US Housing Market Outlook

Transcription

1 US Housing Market Outlook August 8, 2018 John Burns CEO

2 Agenda 1 Our Forecast Process 2 US Economy Outlook: Solid Growth with Rising Risks from Too Much Debt 3 New Home Industry Outlook: Slow Volume Growth with Very High Prices 4 Awesome Remodeling Industry Outlook

3 We collaborate with 200+ diverse subscriber clients to get it right. JBREC RESEARCH MEMBERSHIP DISTRIBUTION

4 Our Collaboration Process With Our Clients Wall Street: Our investor clients help us catch macro trends, and helped us become very negative in early 2007 Private Equity and Banks: Our bank and private equity capital clients who fund private developments help us understand growth, and helped us call a bottom in 2012 when they began buying homes in bulk Large Builders: 17 of top 20 builders subscribe to our research, and 350+ local builders selling ~20% of all US new home sales answer our monthly survey and helped us call a slow recovery from 2014-today Building Products: Largest BP firms in the country, plus owners of $6 billion/ year Lumber & Bldg Material dealers help us identify demand and price changes Local Consultants: Our consultants in offices all over the country provide insight from 500+ local consulting assignments per year Consumer Surveys: 140 questions to 23,000 new home shoppers help us identify consumer trends, product shifts, and success strategies

5 Our Local Housing Market Analysis Process Data Scrubbing: Count all communities for 700+ builders each quarter, looking for community count growth (~99% coverage in top 30 MSAs) Proprietary Land Developer Survey: Survey 70+ land developer and brokers each quarter Interview Experts: Hold monthly market insight phone calls with our local consultants (50+ assignments/month) and clients Analyze All Data: Chart and analyze 60+ pages of data and proprietary analytical tools and indices by MSA each month Consumer Insight: Four people devoted to demographics and consumer research Disciplined Quest for Knowledge: Collect and distribute pertinent news reports internally, constantly looking for new data to analyze, and researching impacts of policy shifts Conference Attendance: Attend (and speak at) conferences for additional color

6 In 2016, we published a book on Demographic Trends for Housing MARKET RESEARCH BY DECADE BORN FOR SETTING STRATEGIES

7 Our New Home Construction Track Record

8 We built the most comprehensive and detailed Repair & Remodel forecast available. Remodeling Universe Partially tracked in census data Census C-30 Harvard LIRA JBREC Big remodels of owner-occupied homes Small project spending on owner-occupied homes Trade-up spending: Project count and spend per project Disaster repairs Big project remodels of rental units Small project spending on rental properties

9 R + R M A T E R I A L S S P E N D I N G Our Remodeling Spending Track Record J B R E C R E M O D E L M AT E R I A L S S P E N D I N G V S H O M E D E P O T Y T D R E S U LT S 7% +6.8% +6.8% 6% 5% 4% Spend per Remodel +4.6% Spend per Transaction +4.5% 3% 2% 1% # Remodels +2.2% # Transactions +2.3% 0% JBREC 2017 Forecast Home Depot 2017 Growth Source: John Burns Real Estate Consulting, LLC

10 Agenda 1 Our Forecast Process 2 US Economy Outlook: Solid Growth with Rising Risks from Too Much Debt 3 New Home Industry Outlook: Slow Volume Growth with Very High Prices 4 Awesome Remodeling Industry Outlook

11 72 Current The Burns Economic Performance Index is designed to rank current economic conditions against previous economic cycles on a scale of 0-100, 0 being the lowest performing, and 100 being the highest performing economic conditions. The index includes 34 indicators grouped into 5 weighted categories: Employment, Housing, Economics, Stock Market, and Confidence, each with history back to Source: John Burns Real Estate Consulting, LLC (Pub: Jul-18)

