State of the Housing Market

2020Presented to NVBIA

January 17, 2020

Dan Fulton703.447.7171

Dan@FultonResearch.com

MULTIFAMILY PERMITS AT ALL-TIME HIGH

2

Today’s movers are attracted to convenience and lifestyle

Source: ESRI

Old Town

National Landing

Mosaic District

RichmondHighwaySpringfield

Town Center

Tysons

Fairfax County’s

New Walkable Neighborhoods

Embark Richmond Highway

Richmond HighwayPotential Development

18,000 dwelling units(+13,000 over 2005 plan)

23,500 jobs(+10,740 over 2005 plan)

8.7M SF of non-res development

Multimodal and Sustainable Development

Ecological Spine

Livability Spine

Bus Rapid Transit

Huntington Club

IDI Group

South Alex

Combined Properties

City Life. Suburban Ease.®

BOOMERS & MILLENNIALS ARE MAJOR FORCES

8Source: ESRI

Each segment will drive demand for a new type of housing

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84

Population Change by Age

DC Metro Area - 2019 to 2024

Growth: 157,00029-45

Growth: 199,00060-84

Source: ESRI, U.S. Census

BUYERS UNDER 45 ARE PRIMARY SEGMENT

9

Much of that housing demand met by resale market

Source: Fulton Research, U.S. Census, iPUMS, ESRI

GROWTH/DECLINES PRESENTS OPPORTUNITIES

10

The decline in age 45-64 housing demand will affect home value appreciation

Source: Fulton Research, U.S. Census, iPUMS, ESRI

34% INCREASE IN HOUSING DEMAND FOR 75+

11

We see an emerging segment for home builders

SENIOR LABOR FORCE IS GROWING

12

More seniors will move and stay near employment centers.

Source: BLS

MODERATE JOB GROWTH MOVING FORWARD

13

Political risk is high due to potential impact on defense spending

3.00

3.50

4.00

4.50

5.00

5.50

Inte

rest R

ate

(%

)

30-Year Fixed-Rate Mortgage Rates2010-Current

Low Mortgage RatesRising mortgage rates keeping homeowners in place:

• 160bps increase = 25% to 50% loss of repeat buyers

• Crossing the 4.5% mortgage rate threshold slowed down the housing market last year.

14

3.67%

Jan20

Rates over 4.5%

slowed home buyers

CHI/DC HAVE LOWEST APPRECIATION RATES

15

Low wage growth has kept DC home value appreciation stable

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

ChicagoWashington, DC

New YorkMiami

ClevelandLos Angeles

DallasSan Diego

PortlandSan Franscisco

AtlantaMinneapolis

BostonDetroit

CharlotteDenverTampa

PhoenixSeattle

Las Vegas

Annual Appreciation

3-Year Average Annual Home Value Appreciation20 Major Metros

Source: Case-Schiller Home Price Index, St. Louis Federal Reserve

LOW APPRECIATION HAS REDUCED VOLATILITY

16

Metro DC housing market is the most stable major metro

-6.5% -6.0% -5.5% -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5%

Las VegasSan FransciscoSeattleLos AngelesDenverNew YorkDetroitPortlandChicagoSan DiegoDallasBostonTampaMinneapolisAtlantaClevelandMiamiPhoenixCharlotteWashington, DC

Change in Home Value Appreciation Rate

Home Value VolatilityChange: 1-year to 3-year Home Value Appreciation Rate

Source: Case-Schiller Home Price Index, St. Louis Federal Reserve

LISTINGS INVENTORY AT 1.5 MONTHS

17

Low Inventory will result in higher prices and strong rental demand

Source: Zillow, Core Logic

EXISTING HOME SALES AT PEAK LEVELS

18

This growth is expected to widen as we move past the 4Q2018 numbers

Source: Zillow ; LTM: Last 12 Months ending November 2019 (Oct.19 and Nov. 19 are preliminary)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM

Sales 66,376 61,491 59,367 64,440 74,795 74,770 84,789 95,639 100,191 97,124 101,081

Median SP ($000) $301 $305 $284 $318 $340 $351 $346 $357 $367 $377 $391

$250

$270

$290

$310

$330

$350

$370

$390

$410

0

20,000

40,000

60,000

80,000

100,000

120,000

Media

n S

ale

s P

rice (

,000s)

Num

ber

of

Sale

s

Closed Sales - Median Sales Price - Washington MSA

WEAK SF PERMITS, STRONG MF PERMITS

19

Supply constraints affect SF permits in VA and MD

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM 2019P 2020P 2021P 2022P

SF Units 9,466 9,032 9,597 9,795 11,145 13,498 12,411 12,638 13,384 13,968 13,322 12,632 13,500 14,000 13,500 12,400

YOY Growth -5% 6% 2% 14% 21% -8% 2% 6% 4% -5% -6% 1% 4% -4% -8%

MF Units 4,411 3,375 3,577 10,015 11,424 10,759 12,393 10,369 12,303 12,461 12,107 14,474 15,300 15,200 14,000 11,000

