U.S. Economic & Housing Outlook David Crowe Chief Economist April 4, 2013 NALHFA Annual Educational Conference.

U.S. Economic & Housing Outlook

David CroweChief Economist

April 4, 2013NALHFA Annual Educational Conference

Outline

Macro Economy

Demographics (i.e., demand)

Housing Stock and Flow (i.e., supply

Forecasts

Markets

Macro

Real GDP Growth – Hesitated in Q4, but expected to improve

0%

200%

400%

600%

800%

1000%

1200%Q/Q Percent Change, SAAR

Last 4 Qs Avg = 1.7%

1.8%

2.6%

GDP and Housing in RecoveryHousing component now growing faster than economy

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

4.1%2.0% 1.3%

3.1%0.4%

12.0%

20.6%

8.4%

13.6%

17.5%

GDP RFI

An

nu

al C

ha

ng

e Be

gin

nin

g o

f R

ec

ov

ery

En

d o

f b

uye

r cr

edit

Payroll Employment – A little over half-way back to peak

00 01 02 03 04 05 06 07 08 09 10 11 12 13125,000

128,000

131,000

134,000

137,000

140,000

143,000

138056

129360

135046

Trend in employmentTotal employment

Millions

Unemployment Will Remain High

00 01 02 03 04 05 06 07 08 09 10 11 12 130

2

4

6

8

10

12Percent, Seasonally Adjusted

Improving Markets Index – at 273 markets in April

Demographics (i.e., Demand)

Population by Single-Year of AgeRising population in prime household formation years

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100+0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

4,000,000.0

4,500,000.0

5,000,000.04,592,336.0

3,827,920.0

Millions

Born 1979 or later Born 1965-78 Born 1946-64 Born 1945 or earlier

He

ad

sh

ip r

ate

s i

nc

rea

se

fro

m 1

6%

to

48

%

Household Formations Are on the RiseYear-over-year change in households rising again

02

02

02

02

03

03

03

03

04

04

04

04

05

05

05

05

06

06

06

06

07

07

07

07

08

08

08

08

09

09

09

09

10

10

10

10

11

11

11

11

12

12

12

12

0

500

1,000

1,500

2,000

2,500Thousands

Avg: 1.38 million

Avg: 0.5 million

Avg: 0.86 million

Annual Average Household Changes – Switch to Renting

2002-2005 2007-2010 2011-2012-400

-200

0

200

400

600

800

1,000

1,200

1,400

1,6001,384

522

863

164

676

1,034

Total Owners Renters

Homeownership Rates by Age GroupDecline from peak 2 to 6.9 percentage points

0

10

20

30

40

50

60

Under 25 (down 3.1 pts)

25-34 (down 6.9 pts)

92 94 96 98 00 02 04 06 08 1060

65

70

75

80

50+ (down 2 pts)

35-49 (down 5.5 pts)

Housing Stock and Flow (i.e., supply)

Stock of Homes by Building Size Share of 2-4 unit buildings falling in stock, but flow significantly different

1970 1980 1990 2000 2011 2012YTD Flow

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

72% 70% 71% 72% 74% 68%

14% 12% 10% 10% 8%

1%

15% 18% 19% 18% 18%30%

SF 2 to 4 5+

2002 2003 2004 2005 2006 2007 2008 2009 2010 201115%

20%

25%

30%

35%

40%

45%

50%

30%

34%

43%43%

Single family 2-4 5+

Share of Rental Units by Building SizeRising share of rentals coming from single-family stock

Share of Production For RentSingle-family and multifamily rising

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20102012

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

0%

1%

2%

3%

4%

5%

6%

Multifamily Single-family

Rental Production and JobsProduction generally follows job market changes

Mar-74

Oct-75

May-77

Dec-78Jul-8

0

Feb-82

Sep-83

Apr-85

Nov-86

Jun-88

Jan-90

Aug-91

Mar-93

Oct-94

May-96

Dec-97Jul-9

9

Feb-01

Sep-02

Apr-04

Nov-05

Jun-07

Jan-09

Aug-10

Mar-12

0

100

200

300

400

500

600

(2.50)

(2.00)

(1.50)

(1.00)

(0.50)

-

0.50

1.00

1.50

2.00 MF Rental Starts Chg in Employment

100 jobs = 74 apartments

But, Linkage ChangesDuring high direct and tax incentives, strong relationship

Mar-74

Aug-74

Jan-75

Jun-75

Nov-75

Apr-76

Sep-76

Feb-77Jul-7

7

Dec-77

May-78

Oct-78

Mar-79

Aug-79

Jan-80

Jun-80

Nov-80

Apr-81

Sep-81

Feb-82Jul-8

2

Dec-82

May-83

Oct-83

Mar-84

Aug-840

100

200

300

400

500

600

-2

-1

0

1

2

Rental Starts Emplm Chg

100 jobs = 83 apartments

(000s) %

Lower Linkage in 1990sDuring readjustment to different subsidies

Mar-90

Aug-90

Jan-91

Jun-91

Nov-91

Apr-92

Sep-92

Feb-93Jul-9

3

Dec-93

May-94

Oct-94

Mar-95

Aug-95

Jan-96

Jun-96

Nov-96

Apr-97

Sep-97

Feb-98Jul-9

8

Dec-98

May-99

Oct-99

Mar-00

Aug-000

50

100

150

200

250

300

350

400

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Rental Starts Emplm Chg

(000s) %

100 jobs = 40 apartments

Relationship disrupted Slow 2002 economic recovery and likely switch to condos

Mar-01

Jun-01

Sep-01

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-060

50

100

150

200

250

300

350

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Rental Starts Emplm Chg

100 jobs = 130 apartments

%(000s)