12 Recession risks are higher than norm 53% within 2 years and 68% within 4 years very low risk low risk 27% normal risk 56% high risk 53% 68% very high risk Probability A forward looking component of the index with data back to 1953 provides a lead on recession events as well as an early indication of coming growth cycles. We did a 64 year back test of this data which shows a normal risk of recession in any given year on average to be 27% 2 years out and 50% four years out. Source: John Burns Real Estate Consulting, LLC (Pub: Jul-18)

13 This is the 2nd longest expansion in the last 60 years. We think it can become the longest

14 This expansion has been mild 6 th largest of last 10.

15 Speculative Bubbles Usually fueled by debt Government Spending Cuts Usually after running up big deficits / debts Other (43 mos.): Consumers borrow to buy stocks (8 mos.): Consumers amass credit card debts (22 mos.*)**: Bad bank loans to developers and Latin America; oil price increase (8 mos.*): Junk bonds for Leveraged Buy Outs; real estate speculation fueled by S&L lending; Japan (8 mos.): Tech stock speculation (18 mos.*): Housing speculation fueled by subprime (13 mos.): Post-New Deal (8 mos.): End of WWII (11 mos.): Post-WWII (10 mos.): Post-Korean War (11 mos.): First Vietnam War spending cutback (16 mos.*): Removal of gold standard, oil price increase

16 S&P 500 Price to Earnings Ratio 10-year Shiller cyclically adjusted price-to-earnings (CAPE) ratio : 44x : 32x 2018: 34x Note: The Cyclically Adjusted Price to Earnings Ratio, also known as CAPE or the Shiller PE Ratio, is a valuation measure which adjustspast company earnings by inflation to present a snapshot of stock market affordability at a given point in time. The ratio is calculated using real per-share earnings over a 10 year period. Pub: May-18 Source: DQYDJ.com (Data: Mar-18, updated quarterly )

17 Total Debt Balance and Composition Mortgage = 67% Student loan = 10% Auto loan = 9% Credit card = 6% HE revolving = 3% Other = 3% Trillions Sources: NY Federal Reserve Consumer Credit Panel/Equifax; John Burns Real Estate Consulting, LLC (Data: 4Q17, updated quarte rly ) Pub: May-18

18 Publicly-traded company debt has grown 5X faster than GDP since All Companies Technology & Electronics Health Care Services Energy Automotive Consumer Goods and Retail Real Estate, Home Building Building Materials Growth from 2009 through % -5% 23% 11% 4% 28% 16% 30% 18% 24% 20% 49% 24% 25% 10% 22% 3% 9% 31% 101% 116% 117% 153% 178% 213% 308% 332% -50% 0% 50% 100% 150% 200% 250% 300% 350% Debt Growth Nominal GDP Growth Job Growth

19 Trillions of Dollars Federal Debt Has Ballooned

20 Despite all the risks, the US is still the most popular destination in the globe. Current Residency of the World s Immigrants United States 19.8% Germany 4.9% Russia 4.8% Saudi Arabia 3.9% United Kingdom 3.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22%

21 Mortgage Rates Are Expected to Rise 0.5% 5.5% 5.0% 4.5% 4.0% 3.8% 4.0% 3.7% 3.5% 1.7% 3.0% 1.8% 1.9% 2.5% 2.0% Mortgage Rate Forecast 4.8% 5.0% 5.1% 4.6% 1.8% 2.0% 2.1% 1.7% 1.5% 1.0% 2.1% 1.8% 2.3% 2.9% 3.0% 3.0% 3.0% 0.5% 0.0% P 2019P 2020P 2021P Mortgage Rate Spread over 10-year 10-year Treasury History and Expectations Source: John Burns Real Estate Consulting US Housing Analysis and Forecast, July 2018

