ECONOMIC AND HOUSING OUTLOOK David Crowe Chief Economist Construction Forecast Webinar April 23, 2014
-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
Q/Q Percent Change, SAAR
1.9%
Real GDP GrowthPicking up speed
2.9%
3.7%
Payroll EmploymentUS has returned to peak, and is now 3% below trend
Jan 2008: 138
Feb 2010: 130
Mar 2014: 138
3.2
3.4
3.6
3.8
4.0
4.2
125
129
133
137
141
145
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-3%
Trend in US Employment
Total US Employment
Millions
-6%
+1%
Q4 2006: 4.4%
Q4 2009: 9.9%
Q1 2014: 6.7%
Q4 2015:6.2%
0%
2%
4%
6%
8%
10%
12%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Percent, SA
Unemployment Rate- slowly receding
Mortgage RatesExpected to rise in the near-term
3/14:4.3%
12/15:6.0%
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
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
30-year FRM
1991 – 2001 Avg: 7.9%
2002 – 2007 Avg: 6.1%
Percent
112
25
82
97
55
83
20
40
60
80
100
120
05 06 07 08 09 10 11 12 13 14
Index
Consumer Confidence Returns Back to pre-recession levels
Conference Board
University of Michigan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1590
100
110
120
130
140
150
160
170
180
190
200 Index, 2000Q1 = 100
Federal Housing Finance Agency
Case-Shiller
Q1.2005
Q2.2004
House Prices Showing Signs of RecoveringMeasures of house prices
Affordability Remains HighNAHB/Wells Fargo Housing Opportunity Index
40.4
65
30
40
50
60
70
80
90
04 05 06 07 08 09 10 11 12 13
Inventory of Homes for SaleMonths supply of new and existing single-family homes
Jan 2009: 12.2
5.2
Aug 2010: 11.8
4.9
0
2
4
6
8
10
12
14
New Existing
New Homes Share of SalesNew homes half historic share of sales
7.5%
8.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Avg=16.1%
Lot SupplyBuilders reporting low or very low supply
0
10
20
30
40
50
60
70
Mar. ‘97 Aug. ‘98 Aug. ‘00 May ‘01 Jun. ‘03 Aug. ‘05 Aug. ‘06 Feb. ‘09 Apr. ‘09 Mar. ‘10 Sep. ‘12 Aug. ‘13
Low/Very low
%
Lot SupplyShortage indicators rise and fall with level of sta rts, except most recently
0%
10%
20%
30%
40%
50%
60%
0
500
1,000
1,500
2,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Low SupplyStarts (000s)HOUSING STARTS (AREA) AND
LOW/VERY LOW LOT SUPPLY (BARS)
Subcontractors in Some or Serious Shortage - Up from trough but not to boom levels
25
30
35
40
45
50
55
60
65
Jul. '04 Jul. '05 May '06 Jun. '12 Mar-13
Framing Crews Carpenters - rough Carpenters - finished Bricklayers/Masons
%
Subcontractors in Serious Shortage - Up from trough but not to boom levels
0
5
10
15
20
25
Jul. '04 Jul. '05 May '06 Jun. '12 Mar-13
Framing Crews Carpenters - rough Carpenters - finished Bricklayers/Masons
%
AD&C Access Improved access for builders
-40-30-20-10
0102030405060708090
100
2005 2006 2007 2008 2009 2010 2011 2012 2013
Fed SLOS*
NAHB
Bet
ter
Wor
se
*SLOS – Senior Loan Officer Survey
Most Common Buyer Concerns
Bu
ye
rs w
orr
ied
ab
ou
t
em
plo
ym
en
t/ e
con
om
ic
situ
ati
on
Bu
ye
rs h
av
e t
rou
ble
se
llin
g
ex
isti
ng
ho
me
s
Bu
ye
rs u
nw
illi
ng
to
pa
y
en
ou
gh
to
co
ve
r cu
rre
nt
con
stru
ctio
n c
ost
s
Ex
isti
ng
ho
me
pri
ces
mo
re
com
pe
titi
ve
0
5
10
15
20
25
30
35
40
45
50
Reasons Home Buyers Holding Back – Significant improvement
0
10
20
30
40
50
60
70
80
90
100
May-08 May-09 Sep. 2009 Sep. 2010 May 2011 Apr. 2014
Buyers worried about employment/ economic situation
Buyers have trouble selling existing homes
