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
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.
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.
Outline What it was What it is What it will be
WAS
House Price Trend Improving 5.8% annualized growth over the last 10 months vs -3.3% growth rate a year ago 230 225 220 215 210 205 200 195 190 185 FLAT 180
Annual Housing Starts Pace Increases 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 2009 442,000 112,000 2010 471,000 114,000 +4.5% 2011 434,000 178,000 +27.5% 2012 535,000 246,000 Single-family Multifamily
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
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 0 10 20 30 40 50 60 70 80
IS
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
Mortgage Rates Reached historical lows in December 11 % 10 9 8 7 6 5 4 3 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
300 Improving Markets Index up to 242 markets in January 250 242 200 201 150 100 76 98 99 101 100 125 99 80 84 80 103 50 12 23 30 41 0 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
Improving Markets Index up to 242 markets in January
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 500 0 02 03 04 05 06 07 08 09 10 11 12
Builders Use of Sales Incentives 80 % 70 60 50 40 30 20 10 0 Price
Builders Use of Sales Incentives 80 % % 70 60 50 40 30 20 10 0 40 35 30 25 20 15 10 Price None (RT)
WILL BE
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% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Remodeling Market Index (RMI) 60 55 55 50 45 40 35 30 25 20 2001 Q1 Q2 Q3 Q4 2002 Q1 Q2 Q3 Q4 2003 Q1 Q2 Q3 Q4 2004 Q1 Q2 Q3 Q4 2005 Q1 Q2 Q3 Q4 2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4
150 140 130 120 110 Residential Remodeling Slow and Steady Improvement Billions 2005 $, SAAR YR 4Q/4Q Chg 2011 3.5% 2012 4.5% 2013 2.4% 2014 1.7% 29% fall 142 100 90 101 80 70 60 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Multifamily Production Index 36-point increase in four years 60 (000s) 400 55 50 45 40 5+ Starts (R) 52 350 300 250 35 200 30 25 20 15 10 NAHB MMI (L) 16 150 100 50 0
Multifamily Housing Starts - Healthy Response from Renter Growth 550 500 450 400 350 300 Thousands 1995-2003 331,000 2010 114,000 2011 178,000 56% 2012 246,000 38% 2013 299,000 22% 2014 317,000 6% 250 200 150 100 50 0 Trough to Current: 4 th Q 09 = 82,000 4 th Q 12 = 306,000 273% 76% fall 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
NAHB/Wells Fargo Housing Market Index - 33 point rise since September 2011 80 (000s) 70 60 50 40 30 20 10 0 HMI (L) Single-family starts (R) 8 14 47 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Single-Family Starts Beginning a Recovery 2,000 Thousands 2000-2003 1,300,000 Normal 1,800 1,600 1,400 2010 471,000 2011 434,000-8% 2012 535,000 23% 2013 650,000 22% 2014 844,000 30% 1,200 1,000 80% fall 800 600 400 200 0 Trough to Current: Mar 09 = 353,000 Dec 12 = 616,000 +74% 2012Q4 = 44% of Normal 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Single-Family Starts Beginning a Recovery 11 1.2 1.3 Housing Starts / Average 2000-03 Starts National Average will be 52% of normal by 2013Q4 and Single Family Starts Beginning a Recovery 0.8 0.9 1.0 1.1 2014Q4 2013Q4 at o a e age be 5 % o o a by 0 3Q a d 70% of normal by 2014Q4. 0.5 0.6 0.7 0.8 US 0.2 0.3 0.4 0.0 0.1 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
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
Dangers Lot supply Material costs Labor supply/immigration reform Deficit/debt agreement (of lack) Tax reform GSE/housing finance reform
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 0 10 20 30 40 50 60 70 80
Frank Nothaft Frank Nothaft Freddie Mac
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)
Low Interest Rates & Lower Home Prices Have Increased Homebuyer Affordability Index Percent 200 19 175 150 125 100 75 50 17 15 13 11 9 7 Forecast 5 3 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 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.
At this Stage of the Recovery, Consumer Confidence is Lower than in Previous Expansions Consumer Confidence Index 150 130 110 90 108 105 Recession 98 Peak Jan 2000 87 93 70 66 50 30 Low Feb 2009 10 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 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
Home Sales Projected Up About 8% in 2013 Forecast Sources: US Census Bureau, National Association of Realtors
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 $0 2011 2012 2013 2014 Sources: Freddie Mac, HUD, VA
Vacant Housing Oversupply is Lowest in 10 Years Excess Vacant Homes (Numbers in Millions) 2.0 18 1.8 Excess for-rent Inventory 1.6 1.4 1.2 1.0 0.8 0.6 0.4 Excess for-sale Inventory 02 0.2 04 0.4 0.0-0.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 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.