22 Federal Government Mortgage Policy Has Been Driving Home Buying Demand for 70+ Years Homeownership Rate 70% 65% 64-68% Rise Caused by GSE Acts 60% 55% 50% 45% 20% Surge to 64% From 1940s 1970 Post G.I Bill and GSE/HUD 64%-66% Flat from 1970s-Early 1990s 1% Final increase and fall due to Subprime / private label securities 4%Decline post Dodd-Frank pullback 40% Sources: U.S. Census Bureau; John Burns Real Estate Consulting, LLC (Data: 4Q17) *Historical average: 1940 through current

23 Presidential Appointees Determine the Policies on 70% of All Mortgages, and all the Riskiest Mortgages Jerome Powell Federal Reserve Chairman Directly Impacts Rates Ben Carson HUD Secretary Oversees FHA Mick Mulvaney CFPB Director Enforces Dodd-Frank Restrictions (Documentation) Robert Wilkie VA Nominee Oversees VA Mel Watt FHFA Director / Term Expires Jan Oversees Fannie, Freddie

24 Dodd-Frank Rules Have Kept Mortgage Loan Documentation Tight, and Limited Adjustable Rate Loans Percentage of Adjustable Loans 3-month average 35% 30% 25% 20% 15% 10% 5% 0% Source: MBA (Data: Apr-18, updated quarterly ) Pub: Jul-18

25 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 FHA Origination Shares by Lender Type 80% Banks Non-banks Credit unions / state housing agencies 77% 70% 70% 60% 50% 40% 30% 20% 28% 19% 10% 2% 4% 0% Sources: AEI International Center on Housing Risk; John Burns Real Estate Consulting, LLC (Data: Mar-18, updated quarterly ) Pub: Jul-18

26 Mortgage Origination: Much Less Risky than 2006 but Riskier than 2002, and FHA-Dependent 100% First Lien Mortgage Origination Volume by Loan Type 90% 80% 33% 29% 29% 24% 23% 12% 17% 12% 17% 22% 21% 19% 32% 30% 30% 29% 70% 60% 50% 40% 30% 48% 51% 35% 4% 32% 32% 51% 3% 3% 4% 65% 63% 60% 58% 59% 61% 47% 46% 46% 46% 2006 Risk 20% 10% 0% 41% 42% 6% 6% 32% 33% 17% 24% 22% 19% 19% 19% 20% 13% 14% 23% 23% 24% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Risk Very High Risk - Subprime/ Private Label Low Risk - GSE High Risk - FHA/VA Very Low Risk - Bank Portfolio

27 In Summary, Solid Economy. Rising Risks. very low risk low risk 72 27% normal risk 56% Current high risk 53% 68% very high risk Probability

28 Agenda 1 Our Forecast Process 2 US Economy Outlook: Solid Growth with Rising Risks from Too Much Debt 3 New Home Industry Outlook: Slow Volume Growth with Very High Prices 4 Awesome Remodeling Industry Outlook

29 Big Downturns and 3 Hiccups in 47 years. We Expect Hiccup #4 Sometime in the Next Three Years, With Sustained Growth Thereafter SF Permits H O U S I N G C O N S T R U C T I O N ,800, M 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Source: John Burns Real Estate Consulting, LLC

30 Single-Family Construction Volumes Still Below 1993 Levels! 1,800,000 Single-Family Starts 1,600,000 1,400,000 1,200, ,000, , , , ,000 0

31 30% of Markets Outperforming; 6% Lagging J B R E C M A R K E T H O T N E S S I N D E X F O R 5 0 L A R G E S T M A R K E T S 64% 6% 28% 2%

32 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18-12% -10% -7% -4% -3% -1% -2% -2% -1% 1% 1% 1% 3% 3% 4% 2% 6% 6% 6% 5% 4% 6% 5% 4% 3% 7% 6% 8% 10% 8% 9% 9% 10% 12% 15% 15% 16% 2018 YOY Sales Rate Growth decelerating Year-over-Year Sales Rate Growth 20% 15% 10% 5% 0% -5% -10% -15% *Note: The above chart shows YOY comparisons only for builders who participated in the survey one year prior. For the May survey, YOY comparisons include 200 responses. Source: John Burns Real Estate Consulting, LLC, independent survey of ~18% of all US new home sales, NSA (Data: May-18, Pub: Jun-18)

