Housing and Economic Outlook

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1 Housing and Economic Outlook JANUARY 22, 2013 // 2:30 4:00PM Presenters: David Crowe // NAHB, Washington DC Frank Nothaft // Freddie Mac, McLean, VA David Berson // Nationwide Insurance, Columbus, OH

2 Housing and Economic Outlook Where will the economy go in 2013? This session will focus on the state of the nation's economy and its impact on housing. Nationally-known economists will discuss the outlook for employment, prices, housing starts (both single-family and multifamily) and remodeling. Speakers will analyze the strength of the housing sector, incorporating findings from NAHB's surveys and models. They'll also analyze the credit markets and the impact on builders and buyers, as well as market strengths by regions.

3 Learning Outcomes Learn about NAHB's key indicators that measure the strength of housing demand. Understand what external risk factors could dampen housing demand. Learn how analysts probe the housing sector by measuring the supply of existing housing and the demand d for new housing, plus how fiscal, monetary and regulatory forces influence these fundamental factors. Learn whether the recent election is expected to make a difference in the overall housing market, and what that means for you.

4 Outline What it was What it is What it will be

5 WAS

6 House Price Trend Improving 5.8% annualized growth over the last 10 months vs -3.3% growth rate a year ago FLAT 180

7 Annual Housing Starts Pace Increases 0 100, , , , , , , , , , , , , % , , % , ,000 Single-family Multifamily

8 Shift in Starts by State Share of Total Starts in Four States Shrinks 35% 30% 32% AZ, 4.2% 25% 20% 15% GA, 5.1% CA, 9.9% 19% AZ, 2.1% GA, 3.0% 10% 5% FL, 12.4% CA, 7.3% FL, 6.8% 0% Peak 2011

9 Builders Most Significant ifi Problem in 2012 Concern about employment/economic situation ti Regulation of banking/financial institutions Inaccurate appraisals Gridlock/uncertainty in Washington making buyers cautious Buyers unable to sell existing homes Difficulty qualifying buyers for mortgages Competition from distressed sales/foreclosures Negative media reports making buyers cautious Building material prices Federal environmental regulations and policies Lack of credit for AD&C

10 IS

11 Housing s s Contribution to GDP Growth Four Quarter Growth 15% 11.9% 12.8% 10% 9.3% 5% 5.3% 4.9% 2.2% 0% -5% -10% -7.0% -6.4% -4.4% -10.2% -15% Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12

12 Mortgage Rates Reached historical lows in December 11 %

13 300 Improving Markets Index up to 242 markets in January S-11 O-11 N-11 D-11 J-12 F-12 M-12 A-12 M-12 J-12 J-12 A-12 S-12 O-12 N-12 D-12 J-13

14 Improving Markets Index up to 242 markets in January

15 Household Formations Are on the Rise Year-over-year change in households 2,500 Thousands 2,000 1,500 Avg: 1.38 million 1,000 Avg: 0.85 million Avg: 0.5 million

16 Builders Use of Sales Incentives 80 % Price

17 Builders Use of Sales Incentives 80 % % Price None (RT)

18 WILL BE

19 10% Real GDP Growth Hesitated t but Improving Q/Q Percent Change, SAAR 8% 6% Last 4 Qs Avg = 2.6% 4% 2% 0% -2% -4% -6% -8% -10%

20 Remodeling Market Index (RMI) Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q4

21 Residential Remodeling Slow and Steady Improvement Billions 2005 $, SAAR YR 4Q/4Q Chg % % % % 29% fall

22 Multifamily Production Index 36-point increase in four years 60 (000s) Starts (R) NAHB MMI (L)

23 Multifamily Housing Starts - Healthy Response from Renter Growth Thousands , , ,000 56% ,000 38% ,000 22% ,000 6% Trough to Current: 4 th Q 09 = 82,000 4 th Q 12 = 306, % 76% fall

24 NAHB/Wells Fargo Housing Market Index - 33 point rise since September (000s) HMI (L) Single-family starts (R) ,000 1,800 1,600 1,400 1,200 1,

25 Single-Family Starts Beginning a Recovery 2,000 Thousands ,300,000 Normal 1,800 1,600 1, , ,000-8% ,000 23% ,000 22% ,000 30% 1,200 1,000 80% fall Trough to Current: Mar 09 = 353,000 Dec 12 = 616, % 2012Q4 = 44% of Normal

