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Economic and
Housing OutlookNACO
July 15, 2018
Robert Dietz, Ph.D.NAHB Chief Economist
GDP GrowthStronger growth expected post-tax reform
Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.
-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 16 17 18 19 20
Q/Q Percent Change, SAAR
Annual Growth
LT avg (‘58-’07) 3.4%
2016 1.5%
2017 2.3%
2018f 2.9%
2019f 2.7%
2020f 1.8%
Expansion is AgingCurrent expansion is 108 months old – second longest
106
92
120
73
0
20
40
60
80
100
120
De
c 1
854
De
c 1
858
Ju
n 1
861
De
c 1
867
De
c 1
870
Ma
r 1
879
Ma
y 1
885
Ap
r 188
8
Ma
y 1
891
Ju
n 1
894
Ju
n 1
897
De
c 1
900
Au
g 1
904
Ju
n 1
908
Ja
n 1
91
2
De
c 1
914
Ma
r 1
919
Ju
l 192
1
Ju
l 192
4
No
v 1
92
7
Ma
r 1
933
Ju
n 1
938
Oct
19
45
Oct
19
49
Ma
y 1
954
Ap
r 195
8
Feb
1961
No
v 1
97
0
Ma
r 1
975
Ju
l 198
0
No
v 1
98
2
Ma
r 1
991
No
v 2
00
1
Trough to Peak, Months
Source: The National Bureau of Economic Research (NBER).
Labor Force Participation RateImproving labor force participation key to future growth
Source: U.S. Bureau of Labor Statistics (BLS).
78%
79%
80%
81%
82%
83%
84%
85%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
59%
60%
61%
62%
63%
64%
65%
66%
67%
68%
Percentage, SA
Overall
Age 25-54
Tight Labor Market
Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Job Openings Rate
Unemployment Rate
Percent, SA Percent, SA
How low can unemployment go?
Cumulative Change in Employment by Age Group
-10
-5
0
5
10
15
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Millions of Employees, SA
55 and Older
Under 55
Source: U.S. Bureau of Labor Statistics (BLS).
Mind the Gen-X gap
Rising Producer Prices
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
-10
-5
0
5
10
15
20
25
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
12-month Percent Change, SA
Source: U.S. Bureau of Labor Statistics (BLS).
Target Federal Funds RateFed will continue to raise rates
Source: Federal Reserve data and NAHB forecast.
6.5%
5.3%
1.9%
2.7%
3.1%
6.0%
4.8%
2.9%
3.3% 3.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
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
10-year Treasury
Federal Funds Rate
30-Year Fixed Rate Mortgage and 10-Year TreasuryRates will rise due to Fed policy and tight labor markets
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
October 31,
2016
30-Year Fixed Rate Mortgage
10-Year Treasury
Mortgage Risk Premium (Difference)
Housing Demand
and Affordability
Rising Population Entering Housing Demand Years: 2017
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99
Avg=4.3
Millions
Gen Z:
Born After 1997
Gen X:
Born 1965-1980
Baby Boomers:
Born 1946-1964
Silent Generation:
Born 1928-1945
v
Head
sh
ip r
ate
s in
cre
ase f
rom
15%
to
45%
Greatest
Generation:
Born Before
1928
Millennials:
Born 1981-1997
Household Balance Sheets
5.8%
7.2%
5.0%
4.4%
6.7%
6.3% 6.0%
4.9%
5.9%
0
1
2
3
4
5
6
7
8
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mortgage
Consumer
Source: U.S. Board of Governors of the Federal Reserve System (FRB).
% of Disposable Inc., SA
A shift in debt away from mortgages
Consumer Debt
151%
80%
97%
226%
95%
0
1
2
3
4
5
6
7
8
0%
50%
100%
150%
200%
250%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Auto Loans
Student Loans
Credit Cards
Other
Rise in student and auto loans
Source: Federal Reserve Bank of New York.
