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

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Sep 27, 2023 324 likes •618 views

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,

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Vir iral Recession and Housing

Home Builders Association of Virginia April 14, 2020 Robert Dietz, Ph.D. NAHB Chief Economist

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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

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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”

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

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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

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Two-Year r Co Consid ideratio ions

Vaccine Interest rate normalization (low until then) Baby boom??? Checkerboard pauses? Changes for how we live?

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GDP Growth – Sh Sharp Recess ssio ion

Virus mitigation will bring on a significant recession with declines in Q1, Q2 and Q3

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

0% 5% 10% 15% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Annual Growth LT avg (‘58-’07) 3.4% 2018 2.9% 2019 2.3% 2020f

4.6%

2021f 4.6% 2022f 3.2% Q/Q Percent Change, SAAR

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Su Sudden La Labor r Mark rket Reversal

Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast. 2% 4% 6% 8% 10% 12% 14% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Job Openings Rate Unemployment Rate

Percent, SA Percent, SA

Unemployment is rising sharply but starts recovery during second half of 2020

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Fed Funds Rate – Fed All ll In In on Su Supportin ing Economy

Source: U.S. Board of Governors of the Federal Reserve System (FRB). 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 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

Federal Funds – Top Rate 10-Year Treasury

Lender and buyer of last resort

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

Low interest rates thanks to aggressive Federal Reserve action

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 21 22

October 31, 2016

30-Year Fixed Rate Mortgage 10-Year Treasury

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Consumer Confid idence Dropped Sh Sharply ly in in March

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

20 40 60 80 100 120 140 160 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Index 1985=100, SA Source: The Conference Board.

Declines ahead

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Supply-Side Factors

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Viru irus Rela lated Bu Busin iness Ch Chall llenges

Source: NAHB Survey

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NAHB/Well lls Fargo HMI I Sp Specia ial l Analy lysis is

79% 20% 1%

0% 20% 40% 60% 80% 100%

No Yes to a minor extent Yes to a major extent

21% builders report supply disruptions due to coronavirus concerns in other countries

Source: NAHB/Wells Fargo HMI Survey, Special Analysis, March 2020.

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Sh Share of f Bu Build ildin ing Materia ials ls Im Imports in in 2019

31.0% 16.1% 16.0% 6.0% 3.7% 3.5% 2.7% 2.2% 2.1% 1.6% 15.2%

China Mexico Canada Taiwan Germany Japan South Korea Thailand Italy Brazil Others

Totally $65 billion imports in 2019 and 31% from China

Source: NAHB Analysis of U.S. International Trade Commission data.

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Build ildin ing Materia ials ls – Lumber Pric rices

1/5/2018, 436

582

3/27/2020, 381 $250 $300 $350 $400 $450 $500 $550 $600 2015 2016 2017 2018 2019 2020 $ per thousand board feet

Lumber prices rose 63% to a peak from January 2017; declined 13% since January 2018

Source: NAHB Analysis; Random Lengths Composite Index

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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

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NAHB/Well lls Fargo Housin ing Mark rket In Index (H (HMI) I)

200 400 600 800 1,000 1,200 10 20 30 40 50 60 70 80 2013 2014 2015 2016 2017 2018 2019 2020 Index Thousands, SAAR

Single-Family Starts HMI

Sharp drop for HMI in April

Source: Census Bureau and NAHB/Wells Fargo HMI survey

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Construction Outlook

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Multi ltifamil ily Housin ing St Starts

Sharp decline and a return to trend

Year Units % Change 2017 357,000

2018 377,000 6% 2019 404,000 7% 2020f 356,000

2021f 406,000 14% 2022f 411,000 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 21 22

Trough to Current: 4th Q 09 = 82,000 4th Q 19 = 470,000 +474%

Thousands of units, SAAR

76% fall Avg=344,000

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Resid sidentia ial l Remodeli ling

Remodeling market weakening along with other housing metrics, existing home sales

50 100 150 200 250 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 21 22 Billions, USD, SAAR

Adjusted Actual

Year Percent Change 2017-2019 Avg 5% 2020f

2021f 9% 2022f 4%

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

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Year Units % Change 2017 852,000 8% 2018 873,000 2% 2019 894,000 2% 2020f 728,000

2021f 923,000 27% 2022f 1,018,000 10%

Sin Single le-Famil ily St Start rts

Sharp declines in the near-term due to coronavirus mitigation efforts

Trough to Current: Mar 09 = 353,000 Feb 20 = 1,072,000 +204%

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 21 22

80% fall

Thousands of units, SAAR

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Sin Single le-Famil ily St Start rts by Decade: : Popula latio ion Adju justed

Source: Census Bureau and NAHB analysis 47,998 53,138 41,588 41,710 41,671 21,288 10,000 20,000 30,000 40,000 50,000 60,000 1960s 1970s 1980s 1990s 2000s 2010s Starts per Million Population (averaged)

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New NAHB Home Buil ildin ing Geography In Index

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)

Red counties represent 45.3% of U.S. population

60.9% of single-family construction takes place in Red Counties

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New NAHB Home Buil ildin ing Geography In Index

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)

Blue counties represent 54.7% of U.S. population

68.2% of multifamily construction takes place in Blue Counties

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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

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Thank you

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