Buyers think they can’t qualify for a mortgage
Media reports are making buyers more cautious
Reasons Home Buyers Holding Back - Less important
Bu
ye
rs t
hin
k t
he
y c
an
’t
qu
ali
fy f
or
a m
ort
ga
ge
Me
dia
re
po
rts
are
ma
kin
g
bu
ye
rs m
ore
ca
uti
ou
s
Go
ve
rnm
en
t p
rop
osa
ls t
o
rest
rict
ho
usi
ng
su
pp
ort
Bu
ye
rs b
eli
ev
e t
he
ir s
tud
en
t
loa
n d
eb
ts a
re t
oo
la
rge
0
5
10
15
20
25
60
80
100
120
140
160
180
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
YR 4Q/4Q Chg2011 4.5%2012 3.4%2013 0.6%2014 3.8%2015 2.4%
Residential Remodeling Billions 2009 $, SAAR
Actual
Adjusted
Multifamily Production Index2 years at or above 50
50
0
50
100
150
200
250
300
350
400
10
20
30
40
50
60
70
5+ Starts (R)
NAHB MMI (L)
16
(000s)
1995-2003 331,000 ”Normal”2010 114,0002011 178,000 56%2012 247,000 39%2013 308,000 25%2014 331,000 8%2015 358,000 8%
Multifamily Housing Starts Healthy Response from Growth in Renters
Trough to Current:4th Q 09 = 82,0001st Q 14 = 318,000
+287%
2014Q1:96% of “Normal”
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
Thousands
76% fall
2015Q4:110%
Avg=339,000
8
14
47
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
NAHB/Wells Fargo Housing Market IndexBuilder sentiment dips below 50, but improved overa ll from recession depth
Single-family starts (R)
HMI (L)
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
0.00
0.25
0.50
0.75
1.00
1.25
1.50
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Millions Millions
Existing and New Home Sales – On the Rise
New (L)
Existing (R)
2000-2003 1,343,000 ”Normal”2010 471,000 2011 434,000 -8%2012 537,000 24%2013 621,000 16%2014 760,000 22%2015 1,180,000 55%
Single-Family Starts – Beginning a Recovery
Trough to Current:Mar 09 = 353,000Mar 14 = 635,000
+80%
2014Q1: 45% of “Normal”
2015Q4:93%
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
Thousands of units, SAAR
80% fall
Questions?Answers: [email protected]
April 2014
UBS US Chief [email protected] / +1-212-713-2472
Maury Harris
US Economic OutlookNAHB-April 2014
This report has been prepared by UBS Securities LLC
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGI N ON SLIDE 13
www.ubs.com/investmentresearch
33
UBS US Forecasts
Source: UBS
2012 2013 2014e 2015e
Real GDP 2.8 1.9 3.0 3.2
Unemployment Rate (Q4) 7.8 7.0 6.4 5.9
Core PCE Inflation (Q4/Q4) 1.8 1.2 2.0 2.5
Federal Funds Rate (Q4) 0.13 0.13 0-0.25 1.25
10-year Treasury (Q4) 1.7 3.0 3.5 4.0
US Outlook Highlights
Will Fed’s estimated QE economic impacts (*) be reversed?
• 80-120 basis point reduction in 10-year Treasury yield
• Over 2 million jobs
• Almost 3% higher output
* 2009-2011.Source: Ben Bernanke (2012). “Monetary Policy since the Onset of the Crisis,”speech delivered at the Federal Reserve Bank of Kansas CityEconomic Symposium, Jackson Hole, Wyoming, August 31, 2012, and UBS
34
The negative real 10-year Treasury note yield has been accompanied by a rising Fed share of Treasury notes and bonds. However, very weak net mortgage demand also has dampened rates.
* Deflated using Univ. of Michigan 5-10 inflation expectation measure.Source: Federal Reserve, Thompson Reuters/Univ. of Michigan, and UBS
35
Credit = jobs
Note: The index is based on a weighted average of lending standardsmeasures, using loans outstanding for weights. Shaded areas mark recessions. Source: Federal Reserve and UBS
36
Easier bank lending standards enable small firm hiring.