Existing Home Sales
0
2
4
6
8
10
12
14
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
05 06 07 08 09 10 11 12 13 14 15 16 17 18
Existing Home Sales: Single-Family & Condo & Co-op, (Ths., SAAR)
Number of homes available for sale: Single-Family & Condo & Co-op, (Ths., NSA)
Thousands Months’ Supply (Months, NSA)
Months’ Supply
Existing Home Sales
Existing Home Inventory
Low inventory
Source: National Association of Realtors (NAR).
S&P/Case-Shiller National US Home Price Index
Source: S&P Dow Jones Indices LLC; CoreLogic, Inc. and NAHB forecast.
Prices growing faster than income
-20
-15
-10
-5
0
5
10
15
20
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
Percent Growth, SAAR
Housing Affordability – NAHB/Wells Fargo HOI
Source: NAHB/Wells Fargo Housing Opportunity Index.
78
62
20
30
40
50
60
70
80
90
Q1_04 Q1_05 Q1_06 Q1_07 Q1_08 Q1_09 Q1_10 Q1_11 Q1_12 Q1_13 Q1_14 Q1_15 Q1_16 Q1_17 Q1_18
National
Affordability declining
Simulating Future Affordability Conditions
Source: NAHB/Wells Fargo Housing Opportunity Index.
78
62
Q2 2019, 56, with 5% mortgage rate
20
30
40
50
60
70
80
90
Q1_04 Q1_05 Q1_06 Q1_07 Q1_08 Q1_09 Q1_10 Q1_11 Q1_12 Q1_13 Q1_14 Q1_15 Q1_16 Q1_17 Q1_18 Q1_19 Q1_20
National
Distribution of MSAs by change in the HOI using forecast prices, income, and interest rates
Declines of more than 10% 37%
Declines of 5 to 10% 25%
No change to 4% decline 36%
Gain of 1 to 5% 1%
HOI declines due to higher rates and costs/prices despite rising incomes
Supply-Side
Headwinds
Building Materials – Softwood Lumber
263
150
170
190
210
230
250
270
2012 2013 2014 2015 2016 2017 2018
Index 1982=100, NSA
Source: U.S. Bureau of Labor Statistics (BLS).
Since January 2017, Random Lengths Framing Composite Price Index up 63%
LaborElevated count of unfilled construction jobs
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Job openings rate - Construction
12-month moving average
Source: U.S. Bureau of Labor Statistics (BLS).
Aging Labor Force for Construction
Construction Sector ProductivityLagging overall economy
0.4
0.6
0.8
1.0
1.2
1.4
1.6
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
Construction Worker Productivity
Overall Worker Productivity
Index, 1993 = 1
LotsHousing Starts (Area) and Low/Very Low Lot Supply (bars)
0%
10%
20%
30%
40%
50%
60%
70%
0
300
600
900
1,200
1,500
1,800
2,100
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Starts (Thousands) Low Supply
Lending – AD&C Access
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
07 08 09 10 11 12 13 14 15 16 17 18
1-4 unit Residential Construction Loans
Year-over-Year Growth Rates
Millions
Regulatory Costs Rising – Up 29% Over Last 5 YearsTotal effect of building codes, land use, environmental and other rules
Regulations - 32% of Multifamily Development Costs
4.8%7.3%
2.3%
2.3%4.2%
5.5%4.0%
5.3%3.9%
5.4%5.9%
8.4%
5.2%
7.0%
7.1%
Lower Quartile Average Upper Quartile
Cost increases from changes to building codes over the past10 years
Development requirements that go beyond the ordinary
Fees charged when building construction is authorized
Cost of applying for zoning approval
Other (non-refundable) fees charged when site work begins
Cost of complying with OSHA requirements
Others
21.7%*
32.1%
42.6%*
Government Regulations as a Share of Multifamily Development Costs
Note: * For quartiles, all types of costs do not sum to the total.Source: NAHB/Wells Fargo HMI survey.
New NAHB-NMHC research
Forecasts
Household Formation
-1,000
-500
0
500
1,000
1,500
2,000
Y/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
Renter-Occupied
Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.
