bbv10 belsky outlook
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JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
www.jchs.harvard.edu
The Housing Outlook
Eric S. BelskyBig Builder
October 28, 2010
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Housing Markets Have Corrected In Significant Ways
Home prices have fallen significantly in many metros
Case-Shiller index-based house price to per capita income ratios have fallen to near 35-year lows nationally and in IL, FL, and CA, and below them in NV and AZ
Less volatile (net of nonconforming loans) Freddie Mac index shows fewer places back to long-run lows
Low interest rates have helped bring payment-to-income ratios on median priced homes in the majority of large metros to well below 1990s average levels
Steep production cuts have brought national 10-year total housing production back in line with 10-year average trends
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Worst Home Building Downturn Since World War II
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
1925-1933
1941-1944
1950-1953
1955-1957
1959-1960
1963-1966
1968-1970
1972-1975
1978-1982
1986-1991
2005-2009
Percent Change in Housing Starts
Sources: US Census Bureau, New Residential Construction data and Historical Statistics of the United States, Colonial Times to 1970.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
The Last 10 Years of Completions and Placements Nearing Low Point of 27 10-year Periods Back to 1974-83
1414.5
1515.5
1616.5
1717.5
18
1980-1989 1990-1999 2000-2009 2001 - 2010(e) Median 10-Year Rate
Lowest 10-Year
(1988-97)
10 Year Total Completions & Placements (millions)
Note: Data go back to 1974. 2010 annual completions and placements are estimated by the following methodology: Jan-Jul 2010 is 13.873% below 2009 levels, so annual is taken to be same amount below 2009 annual. Jan-May placements are 8.33% below Jan-May 2009.Source: JCHS calculations of US Census Bureau data
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Housing Markets Face Strong Headwinds Household growth has slowed below normalized levels
Vacancy rates remain elevated despite sharp housing production cutbacks
Employment growth has not been enough to reduce unemployment rate or restore consumer confidence
The 2 million homes in foreclosure and 2 million more 90+days delinquent will pressure prices in many areas
Tightened underwriting has dramatically reduced pool of eligible homebuyers
Owners underwater on their mortgages cannot sell or refinance without incurring losses or handing in the keys – crimping trade up markets
Deleveraging is far from running its course
Bank debt for AD&C will likely remain tight
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Household Growth Has Clearly Slowed, But Estimates of the Degree Vary Widely
Average Annual Household Growth (Millions)
-0.75
-0.50
-0.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
AmericanCommunity Survey
Current PopulationSurvey
Housing VacancySurvey
2000-5 2005-9 Average Annual Slowdown
Notes: ACS estimates are from 2005 to 2008 only. To adjust for rebenchmarking, CPS and HVS estimates for 2002-3 are assumed to equal the average in 2000-5. Sources: US Census Bureau, American Housing Survey; Current Population Survey; and Housing Vacancy Survey.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Strong Employment Growth Has Been More Critical To Strength of Past Demand Rebounds
0
2
4
6
-3
-2
-1
0
1982:2-1984-2 1974:4-1976:4 1991:1-1993:1
Change in Employment (Percent)
Change in Mortgage Rates (Percentage points)
Note: Changes are from a trough in new home sales through the first eight quarters of a sustained recovery.Source: JCHS tabulations of US Census Bureau, New Residential Construction Survey; Bureau of Labor Statistics, Current Employment Statistics; and Freddie Mac, Primary Mortgage Market Survey.
0
25
50
75Change in New Home Sales (Percent)
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Employment Has Started to Recover But Is Still in a Deep Hole
Note: Quarterly values are three-month averages of seasonally adjusted annual rates. Cyclical trough quarters in new home sales were 1966:4, 1975:1, 1982:2, 1991:1, and false trough in 2009:1. Sources: US Census Bureau, New Residential Construction; BLS, Establishment Survey
Aggregate Change in Total Nonfarm Employment (000s)
-8000-7000-6000-5000-4000-3000-2000-1000
010002000
-2 -1 Trough inNewSales
1 2 3 4 5 6Quarters
AfterMid 1970s Late 1970s/ Early 1980s
Late 1980s/ Early 1990s Current Downturn
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Real Home Equity Has Returnedto Its 1985 Levels
Trillions of 2009 Dollars
0.0
2.5
5.0
7.5
10.0
12.5
15.01
98
5
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Home Equity Home Mortgage Debt 2009 Equity Level
Note: Values are adjusted for inflation using the CPI-U for All Items.Source: Federal Reserve Board, Flow of Funds.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Large Echo-Boom Generation Should Fuel Household Growth
10
12
14
16
18
20
22
5-9 10-14 15-19 20-24
Baby-Boom Generation in 1970 Echo-Boom Generation in 2005
Age
Notes: Members of the baby-boom generation were born 1946-1964. Members of the echo-boom generation were born 1981-2000.Source: US Census Bureau, Population Estimates.
Population (Millions)
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Estimating Underlying New Home Demand
Estimates are of long-run sustainable demand – not a prediction of actual single family and multifamily completions plus manufactured home placements over the projection period
Actual construction influenced by under or over supply entering and exiting the period
Household growth projected under two immigration assumptions and with headship rates held constant at 2007-2009 average levels by race/ethnicity and age Headship rates are share of people in an age group
by race and ethnicity that head a household
Each household head is equal to one occupied housing unit
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Under Low Immigration Assumptions, Underlying Demand Should Top 16 Million 2010-20 if Headship Rates Hold
Steady at 07-09 Average Levels
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Low Immigration (Assuming Half of CensusBureau Immigration Projections)
High Immigration (Assuming Census BureauImmigration Projections)
Projected Household Growth (000s) Vacant Unit Demand Net Removals
New Housing Units 2010-2020 (Millions)
Source: JCHS Working Paper W10-9. Assumes headship rates by age and race/ethnicity hold constant at 2007-2009 average levels in Current Population Survey. High immigration is US Census Bureau 2008 baseline populationprojections and low immigration is half that assumption.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2010
Conclusions Long-run supply and demand may be closer to balance
than today’s elevated vacancy rates imply
Due to substantial headwinds, housing recovery will likely be slow unless job growth stages a more convincing rebound
Builders will continue to compete with distressed sales in many markets
The foreclosure crisis threatens the housing recovery
Immigration and extent of long-term doubling up of households bring uncertainty to long-run new home demand outlook
Awaiting Census 2010 release to get clearer picture of current population, households, headship rates, and vacancies