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