economic headwinds and policy concerns for new home construction robert dietz, ph.d. vice president...

Economic Headwinds and Policy Concernsfor New Home Construction

Robert Dietz, Ph.D.Vice President Tax and Market AnalysisNAHB Economics

December 18, 2014REALTOR® University Lecture Series

Macroeconomic Conditions and HousingSupply Side HeadwindsForecastsPolicy Wild CardsLong-Run Optimism for Housing

Real GDP GrowthEconomy returns to growth after Q1 ‘14 blip

Annual Growth2013 2.2%2014f 2.3%

Payroll Employment US has returned to pre-recession peak, will surpass trend by 2016

Trend in US Employment

Total US Employment

Millions

-7%

Shift in Total Home SalesNew share went from 20% to 10%

2001-2007 average5.6 million sales/yr

20134.1 million sales

Source: AHS

Industry HeadwindsThe 3 Ls (and 1M)

Labor SupplyA leading challenge for builders

Starts (000s)Low Supply

Lot SupplyShortage indicators rise and fall with level of starts, except recently

AD&C Access Tight…

AD&C Access …But Easing

Bet

ter

W

orse

*SLOS – Senior Loan Officer Survey

Building Material PricesBuilders Reporting Increases in Last 6 Months

Forecasts

Remodeling Market Index (RMI)At or above 50 for most of last two years

Residential Remodeling Billions 2009 $, SAAR

Actual

Adjusted

NAHB Multifamily Housing Production Index & 5+ Housing Starts

(000s)

NAHB Multifamily Vacancy Index & Census Vacancy Rate

NAHB MVI (L)

Vacancy Rate (R)

1995-2003 331,000 ”Normal”2011 178,0002012 247,000 39%2013 309,000 25%2014 352,000 14%

Multifamily Housing Starts Healthy Response from Growth in Renters

Trough to Current:4th Q 09 = 82,0003rd Q 14 = 379,000

+362%

2014Q3:111% of “Normal”

NAHB/Wells Fargo Housing Market IndexBuilder sentiment has recovered from recession depth, early 2014 weather

Single-family starts (R)

NAHB HMI (L)

Single-Family Starts – Continuing to recover

Trough to Current:Mar 09 = 353,000Oct 14 = 696,000

+97%

2014Q3: 49% of “Normal”

2016Q4:90%

2000-2003 1,343,000 ”Normal”2011 434,000 2012 537,000 24%2013 621,000 16%2014 641,000 3%

Policy ChallengesThe Three Rs

Housing Finance ReformA healthy secondary mortgage marketCurrent system is unsustainablePrivate capital and a federal backstop neededWhat impacts will this have on mortgage access?

Tax ReformBusiness-only or comprehensive?“Corporate” reform could have major impacts on real estate

LIHTCLike-kind exchangePass-thru rulesDepreciationBusiness interest deductionsTax Rates

Tax ReformComprehensive – Everything is on the tableMortgage Interest Deduction

Direct CutsPrincipal CapsSecond HomesHome Equity Loans (Remodeling)

Tax ReformComprehensive – Everything is on the tableMortgage Interest Deduction

Direct CutsPrincipal CapsSecond HomesHome Equity Loans (Remodeling)

Indirect CutsSchedule A impactsHow Many Itemize?

Tax ReformComprehensive – Everything is on the tableMortgage Interest DeductionProperty Tax DeductionCapital Gain ExclusionIndividual Rates

GDP growthDynamic scoring (macro analysis)

Housing vs Business Investment

Positive Long-Run Outlook for Housing

Household Formations – Still Weak

Thousands

Avg: 1.4 million(12% renters)

Avg: 0.5 million(130% renters )

Avg: 0.6 million(123% renters)

Population by Single-Year of AgeRising population in prime household formation years

Millions

Born 1979 or later Born 1965-78 Born 1946-64 Born 1945 or earlier

Total Housing StartsExpected to normalize by second half of decade

Millions

Questions

eyeonhousing.orgrdietz@nahb.org @dietz_econ