33 Rising rates will have more impact on moveup buyers than on new home entry-level buyers. Source: John Burns Real Estate Consulting online survey, June 2018

34 New home community counts continue to grow slowly. Up only 1% YOY. 6% Community Count Growth All Builders, Top 33 Metros 5% 5% 4% 4% 3% 3% 3% 2% 1% 0% 0% 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q1 1% Source: John Burns Real Estate Consulting, Home Building Analysis and Forecast, May 2018

35 Builder Communities YOY % Growth Jul-18 San Diego Minneapolis Miami* Seattle* Dallas* Nashville Raleigh-Durham** Salt Lake City San Antonio Fort Lauderdale* Denver Boston Fort Worth* Tacoma* Chicago** Jacksonville Washington DC (MSA) Sacramento Orange County Top 34 Markets Houston Tampa San Jose Austin Atlanta West Palm Beach* Riverside-San Bern. Charlotte Philadelphia, PA (MSA) East Bay Area* Orlando Phoenix Las Vegas Los Angeles* San Francisco** -33% -14% -10%-7% 5%7% 0% 0% 1% 1% 2% 3% 3% 4% 4% 4% 4% 5% 0% -6% -6% -5% -5% -5%-1% -7% -7% 8% 8% 9%12%15% 8% 17% 30% -35% -25% -15% -5% 5% 15% 25% 35% Source: John Burns Real Estate Consulting, LLC (Data: Jul-18, Pub: Jul-18) *Metro division **Combination of metro divisions

36 M A R K E T Huge Differences in Economic Growth this Cycle C U R R E N T J O B S I N E X C E S S O F P R E - R E C E S S I O N P E A K Austin Nashville Dallas* San Antonio Denver Salt Lake City Orlando Charlotte Raleigh-Durham** Houston Seattle* Riverside-San Bern. Portland New York* Atlanta Jacksonville San Diego Weighted Average Indianapolis Bay Area, CA¹ Miami* Boston Washington DC (MSA) Tampa Minneapolis Phoenix Las Vegas Orange County Sacramento Los Angeles* Philadelphia Chicago** 3% 5% 7% 7% 6% 6% 10% 9% 9% 9% 9% 19% 19% 19% 18% 18% 17% 16% 15% 14% 13% 13% 12% 12% 12% 12% 12% 11% 23% 22% 0% 5% 10% 15% 20% 25% 30% 35% 25% 34% N E W B O O M T O W N S AV E R A G E G R O W T H S T I L L R E C O V E R I N G S L O W G R O W T H Source: John Burns Real Estate Consulting, LLC J O B S I N E X C E S S O F P E A K

37 Recent Demand changes vary by market Burns Predictive Analytics: 3-Month Existing Home Sales Forecast Current = 12-month total, YOY % Phoenix Charlotte New York* Jacksonville Atlanta Austin Indianapolis Las Vegas San Antonio Philadelphia Dallas* San Francisco** Chicago** Riverside-San Bern. Houston San Jose Weighted Average Raleigh-Durham** Orlando Washington DC (MSA) Seattle* Sacramento East Bay Area* Los Angeles* Salt Lake City Minneapolis Orange County, CA Tampa Miami* Nashville Portland San Diego Boston Denver -5% Recent slowing in Las Vegas & Denver -4% -4% -3% -3% -3% -2% -2% -2% -2% -2% -1% -1% -1% 0% 0% 0% 0% 0% 1% 1% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Source: John Burns Real Estate Consulting, LLC; Google Trends (Pub: Jul-18) 3-month forecast based on Google search trends 1% 2% 2% 2% 3% 3% 4% 4% 4% 4% *Metropolitan division **Combination of metropolitan divisions 5% 6% 6% Recent improvement in Houston, Raleigh

