Economic and Housing Outlook Home Builders Association of Virginia June 22, 2018 Robert Dietz, Ph.D. NAHB Chief Economist
Housing Market Growing; Single-Family Lags Tax reform changes Macroeconomics post-tax reform Signs of growth momentum Signs of a future slowdown Housing demand and affordability Demographics positive Supply-side headwinds State-level economic measures Forecasts
Macroeconomics Post-Tax Reform
Tax Reform Policy Changes and Impacts Economic impacts GDP Marked up 2018 forecast to 2.7% Dynamic scoring model suggests 0.8% more GDP after 10 years Business investment 1.1% higher after ten years Labor supply and employment 0.6% higher 0.9 million more workers in labor force Reduced home price growth to a positive 2.9% growth rate in 2018 Incoming data shows no such effect
Tax Reform Boosts Potential GDP Added economic efficiencies yield more room to grow 25,000 Billions, 2009 USD 22,500 Difference June, 2017 April, 2018 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2,500 Billions USD 800 700 600 500 400 300 200 100 0 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27 0 Source: Congressional Budget Office.
Tax Cuts Help Disposable Income Growth Bonuses and wage growth will drive gains 14,000 Billions, 2009 USD, SAAR 13,000 12,000 2.4% annual growth rate 11,000 2.1% annual growth rate 10,000 9,000 8,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.
GDP Growth Stronger growth expected post-tax reform 10% 8% 6% Q/Q Percent Change, SAAR Annual Growth LT avg ( 58-07) 3.4% 2016 1.5% 2017 2.3% 2018 f 2.9% 2019 f 2.7% 2020 f 1.8% 4% 2% 0% -2% -4% -6% -8% -10% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.
Dec 1854 Dec 1858 Jun 1861 Dec 1867 Dec 1870 Mar 1879 May 1885 Apr 1888 May 1891 Jun 1894 Jun 1897 Dec 1900 Aug 1904 Jun 1908 Jan 1912 Dec 1914 Mar 1919 Jul 1921 Jul 1924 Nov 1927 Mar 1933 Jun 1938 Oct 1945 Oct 1949 May 1954 Apr 1958 Feb 1961 Nov 1970 Mar 1975 Jul 1980 Nov 1982 Mar 1991 Nov 2001 120 Expansion is Aging Current expansion is 108 months old second longest Trough to Peak, Months 106 120 100 92 80 73 60 40 20 0 Source: The National Bureau of Economic Research (NBER).
85% 84% Labor Force Participation Rate Improving labor force participation key to future growth Percentage, SA 68% 67% 83% Overall 66% 65% 82% 81% 80% 79% Age 25-54 64% 63% 62% 61% 60% 78% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 59% Source: U.S. Bureau of Labor Statistics (BLS).
Tight Labor Market How low can unemployment go? Percent, SA 4.5% Percent, SA 12% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Unemployment Rate Job Openings Rate 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.
Cumulative Change in Employment by Age Group Mind the Gen-X gap 20 Millions of Employees, SA 15 10 55 and Older 5 0 Under 55-5 -10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Bureau of Labor Statistics (BLS).
Government Deficits Growing Post-tax reform deficits add up to 30 basis points to 10-year Treasury rate $ Trillion Share of GDP, Percent 0.8 Government Deficit (End of Fiscal Year) Government Deficit as a Share of GDP (End of Fiscal Year) 0.4 4% 2% 0.0 0% -0.4-0.8-1.2-2% -4% -6% -8% -1.6-10% 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 21 22 Source: U.S. Treasury Department and Bureau of Economic Analysis (BEA) and NAHB forecast.
30-Year Fixed Rate Mortgage and 10-Year Treasury Rates will rise due to Fed policy and tight labor markets 12% 12% 10% 30-Year Fixed Rate Mortgage October 31, 2016 10% 8% 8% 6% 6% 4% 10-Year Treasury 4% 2% Mortgage Risk Premium (Difference) 2% 0% 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 0% Source: Federal Reserve and Freddie Mac data and NAHB forecast.
Housing Demand and Affordability
Headship rates increase from 15% to 45% Rising Population Entering Housing Demand Years: 2017 5.0 4.5 Millions Avg=4.3 v 4.0 3.5 3.0 2.5 2.0 1.5 Silent Generation: Born 1928-1945 Greatest Generation: Born Before 1928 1.0 0.5 Gen Z: Born After 1997 Millennials: Born 1981-1997 Gen X: Born 1965-1980 Baby Boomers: Born 1946-1964 0.0 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100+
Consumer Debt Rise in student and auto loans 250% 8 200% Student Loans 226% 7 6 150% 100% Other 80% Auto Loans 151% 97% 95% 5 4 3 50% Credit Cards 2 1 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0 Source: Federal Reserve Bank of New York.
