risi housing report - fastmarkets risi · •buoyant housing market integral to supporting...
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RISI Housing Report
Senior Economist
North American ConferenceOctober 2018
Jennifer Coskren
An Update on the Housing Market
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• Current housing demand and demographic conditions
• Supply and impediments to faster production growth
• Housing starts forecast and the tax reform bill
• Other end‐use markets
Agenda
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• Housing accounts for 15‐18% of GDP according to data compiled by the NAHB
• Buoyant housing market integral to supporting consumption The Multiplier Effect
• Housing is “one of the last games left in town”
With Housing Goes the Economy
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• Ingredients for a housing crisis Shelter occupancy high Household formations (demand) growing faster than additions to shelter stock (supply) Shelter prices (rent and home prices) escalating significantly faster than inflation
• This time around is different Solid employment and wage gains More stringent lending standards Speculative building nearly non‐existent
US Housing Market: Crisis of Undersupply
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US Job Growth Remains HealthyChange in US Total Payroll Employment, Millions
‐6
‐4
‐2
0
2
4
6
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
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Household Formations Are Growing…Millions, Trend Level = 1.1
‐0.20.00.20.40.60.81.01.21.41.61.82.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
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But, Not Strong Enough to Have a Meaningful Impact on Pent‐Up DemandDemand, Millions of Households
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2011 2012 2013 2014 2015 2016 2017 2018
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Mortgage Rates Remain Near Historical Lows, but Rates Are Rising and Access Is Restricted30‐Year Fixed Mortgage Rate, Monthly
02468
101214161820
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
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Mortgage Availability on the Rise…but Nowhere Near Previous LevelsMortgage Credit Availability Index
Source: Mortgage Bankers Association
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As Mortgage Debt to Income Remains LowMortgage Debt Service Payments as a Percent of Disposable Personal Income, Percent, Quarterly, Seasonally Adjusted
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
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Despite Delayed Marriage Rates, Population Distribution Bodes Well for Housing Demand
21
29
42
54
0 20 40 60 80 100
Millenial
Generation X
Boomer
Silent
Marital Status When They Were 18‐28
Married Separated/Divorced Never Married
Source: Pew Research Center
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Net Additions to Shelter Stock Fall Short of Household FormationsAnnual Net Additions to Shelter, Millions
0.0
0.5
1.0
1.5
2.0
2.5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Delta Shelter Stock (Annual,Millions)
Avg: 1990s
Avg: 2000‐2008
Avg: 2009‐2018
1.29
1.62
0.874
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Market Has Tightened Now That the Correction in Transactional Inventory Excess Is CompleteExcess Inventory of Vacant Units (Million Units)
‐1.0
‐0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1Q02 4Q03 3Q05 2Q07 1Q09 4Q10 3Q12 2Q14 1Q16 4Q17
For Sale
For Rent
Off the Market
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Most of these held off market are no longer foreclosuresQuarterly Distribution of Other Vacant Housing Units (%), Second Quarter 2018
0 5 10 15 20 25 30
Specific Use Housing
Foreclosure
Possibly Abandoned/to be Demolished/Condemned
Legal Proceedings
Extended Absence
Storage
Preparing to Rent/Sell
Other Write‐in/Don't Know
Being Repaired
Needs Repairs
Personal/Family Reasons
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• Demand Limited access to credit and school debt burden bolstered rental market demand This held back the recovery for single‐family starts, although that market had a stronger 2017
• Supply Scarcity of lots along with increased regulatory fees and policies Construction labor difficult to find and material prices have been much higher in 2018 Now the rental development market is weakening as developers find it difficult to switch from luxury construction to more affordable rental units
US Housing Production Hampered by Factor Inputs
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Constraints Make It Difficult to Supply First‐Time Buyers
0
100
200
300
400
500
600
700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
New Home Sales by Price
Under $200K
Over $500K
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Net Result: Very Tight Shelter MarketShelter Occupancy Rate, Adjusted*
93.5%
94.0%
94.5%
95.0%
95.5%
96.0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017* Adjustment: Shelter stock, second homes, bank‐owned homes.