38 Medium-Term Outlook: Most Low to Normal Risk J B R E C H O U S I N G C Y C L E R I S K I N D E X F O R 5 0 L A R G E S T M A R K E T S 62% 16% 20% 2%

39 Huge Differences in Price Appreciation this Cycle Burns Home Value Index Percent above/below Peak 1 Denver Dallas* Austin Nashville Houston Bay Area, CA² Seattle* San Antonio Portland Raleigh-Durham** Charlotte Salt Lake City Atlanta Indianapolis Boston Weighted Average Los Angeles* Minneapolis San Diego Orange County Jacksonville Philadelphia Tampa New York* Phoenix Miami* Washington DC (MSA) Orlando Sacramento Riverside-San Bern. Chicago** Las Vegas -10% -10% -12% -1% -1% -3% -3% -4% -4% 0% 11% 10% 10% 6% 5% 4% 27% 25% 24% 23% 23% 18% 17% 34% 44% 44% 42% 49% 60% 58% -20% 10% 40% 70% 68% 73% 1. Peak BHVI values from Bay Area, CA is composed of San Francisco and San Jose MSAs. *Metro division **Combination of metro divisions. Source: John Burns Real Estate Consulting, LLC (Data: Jun-18, Pub: Jul-18)

40 Huge Differences in Price Appreciation this Year Prices - Burns Home Value Index YOY % change (June 2018) Las Vegas Seattle* Bay Area, CA¹ Nashville Atlanta Tampa Salt Lake City Orlando Charlotte Denver Jacksonville Miami* Los Angeles* Phoenix Riverside-San Bern. Indianapolis Boston Sacramento San Diego Minneapolis United States New York* Portland Raleigh-Durham** Dallas* Orange County Philadelphia San Antonio Houston Austin Chicago** Washington DC (MSA) 3% 4% 4% 4% 5% 8% 8% 7% 7% 7% 7% 7% 7% 7% 6% 6% 6% 6% 6% 6% 9% 9% 9% 9% 9% 8% 8% 10% 10% 13% 12% 0% 2% 4% 6% 8% 10% 12% 14% (1) Bay Area composed of San Francisco and San Jose MSAs *Metro division **Combination of metro divisions Source: John Burns Real Estate Consulting, LLC (Data: Jun-18, Pub: Jul-18) 14%

41 Long-Term Outlook: 8% Overvalued (4.6% Rates) J B R E C I N T R I N S I C H O M E VA L U E I N D E X F O R T O P M A R K E T S Overvalued Fairly valued Undervalued

42 Long-Term Outlook: 22% Overvalued (6% Rates) J B R E C I N T R I N S I C H O M E VA L U E I N D E X F O R T O P M A R K E T S Overvalued Fairly valued Undervalued

43 Housing Cycle, 33 Largest Markets 15 Markets 12 Markets Maturing Growing Declining 6 Markets Recovering Falling Bottoming

44 Percentage of Builders Reporting Labor Shortages % % % % % % % 2018* 84% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: NAHB (Data: 2017, updated quarterly ) *Expected labor shortages Pub: Jul-18

45 Current 2018P 2019P 853K 880K 920K US Single-Family Residential Permits 1,800K 1,600K 1,400K 1,200K 1,000K 800K 600K 400K 200K 0K Sources: U.S. Census Bureau; John Burns Real Estate Consulting, LLC forecasts (Data: Apr-18, Pub: Jun-18)

46 Source: John Burns Real Estate Consulting Client Survey, June 2018

47 Current 2018P 2019P 2020P 2021P 843K 880K 920K 910K 850K US Single-Family Residential Permits 1,800K 1,600K 1,400K 1,200K 1,000K 800K 600K 400K 200K 0K Sources: U.S. Census Bureau; John Burns Real Estate Consulting, LLC forecasts (Data: May-18, Pub: Jul-18)