26 Single-Family Starts Beginning a Recovery Housing Starts / Average Starts National Average will be 52% of normal by 2013Q4 and Single Family Starts Beginning a Recovery Q4 2013Q4 at o a e age be 5 % o o a by 0 3Q a d 70% of normal by 2014Q US I L O H W I N V N H C A R I W V N M K Y N J M N M I M O I N C T M S S D G A F L C O K S V A V T P A O R M D M E M A H I A Z N E I D T N N C A L D E A R N Y W A S C A K U T I A M T D C L A W Y O K T X N D

27 Shift Back in Starts By State 30% 25% 20% 25% AZ, 3.8% GA, 4.3% 15% CA, 7.9% 10% 5% FL, 9.4% 0% 2014

28 Dangers Lot supply Material costs Labor supply/immigration reform Deficit/debt agreement (of lack) Tax reform GSE/housing finance reform

29 Builders Most Significant Problems in 2013 Building material prices Gridlock/uncertainty in Washington making buyers cautious Concern about employment/economic situation Regulation of banking/financial institutions Inaccurate appraisals Difficulty qualifying buyers for mortgages Attempts to limit mortgage g interest deduction/other support for housing Cost/availability of labor

30 Frank Nothaft Frank Nothaft Freddie Mac

31 Home Buyer Affordability Drives Sales Pickup; National Price Indexes Rise in 2013 Low mortgage rates support housing pick-up 30 year Fixed Rate Mortgages stay below 4.0% through 2013 Home buyer affordability supports building; home sales up in 2013 Consumer confidence, high unemployment are headwinds Refi Boom continues but slows in 2013; overall originations down 15% U.S. house price indexes, rents are up Oversupply of vacant homes has dropped, less downward price pressure U.S. indexes bottomed in 2012 (seasonally adjusted), up about 2 3% in 2013 Local markets with excess supply will have prices bottom after 2012 Rents are up, as are apartment building values Mortgage delinquencies are down but remain high Serious delinquencies ( shadow inventory ) down almost 2 million from peak REO sales share at lowest level in 5 years (but still high)

32 Low Interest Rates & Lower Home Prices Have Increased Homebuyer Affordability Index Percent Forecast Sources: National Association of Realtors Composite Housing Affordability Index (% of median priced home affordable on median income with conventional mortgage and 20% down), seasonally adjusted; Freddie Mac Primary Mortgage Market Survey and December 2012 Outlook.

33 At this Stage of the Recovery, Consumer Confidence is Lower than in Previous Expansions Consumer Confidence Index Recession 98 Peak Jan Low Feb Note: Data are bimonthly through May 1972; missing months data between February 1969 and May 1972 interpolated by Freddie Mac. Sources: The Conference Board, Freddie Mac

34 Home Sales Projected Up About 8% in 2013 Forecast Sources: US Census Bureau, National Association of Realtors

35 2013 Originations: Less Refi, More Purchase- Money, but Total Down 15% $550 $500 $450 Quarterly Single-Family Mortgage Originations (Billions of Dollars) FHA & VA Conventional Refi Coventional Purchase $400 $350 $300 $250 $200 $150 $100 $50 $ Sources: Freddie Mac, HUD, VA

36 Vacant Housing Oversupply is Lowest in 10 Years Excess Vacant Homes (Numbers in Millions) Excess for-rent Inventory Excess for-sale Inventory Source: Freddie Mac calculations using U.S. Census Bureau data. Negative values reflect undersupply. The under/oversupply of vacant housing was estimated based on the average vacancy rate from 1994Q1 to 2003Q4.

37 U.S. House Prices Down 22% from Peak to 2003 Levels U.S. Property Value Index (2000Q4 = 100) Freddie Mac House Price Index % Down M M M M M M M M M M M M M03 90 Source: Freddie Mac House Price Index

38 Annual House Price Performance: Prices Up in 42 States (September 2011 to September 2012) 5% United States 4% 2% 2% 2% 2% 3% 6% 7% 4% 1% 0% 11% 3% 11% RI 2% 5% -1% 3% -1% CT -1% 5% 3% 11% 2% 1% -1% -2% 7% 3% 8% 9% 3% 2% 2% 4% DC 11% -1% 3% 20% 2% 1% 3% 6% 6% 4% 6% 4% 3 to 5% 5% 3% 0to2% 4% -1% 10% 5% 0% Note: The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac s single-family credit guaranteed portfolio. Source: Freddie Mac House Price Index