Existing Home Sales Low inventory 8,000 Thousands Months Supply (Months, NSA) 14 7,000 6,000 Months Supply Existing Home Sales 12 10 5,000 8 4,000 3,000 6 2,000 Existing Home Inventory 4 1,000 0 Existing Home Sales: Single-Family & Condo & Co-op, (Ths., SAAR) Number of homes available for sale: Single-Family & Condo & Co-op, (Ths., NSA) 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: National Association of Realtors (NAR). 2 0
S&P/Case-Shiller National US Home Price Index Prices growing faster than income Percent Growth, SAAR 20 15 10 5 0-5 -10-15 -20 87 88 89 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 Source: S&P Dow Jones Indices LLC; CoreLogic, Inc. and NAHB forecast.
Housing Affordability NAHB/Wells Fargo HOI Affordability declining 90 80 78 70 60 National 62 50 40 30 20 Q1_04 Q1_05 Q1_06 Q1_07 Q1_08 Q1_09 Q1_10 Q1_11 Q1_12 Q1_13 Q1_14 Q1_15 Q1_16 Q1_17 Q1_18 Source: NAHB/Wells Fargo Housing Opportunity Index.
Simulating Future Affordability Conditions HOI declines due to higher rates and costs/prices despite rising incomes 90 80 78 70 60 National 62 Q2 2019, 56, with 5% mortgage rate 50 Distribution of MSAs by change in the HOI using 40 forecast prices, income, and interest rates Declines of more than 10% 37% Declines of 5 to 10% 25% 30 No change to 4% decline 36% Gain of 1 to 5% 1% 20 Q1_04 Q1_05 Q1_06 Q1_07 Q1_08 Q1_09 Q1_10 Q1_11 Q1_12 Q1_13 Q1_14 Q1_15 Q1_16 Q1_17 Q1_18 Q1_19 Q1_20 Source: NAHB/Wells Fargo Housing Opportunity Index.
Supply-Side Headwinds
Building Materials Softwood Lumber Since January 2017, Random Lengths Framing Composite Price Index up 63% 270 Index 1982=100, NSA 263 250 230 210 190 170 150 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Bureau of Labor Statistics (BLS).
Labor Elevated count of unfilled construction jobs 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Job openings rate - Construction 12-month moving average 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: U.S. Bureau of Labor Statistics (BLS). -
Construction Sector Productivity Lagging overall economy Index, 1993 = 1 1.6 Construction Worker Productivity Overall Worker Productivity 1.4 1.2 1.0 0.8 0.6 0.4 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
Regulatory Costs Rising Up 29% Over Last 5 Years Total effect of building codes, land use, environmental and other rules
Regulations - 32% of Multifamily Development Costs New NAHB-NMHC research Government Regulations as a Share of Multifamily Development Costs 42.6%* 21.7%* 5.2% 32.1% 7.0% 5.9% 3.9% 4.0% 4.2% 2.3% 4.8% 7.1% 8.4% 5.4% 5.3% 5.5% 2.3% 7.3% Cost increases from changes to building codes over the past 10 years Development requirements that go beyond the ordinary Fees charged when building construction is authorized Cost of applying for zoning approval Other (non-refundable) fees charged when site work begins Cost of complying with OSHA requirements Others Lower Quartile Average Upper Quartile Note: * For quartiles, all types of costs do not sum to the total. Source: NAHB/Wells Fargo HMI survey.
A Local Look
Virginia GDP Growth 8% Q/Q Percent Change (annualized), SAAR 6% 4% 2% 0% -2% -4% -6% -8% 05 06 07 08 09 10 11 12 13 14 15 16 17
Population Growth Virginia population grew slower in recent years 8,600 8,500 8,400 8,300 Thousands 2010 2011 2012 2013 2014 2015 2016 2017 U.S. 0.8% 0.7% 0.8% 0.7% 0.8% 0.8% 0.7% 0.7% Virginia 1.3% 1.0% 1.0% 0.9% 0.7% 0.6% 0.6% 0.7% 316,235 318,623 321,040 323,406 Thousands 325,719 330,000 325,000 320,000 8,200 313,993 315,000 8,100 309,338 311,644 310,000 8,000 7,900 305,000 7,800 8,025 8,108 8,189 8,262 8,317 8,367 8,414 8,470 2010 2011 2012 2013 2014 2015 2016 2017 300,000 IUSA Virginia
Payroll Employment Virginia above pre-recession peak 4,100 Thousands, SA 4,000 105% 3,900 3,800 3,789 3,700 3,600 3,500 95% 3,400 3,300 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
220 200 180 160 140 120 Existing House Price Index Virginia below pre-recession peak 2000Q1 = 100, SA Relative to Pre-recession Peak US Virginia Recession-era Low 81% 83% Current 110% 98% Virginia United States 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 100 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 0
Forecasts
Household Formation Demand for home ownership strengthening 2,000 Y/Y Change in Household Count, Thousands, NSA 1,500 Owner-Occupied 1,000 500 0-500 -1,000 2,500 2,000 1,500 1,000 500 0-500 -1,000 Renter-Occupied 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.
Homeownership Rate 71% Percentage, Quarterly, SA 1.00 70% 69% 68% 67% 66% 69.4% 0.90 0.80 0.70 0.60 0.50 65% 64% 63% 62% 61% 64.2% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 0.40 0.30 0.20 0.10 - Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.