48 P 2019P 460K 430K 501K US Multifamily Residential Permits 800K 700K 600K 500K 400K 300K 200K 100K 0K Sources: U.S. Census Bureau; John Burns Real Estate Consulting, LLC forecasts (Data: Apr-18, Pub: Jun-18)

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50 Defining the Generations by Decade Born Will Simplify Your Decision-Making US POPULATI O N 4,500,000 US Born Alive Today Foreign Born 4,000,000 3,500,000 3,000,000 2,500,000 2,000, M 1,500,000 1,000, , s 0 Savers Age

51 The high-achieving Earliest Baby Boomers have retired US POPULATI O N 4,500,000 4,000,000 3,500, M 3,000,000 2,500,000 2,000, M 1,500,000 1,000, , s Savers Age s Achievers 1940s Achievers Age Age

52 The 1950s Innovator Boomers Are now Retiring in Droves US POPULATI O N 4,500, M 4,000,000 3,500, M 3,000,000 2,500,000 2,000,000 1,500, M 1950s Innovators Age ,000, , s Savers Age s Achievers Age

53 The 1960s Equalers Achieved Equal Education, with more Women Graduating from College than Men US POPULAT I O N 4,500, M 43 M 4,000,000 3,500, M 3,000,000 2,500,000 2,000,000 1,500, M 1960s Equalers Age ,000, , s Savers Age s Achievers Age s Innovators Age

54 1970s Balancers Shifted the Definition of Success to Include Success at Home 2016 US POPULATI O N 4,500, M 40 M 41 M 4,000,000 3,500, M 3,000,000 2,500,000 2,000, M 1,500,000 1,000, s Balancers Age , s Savers Age s Achievers Age s Innovators Age s Equalers Age

55 1980s Sharers Have Led the Disruptive Shift to a Sharing Economy 2016 US POPULATION 4,500, M 44 M 40 M 41 M 4,000,000 3,500, M 3,000,000 2,500,000 2,000,000 1,500, M 1980s Sharers Age ,000, , s Savers Age s Achievers Age s Innovators Age s Equalers Age s Balancers Age

56 1990s Connectors use their phones whenever possible 2016 US POPULATION 4,500, M 43 M 44 M 40 M 41 M 4,000,000 3,500, M 3,000,000 2,500,000 2,000,000 1,500, M 1990s Connectors Age ,000, , s Savers Age s Achievers Age s Innovators Age s Equalers Age s Balancers Age s Sharers Age

57 Agenda 1 Our Forecast Process 2 US Economy Outlook: Solid Growth with Rising Risks from Too Much Debt 3 New Home Industry Outlook: Slow Volume Growth with Very High Prices 4 Awesome Remodeling Industry Outlook

58 We expect 4 good Remodeling spending years ahead, even assuming an economic slowdown.

59 We classify materials spending into 3 categories: M AT E R I A L S $349 B (2018) N E W H O M E S $111 B 32% R E PA I R + REMODEL $221 B 64% DISASTER $17 B 5% Source: John Burns Real Estate Consulting Note: Numbers may not add to total because of rounding. New Construction Spending Excludes Land

60 $349 billion will be 7% growth this year

61 R+R will grow 9% this year and 7% next year. Disaster repair will likely decline 1% and then 4%. R E S I D E N T I A L B U I L D I N G M AT E R I A L S S P E N D I N G G R O W T H F O R E C A S T Residential Building Materials Spending Growth New construction Repair and remodel Disaster repair 14% 12% 13% 10% 8% 5% 9% 6% 4% 2% 0% -2% 6% 6% 4% 3% 5% 6% -1% 4% 7% 2% 4% -4% -4% -4% -5% -6% E 2018P 2019P 2020P 2021P