U.S. House Prices Down 22% from Peak to 2003 Levels U.S. Property Value Index (2000Q4 = 100) 170 170 160 150 Freddie Mac House Price Index 160 150 140 130 22% Down 140 130 120 120 110 110 100 100 90 2000M03 2001M03 2002M03 2003M03 2004M03 2005M03 2006M03 2007M03 2008M03 2009M03 2010M03 2011M03 2012M03 90 Source: Freddie Mac House Price Index
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
House Price Performance Byy State September 2009 to September 20121 United States 2009 10 2009 10 2010 11 2010 11 2011 12 1 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
Vacancy Drop Since 2010 Has Led to Rent Growth; Inflation-Adjusted Rent Remains Relatively Low Rent (in 2012 Dollars) 1200 9% 1175 1150 Rent-Inflation Adjusted (left) Vacancy (in Percent) Vacancy Rate (right) 8% 1125 1100 1075 1050 1025 1000 975 7% 6% 5% 4% 950 3% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 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)
Rental Vacancy Declines Have Occurred in Most Markets -0.7 United States -2.5-1.2-0.3-1.3 0.5 0.4 1.1-3.9-3.2-5.7-3.9 0.8-1.8 RI -0.6-0.7 1.3 02 0.2-1.9 CT -1.7 17-1.6-1.7-0.6 0.9 0.3-0.1-4.9 0.5-3.0-0.6-3.2-2.5-1.2 0.1-5.5 DC -0.9 00 0.0 0.1-6.6-3.0-5.6-6.8-6.7-5% -5.1-5.9-7.0-2.5 to -5% -4.9 49 00 0.0 0 to -2.5% -3.3 >0% -2.5-1.4-6.1 1 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
U.S. Apartment Values Are Up About 8% over Past Year 350 Apartment Appreciation Index 325 300 13 percent below Peak 275 250 225 32 percent drop to Trough 27 percent increase from Trough 200 20 000 20 001 20 002 20 003 20 004 20 005 20 006 20 007 20 008 20 009 20 010 20 011 20 012 Source: NCREIF Property Index.
Seriously Delinquent Loans Declining but Remain High Millions of Loans 5 In Foreclosure 4 90+ Day Delinquent 3 2 3.3 1 0 201 12 201 11 201 10 200 09 200 08 200 07 200 06 200 05 200 04 200 03 200 02 200 01 200 00 Source: MBA National Delinquency Survey, adjusted for estimated coverage
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% 2006 2007 2008 2009 2010 2011 2012 Source: CoreLogic Market Trends for U.S. (through September 2012)
Where to Get More Information Look for regular updates to our economic forecast, commentary and data at www.freddiemac.com/news/finance Twitter: @FreddieMac Contact us at chief_economist@freddiemac.comeconomist@freddiemac 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. 2013 by Freddie Mac.
Risks to the Outlook David Berson ImageNationwide InsuranceImage
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
Debt / GDP ratio high and climbing 125 125 100 100 Current value = 98.7 Perc cent (%) Image Image 75 75 50 50 25 25 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 Source: Office of Management and Budget / Haver Analytics Gross Federal Debt as Percentage of GDP, through 2011 48
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
Banks have not eased extremely tight residential lending standards 80 80 60 60 nt (%) Perce 40 40 Image Image 20 20 0 0-20 95 00 05 10 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 2012-20 50
Opportunities to the Outlook Image Image
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
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
Population growth accelerating Rhode Island: -0.03% Source: U.S. Census Bureau / Haver Analytics Population Growth by State 2012 / 2011 Percent Change 54
Speaker Contacts: David Crowe NAHB Frank Nothaft Freddie Mac David Berson Nationwide Insurance 1201 15 th Street, NW Washington, DC 20005 202-266-8380 Dcrowe@nahb.org 8200 Jones Branch Drive McLean, VA 22101 703-903-2350 Frank nothaft@freddiemac.com 1 Nationwide Plaza, 1-03-605 Columbus, OH 43215 614-677-2994 Berson1@nationwide.com Dcrowe@nahb.org Frank_nothaft@freddiemac.com Berson1@nationwide.com
IBS Education National Association of Home Builders 1201 15 th Street Washington, DC 20005 800-368-5242 ibsedu@nahb.org