4/22/2014

1

ECONOMIC AND HOUSING OUTLOOK

David CroweChief Economist

Construction Forecast WebinarApril 23, 2014

MacroGDP

EmploymentMortgage rates

-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

4/22/2014

2

ConsumersSentiment

Curable purchasesHome pricesAffordabilityInventories

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

4/22/2014

3

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%

Builders’ ConcernsLot supply

Labor supplyCredit availabilityMarket demand

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

%

4/22/2014

4

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

ForecastsRemodeling

MultifamilySingle-family

22

57

20

25

30

35

40

45

50

55

60

Remodeling Market Index (RMI)Above 50 for 5 of the past 6 quarters

4/22/2014

5

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

4/22/2014

6

Questions?Answers: www.housingeconomics.comeyeonhousing.orgdcrowe@nahb.org

April 2014

UBS US Chief Economistmaury.harris@ubs.com / +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

4/22/2014

7

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

4/22/2014

8

Core CPI inflation is rising more than core PCE inflation.

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, and UBS

43

Export order growth is a key signpost.

Source: Institute of Supply Management and UBS

44

45

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48

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4/22/2014

9

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

4/22/2014

10

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

4/22/2014

11

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

Progress of Housing Market Recovery

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 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.

Robert DenkAssistant Vice President,Forecasting and Analysis

202-266-8698RDENK@NAHB.ORG

4/22/2014

12

Questions and Answers