Demand for home ownership strengthening
Homeownership Rate
69.4%
64.2%
-
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
Percentage, Quarterly, SA
Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.
NAHB/Wells Fargo Housing Market Index
70
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
05 06 07 08 09 10 11 12 13 14 15 16 17 18
Index Thousands, SAAR
Single-Family Starts
HMI
Nearly two-decade high for builder confidence
Source: Census Bureau and NAHB/Wells Fargo HMI survey.
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
Thousands of units, SAAR
80% fall
2018Q1:
66% of “Normal”
2020Q4:
76% of
“Normal”
2000-2003 1,343,000 “Normal”
2015 713,000
2016 785,000 10%
2017 852,000 9%
2018 910,000 7%
2019 959,000 5%
2020 1,003,000 5%
Single-Family StartsModest growth ahead
Trough to Current:
Mar 09 = 353,000
Apr 18 = 894,000
+153%
Source: Census Bureau and NAHB forecast.
Single Family Housing Starts– Trough and Current
Source: Census Bureau.
National average single family starts bottomed out at 27% in early 2009
and reached 66% of normal in 2018Q1.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
M
I
N
V
I
L
A
Z
M
N
C
O
C
A
F
L
G
A
O
H
I
N
M
O
W
I
N
H
C
T
R
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D
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Y
U
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M
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T
N
M
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H
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Y
P
A
T
N
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A
W
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W
A
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N
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D
E
S
C
S
D
M
S
N
D
A
R
T
X
A
L
O
K
M
T
L
A
W
Y
Current Trough
Housing Starts / Average 2000-03 Starts
US
Home Prices of New and Existing HomesWide gap since 2012
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$0
$60,000
$120,000
$180,000
$240,000
$300,000
$360,000
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
Median Sales Price Difference
1990-2008 Avg: $20,000
New Homes
Existing Homes
Typical New Home Size
1600
1700
1800
1900
2000
2100
2200
2300
2400
2500
2600
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
SF Starts: Median Floor Area SF Starts: Median 1 Year MA
Square Feet
Decline after market shift
Townhouse Market Expanding
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
10
20
30
40
50
60
70
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
SF Starts: Attached Townhouse Share: 1-Year Moving Average
Thousands, NSA
Multifamily Housing StartsLeveling off
1995-2003 331,000 “Normal”
2015 394,000
2016 393,000 0%
2017 356,000 -9%
2018 377,000 6%
2019 354,000 -6%
2020 351,000 -1%
Source: Census Bureau 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
Trough to Current:
4th Q 09 = 82,000
1st Q 18 = 427,000
+421%
2018Q1:
129% of
“Normal”
Thousands of units, SAAR
76% fall
Avg=344,000
2020Q4:
105% of
“Normal”
National average multifamily starts bottomed out at 25% in late 2009
and were 129% of normal in 2018Q1.
Multifamily Housing Starts – Trough and Current
Source: Census Bureau.
-25%
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
M
I
A
Z
N
V
C
O
A
K
G
A
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D
O
R
N
M
R
I
F
L
S
C
O
H
M
T
N
E
I
L
W
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C
A
W
A
M
N
M
S
K
S
K
Y
H
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K
T
X
I
A
W
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P
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L
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U
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M
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V
A
A
R
S
D
M
A
N
D
N
H
D
C
N
J
C
T
D
E
Current Trough
Housing Starts / Average 1995-2003 Starts
US
Residential RemodelingStrong market conditions
0
25
50
75
100
125
150
175
200
225
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
Billions, SAAR
Adjusted
Actual
Year Percent Change
2016 11%
2017 17%
2018f 7%
2019f 8%
2020f 6%
Source: Census Bureau and NAHB forecast.
The Age of the Housing StockTypical home is almost 40 years old
32%
12%
16%15%
17%
9%
38%
15%13%
15%16%
3%
45 years old or more 35-45 25-35 15-25 5-15 5 years old or less
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2005 2015
