Nationwide s Health of Housing Markets (HoHM) Report

Transcription

1 Nationwide s Health of Housing Markets (HoHM) Report Nationwide Economics 2015 Q4 Data as of 2015 Q3 HoHM Report Executive Summary: Although down modestly from its peak, the national LIHHM* remains at a levell well over the break-even of 100 suggesting thatt the U.S. housing market is healthy with little chance of a housing downturn in the next year. Rapid house price appreciation is reducing affordability, however, and is a risk to housing sustainability. Regionally, the LIHHM performance rankings show that the housing markets in the vast majority of metropolitan statistical areas (MSAs) and divisions are healthy. This suggests that most local housing markets should see sustainable expansion in the near term. Lower energy prices continue to weaken the outlook for regional housing markets with strong ties to energy exploration and production the bottom 10 MSAs by LIHHM ranking are comprised almost entirely from Texas, Louisiana, Wyoming, and South Dakota. Labor market conditions, a key driver of housing demand, are strong in many MSAs supporting faster household formations and boosting local housing activity through rising incomes. * Leading Index of Healthy Housing Markets (LIHHM): A data-driven view of the near-term performance of housing markets based upon current health indicators for the national housing market and 400 metropolitan statistical areas (MSAs) and divisions across the country.

2 The national LIHHM remains high, suggesting a sustainable U.S. housing market The current value for the national LIHHM is 108.2, slightly below readings from earlier this year. An index value over 100 suggests that the national housing market is healthy, with lower chances of a housing downturn over the next year as the index moves increasingly above the 100 break-even value. National house price appreciation is accelerating and is weakening relative affordability, contributing to the modest downward trend in the national LIHHM this year. Regionally, the LIHHM performance rankings show that the vast majority of metro areas across the country are healthy, indicating that few regional housing markets are vulnerable to a housing downturn but we have increasing concerns about local markets thatt have a heavy reliance on the energysector, as low oil prices are reducing employment. National LIHHM LIHHM Scores* POSITIVE NEUTRAL NEGATIVE MSA LIHHM Performance Rankings Number of MS SAs Performance Rankings* POSITIVE NEUTRAL NEGATIVE * See appendix for full descriptions Nationwide Economics Page 2

3 The regional LIHHM rankings show that the vast majority of local housing markets are healthy Twenty-three MSAs have a +3 ranking with an additional 167 in the +2 ranking, meaning that nearly half of the MSAs have very healthy housing markets. Only New Orleans-Metairie, LA has a negative reading while about 10 percent are neutral, indicating only a modest risk of a near-term downturn in these areas. The entire top 10 list is located in the Midwest solid employment growth, a recent pick-up in household formations, and sustainable house price gains are widespread in this region. MSAs in energy-intensive states (including Louisiana, Texas, Wyoming, and South Dakota) dominate the bottom 10 list, although most are rated neutral, suggesting limited housing expansion in the near term. Performance Rankings +4 POSITIVE 0 NEUTRAL -4 NEGATIVE Top 10 MSAs Bottom 10 MSAs Rank Metropolitan Statistical Area Rank Metropolitan Statistical Area 1 Springfield, IL 2 Niles-Benton Harbor, MI 3 Milwaukee, WI 4 Akron, OH 5 Dayton, OH 6 Battle Creek, MI 7 Springfield, OH 8 Midland, MI 9 Toledo, OH 10 Saginaw, MI 400 New Orleans-Metairie, LA 399 Sherman-Denison, TX 398 Watertown-Fort Drum, NY 397 Sioux Falls, SD 396 Hammond, LA 395 Odessa, TX 394 Austin-Round Rock, TX 393 Casper, WY 392 Dallas-Plano-Irving, TX 391 Houma-Thibodaux, LA Data as of 2015 Q3 Nationwide Economics Page 3