NAHB/Wells Fargo Housing Market Index Nearly two-decade high for builder confidence 80 Index Thousands, SAAR 2,000 70 60 HMI 70 1,800 1,600 1,400 50 40 Single-Family Starts 1,200 1,000 30 800 20 600 400 10 200 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 0 Source: Census Bureau and NAHB/Wells Fargo HMI survey.
Single-Family Starts Modest growth ahead 2,000 Thousands of units, SAAR 2000-2003 1,343,000 Normal 2015 713,000 1,800 2016 785,000 10% 1,600 1,400 1,200 1,000 80% fall 2017 852,000 9% 2018 910,000 7% 2019 959,000 5% 2020 1,003,000 5% 2018Q1: 66% of Normal 2020Q4: 76% of Normal 800 600 400 200 Trough to Current: Mar 09 = 353,000 Apr 18 = 894,000 +153% 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Census Bureau and NAHB forecast.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% M I N V I L A Z M N C O C A F L G A O H I N M O W I N H C T R I O R N J M D I D K Y U T A K K S M A V T N M N C M E H I V A N Y P A T N I A W V W A D C N E D E S C S D M S N D A R T X A L O K M T L A W Y Current Trough Housing Starts / Average 2000-03 Starts US Single Family Housing Starts Trough and Current Source: Census Bureau. National average single family starts bottomed out at 27% in early 2009 and reached 66% of normal in 2018Q1.
Single-Family Building Permits Virginia 60,000 Number of Units 2.0 50,000 40,000 30,000 49,959 1.9 1.8 1.7 1.6 1.5 20,000 10,000 15,625 22,497 1.4 1.3 1.2 1.1 0 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 1.0 Source: U.S. Census Bureau (BOC).
Single Family Permits 12-Months Growth Rate Kingsport-Bristol- Bristol, TN-VA Rank Growth Rate < 0 0 < Growth Rate < U.S. Growth Rate > U.S. Blacksburg- Christiansburg- Radford, VA Harrisonburg, VA Staunton- Waynesboro, VA Charlottesville, VA Lynchburg, VA Winchester, VA-WV Washington- Arlington-Alexandria, DC-VA-MD-WV Richmond, VA Virginia Beach-Norfolk-Newport News, VA-NC
Home Prices of New and Existing Homes Wide gap since 2012 $360,000 Median Sales Price Difference $120,000 $300,000 $100,000 $240,000 New Homes $80,000 $180,000 $60,000 $120,000 Existing Homes $40,000 $60,000 1990-2008 Avg: $20,000 $20,000 $0 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 $0
Typical New Home Size Decline after market shift 2600 Square Feet 2500 2400 2300 2200 2100 2000 1900 1800 1700 SF Starts: Median Floor Area SF Starts: Median 1 Year MA 1600 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
70 60 Townhouse Market Expanding Thousands, NSA SF Starts: Attached Townhouse Share: 1-Year Moving Average 16% 14% 50 12% 40 10% 30 20 10 8% 6% 4% 2% 0 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 0%
Multifamily Housing Starts Leveling off 550 500 450 400 Thousands of units, SAAR Avg=344,000 1995-2003 331,000 Normal 2015 394,000 2016 393,000 0% 2017 356,000-9% 2018 377,000 6% 2019 354,000-6% 2020 351,000-1% 350 300 250 200 150 100 50 Trough to Current: 4 th Q 09 = 82,000 1 st Q 18 = 427,000 +421% 76% fall 2018Q1: 129% of Normal 2020Q4: 105% of Normal 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Census Bureau and NAHB forecast
National average multifamily starts bottomed out at 25% in late 2009 and were 129% of normal in 2018Q1. Multifamily Housing Starts Trough and Current Source: Census Bureau. -25% 0% 25% 50% 75% 100% 125% 150% 175% 200% 225% M I A Z N V C O A K G A I D O R N M R I F L S C O H M T N E I L W I C A W A M N M S K S K Y H I I N O K T X I A W V P A T N M O W Y L A U T N C M D N Y A L V T M E V A A R S D M A N D N H D C N J C T D E Current Trough Housing Starts / Average 1995-2003 Starts US
Multifamily Building Permits Virginia 16,000 Number of Units 14,000 12,000 10,000 8,000 6,000 14,230 11,263 2.0 1.9 1.8 1.7 1.6 1.5 1.4 4,000 2,000 0 4,843 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 1.3 1.2 1.1 1.0 Source: U.S. Census Bureau (BOC).
Residential Remodeling Strong market conditions 250 225 200 175 150 Billions, SAAR Year Percent Change 2016 11% 2017 17% 2018 f 7% 2019 f 8% 2020 f 6% Actual 125 100 75 Adjusted 50 25 0 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 Source: Census Bureau and NAHB forecast.
The Age of the Housing Stock Typical home is almost 40 years old 45% 40% 38% 2005 2015 35% 30% 32% 25% 20% 15% 10% 12% 15% 16% 13% 15% 17% 15% 16% 9% 5% 0% 45 years old or more 35-45 25-35 15-25 5-15 5 years old or less 3%
Thank you Questions? rdietz@nahb.org @dietz_econ eyeonhousing.org housingeconomics.com