62 S P E N D I N G G R O W T H In 2018, we expect 6% growth in homeowner big projects and 11% growth in homeowner small projects R E M O D E L I N G M AT E R I A L S S P E N D I N G G R O W T H Small <$5,000 Big $5, % 12% 10% 8% 6% 4% +13% Owner +12% Owner +9% Rental 2% 0% -2% -4% Big Projects -2% Rental T Y P E O F P R O J E C T Small Projects Source: John Burns Real Estate Consulting, LLC

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64 Per our Building Material Dealer Survey Rebound in Q2 after Slow Q1

65 Huge Differences by Product Type: Strong Kitchen & Bath, but Weak Roofing, Siding, and Windows & Doors.

66 10-year Household growth will Be Young and Old HOUSEHOLD FORMATION BY AGE GROUP, M 10.2 M 3.3 M Source: John Burns Real Estate Consulting, LLC

67 Societal Delays Age that 50% Form a Household and Buy a Home Household Homeownership Year Delay in Household Formation 5 Year Delay in Homeownership

68 H O M E O W N E R G R O W T H ( M I L L I O N S ) Older homes will transact more to younger buyers. We expect 1.1M existing older home owners to leave their home every year over the next 10 years. Many will be bought by younger buyers. H O M E O W N E R G R O W T H B Y G E N E R AT I O N ( M I L L I O N S ), M Pre 1930s s Savers 1940s Achievers s Innovators s Equalers s Balancers 1980s Sharers 1990s Connectors s Globals M -6.0 G E N E R A T I O N Source: John Burns Real Estate Consulting, LLC

69 Older homes drive more systems and exterior remodels. I M PA C T O F A G E O F H O M E O N R E M O D E L : NEW HOMES (<16 yrs) Spend +69% More on Outdoors MIDDLE-AGED HOMES (16-35 yrs) Spend +18% More on Indoors OLDER HOMES (46+ yrs) Spend 22% More on Exteriors and +27% More on Systems Source: John Burns Real Estate Consulting, LLC

70 Young buyers are 38% more likely to DIY, and will spend 30% less. < 3 5 Y E A R - O L D B U Y E R R E M O D E L I N G S P E N D I N G V S U S N O R M # $ NUMBER OF DIY PROJECTS AVG PRICE OF DIY PROJECTS 38% more DIY projects than the US average -30% less spending on DIY projects than the US average Source: John Burns Real Estate Consulting, LLC 70

71 After 20 years of declining DIY market share, we saw a stabilization in 2017 that we believe will continue. Slowing home price appreciation and rising income causes a shift to small project remodels (paint & windows rather than new kitchens). Incoming wave of first time homebuyers that do 38% more DIY projects Youtube makes DIY projects much less intimidating. 30%+ of households born after 1980 report they are More likely to do DIY Home Improvement because of Youtube HGTV Viewership: Viewers <35 years old are 21% more likely to watch HGTV than US Norm!

72 The home builders have pivoted to entry-level, creating new brands. DHI: Express Homes Debut TPH: Pardee in Las Vegas (Responsive Home) Debut MTH: LIVE Now Debut NWHM: Announced ~ Entry-Level Product TPH: Responsive Homes in more markets MHO: Roll-out of Smart Series into more markets 3Q13 2Q15 4Q15 4Q16 2Q14 1Q16 3Q16 2Q17 LGIH: IPO NVR: Simply Ryan Debut MDC: Seasons by Richmond American Debut CCS: Century Complete Debut MHO: Announced Entry-Level Targeted Product TOL: Announced T Select; entry-level brand Source: Builders most recent quarterly earnings calls (Pub: Sep-17)

73 Location From Job Center Lot size 35% 33% 60% 55% 30% 50% 25% 20% 15% 16% 40% 30% 10% 20% 5% 0% Closer Further 10% 0% Smaller 2% Larger Home Size Specification Level 50% 40% 30% 20% 10% 0% 45% Smaller 3% Larger 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 16% More Standard 39% Less Standard Source: John Burns Real Estate Consulting, LLC, independent survey of ~18% of all US new home sales, NSA (Data: May-18, Pub: Jun-18)