4 None of the top 40 * MSAs by size have a LIHHM performance ranking that is negative, and only four are neutral, suggesting that most of the major U.S. housing markets are healthy with little chance of a downturn in the near term. Performance Rankings Metropolitan Statistical Area Current Prior Qtr Prior Year 1 New York-Jersey City-White Plains NY-NJ Los Angeles-Long Beach-Glendale CA MSAs by size 3 Chicago-Naperville-Arlington Heights IL (Top 40), with 4 Houston-The Woodlands-Sugar Land TX corresponding 5 Atlanta-Sandy Springs-Roswell GA performance 6 Washington-Arlington-Alexandria DC-VA rankings 7 Phoenix-Mesa-Scottsdale AZ Dallas-Plano-Irving TX Minneapolis-St. Paul-Bloomington MN-WI Riverside-San Bernardino-Ontario CA Performance Rankings: 11 Tampa-St. Petersburg-Clearwater FL San Diego-Carlsbad CA POSITIVE 13 Seattle-Bellevue-Everett WA St Louis MO-IL Denver-Aurora-Lakewood CO Baltimore-Columbia-Towson MD Anaheim-Santa Ana-Irvine CA NEUTRAL 18 Warren-Troy-Farmington Hills MI Pittsburgh PA Oakland-Hayward-Berkeley CA Portland-Vancouver-Hillsboro OR-WA NEGATIVE 22 Nassau County-Suffolk County NY Charlotte-Concord-Gastonia NC-SC Miami-Miamii i Beach-Kendall FL Orlando-Kissimmee-Sanford FL Cambridge-Newton-Framingham MA Newark NJ-PA Fort Worth-Arlington TX Cleveland-Elyria OH Cincinnati OH-KY-IN San Antonio-New Braunfels TX Sacramento-Roseville-Arden-Arcade CA Philadelphia PA Kansas City MO-KS Columbus OH Las Vegas-Henderson-Paradise NV Indianapolis-Carmel-Anderson IN Boston MA Fort Lauderdale-Pompano Beach-FL Data as of 2015 Q3 40 Austin-Round Rock TX * Largest 40 determined by number of households Nationwide Economics Page 4

5 Strong labor market conditions are supportive of sustainable housing growth Local employment characteristics play a key role in sustainable housing demand providing the income growth to spur housing demand. Household formations tend to accelerate as employment conditions improve, supporting further growth for both rental and owner-occupied units. In 90 percent of MSAs, the local unemployment rate (a key indicator of labor market health) has declined over the past year (green in the map below). In nearly all MSAs, the housing fundamentals are the strongest in over a decade a trend supported by the labor market, demographics, and consumer preference to own. Strength or weakness in the labor market also signals the likely direction of house prices and mortgage market health. For instance, a sustained decline in employment in a local market will reduce demand for housing perhaps lowering house prices and raising delinquency rates if demand declines sufficiently. The labor market s influence on a local housing market s health can be distributed into three groups: Positive labor market with sustainable housing trends: In the majority of MSAs, employment growth is supporting sustainable housing expansion by boosting household growth amid positive house price appreciation near long-term averages. These conditions are prevalent in many of the MSAs in the Midwest, South, and Northeast regions. Positive labor market with unsustainable housing trends: In less than 10 percent of MSAs, strong employment and household growth have pushed housing demand beyond housing supply leading to unsustainable increases in house prices and lower relative housing affordability. Many cities along the Pacific Coast, as well as some in Colorado and Texas, are seeing too hot housing markets. Weaker labor market conditions: There are only a few MSAs where the trends in the labor market are weakening, mostly focused on energy production states with rising unemployment rates. The outlook for housing sustainability in these MSAs is neutral or slightly negative. Unemployment Rate Change * BETTER NEUTRAL WORSE Defined as the 4-quarter change in an MSA s unemployment rate Data as of 2015 Q3 Nationwide Economics Page 5

6 The number of increases and decreases in the MSA LIHHM rankings was roughly the same over the past year The best measure of the near-term health of housing markets is the current LIHHM (page 3), but looking at movements in the LIHHM over the course of a year can provide useful information, as well. Since the majority of the MSAs were also positive a year ago, more than 50 percent of the performance rankings for MSAs have not changed over the past year. This is reflective of the continued strength and positive outlook for local housing markets across much of the country. The majority of the MSAs that decreased in ranking over the past year fell only slightly there were seven MSAs that declined more sharply, an improvement over the prior quarters data. Current LIHHM 4Q change +3 INCREASED UNCHANGED -3 DECREASED Largest Increase Largest Decrease Rank Metropolitan Statistical Area Rank Metropolitan Statistical Area 1 Lima, OH 2 Albany, GA 3 Kalamazoo-Portage, MI 4 Fairbanks, AK 5 Springfield, OH 6 Lansing-East Lansing, MI 7 Toledo, OH 8 Cape Girardeau, MO-IL 9 Binghamton, NY 10 Niles-Benton Harbor, MI 400 Sioux Falls, SD 399 Philadelphia, PA 398 Grand Island, NE 397 Charlotte, NC 396 Grand Junction, CO 395 New Orleans-Metairie, LA 394 Wilmington, NC 393 Kennewick-Richland, WA 392 Fayetteville, NC 391 Las Cruces, NM Change in performance ranking; Data as of 2015 Q3 Nationwide Economics Page 6

