumber Pric rices

1/6/2017, 357

582

11/16/2018, 340 $250 $300 $350 $400 $450 $500 $550 $600 2015 2016 2017 2018 $ per thousand board feet

Since January 2017, lumber prices decreased 5%; 63% at peak

Source: NAHB Analysis; Random Lengths Composite Index.

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SLIDE 15

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

Source: U.S. Bureau of Labor Statistics (BLS). 0% 5% 10% 15% 20% 25% 500 1000 1500 2000 2500 3000 3500 4000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Residential Builders Residential Specialty Trade Contractors Construction Unemployment Rate

Employment, Thousands

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SLIDE 16

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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SLIDE 17

Labor Force

Changing labor force

  • 0.10

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 10 20 30 40 50 60 70 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 Millions

Did Not Finish High School Associate Degree and Other Two Year Programs High School Graduate College Graduates

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

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SLIDE 18

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

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SLIDE 19

Le Lendin ing – AD&C Access

Source: Federal Deposit Insurance Corporation.

Loans growing but at a slower rate

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 07 08 09 10 11 12 13 14 15 16 17 18 1-4 unit Residential Construction Loans Year-over-Year Growth Rates Millions

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SLIDE 20

Lo Lots ts

Housing Starts (Area) and Low/Very Low Lot Supply (bars)

0% 10% 20% 30% 40% 50% 60% 70% 300 600 900 1,200 1,500 1,800 2,100 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Starts (Thousands) Low Supply Source: Census Bureau and NAHB/Wells Fargo HMI survey.

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SLIDE 21

Median Lot t Value and Siz ize

8,560 $47,400

$15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 8,200 8,400 8,600 8,800 9,000 9,200 9,400 9,600 9,800 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Square Feet

Median Lot Size (For Sale: Single-Family Detached) Median Lot Value (Single-Family Starts)

Lot size declining --- lot value increasing

Source: 2017 Survey of Construction (SOC) and NAHB Economics Estimates.

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SLIDE 22

Regula latory ry Co Costs Risi ising – Up 29% over r 2011-2016

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

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SLIDE 23

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.

NAHB-NMHC research

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SLIDE 24

Construction Outlook

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SLIDE 25

NAHB/Well lls Fargo Housin ing Mark rket In Index

60

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

Declining builder confidence as housing affordability issue expands

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

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SLIDE 26

2000-2003 1,343,000 “Normal” 2015 713,000 2016 785,000 10% 2017 852,000 9% 2018 884,000 4% 2019 917,000 4% 2020 933,000 2%

Sin Single le-Famil ily St Start rts

Slowing growth ahead

Trough to Current: Mar 09 = 353,000 Oct 18 = 865,000 +145%

Source: U.S. Census Bureau (BOC) and NAHB Forecast. 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

2018Q3: 65% of “Normal” 2020Q4: 69% of “Normal”

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SLIDE 27

Growth in in Sin Single le-Famil ily Perm rmit its

Rank

Decline in Growth rate Growth rate < U.S. Growth rate ≥ U.S.

September 2018 YTD vs. September 2017 YTD

Source: U.S. Census Bureau (BOC).

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SLIDE 28

New NAHB Le Leadin ing Mark rkets In Index

Source: NAHB Analysis of Census data (Building Permits and ACS)

New economic geography measure of building conditions

  • First index metric is metro areas – third quarter data

Smaller metro areas – core counties (29% of single-family permits)

  • Smaller towns like Xenia, Ohio and Darlington, South Carolina
  • 9.8% annual growth rate, 7.4% year-over-year

Large metro areas – suburban counties (26% share)

  • Fairfax, Virginia
  • 4.1% annual growth rate, 3.2% year-over-year

Large metro areas – core counties (18% share)

  • Columbus, Ohio and Orange County, California
  • 6.5% annual growth rate, 6.8% year-over-year

Smaller metro, outlying areas (8% market share)

  • Rural areas near small towns
  • 2.7% growth rate, -2.4% year-over-year
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SLIDE 29

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

Source: U.S. Census Bureau (BOC).

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SLIDE 30

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 Source: U.S. Census Bureau (BOC).

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SLIDE 31

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 376,000 6% 2019 366,000

  • 3%

2020 364,000

  • 1%

Source: U.S. Census Bureau (BOC) 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 3rd Q 18 = 347,000 +324%

2018Q3: 105% of “Normal” Thousands of units, SAAR

76% fall Avg=344,000

2020Q4: 109% of “Normal”

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SLIDE 32

Resid sidentia ial l Remodeli ling

Growth ahead but slowing

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 10% 2017 19% 2018f 10% 2019f 4% 2020f 2%

Source: U.S. Census Bureau (BOC) and NAHB Forecast.

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SLIDE 33

Thank you

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