Housing ForecastIn-Depth Analysis by Region

Presented By:

Stanley F. Duobinis, Ph.D.President

Crystal Ball Economics, Inc.

Regional Differences

• New home construction on a state-by-state basis shows wide variations.

• Last year single-family housing starts grew in 43 states, but declined in 8 states.

• The largest increase was 20.6 percent.• The biggest decline was 5.8 percent.• For multifamily housing starts the spread was

even wider, with the largest increase at 94.5 percent and the biggest drop at 29.2 percent.

• In multifamily, 23 states saw declines, while 28 states experienced growth.

Single-family Starts Pct Chg 2003-2004

U.S. = 6.4

Percent Change

11.8 to 20.6 (10)6.4 to 11.7 (20)0 to 6.3 (13)-5.8 to -0.1 (8)

Multifamily Housing Starts Pct Chg 2003-2004

U.S. =-0.5

Percent Change

10.3 to 94.5 (11)0.0 to 10.2 (17)-8.6 to -0.1 (13)-29.2 to -8.7 (10)

Single-family Starts Pct Chg 2004-2005

U.S. =-2.8

Percent Change

0.0 to 12.6 (10)-2.8 to -0.1 (18)-4.6 to -2.9 (13)-8.5 to -4.7 (10)

Multifamily Housing Starts Pct Chg 2004-2005

U.S. =-5.7

Percent Change

1.8 to 13.6 (10)-5.7 to 1.7 (23)-9.9 to -5.8 (8)-31.0 to -10.0 (10)

What Causes A State to Perform Better Or Worse Than Others?• We need more housing in an area because we have

more people, or we are building second homes.• So, areas with strong population growth should

have strong housing markets.• The exceptions will be those areas that are full of

second homes – ski areas, beach resorts, etc. But even there population growth will be a key indicator because of growth in the “service” population.

• That means more people • leads to more houses.

Change in Population 2000-2004

Thousands of People

307.4 to 1,964.5 (10)130.0 to 307.3 (15)35.7 to 129.9 (15)-12.6 to 35.6 (11)

Average Annual Percent Change in Population

2000-2004

1.4 to 3.4 (10)0.8 to 1.3 (15)0.5 to 0.7 (15)-0.6 to 0.4 (11)

Keys To Population Change

• Population growth is driven by:– Births– Deaths– Net Migration – both foreign and domestic

• Of these there is little variation across states except for Net Migration.

Net Migration 2000-2004

Thousands

123.0 to 1,186.3 (10)33.6 to 122.9 (15)0.1 to 33.5 (14)-188.1 to 0.0 (12)

Drivers to Net Migration

• International migration is very much connected to the “entry cities.” That is places where international migrants have come in the past – New York, Baltimore, Chicago, Los Angeles, San Francisco, etc.

• Domestic migration is very much connected to where job opportunities are located. It is also related to past patterns of migration.

Net Migration: International 2000-2004

Thousands

124.5 to 1,113.6 (10)37.3 to 124.4 (15)11.6 to 37.2 (14)1.6 to 11.5 (12)

Net Migration – Domestic 2000-2004

Thousands

54.3 to 762.3 (10)0.1 to 54.2 (17)-19.2 to 0.0 (12)-729.1 to -19.3 (12)

Total Employment Growth2000 to 2004

Avg Ann Pct Chg

1.1 to 2.6 (9)0.1 to 1.0 (14)-0.4 to 0.0 (15)-1.7 to -0.5 (13)

Employment Growth

• Variation in employment growth across states is really just a function of what industries you have.

• Manufacturing has been a drag in recent years.

• Defense has become a growth industry.

• High-tech has been both a plus and a minus.

Manufacturing’s Share of Employment

Percent

17.1 to 22.0 (10)13.4 to 17.0 (14)7.4 to 13.3 (17)0.6 to 7.3 (10)

Military Prime Contract Dollars

Dollars Per Person

1053 to 3268 (11)441 to 1052 (15)226 to 440 (15)115 to 225 (10)

Conclusion: Jobs & Housing Are Tightly Connected

• An area’s housing market will prosper or slide as its local job market expands or contracts.

• The differential across state housing markets is due to differences in growth or contraction of their economies.

Housing vs. Job Growth: U.S.

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

500

1000

1500

2000

2500

Total Housing Starts (R)

Total Employment (L)

Thousands

Housing vs. Job Growth: Tucson

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Total Housing Starts (R)

Total Employment (L)

Housing vs. Job Growth: San Jose

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Total Housing Starts (R)

Total Employment (L)

Housing vs. Job Growth: Columbus

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Total Housing Starts (R)

Total Employment (L)

Housing vs. Job Growth: Chicago

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Total Housing Starts (R)

Total Employment (L)

House Prices vs. Job Growth: Tucson

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

House Prices (R)

Total Employment (L)

House Prices vs. Job Growth: San Jose

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

House Prices (R)

Total Employment (L)

House Prices vs. Job Growth: Columbus

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

House Prices (R)

Total Employment (L)

House Prices vs. Job Growth: Chicago

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

House Prices (R)

Total Employment (L)

Total Employment Growth 1994-2004

Avg Ann Pct Chg

1.8 to 4.4 (13)1.4 to 1.7 (10)0.9 to 1.3 (16)0.2 to 0.8 (12)

Starts Per Capita 2005

U.S. = 6.6

Starts per 1,000 Pop

9.0 to 23.2 (10)6.6 to 8.9 (10)4.2 to 6.5 (21)2.2 to 4.1 (10)