7 Appendix Leading Index of Healthy Housing Markets (LIHHM) Nationwide s LIHHM is a data-driven view of the near-term performance of housing markets based upon current health indicators for the national housing market and 400 metropolitan statistical areas (MSAs*) and divisions across the country. For each MSA, the LIHHM uses local-level data to incorporate the idiosyncratic characteristics of regional housing markets. The focus of the LIHHM is on the entire housing market, rather than merely a projection of house prices or home sales. Nationwide Economics LIHHM methodology The LIHHM is calculated using a number of variables that describe many of the drivers of the housing market for each MSA. In order to provide the best indicator of housing health, the included variables and corresponding weights for each provide the optimal leading perspective on future housing markets for each MSA. The drivers can be grouped into the following categories: 1. Employment 2. Demographics 3. Mortgage Market 4. House Prices As an illustration, if job growth increases in an MSA, then the resulting rise in incomes creates additional housing demand. Consumers have a greater ability to earn and save for home purchases, increasing sales and pushing up house prices. The LIHHM measures the movements in the included employment, demographic, mortgage market, and house price variables versus the long-term trends within each MSA. ThesedriversareusedtoderiveanoverallLIHHMscoreonascalefrom75to125 centered around a neutral value of 100. These values are placed into performance rankings to allow for better comparisons across MSAs. These performance rankings are the key metric in comparing the MSAs both to each other and across time. Raw LIHHM values are used for calculation purposes only and will only be shown on the national level as the national score is standalone and is not compared to other areas. * MSA: Geographical region with high population density and close economic ties throughout the nearby area, capturing 85-90% of the U.S. population Nationwide Economics Page 7

8 Authored by Nationwide Economics DAVID BERSON, PhD Senior Vice President, Chief Economist David holds a doctorate in Economics and a master s degree in Public Policy from the University of Michigan. Prior to Nationwide, David served as Chief Economist, Strategist and Head of Risk Analytics for The PMI Group, Inc., and Vice President and Chief Economist for Fannie Mae. David has also served as Chief Financial Economist at Wharton Econometrics and visiting scholar at the Federal Reserve Bank of Kansas City. His government experience has included roles with the President s Council of Economic Advisors, U.S. Treasury Department and the Office of Special Trade Representative. He is a past President of the National Association for Business Economics. BRYAN JORDAN, CFA Deputy Chief Economist Bryan is a frequent author and knowledgeable source on economic topics, and has been featured in The Wall Street Journal and New York Times. Bryan holds degrees in Economics and Political Science from Miami University and has earned the Chartered Financial Analyst designation. He currently serves as Chairman of the Ohio Council on Economic Education and is a member of the Ohio Governor s Council of Economic Advisors, the National Association for Business Economics, and the Bloomberg monthly economic forecasting panel. BEN AYERS, MS Senior Economist Ben authors periodic economic analyses from the Nationwide Economics team, as well as commentary on key economic topics. Ben is also responsible for understanding and analyzing the enterprise business drivers to assist the strategic planning process. He holds a Master of Science in Economics from the Ohio State University, specializing in applied economic analysis, and a BSBA from the Fisher College of Business at the Ohio State University, with a focus on economics and international business. Additional contributors: Chrissy Charters, Matthew Fleming, Ankit Gupta, Steve Hall, Francine Murzynski, and Matt Workman This material is provided by Nationwide Economics and is general in nature. It is not intended as investment or economic advice, or a recommendation to buy or sell any security or adopt any investment strategy. Additionally, it does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. We encourage you to seek the advice of an investment professional who can tailor a financial plan to meet your specific needs. The economic and market forecasts in this report reflect our opinion as of the date of this presentation/review and are subject to change without notice. These forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they may not reflect actual performance. Case studies and examples are for illustrative purposes only. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or fairness. Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. NFM-13575AO.2 Nationwide Economics Page 8