74 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Location From Job Center 38% 0% Closer Further 35% 30% 25% 20% 15% 10% 5% 0% 31% Smaller Lot size 23% Larger 35% 30% 25% 20% 15% 10% 5% 0% 17% Smaller Home Size 33% Larger 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Specification Level 77% 0% More Standard Less Standard Source: John Burns Real Estate Consulting, LLC, independent survey of ~18% of all US new home sales, NSA (Data: May-18, Pub: Jun-18)

75 25% 20% 15% Location From Job Center 22% 35% 30% 25% 20% 29% Lot size 10% 15% 13% 5% 4% 10% 5% 0% Closer Further 0% Smaller Larger Home Size Specification Level 30% 25% 26% 22% 25% 20% 21% 21% 20% 15% 10% 5% 15% 10% 5% 0% Smaller Larger 0% More Standard Less Standard Source: John Burns Real Estate Consulting, LLC, independent survey of ~18% of all US new home sales, NSA (Data: May-18, Pub: Jun-18)

76 % O F B U Y E R S Brand name companies beware: younger homebuyers put less value on brands. B U Y E R S W H O M A R K E D N A M E B R A N D A S M O S T I M P O R TA N T T O T H E M 16% 14% 12% 10% 8% 16% 15% 14% 12% 10% 6% 7% 7% 4% 2% 0% 1930s Savers 1940s Achievers 1950s Innovators 1960s Equalers 1970s Balancers 1980s Sharers 1990s Connectors G E N E R A T I O N Source: Consumer and Product Insights Survey 2016, John Burns Real Estate Consulting, LLC

77 % W I L L I N G T O P A Y F O R B R A N D A T P R I C E P R E M I U M Example: Younger buyers less likely to pay for branded appliance upgrades. H OME SHOPPERS W I L L I N G TO PAY MORE TO UPGRADE A P P L I A NCE B R A N D S < 35 years old 35+ years old 90% 80% 87% 87% 70% 60% 71% 71% 68% 67% 50% 54% 40% 30% 20% 39% 28% 36% 28% 23% 24% 31% 10% 0% GE Whirlpool KitchenAid Bosch Sub-Zero/Wolf Thermador Viking No premium $800+ $1,500+ $3,500+ A P P L I A N C E A N D P R I C E P R E M I U M Source: Consumer and Product Insights Survey 2016, John Burns Real Estate Consulting, LLC

78 % O F B U Y E R S L I K E L Y T O A D D But young buyers are more willing to pay for new technology features. B U Y E R S W I L L I N G T O PAY A N E X T R A $ 3, F O R A R E F R I G E R AT O R W I T H B U I L D I N F O O D M A N A G E M E N T F O R G R O C E R Y O R D E R S 30% 25% 28% 26% 29% 20% 23% 15% 15% 17% 18% 10% 5% 0% 1930s Savers 1940s Achievers 1950s Innovators 1960s Equalers 1970s Balancers 1980s Sharers 1990s Connectors G E N E R A T I O N Source: Consumer and Product Insights Survey 2016, John Burns Real Estate Consulting, LLC

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80 Monthly Building Products Spending Forecast Repair and Remodel + New Construction Home Builder Survey Dealer / Distributor Survey Regional Housing Analysis and Forecast National Housing Analysis and Forecast Annual New Home Consumer Product Insight Survey Executive Summit Conference (May in CA) Housing Outlook Conference (Nov. in NY) Home Design Conference (March in CO or TX) Direct Interaction with our Experts Detailed Building Products Spending Forecasts by category, geography, price point, etc. Company Acquisition Due Diligence Strategic Plan and Investor Relation Support Channel and Customer Research Custom Remodeler, Builder, and Distribution Surveys Consumer Research

81 US Housing Market Outlook August 8, 2018 John Burns CEO