supply-side factors and housing affordability · residential construction roundtable december 12,...

Supply-Side Factors

and Housing AffordabilityCoreLogic-NAHB

Residential Construction RoundtableDecember 12, 2018

Robert Dietz, Ph.D.NAHB Chief Economist

Housing Affordability – NAHB/Wells Fargo HOI

Source: NAHB/Wells Fargo Housing Opportunity Index.

78

56

20

30

40

50

60

70

80

90

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

National

CoreLogic transaction data and NAHB estimates find significant declines

New Home Sales and Months’ Supply

0

200

400

600

800

1,000

1,200

1,400

1,600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

0

2

4

6

8

10

12

14

Months Supply at Current Sales Rate, (mo. SA)

New Home Sales: New single-family houses sold, (Ths. #, SAAR)

Thousands, SAAR Months Supply, SA

Source: U.S. Census Bureau (BOC).

Household Formation

-1,000

-500

0

500

1,000

1,500

2,000Y/Y Change in Household Count, Thousands, NSA

Owner-Occupied

-1,000

-500

0

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015 2016 2017 2018

Renter-Occupied

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.

Demand for home ownership strengthened

Homeownership Rate

69.4%

64.4%

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

71%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Percentage, Quarterly, SA

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.

Geography of Homeownership

Alaska

Hawaii

Homeownership Rates in the U.S. by County

Wide variation

Determinants of Homeownership

Modeling Results

Increase average age in county by 5 years

• Adds 3 percentage points to rate

Increase share of married households by 10%

• Added 5.1 percentage points to rate

Increase local incomes by $10,000

• Adds 0.6 percentage points to rate

Decrease housing costs by $75,000

• Adds 4.1 percentage points to rate

Share of Young Adults Living with Parents

9%

11%

13%

15%

17%

19%

21%

23%

25%

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

60%

1990 2000 2002 2004 2006 2008 2010 2012 2014 2016

Ages 18 to 24

Ages 25 to 34

Source: US Census 1990, 2000, PUMS, 2000-2016 ACS, PUMS, NAHB Estimates.

Almost doubled

Consumer DebtRise in student and auto loans

Source: Federal Reserve Bank of New York.

156%

98%

236%

9/30/2008, 100%

97%

0

1

2

3

4

5

6

7

8

0%

50%

100%

150%

200%

250%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Auto Loans

Student Loans

Credit Cards

Other

GDP GrowthNear-term growth with slowing ahead

Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.

-10%

-8%

-6%

-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

Q/Q Percent Change, SAAR

Annual Growth

LT avg (‘58-’07) 3.4%

2016 1.6%

2017 2.2%

2018f 3.0%

2019f 2.6%

2020f 1.3%

30-Year Fixed Rate Mortgage and 10-Year TreasuryRates will rise due to Fed policy and tight labor markets

Source: Federal Reserve and Freddie Mac data and NAHB forecast.

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

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

October 31,

2016

30-Year Fixed Rate Mortgage

10-Year Treasury

Mortgage Risk Premium

(Difference)

Rising Population Entering Housing Demand Years

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

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+

Avg=4.3

Millions

Gen Z:

Born After 1997

Gen X:

Born 1965-1980

Baby Boomers:

Born 1946-1964

Silent

Generation:

Born 1928-1945

v

Head

sh

ip r

ate

s in

cre

ase f

rom

15%

to

45%

Greatest

Generation:

Born

Before 1928

Millennials:

Born 1981-1997

Supply-Side Factors

Building Materials – Lumber Prices

1/6/2017, 357

582

11/16/2018, 340

$250

$300

$350

$400

$450

$500

$550

$600

2015 2016 2017 2018

$ per thousand board feet

Since January 2017, lumber prices decreased 5%; 63% at peak

Source: NAHB Analysis; Random Lengths Composite Index.

Residential Construction Employment Continues to GrowEmployment gain of 873,500 since 2011; 175,900 increase since 2017

Source: U.S. Bureau of Labor Statistics (BLS).

0%

5%

10%

15%

20%

25%

0

500

1000

1500

2000

2500

3000

3500

4000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Residential Builders Residential Specialty Trade Contractors Construction Unemployment Rate

Employment, Thousands

LaborElevated count of unfilled construction jobs

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Job openings rate - Construction

12-month moving average

Source: U.S. Bureau of Labor Statistics (BLS).

Labor ForceChanging labor force

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0

10

20

30

40

50

60

70

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

Millions

Did Not Finish High School

Associate Degree and Other

Two Year Programs

High School Graduate

College Graduates

Source: U.S. Bureau of Labor Statistics (BLS).

Construction Sector ProductivityLagging overall economy

0.4

0.6

0.8

1.0

1.2

1.4

1.6

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

Construction Worker Productivity

Overall Worker Productivity

Index, 1993 = 1

Source: U.S. Bureau of Labor Statistics (BLS).

Lending – AD&C Access

Source: Federal Deposit Insurance Corporation.