Note: Shaded bars mark recessions.Source: Federal Reserve Board and ADP/Moody’s Analytics and UBS
37
UBS credit/employment model
* UBS’s all-loan composite lending standards index is composed of lendingstandards responses for C&I loans, real estate loans, and banks’ willingnessto make consumer loans, weighted by outstanding commercial bank loans.
Source: Federal Reserve Board, Bureau of Labor Statistics, and UBS
38
Private payrolls average monthly change, 000s
Annual data, 1992-2013
Coefficient t-stat
Constant 139.3 6.8
Lending standards composite index* (1 lag) -7.8 -6.9
BAA-Treasury spread, Q4/Q4 chg, bps (1 lag) -0.5 -2.8
R2 0.78
Private Sector Forecast Drivers and Sequential Chain Reactions
Business Spending
Consumer Spending and Housing Sales/Prices
Household Formation and Pent-Up Demand Venting
Jobs
Financial Market Conditions
Private Sector Forecast Drivers and Sequential Chain Reactions
Source: UBS
39
Pent-up Demand: Cumulative gap between adult population and household annual growth
Source: Census Bureau and UBS
40
High “doubling up” represents pent-up space demand.
* Includes cohabiting households.** Mar 2014 reading alone; all other history is annual.Source: “Poverty and Shared Households by State: 2011”, Suzanne Macartney and Laryssa Mykyta, November 2012, Census Bureau and UBS
41
Longer-term expected inflation has been reasonably steady.
Source: Thomson Reuters/University of Michigan
42
Core CPI inflation is rising more than core PCE inflation.
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, and UBS
43
45
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Robert Denk Assistant Vice PresidentForecasting and Analysis
April 23, 2014
Spring 2014 Construction Forecast Webinar
Progress of Housing Market Recovery
A. Housing Market ConditionsProductionPricesForeclosuresEmployment
B. The Forecast
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
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
Million Units, SAAR
Avg. = 1.3 Million
27%
45%
Single Family Housing Starts
Source: US Census Bureau
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
MI
NV
IL
AZ
CA
MN
FL
CO
GA
OH
IN
MO
WI
CT
RI
NH
NJ
OR
KY
MD
ID
UT
KS
AK
MA
NM
WV
VA
NC
PA
VT
HI
NY
IA
TN
ME
WA
MS
DC
DE
NE
SC
SD
AR
AL
TX
ND
OK
LA
MT
WY
Current
Trough
Housing Starts / Average 2000-03 Starts
National Average bottomed out at 27% in early 2009and reached 45% in 2014Q1
US
Trough and Current Level of Production Relative To “Normal”
Source: US Census Bureau
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
IL
MI
OH
NV
CA
WI
NM
NH
GA
AZ
KY
CT
IN
MN
MO
WV
CO
RI
MS
FL
MD
DC
VA
PA
VT
AR
KS
AL
NY
OR
ME
HI
NC
NJ
TN
AK
WA
ID
MA
SD
DE
NE
IA
TX
LA
SC
UT
WY
OK
MT
ND
Current
Trough
Housing Starts / Average 2000-03 Starts
National Average bottomed out at 27% in early 2009and reached 45% in 2014Q1
US
Where You Are Has A Lot To Do With Where You Starte d
Source: US Census Bureau
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 12 130
20
40
60
80
100
120
140
160
180
200
Case-Shiller
FHFA
NAR
Flow of Funds
2000Q1 = 100
Measures of House Prices for US
Sources: National Association of Realtors, Federal Reserve Board, S&P Case-Shiller, FHFA, NAHB
0
25
50
75
100
125
150
175
200
225
250
275
300
325
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 130.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5Median House Price / Median Income Income and Prices, Thousands
House Price
Price / Income
Income