YOY Growth -23% 6% 180% 14% -6% 15% -16% 19% 1% -3% 30% 26% -1% -8% -21%

Total 13,877 12,407 13,174 19,810 22,569 24,257 24,804 23,007 25,687 26,429 25,429 27,106 28,800 29,200 27,500 23,400

-11% 6% 50% 14% 7% 2% -7% 12% 3% -4% 10% 13% 1% -6% -15%

Source: Department of HUD, Fulton Research

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

LT

M

20

19

P

20

20

P

20

21

P

20

22

P

Pe

rmits Issu

ed

Permits by Year - Washington MSA

SF Permits MF Permits SF Forecast MF Forecast

DC AND MOCO ARE CORE MF MARKETS

0 2,000 4,000 6,000 8,000

Alexandria

Arlington

Fairfax

Loudoun

Prince William

Spotsylvania

Stafford

Fredericksburg City

Montgomery

Frederick Co (MD)

Frederick City (MD)

Prince Georges

Calvert

Charles

Washington, DC

Multifamily Permits Issued by County, Year ending October 2019

Multifamily

20

YOY change shows inherent volatility in MF development

-3,000 -2,000 -1,000 0 1,000 2,000 3,000

Alexandria

Arlington

Fairfax

Loudoun

Prince William

Spotsylvania

Stafford

Fredericksburg City

Montgomery

Frederick Co (MD)

Frederick City (MD)

Prince Georges

Calvert

Charles

Washington, DC

Number Change in Multifamily PermitsYear-over-Year, October 2019

Multifamily

MD

VA

DC

PGC AND LOU ARE TOP SF MARKETS

21

Declining numbers show supply constraints in MD and VA

0 500 1,000 1,500 2,000 2,500

Alexandria

Arlington

Fairfax

Loudoun

Prince William

Spotsylvania

Stafford

Fredericksburg City

Montgomery

Frederick Co (MD)

Frederick City (MD)

Prince Georges

Calvert

Charles

Washington, DC

Single-Family Permits Issued by County, Year ending October 2019

Single-family

-400 -300 -200 -100 0 100 200

Alexandria

Arlington

Fairfax

Loudoun

Prince William

Spotsylvania

Stafford

Fredericksburg City

Montgomery

Frederick Co (MD)

Frederick City (MD)

Prince Georges

Calvert

Charles

Washington, DC

Number Change in Single-Family Permits IssuedYear-over-Year, October 2019

Single-family

MD

VA

DC

Local Market Fundamentals

1. Low supply of new and existing homes

2. Strong demand conditions: moderate job growth and demographic tailwinds

3. Good affordability conditions with low rates, low appreciation, stable values

Trends for 2020Notable product designs and other trends

23

HOUSEHOLD GROWTH WILL BE 25–44 AND 65+

24

Household growth by age group, 2019–2024

+17%+6%

25–4445–64 65+

-2%

Source: ESRI, Fulton Research

YOUNG COUPLES/SINGLES

• Great segmentation –condo and townhome from mid-$300s to high-$400s

• Front-load towns allow for rear decks with premium views

• Little competition in the Crofton submarket

25

Riverwalk at Crofton offers central location and well-targeted designs

Source: Builder websites, Fulton Research

MULTI-GEN HOUSING OPTIONS

26

Private space for up to 3 generations

✓Main-level suite with privacy entry

✓ Lower-level suite with finished rec room

✓ 3-car garages

✓Plans with private entrances

Source: Builder websites, Fulton Research

COST-CONSCIOUS EMPTY NESTERS

27

Garage version of Ryan’s popular Chambord condominiums

• Meets deep market for product targeted to cost-conscious empty nesters

• 1-car garage plus surface parking

• Large units with 1,489 to 1,783 square feet

• Private outdoor living area

Source: Builder websites, Fulton Research

CLOSE-IN EN: BIRCHWOOD AT BRAMBLETON

28

Miller & Smith provides SFD alternative with single-level living

• Innovative courtyard designs at density of 6 Du/Ac

• Segmentation comes with plan dimensions (50’ and 67’ wide) and yard features.

• Both plans are same size (2,491 SF) and same price ($594K)

Source: Builder websites, Fulton Research

1Fed rate hike process

begins

Began rising then

droppedOK

2Unemployment reaches

low/full employment

levels

2.8% Local

3.5% NationalConcerning

3Treasury Yield

Inversion

Inverted briefly in

March then returned to

normal

OK

4 Housing starts falling

Stable at all-time low

when looking at starts

per population

OK

5Leading Economic

Indicators fall 4-6

months into a recession

Currently stable, but

slightly negative for 4

months

Concerning

6Sector Overheating

(housing, auto, CRE)

Watch list

Auto credit

Manufacturing

Trade war

Middle East tension

OK – for

now

Economy Watch

We watch six indicators that could suggest the US economy is moving closer to a recession.

29

Thank You!

Dan Fulton

703.447.7171Dan@FultonResearch.com