39 House Price Performance Byy State September 2009 to September United States The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac s single-family credit guaranteed portfolio. Source: Freddie Mac

40 Vacancy Drop Since 2010 Has Led to Rent Growth; Inflation-Adjusted Rent Remains Relatively Low Rent (in 2012 Dollars) % Rent-Inflation Adjusted (left) Vacancy (in Percent) Vacancy Rate (right) 8% % 6% 5% 4% 950 3% Sources: Axiometrics (U.S. Derived same store Effective Rent, Vacancy = 100% Less Current Period Occupancy Rate), Bureau of Labor and Statistics (CPI-Less shelter quarter average, NSA)

41 Rental Vacancy Declines Have Occurred in Most Markets -0.7 United States RI CT DC % to -5% to -2.5% -3.3 >0% The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac s single-family credit guaranteed portfolio. Source: Freddie Mac

42 U.S. Apartment Values Are Up About 8% over Past Year 350 Apartment Appreciation Index percent below Peak percent drop to Trough 27 percent increase from Trough Source: NCREIF Property Index.

43 Seriously Delinquent Loans Declining but Remain High Millions of Loans 5 In Foreclosure Day Delinquent Source: MBA National Delinquency Survey, adjusted for estimated coverage

44 REO Share of Sales: Lowest Since December 2007 Percent of Month s Sales 35% Distressed (REO + Short) Sales 30% 25% 20% 21% 15% 10% 5% REO Sales Short Sales 11% 10% 0% Source: CoreLogic Market Trends for U.S. (through September 2012)

45 Where to Get More Information Look for regular updates to our economic forecast, commentary and data at Contact us at com Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Office of the Chief Economist, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Office of the Chief Economist attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this document may be used with proper attribution. Alteration of this document is prohibited by Freddie Mac.

46 Risks to the Outlook David Berson ImageNationwide InsuranceImage

47 Risks 1 FISCAL CLIFF 3 SPENDING SEQUESTER Higher tax rates Slower near-term economic Begins March 1, 2013 Will slow growth growth Slower potential GDP growth in the long-term 2 DEBT CEILING 4 Technical default by March 1, 2013 GOVERNMENT SPENDING AUTHORIZATION End of March Government shutdown? 47

48 Debt / GDP ratio high and climbing Current value = 98.7 Perc cent (%) Image Image Source: Office of Management and Budget / Haver Analytics Gross Federal Debt as Percentage of GDP, through

49 Risks (cont d) 5 Consumer Financial Protection Board (CFPB): Qualified Mortgage (QM) Tight lending standards are tightened further, but risk is reduced 6 Banking / Housing Regulators: Qualified Residential Mortgage (QRM) Will already tight lending standards be tightened further? 49

50 Banks have not eased extremely tight residential lending standards nt (%) Perce Image Image Source: Federal Reserve Board / Haver Analytics Federal Reserve Board Senior Officer Loan Survey: Residential Mortgages Net Share of Banks Tightening, Haver Estimate As of 4 th Quarter

51 Opportunities to the Outlook Image Image

52 Job growth has been positive in most states over the past year Image Image New Hampshire: -0.27% Rhode Island: -0.48% Source: Bureau of Labor Statistics (BLS) / Haver Analytics Job Growth by State November 2012 / November 2011 Percent Change 52

53 House price gains widespread west of the Mississippi River Image Image Housepricesbystate state Source: Federal Housing Finance Agency (FHFA) / Haver Analytics House Price Gains by State 3 rd Quarter 2012 / 3 rd Quarter 2011 Percent Change 53

54 Population growth accelerating Rhode Island: -0.03% Source: U.S. Census Bureau / Haver Analytics Population Growth by State 2012 / 2011 Percent Change 54

55 Speaker Contacts: David Crowe NAHB Frank Nothaft Freddie Mac David Berson Nationwide Insurance th Street, NW Washington, DC Jones Branch Drive McLean, VA Frank 1 Nationwide Plaza, Columbus, OH Dcrowe@nahb.org Berson1@nationwide.com

56 IBS Education National Association of Home Builders th Street Washington, DC

Gains for Homeownership

Gains for Homeownership NAHB Meeting of the Members January 10th, 2018 Robert Dietz, Ph.D. NAHB Chief Economist Homeownership Rate 71% Percentage, Quarterly, SA 1.00 70% 69% 68% 67% 66% 69.4% 0.90 0.80