housing and economic outlook after tax reform€¦ · housing and economic outlook after tax reform...

Housing and Economic

Outlook After Tax Reform

Blue Ridge Home Builders AssociationFebruary 15, 2018

Robert Dietz, Ph.D.NAHB Chief Economist

Policy and Pricing – Economic Update

➢ Tax Reform – policy change and economic impact

➢ Macroeconomic update

➢ Interest rates and housing demand

➢ Supply-side factors update

➢ Local economic factors

➢ Forecasts

➢ A tipping point for homeownership?

Tax Reform

Tax Reform – Policy Changes and Impacts

• Individual Taxpayers

• Lower tax rates, with top rate of 37%

• $1.2 trillion tax cut for rate reduction

• Personal exemptions eliminated but standard deduction nearly doubles, child credit expands

• $70 billion tax cut on net basis

• Housing deductions

• Fewer itemizers, but offset by larger standard deduction

• $750K cap for MID, second home rule retained

• Property tax and income/sales SALT deduction capped at $10,000

• Capital gain exclusion for principal residences

• Protected with the existing 2 of 5 year occupancy rule


• Individual Taxpayers

• AMT thresholds raised: $637 billion tax cut

• Estate tax exemption amounts doubled to $11 million per person: $83 billion tax cut

• Business Taxpayers

• Special pass-thru deduction of 20%: $415 billion tax cut

• LIHTC and private activity bonds protected

• Carried interest now has three-year holding period requirement

• Business interest deduction protected for real estate

• Active loss limit of $500K per year against passive income

• Like kind exchange protected for real estate

• Completed contract accounting rules protected and expanded


• Economic impacts

• GDP

• Marked up 2018 forecast to 2.6%

• 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

Macroeconomics

-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

Q/Q Percent Change, SAAR

Annual Growth

LT avg (‘58-’07) 3.4%

2015 2.9%

2016 1.5%

2017 2.2%

2018f 2.6%

2019f 2.2%

GDP GrowthStronger growth expected post-tax reform

ff

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

Expansion is AgingCurrent expansion is 104 months old

106

92

120

73

0

20

40

60

80

100

120

De

c 1

854

De

c 1

858

Ju

n 1

861

De

c 1

867

De

c 1

870

Ma

r 1

879

Ma

y 1

885

Ap

r 188

8

Ma

y 1

891

Ju

n 1

894

Ju

n 1

897

De

c 1

900

Au

g 1

904

Ju

n 1

908

Ja

n 1

91

2

De

c 1

914

Ma

r 1

919

Ju

l 192

1

Ju

l 192

4

No

v 1

92

7

Ma

r 1

933

Ju

n 1

938

Oct

19

45

Oct

19

49

Ma

y 1

954

Ap

r 195

8

Feb

1961

No

v 1

97

0

Ma

r 1

975

Ju

l 198

0

No

v 1

98

2

Ma

r 1

991

No

v 2

00

1

Trough to Peak, Months

Source: The National Bureau of Economic Research (NBER).

Probability of US Recession

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Dec 2018 = 11.5%

Recession probability small for 2018

Source: NAHB calculations and Federal Reserve Bank of New York data.

Tight Labor MarketHow low can unemployment go?

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

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

Job Openings Rate

Unemployment Rate

Percent, SA Percent, SA

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

Cumulative Change in Employment by Age Group

-10

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Millions of Employees, SA

55 and Older

Under 55

Source: Bureau of Labor Statistics.

Labor Force Participation RateStabilized labor force participation key to future growth

62.3%

63.0%

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

59%

60%

61%

62%

63%

64%

65%

66%

67%

68%

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


Average Hourly Wages

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

03/2007 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 03/2014 03/2015 03/2016 03/2017

Y/Y Percent Change, SA

Tight labor market plus tax reform should boost wage growth


Wage Growth Should Be Stronger

6

7

8

9

10

11

12

13

14

15

16

17

18

1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

U-6

Un

em

plo

ym

en

t R

ate

, %

ECI for Private Wages Excluding Incentive Paid Occupations, % Change Year Ago

2017Q4


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

Interest Rates

and Demand

Consumer and Core Inflation

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

Inflation pressures building

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

16

18

20

79 80 81 82 83 84 85 86 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

Core PCE

CPI

Percent, SAAR

Target Federal Funds RateFed will continue to raise rates

7.0%

4.0%

3.0% 3.0%

5.5% 5.5%5.3%

5.5%

4.8%

5.5%

6.5%

1.8%

1.3%1.0%

2.3%

4.3%

5.3%

4.3%

0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.2%

0.6%

1.4%

1.9%

2.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

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

Source: NAHB forecast and Federal Reserve data.

Federal Reserve Balance SheetBalance sheet reduction underway

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

US Treasury Securities

All Else

Federal Reserve Balance Sheet ($Tr.)

Agency- and GSE-MBSShare

Source: U.S. Board of Governors of the Federal Reserve System (FRB).

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

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

October 31,

201630-Year Fixed Rate Mortgage

10-Year Treasury

Difference

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

Housing Affordability

Source: NAHB/Wells Fargo Housing Opportunity Index.

Affordability declining

78

58

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

S&P/Case-Shiller National US Home Price Index

Source: NAHB forecast and S&P Dow Jones Indices LLC; CoreLogic, Inc..

Prices growing faster than income

-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

Percent Growth, SAAR

Supply-Side

Headwind

Update

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

Job openings rate - Construction

12-month moving average


Lending – AD&C Access

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

1-4 unit Residential Construction Loans

Year-over-Year Growth Rates

Millions

Source: Federal Deposit Insurance Corporation.