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Limited Supply Tempers Home Sales Gains
0
200
400
600
800
1,000
1,200
1,400
1,600
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000New and Existing Home Sales (X 1,000)
Existing
New (R)
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Escalation in Home Prices Running Well Above Overall Inflation and WagesCase‐Shiller US National Home Price Index and CPI
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Case‐Shiller CPI‐U
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Multifamily Completions Outpacing Single‐Family CompletionsUS Housing Completions (Millions) and Multifamily Share (Right‐Hand Scale)
0%5%10%15%20%25%30%35%40%45%50%
0.00.20.40.60.81.01.21.41.61.8
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Single‐family Multifamily Multifamily Share
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Despite Additional Supply, Apartment Market Is Still TightUS Rental Vacancy Rate, Not Seasonally Adjusted
0%
2%
4%
6%
8%
10%
12%
1Q95 1Q97 1Q99 1Q01 1Q03 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15 1Q17
Source: FRED.
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The Residential Construction Market Grows More ConcentratedTop Ten Homebuilders’ Market Share (%)
0
5
10
15
20
25
30
35
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Source: Builder Online.
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Skilled Construction Labor Still Difficult to FindJob Openings and Hires, Thousands
0
50
100
150
200
250
300
350
400
450
500
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Openings Hires Linear (Openings) Linear (Hires)
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Immigration Policy Matters…Foreign Born Share of the Civilian Labor Force
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
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Residential Construction Labor Force Down, But Not Out
‐0.5
0.5
1.5
2.5
3.5
4.5
5.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2001 2003 2005 2007 2009 2011 2013 2015 2017
Billion
Squ
are Feet of R
esiden
tial
Starts
Reside
ntial C
onstruction Labo
r (M
illions)
Specialty Trade Contractors
Buliding Construction
Sq. Ft. Starts (R)
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Fundamental Demand for Shelter Continues to ImproveBeware of “New Paradigms”
1970s 1980s 1990s 2000‐2017 2018‐2022
Household Formations 1.61 1.24 1.23 0.99 1.26
Net Removals 0.26 0.27 0.30 0.26 0.28
Second Homes 0.04 0.05 0.15 0.06 0.04
Total 1.91 1.56 1.68 1.31 1.58
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Housing Outlook: Demand Shifts to New Construction with the Single‐Family Share Improving SlowlyUS Housing Starts, Millions, Annual
40%
50%
60%
70%
80%
90%
0.0
0.5
1.0
1.5
2.0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Single‐FamilyMultifamilySingle‐Family Share (R)
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Pace and Magnitude of Current Recovery Well Behind Past RecoveriesTrough to Peak Housing Starts, Million Units
0.00
0.50
1.00
1.50
2.00
2.50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1975‐1978 1982‐19861991‐2005 2009‐2020
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• Tax Reform Bill of 2017• Doubles the standard deductions• Caps the amount of state and local deductions to $10,000• Limits the amount of mortgage homeowners can deduct to $750,000 worth of
debt, down from $1 million• Interest on home equity loans and lines continues to be deductible, but only if
the credit is used to make home improvements• Bill not likely to impact the housing market in aggregate But could make coastal cities less attractive
May shift buyer demand to the South and Midwest
Implications from the Tax Reform Bill
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Remodeling Market IndexConsistent growth in additions and alterations
Source: National Association of Home Builders.*Major additions and alterations are valued at $25,000 or more.
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0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Major Additions & AlterationsMinor Additions & AlterationsMaintenance and RepairNeutral Market
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Major US End‐Use Markets for Wood Products
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Average Annual Growth 2018-2020
Housing Starts (Million Units)
% Change 7.1%
R&R (Billion 2005$)
% Change 5.3%
Nonresidential (Billion 2005$)
% Change 6.2%
Industrial Production (2007=1)
% Change 2.6%
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Thank you for your attentionFor more information:
North American Lumber & Wood Panels 5‐ and 15‐Year Forecastswww.risi.com/lumber5yearwww.risi.com/lumber15yearwww.risi.com/woodpanel5yearwww.risi.com/woodpanel15year
Lumber, Structural Paneland PB/MDF Commentarieswww.risi.com/lumbercommentarywww.risi.com/structuralpanelcommentarywww.risi.com/pbandmdfcommentary
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Jennifer Coskren, [email protected]