Loans growing but at a slower rate

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

07 08 09 10 11 12 13 14 15 16 17 18

1-4 unit Residential Construction Loans

Year-over-Year Growth Rates

Millions

LotsHousing Starts (Area) and Low/Very Low Lot Supply (bars)

0%

10%

20%

30%

40%

50%

60%

70%

0

300

600

900

1,200

1,500

1,800

2,100

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Starts (Thousands) Low Supply

Source: Census Bureau and NAHB/Wells Fargo HMI survey.

Median Lot Value and Size

8,560

$47,400

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

8,200

8,400

8,600

8,800

9,000

9,200

9,400

9,600

9,800

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Square Feet

Median Lot Size

(For Sale: Single-Family Detached)

Median Lot Value

(Single-Family Starts)

Lot size declining --- lot value increasing

Source: 2017 Survey of Construction (SOC) and NAHB Economics Estimates.

Regulatory Costs Rising – Up 29% over 2011-2016Total effect of building codes, land use, environmental and other rules

Regulations - 32% of Multifamily Development Costs

4.8%7.3%

2.3%2.3%4.2%

5.5%4.0%

5.3%3.9%

5.4%5.9%

8.4%

5.2%

7.0%

7.1%

Lower Quartile Average Upper Quartile

Cost increases from changes to buildingcodes over the past 10 yearsDevelopment requirements that go beyondthe ordinaryFees charged when building construction isauthorizedCost of applying for zoning approval

Other (non-refundable) fees charged whensite work beginsCost of complying with OSHA requirements

Others

21.7%*

32.1%

42.6%*

Government Regulations as a Share of Multifamily Development Costs

Note: * For quartiles, all types of costs do not sum to the total.Source: NAHB/Wells Fargo HMI survey.

NAHB-NMHC research

Construction

Outlook

NAHB/Wells Fargo Housing Market Index

60

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

10

20

30

40

50

60

70

80

05 06 07 08 09 10 11 12 13 14 15 16 17 18

Index Thousands, SAAR

Single-Family Starts

HMI

Declining builder confidence as housing affordability issue expands

Source: U.S. Census Bureau and NAHB/Wells Fargo HMI survey.

2000-2003 1,343,000 “Normal”

2015 713,000

2016 785,000 10%

2017 852,000 9%

2018 884,000 4%

2019 917,000 4%

2020 933,000 2%

Single-Family StartsSlowing growth ahead

Trough to Current:

Mar 09 = 353,000

Oct 18 = 865,000

+145%

Source: U.S. Census Bureau (BOC) and NAHB Forecast.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Thousands of units, SAAR

80% fall

2018Q3:

65% of

“Normal”

2020Q4:

69% of

“Normal”

Growth in Single-Family Permits

RankDecline in Growth rate

Growth rate < U.S.

Growth rate ≥ U.S.

September 2018 YTD vs. September 2017 YTD

Source: U.S. Census Bureau (BOC).

New NAHB Leading Markets Index

Source: NAHB Analysis of Census data (Building Permits and ACS)

New economic geography measure of building conditions

• First index metric is metro areas – third quarter data

Smaller metro areas – core counties (29% of single-family permits)

• Smaller towns like Xenia, Ohio and Darlington, South Carolina

• 9.8% annual growth rate, 7.4% year-over-year

Large metro areas – suburban counties (26% share)

• Fairfax, Virginia

• 4.1% annual growth rate, 3.2% year-over-year

Large metro areas – core counties (18% share)

• Columbus, Ohio and Orange County, California

• 6.5% annual growth rate, 6.8% year-over-year

Smaller metro, outlying areas (8% market share)

• Rural areas near small towns

• 2.7% growth rate, -2.4% year-over-year

Typical New Home Size

1600

1700

1800

1900

2000

2100

2200

2300

2400

2500

2600

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

SF Starts: Median Floor Area SF Starts: Median 1 Year MA

Square Feet

Decline after market shift

Source: U.S. Census Bureau (BOC).

Townhouse Market Expanding

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

10

20

30

40

50

60

70

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

SF Starts: Attached

Townhouse Share: 1-Year Moving Average

Thousands, NSA

Source: U.S. Census Bureau (BOC).

Multifamily Housing StartsLeveling off

1995-2003 331,000 “Normal”

2015 394,000

2016 393,000 0%

2017 356,000 -9%

2018 376,000 6%

2019 366,000 -3%

2020 364,000 -1%

Source: U.S. Census Bureau (BOC) and NAHB Forecast.

0

50

100

150

200

250

300

350

400

450

500

550

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Trough to Current:

4th Q 09 = 82,000

3rd Q 18 = 347,000

+324%

2018Q3:

105% of

“Normal”

Thousands of units, SAAR

76% fall

Avg=344,000

2020Q4:

109% of

“Normal”

Residential RemodelingGrowth ahead but slowing

0

25

50

75

100

125

150

175

200

225

250

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

Billions, SAAR

Adjusted

Actual

Year Percent Change

2016 10%

2017 19%

2018f 10%

2019f 4%

2020f 2%

Source: U.S. Census Bureau (BOC) and NAHB Forecast.

Thank youQuestions?

rdietz@nahb.org@dietz_econ

eyeonhousing.orghousingeconomics.com