Loans growing but at a slower rate

Building Materials – Softwood Lumber

231

150

160

170

180

190

200

210

220

230

240

2012 2013 2014 2015 2016 2017

Index 1982=100, NSA


Since January 2017, softwood lumber increased 13.4%

Local Look

Virginia GDP Growth

0.7%

3.7%4.0%

5.2%

2.4%

0.6%

-0.2%

0.0%

2.4%

0.7% 0.6%

0.0%0.2%

2.2%

0.5%

-1%

0%

1%

2%

3%

4%

5%

6%

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

Y/Y Percent Change


Charlottesville MSA GDP Growth

4.9%

2.9%

4.7%

6.1%

2.4%

1.0% 0.9%0.5%

3.3%

1.0%

2.7%

-0.5%

3.8%

4.5%

-0.7%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

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

Y/Y Percent Change


Share of GDP by Major Industries – Charlottesville MSA

3%4% 4%

5%6%

8%

14%

18%

27%

11%

2%

4% 4%

6%

12%

8%

13%

20%

12%

19%

Other services,except

government

Construction Arts,entertainment,

recreation,accommodation,

and foodservices

Retail trade Manufacturing Educationalservices, healthcare, and social

assistance

Professional andbusinessservices

Finance,insurance, realestate, rental,and leasing

Government All otherindustries

0%

5%

10%

15%

20%

25%

30%

Charlottesville MSA U.S.


309,338 311,644 313,993 316,235 318,623321,040 323,406

8,025 8,108 8,189 8,262 8,317 8,367 8,414

219 221 223 224 226 229 231

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014 2015 2016

200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

360,000

380,000

United States Virginia Charlottesville, VA

Thousands Thousands

2010 2011 2012 2013 2014 2015 2016

U.S. 0.8% 0.7% 0.8% 0.7% 0.8% 0.8% 0.7%

Virginia 1.3% 1.0% 1.0% 0.9% 0.7% 0.6% 0.6%

Charlottesville MSA 0.9% 1.0% 0.8% 0.6% 0.9% 1.1% 1.0%

Population GrowthCharlottesville MSA population growing faster than national and statewide rates

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

Payroll EmploymentCharlottesville MSA above pre-recession peak

3,789

107

80

90

100

110

120

130

140

3,200

3,300

3,400

3,500

3,600

3,700

3,800

3,900

4,000

4,100

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

110%

Thousands, SA Thousands, SA

95%

105%

95%

Virginia

Charlottesville, VA


Existing House Price IndexCharlottesville MSA very close to pre-recession peak

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

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

100

120

140

160

180

200

2202000Q1 = 100, SA

United States

Relative to Pre-recession Peak

US Charlottesville

Recession-era Low 81% 84%

Current 107% 99%

Charlottesville, VA

Source: U.S. Federal Housing Finance Agency (FHFA).

Forecasts

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

Renter-Occupied

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

Demand for home ownership strengthening

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

Homeownership Rate

69.4%

64.0%

-

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

Percentage, Quarterly, SA

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

NAHB/Wells Fargo Housing Market Index

72

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

Nearly two-decade high for builder confidence

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

2000-2003 1,343,000 “Normal”

2014 647,000

2015 712,000 10%

2016 784,000 10%

2017 851,000 8%

2018 893,000 5%

2019 940,000 5%

Single-Family StartsGrowth ahead

Trough to Current:

Mar 09 = 353,000

Dec 17 = 836,000

+137%

Source: Census Bureau 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

Thousands of units, SAAR

80% fall

2017Q4:

66% of

“Normal”

2019Q4:

73% of

“Normal”

Single-Family Building Permits – Charlottesville MSA

1,678

616687

49,959

15,625

23,266

0

10,000

20,000

30,000

40,000

50,000

60,000

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

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

Number of Units

Charlottesville, VA

Virginia


Multifamily Housing StartsLeveling off

1995-2003 331,000 “Normal”

2014 355,000

2015 395,000 11%

2016 393,000 -1%

2017 356,000 -9%

2018 354,000 -1%

2019 344,000 -3%

Source: Census Bureau 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

Trough to Current:

4th Q 09 = 82,000

4th Q 17 = 360,000

+339%

2017Q4:

109% of

“Normal”

Thousands of units, SAAR

76% fall

Avg=344,000

2019Q4:

104% of

“Normal”

Multifamily Building Permits – Charlottesville MSA

1,185

82313

14,230

4,843

10,151

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

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

Number of Units

Charlottesville, VA

Virginia


Residential RemodelingStrong market conditions

0

25

50

75

100

125

150

175

200

225

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

Billions, SAAR

Adjusted

Actual

Year Percent Change

2016 11%

2017 17%

2018 7%

2019 3%

Source: Census Bureau and NAHB forecast.

Homeownership

Geography of Homeownership

Alaska

Hawaii

Homeownership Rates in the U.S. by County

Determinants of Homeownership

NAHB Economic Analysis

Important factors for county level analysis:

• Age

• Marriage

• Local home costs

• Local incomes

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

Policy Implications

Economic / Social Policy That Promote Housing

Provide affordable housing (rental and owned) for young people

so they can develop roots

Tax / economic policy that doesn’t discourage marriage

Income growth is always good

Reduce cost of housing

• Lower regulatory costs (up 29% over last 5 years)

• Lower building material and other input costs

• Maintain or lower cost of buying a house with a mortgage

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

Rising Population Entering Housing Demand Years

4.7

3.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+

Avg=4.3

Millions

Born 1980 or later Born 1966-80 Born 1948-65 Born 1947 or earlier

Head

sh

ip r

ate

s in

cre

ase f

rom

15%

to

45%

Thank youQuestions?

[email protected]@dietz_econ

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housing and economic outlook after tax reform€¦ · housing and economic outlook after tax reform...

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