Economic Outlook · Multifamily Housing Starts Sharp decline and a return to trend Year Units % Change 2017 357,000 -9% 2018 377,000 6% 2019 404,000 7% 2020f 315,000 -22% 2021f 379,000

Economic Outlook

HBA of Greater TulsaMay 12, 2020

Robert Dietz, Ph.D.NAHB Chief Economist

Viral Uncertainty

Hard to model the effects of a virus outbreak

2-months, 2-quarters, and 2-years

Stock market decline and rebound

Supply-chain impacts

Declining consumer confidence

Sharp mid-year decline, bounce back after

The S Curve of Community SpreadCase data is moving on logistic S curve; not an unchecked exponential path

y = 752.62e0.1697x

y = -7.5013x3 + 1061.4x2 - 17490x + 55379

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79

Confirmed Cases

Series1

GDP Growth – Sharp RecessionVirus mitigation will bring on a significant recession with declines in Q1, Q2 and Q3

Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.

-35%

-30%

-25%

-20%

-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 19 20 21 22

Annual Growth

LT avg (‘58-’07) 3.4%

2018 2.9%

2019 2.3%

2020f -6.4%

2021f 5.4%

2022f 5.4%

Q/Q Percent Change, SAAR

Good/Bad News: 10% to 11% U-Rate Expected at 2020 End

0

3

6

9

12

15

18

-9,000

-8,000

-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

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 14 15 16 17 18 19 20 21 22

Thousands Percent

Average Monthly Change in Payroll Employment

Unemployment Rate

Duration matters: research indicates spells of 6-months or longer affects consumption

Fed Funds Rate – Fed All In on Supporting Economy

Source: U.S. Board of Governors of the Federal Reserve System (FRB).

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

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 16 17 18 19 20

Federal Funds – Top Rate

10-Year Treasury

Lender and buyer of last resort

30-Year Fixed Rate Mortgage and 10-Year TreasuryLow interest rates thanks to aggressive Federal Reserve action

Source: Federal Reserve and Freddie Mac data and NAHB forecast.

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

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 16 17 18 19 20 21 22

October 31,

201630-Year Fixed Rate Mortgage

10-Year Treasury

Homeownership Rate

69.2%

2020 Q1, 65.3%

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

71%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Percentage, Quarterly, NSA

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership

Near new normal for homeownership

Supply-Side Factors

Virus Related Business Challenges

Source: NAHB Survey

Virus Related Business Adaptions

Source: NAHB Survey

Lending – AD&C Loan Conditions

Source: NAHB survey

Tightening conditions reported in 1Q20 NAHB survey – tightest since end of 2011

NAHB/Wells Fargo Housing Market Index (HMI)

30

0

200

400

600

800

1,000

1,200

0

10

20

30

40

50

60

70

80

2013 2014 2015 2016 2017 2018 2019 2020

Index Thousands, SAAR

Single-Family Starts

HMI

Sharp drop for HMI in April

Source: Census Bureau and NAHB/Wells Fargo HMI survey

Construction

Outlook

Year Units % Change

2017 852,000 8%

2018 873,000 2%

2019 894,000 2%

2020f 727,000 -19%

2021f 905,000 25%

2022f 1,005,000 11%

Single-Family StartsSharp declines in the near-term due to coronavirus mitigation efforts

Trough to Current:

Mar 09 = 353,000

Mar 20 = 856,000

+142%

Source: U.S. Census Bureau (BOC) and NAHB forecast

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 16 17 18 19 20 21 22

80% fall

Thousands of units, SAAR

Single-Family Starts by Decade: Population Adjusted

Source: Census Bureau and NAHB analysis

47,998

53,138

41,588 41,710 41,671

21,288

0

10,000

20,000

30,000

40,000

50,000

60,000

1960s 1970s 1980s 1990s 2000s 2010s

Starts per Million Population (averaged)

27% Single-Family Construction in Exurbs and Rural Areas

Source: NAHB Analysis of Census data (Building Permits and ACS)

8.8% of single-family construction takes place in Large Metro – Outlying County

Q4 2019 data2019 growth rate

1.1%

Multifamily Housing StartsSharp decline and a return to trend

Year Units % Change

2017 357,000 -9%

2018 377,000 6%

2019 404,000 7%

2020f 315,000 -22%

2021f 379,000 20%

2022f 411,000 8%

Source: U.S. Census Bureau (BOC) and NAHB forecast

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 16 17 18 19 20 21 22

Trough to Current:

4th Q 09 = 82,000

1st Q 20 = 505,000

+515%

Thousands of units, SAAR

76% fall

Avg=344,000

Residential RemodelingRemodeling market weakening along with other housing metrics, existing home sales

0

50

100

150

200

250

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Billions, USD, SAAR

Adjusted

Actual

Year Percent Change

2017-2019 Avg 5%

2020f -7%

2021f 9%

2022f 4%

Source: U.S. Census Bureau (BOC) and NAHB forecastNote: In the analysis, 1-year moving average is used for adjusted data to smooth the trend

Share of Home Buyers Who Want a Home Office

Source: NAHB’s consumer preference study “What Home Buyers Really Want”.

55%

69% 68%63% 65%

2003 2007 2012 2015 2018

Share of Home Buyers Who Want an Exercise Room

Source: NAHB’s consumer preference study “What Home Buyers Really Want”.

27%

33%35% 34%

40%

2003 2007 2012 2015 2018

New NAHB Home Building Geography Index

Q4 20194-Quarter MA of YOY growth rate:

1.9% in red counties-1.4% in blue counties

Source: NAHB Analysis of Census data (Building Permits)

Red counties represent 45.3% of U.S. population

60.9% of single-family construction takes place in Red Counties

Economic/Housing Conclusions

Currently modeling an 8 week pause for the economy

Virus spread will end

Baby boom???

Keep in mind the 2-month, 2-quarter, 2-year targets

Very weak mid-year economic performance, bounce back after

Thank youQuestions?

[email protected]@dietz_econ

eyeonhousing.orghousingeconomics.com

New NAHB Home Building Geography Index

Q4 20194-Quarter MA of YOY growth rate:

24.3% in red counties7.2% in blue counties

Source: NAHB Analysis of Census data (Building Permits)

Blue counties represent 54.7% of U.S. population

68.2% of multifamily construction takes place in Blue Counties

Share of Building Materials Imports in 2019

31.0%

16.1%

16.0%

6.0%

3.7%

3.5%

2.7%

2.2%

2.1%

1.6% 15.2%

China

Mexico

Canada

Taiwan

Germany

Japan

South Korea

Thailand

Italy

Brazil

Others

Totally $65 billion imports in 2019 and 31% from China

Source: NAHB Analysis of U.S. International Trade Commission data.

Multifamily Buildings Completed By UnitsMore concentration in 50+ unit properties

28 34 35 32 23 37 40 31 23 14 9 9 9 9 9 10 11 11 9

50 44 36 4335

38 4233

2114 10 10 12 11 11 21 15 16 10

208179 186

151 176 150 145

125134

129

69 81 92 100 118

144 137 143115

46

58 66

6675

7097

95 122

117

67 3953

75

127

146 159187

211

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2 to 4 5 to 9 10 to 49 50+

Thousands

315323

292309

295

324

284300

274

155139

166195

265

321 322

357 345

Source: U.S. Census Bureau (BOC).

332

HBGI – 44% Single-Family in Large Metro Core or Suburbs

Source: NAHB Analysis of Census data (Building Permits and ACS)

26.5% of single-family construction takes place in Large Metro – Suburban County

Q4 2019 data2019 growth rate

-1.4%

Millennial Single-Family Potential Growth Areas

Source: NAHB Analysis of Census data (Building Permits and ACS)

58.9% of single-family construction takes place in Millennial Counties

Q4 2019 data2019 growth rate

0.5%

Residential Construction Is an Essential Business

Source: NAHB; https://www.nahb.org/Advocacy/Industry-Issues/Emergency-Preparedness-and-Response/Coronavirus-Preparedness/Stay-on-the-Jobsite

Affected a few weeks ago:

10+% single-family

20+% multifamily

Household Formation

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000Y/Y Change in Household Count, Thousands, NSA

Owner-Occupied

-1,000

-500

0

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2,020

Renter-Occupied

Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership

Strong demand for home ownership in second half of 2019

Consumer Confidence Continues Positive Run

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0

20

40

60

80

100

120

140

160

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Index 1985=100, SA

Source: The Conference Board.

Will confidence be affected by the virus?