3.2
4.7
4.7 / 3.2 = 150%
US Housing Market ConditionsPrices and Income – Current and Trend
Source: US Census Bureau, National Association of Realtors
0%10%20%30%40%50%60%70%80%90%
100%110%120%130%140%150%160%170%180%190%200%210%220%
US
IN
OH
WY
KS
TN
NM
CT
AR
AL
GA
TX
SD
NC
VT
IA
OK
KY
MO
PA
HI
ND
NE
MI
UT
MT
MS
SC
AK
LA
NH
IL
DE
WI
CO
WV
ME
MN
MA
ID
RI
NY
NJ
WA
VA
OR
MD
AZ
CA
DC
NV
FL
Peak
Current
Percentage of Historical Trend
House Prices and Income – Trend, Peak and Current
Source: US Census Bureau, National Association of Realtors, Moody’s Analytics
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
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
Percent
Inventory
StartedDelinquent 90+ Days
Foreclosures: Started, Inventory and Delinquent Loa ns
Source: Mortgage Bankers Association, National Delinquency Survey
Foreclosure Rates – Normal, Peak and Current
US
FL
NJ
MD
IL
IN
OH
SC
HI
ME
DE
LA
KY
NM
NY
OK
WI
CT
KS
PA
VT
ND
NV
AZ
CA
MI
RI
GA
UT
MS
ID
TN
OR
WA
NE
AL
MA
MN
DC
NH
NC
WV
CO
AR
MO
VA
TX
IA
MT
WY
AK
SD
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Peak Current Avg 2002
All Loans, Foreclosure Started Rate - Percent
21 States JudicialPeak average = 1.3%
30 States Non-JudicialPeak average = 1.3%
Source: Mortgage Bankers Association, National Delinquency Survey
US
FL
NJ
IL
NY
ME
CT
OH
HI
IN
MD
SC
DE
NM
VT
KY
LA
PA
WI
OK
KS
ND
NV
AZ
CA
MI
RI
UT
GA
OR
ID
MS
MN
MA
DC
NC
WA
IA
CO
NE
AR
NH
TN
WV
AL
VA
MO
TX
MT
SD
AK
WY
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Peak Current Avg 2002
All Loans, In Foreclosure - Percent
21 States JudicialPeak average = 5.2%
30 States Non-JudicialPeak average = 3.3%
Foreclosure Inventory – Normal, Peak and Current
Source: Mortgage Bankers Association, National Delinquency Survey
Foreclosures Started – The Good, the Bad and the Ugl y
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 130
20
40
60
80
100
120
FL
TX
Foreclosures, Thousands
FL 3.2 million mortgagesTX 3.1 million mortgages
Sources: Mortgage Bankers Association, National Delinquency Survey
80%
85%
90%
95%
100%
105%
110%
115%
120%
125%
130%
ND
TX
AK
UT
CO
DC
SD
NY
MA
NE
OK
MN
MT
IA
LA
WA
WV
MD
VT
CA
VA
PA
NH
IN
TN
KS
HI
WI
AR
DE
SC
OR
WY
MO
NC
KY
ID
ME
GA
IL
MI
OH
CT
RI
NJ
MS
FL
NM
AL
AZ
Current
Trough
Percent
US
US payroll employment contracted to 94% of its pre-recession peak but has since recovered.
Payroll Employment – Recession Contraction and Curre nt
Source: US Bureau of Labor Statistics
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
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
Million Units, SAAR
45%
93%
70%
27%
Single Family Housing Starts
Sources: US Census Bureau, NAHB
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
WI
MI
IL
NM
CA
KY
AZ
VT
OH
IN
MN
MO
WV
AR
CT
GA
MS
NH
RI
ME
NV
MD
AL
NJ
PA
CO
VA
FL
SD
AK
DE
TN
NE
ID
KS
WA
HI
NY
OR
UT
DC
IA
NC
MA
LA
SC
MT
WY
OK
TX
ND
2015Q4
2014Q4
Housing Starts / Average 2000-03 Starts
National Average will be 70% of normal by 2014Q4and 93% of normal by 2015Q4.
US
Recovery Will Vary By State
Source: US Census Bureau
Rank Q4 2015Bottom 20%20% to 40%40% to 60%60% to 80%Top 20%
The Long Road Back to Normal
< 80%
80% - 85%
86% - 99%
100% - 107%
107% <
Relative to Normal
This map shows how the states rank in the return to more normal levels of housing production.By the end of 2015, the top 40% will be back to normal production levels.The bottom 20% will be below 80% of normal production.