New Home Builders in Austin, San Antonio, Houston and Dallas/Fort Worth
Greater Houston Builders Association April 28, 2020 › wp-content › uploads › pdf › webinar...
Transcript of Greater Houston Builders Association April 28, 2020 › wp-content › uploads › pdf › webinar...
Viral Uncertainty
Greater Houston Builders AssociationApril 28, 2020
Robert Dietz, Ph.D.NAHB Chief Economist
Housekeeping Items
You’ll get the slides via email
You can watch a replay at any time after this presentation. We’ll send you a link.
You’ll get a recording
Check your email. We’ll send you the slides within 24 hours after the presentation.
We’ve got answers.
Your participation is encouragedSubmit your questions and comments here at any time during the presentation.
There will be a Q&A session at the end of this webinar.
Brought to you by GHBA’s 2020 Pinnacle Partners
Save the Date!
Live webinar with Dr. James Gaines, Chief Economist with the Texas A&M Real Estate CenterDr. Gaines will share a local overview of COVID-19’s impact to the residential construction industry. Q&A to follow.
Register at ghba.org/calendar
May 5 @ 1:30 p.m.
Viral Uncertainty
Hard to model the effects of a virus outbreak
2-months, 2-quarters, and 2-years
Stock market declines
Supply-chain impacts
Declining consumer confidence
Sharp mid-year decline, bounce back after
Two-Month Considerations
Event, school and business closures
Test for the @home economy
Consumption: 40% goods economy; 60% services (half social)
Hospital limits (beds and machines) – flatten the curve
Economy pause is only a pause to ramp up medical infrastructure
Medically-induced coma for the economy (recession)
Home building and remodeling as “essential services”
Consumer Spending Shares
Source: U.S. Department of Commerce and Wells Fargo Securities
Goods 40%, Housing/Health Care 33%, Other Services 27%Motor Vehicles & Parts,
4.1% Furnishings,3.1% Recreational Goods,
4.4%
Other Durables,1.5%
Clothing,3.1%
Gasoline,3.3%
Other Nondurables,5.1%
Phamaceuticals & Theraputic Goods,4.1%
Food & Beverages,7.4%
Housing & Utilities,16.4%
Healthcare,16.9%
Communication Services,2.3%
Restaurants,5.5%
Accommodations,1.0%
Transportation Services,3.3%
Recreation Services,3.8%
Financial Services,
6.4%
Other Services,
6.2%
Consumer Spending as Share of Total
Services Goods
*Dark shades represent resilient categories of consumer spending.
Flatten the Curve….But Raise the Line Too!!!
Two-Quarter Considerations
Virus cases subside
Financial markets stabilize
Terrible 2Q, decline in 3Q, rebound in 4Q
Aggressive fiscal policy
Federal Reserve finances restoration and recovery
Spring forward after the Fall
Virus Considerations
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Perc
enta
ge S
prea
d
Percentage Time Period
US is on exponential growth curve now
The S Curve of Community Spread
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Perc
enta
ge S
prea
d
Percentage Time Period
Red is unchecked exponential growth --- blue is S curve logistic
The S Curve of Community SpreadCase data is moving on logistic S curve
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
Series1
Two-Year Considerations
Vaccine
Interest rate normalization (low until then)
Baby boom???
Checkerboard pauses? W-shaped recovery
Changes for how we live?
World Temperature Map (November 2018 - March 2019)The new epicenters of disease were all roughly along the 30-50 N” zone
Source: Sajadi, Mohammad M. and Habibzadeh, Parham and Vintzileos, Augustin and Shokouhi, Shervin and Miralles-Wilhelm, Fernando and Amoroso, Anthony, Temperature and Latitude Analysis to Predict Potential Spread and Seasonality for COVID-19 (March 5, 2020). Available at SSRN: https://ssrn.com/abstract=3550308 or http://dx.doi.org/10.2139/ssrn.3550308
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.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Annual GrowthLT avg (‘58-’07) 3.4%2018 2.9%2019 2.3%2020f -4.6%2021f 4.6% 2022f 3.2%
Q/Q Percent Change, SAAR
Sudden Labor Market Reversal
Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.
2%
4%
6%
8%
10%
12%
14%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Job Openings Rate
Unemployment Rate
Percent, SA Percent, SA
Unemployment is rising sharply but starts recovery during second half of 2020
Payroll Employment Growth and Unemployment Rate
0
3
6
9
12
15
-5,200
-4,200
-3,200
-2,200
-1,200
-200
800
1,800
2,800
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
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, 2016
30-Year Fixed Rate Mortgage
10-Year Treasury
Supply-Side Factors
Virus Related Business Challenges
Source: NAHB Survey
NAHB/Wells Fargo HMI Special Analysis
79%
20%
1%
0% 20% 40% 60% 80% 100%
No
Yes to a minor extent
Yes to a major extent
21% builders report supply disruptions due to coronavirus concerns in other countries
Source: NAHB/Wells Fargo HMI Survey, Special Analysis, March 2020.
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.
Virus Related Business Adaptions
Source: NAHB Survey
Building Materials – Lumber Prices
1/5/2018, 436
582
3/27/2020, 381
$250
$300
$350
$400
$450
$500
$550
$600
2015 2016 2017 2018 2019 2020
$ per thousand board feet
Lumber prices rose 63% to a peak from January 2017; declined 13% since January 2018
Source: NAHB Analysis; Random Lengths Composite Index
Residential Construction as an “Essential” Business: April 9
Source: NAHB; https://www.nahb.org/Advocacy/Industry-Issues/Emergency-Preparedness-and-Response/Coronavirus-Preparedness/Stay-on-the-Jobsite
Affected:
10% single-family
20% multifamily
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 % Change2017 852,000 8%2018 873,000 2%2019 894,000 2%2020f 728,000 -19%2021f 923,000 27%2022f 1,018,000 10%
Single-Family StartsSharp declines in the near-term due to coronavirus mitigation efforts
Trough to Current:Mar 09 = 353,000
Feb 20 = 1,072,000+204%
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)
Multifamily Housing StartsSharp decline and a return to trend
Year Units % Change2017 357,000 -9%2018 377,000 6%2019 404,000 7%2020f 356,000 -12%2021f 406,000 14%2022f 411,000 1%
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 = 82,0004th Q 19 = 470,000
+474%
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 Change2017-2019 Avg 5%2020f -9%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
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
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
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