Back to Normal?As job growth slowly returns, rental starts moving up

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-11Jul-1

1

Sep-11

Nov-11

Jan-12

Mar-12

May-12Jul-1

2

Sep-12

Nov-120

50

100

150

200

250

300

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Rental Starts Emplm Chg

100 jobs = 39 apartments

%(000s)

ForecastsRemodelingMultifamilySingle family

Remodeling Market Index (RMI)Above 50 for 1 quarter

20

01

Q1

Q3

20

02

Q1

Q3

20

03

Q1

Q3

20

04

Q1

Q3

20

05

Q1

Q3

20

06

Q1

Q3

20

07

Q1

Q3

20

08

Q1

Q3

20

09

Q1

Q3

20

10

Q1

Q3

20

11

Q1

Q3

20

12

Q1

Q3

20

25

30

35

40

45

50

55

6055

Residential Remodeling – Strong Finish to 2012

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1460,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

YR 4Q/4Q Chg -0.7% 7.4% 2.2% 1.6%

Billions 2005 $, SAAR

Multifamily Production Index38-point increase in four years; above 50 for 4 quarters

10

15

20

25

30

35

40

45

50

55

60

0

50

100

150

200

250

300

350

400

5+ Starts (R)

NAHB MMI (L)

16

54

(000s)

1995-2003 331,000 2010 114,0002011 178,000 56%2012 247,000 39%2013 312,000 26%2014 331,000 6%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 140

50

100

150

200

250

300

350

400

450

500

550Thousands

76% fall

Multifamily Housing Starts Healthy Response from Growth in Renters

Trough to Current:4th Q 09 = 82,0004th Q 12 = 312,000

280%

2012Q4 = 92% of “Normal”

Distribution of Multifamily Starts by Type

2008 2009 2010 2011 2012F 2013F 2014F0

50

100

150

200

250

300

350

67

18 17 19 23 32 39

18

12 11 12 11 16

19

44

25 2545

59

7478

155

57 61

102

154

190 195

Condo 2 - 4 LIHTC Mkt 5+

331Thousands

112 114

178

284

247

312

NAHB/Wells Fargo Housing Market Index - 30 point rise since September 2011

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

0

10

20

30

40

50

60

70

80

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

14

Single-family starts (R)

HMI (L)

(000s)

8

44

2000-2003 1,300,000 ”Normal”2010 471,000 2011 434,000 -8%2012 534,000 23%2013 664,000 24%2014 855,000 29%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 140

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000Thousands

80% fall

Single-Family Starts – Beginning a Recovery

Trough to Current:Mar 09 = 353,000Feb 13 = 618,000

+75%

2012Q4 = 44% of “Normal’

2014Q4=71%

Markets

Top Multifamily Markets: Now and ThenTotal Housing Permits (yellow shaded on both lists)

Top Ten Multifamily Markets 2012Top Ten Multifamily Markets 2000-2002

1 New York 1 New York

2 Dallas-Fort Worth 2 Miami

3 Houston 3 Chicago

4 Los Angeles 4 Los Angeles

5 Washington 5 Dallas-Fort Worth

6 Austin 6 Denver

7 Seattle 7 Washington

8 Denver 8 Phoenix

9 Miami 9 Houston

10 Raleigh 10 Seattle

State Markets Nearest ‘Normal’Ratio of 2012 Multifamily permit levels to 2000-2002 annual average

2012 MF Permits/2000-2002 Avg MF Permits

DISTRICT OF COLUMBIA 4.11 TENNESSEE 1.04

NORTH DAKOTA 3.49 MONTANA 1.02

DELAWARE 2.64 OKLAHOMA 1.00

CONNECTICUT 2.17 NEBRASKA 0.96

TEXAS 1.44 OREGON 0.96

WYOMING 1.42 WASHINGTON 0.95

HAWAII 1.39 ALABAMA 0.94

SOUTH DAKOTA 1.34 NEW MEXICO 0.90

NEW JERSEY 1.33 VERMONT 0.86

MASSACHUSETTS 1.29 UTAH 0.86

MARYLAND 1.05 PENNSYLVANIA 0.85

NORTH CAROLINA 1.05 MINNESOTA 0.82

KENTUCKY 1.05 UNITED STATES 0.75

Metro Markets Nearest ‘Normal’Ratio of 2012 Multifamily permit levels to 2000-2002 annual average

2012 MF Permits/2000-2002 Avg MF Permits

San Angelo TX 52.80 Tulsa OK 1.51

Dover DE 6.46 Charleston-North Charleston SC 1.48

Harrisonburg VA 6.21 Austin-Round Rock TX 1.42

Odessa TX 6.17 Dallas-Fort Worth-Arlington TX 1.42

Birmingham-Hoover AL 2.34 Boston-Cambridge-Quincy MA-NH 1.38

Honolulu HI 2.29 San Francisco-Oakland-Fremont CA 1.34

Columbia SC 2.21 Des Moines IA 1.30

Raleigh-Cary NC 2.18 Wilmington NC 1.26

Laredo TX 2.08 Fort Wayne IN 1.25 Nashville-Davidson--Murfreesboro TN 1.81

Philadelphia-Camden-Wilmington PA-NJ-DE-MD 1.22

Trenton-Ewing NJ 1.80 Richmond VA 1.21

Houston-Baytown-Sugar Land TX 1.63 San Jose-Sunnyvale-Santa Clara CA 1.18

Tulsa OK 1.51 UNITED STATES 0.75

Questions?Answers: www.housingeconomics.comeyeonhousing.wordpress.comdcrowe@nahb.org