housing report david berson nationwide

Nationwide’s Health of Housing Markets (HoHM) Report

Nationwide Economics

Markets (HoHM) Report

2016 Q12016 Q1Data as of 2015 Q4

HoHM Report Executive Summary:

• The national LIHHM* remains above the break-even level of 100,d it d i d tl t th d f 2015 ti th t thdespite dropping modestly at the end of 2015, suggesting that theoverall U.S. housing market remains healthy.

• Regionally, the LIHHM performance rankings show that the housingmarkets in the vast majority of metropolitan statistical areas (MSAs)and divisions are healthy. This suggests that most local housingmarkets should see sustainable expansion in the near term.

• Low oil prices continue to weigh on job growth and the housingoutlooks for a number of MSAs in energy intensive areas, especiallyin Texas and Louisiana. MSAs in these two states now comprise eightof the bottom ten LIHHM performance rankings.

• A surprising slowdown in household growth in the fourth quarter of2015 lowered the national LIHHM ranking and filtered into the MSA2015 lowered the national LIHHM ranking, and filtered into the MSArankings as well. Given continued solid job growth and incipientwage gains, household formations should pick up again soon,reversing the negative impacts on the latest LIHHM rankings.

* Leading Index of Healthy Housing Markets (LIHHM): A data-driven view of the near-termperformance of housing markets based upon current health indicators for the national housingmarket and 400 metropolitan statistical areas (MSAs) and divisions across the countrymarket and 400 metropolitan statistical areas (MSAs) and divisions across the country.

See more at www.InTheNation.com/housing

HoHM Report 2016 Q1

The national LIHHM remains in the healthy zone, suggesting a sustainable U.S. housing marketThe national LIHHM remains in the healthy zone, suggesting a sustainable U.S. housing market

The current value for the national LIHHM is 105.4, the lowest level in two years. An index value over 100suggests that the national housing market is healthy, with lower chances of a housing downturn over thenext year as the index moves increasingly above the 100 break-even value. Household formations, whichhad been above the long-term trend for the past year, fell sharply in the fourth quarter — lowering the maindemographic housing demand factor in the national LIHHM. Regionally, the LIHHM performance rankingsshow that the vast majority of metro areas across the country are healthy, indicating that few regionalhousing markets are vulnerable to a housing downturn — but the outlook for sustainable housing activity inl l k t ith t ti t th t ti t d t i t l il i i t

115

120

125

115

120

125

local markets with strong ties to the energy sector continues to deteriorate as low oil prices persist.

National LIHHM

LIHHM Scores*

POSITIVE125

85

90

95

100

105

110

85

90

95

100

105

110

NEUTRAL100

75

80

85

75

80

85

MSA LIHHM Performance Rankings

NEGATIVE75

MSA LIHHM Performance Rankings

POSITIVE+4

Performance Rankings*

250

300

350

400

MSA

s

NEUTRAL0

0

50

100

150

200

Number of M

Nationwide Economics * See appendix for full descriptions

NEGATIVE- 4


0

HoHM Report 2016 Q1

The regional LIHHM rankings continue to show that the majority of housing markets are healthyThe regional LIHHM rankings continue to show that the majority of housing markets are healthy

• Twenty-one MSAs have a +3 ranking with an additional 156 in the +2 ranking, meaning that nearly half of all MSAs have very healthy housing markets. There are now eight MSAs with a -1 ranking, indicating a modest risk of a downturn, while an additional thirty-three MSAs are neutral.

• The Midwest and Northeast regions are the strongest on average — solid employment growth, healthy mortgage market fundamentals, and sustainable house price gains are more widespread in these areas.

• MSAs in energy-intensive states (particularly in Louisiana and Texas) dominate the bottom-10 list, with an increasing number rated as negative, suggesting potential housing slowdowns over the next year.

Performance Rankings†

POSITIVE+4

NEUTRAL0

NEGATIVE- 4

Rank Metropolitan Statistical Area

400 Houma-Thibodaux LA

399 Laredo TX

398 Lafayette LA

Top 10 MSAs Bottom 10 MSAs


1 Dayton OH

2 Yakima WA

3 Cleveland-Elyria OH

397 Victoria TX

396 Austin-Round Rock TX

395 Asheville NC

394 Hammond LA

393 San Angelo TX

4 Saginaw MI

5 Syracuse NY

6 Trenton NJ

7 Niles-Benton Harbor MI

8 Memphis TN-MS-AR


392 Odessa TX

391 Watertown-Fort Drum NY

9 Lansing-East Lansing MI

10 Columbus OH

† Data as of 2015 Q4 See more at www.InTheNation.com/housing

HoHM Report 2016 Q1

Only one of the top 40* MSAs by size has a LIHHM performance ranking that is negative, while four

Metropolitan Statistical Area Current† Prior Qtr Prior Year

1 New York-Jersey City-White Plains NY-NJ 2 2 1

2 Los Angeles-Long Beach-Glendale CA 1 1 1

3 Chicago-Naperville-Arlington Heights IL 2 2 2

4 Houston-The Woodlands-Sugar Land TX 0 0 0

MSAs by size (Top 40), with

Performance Rankings

more are neutral, suggesting that most of the major U.S. housing markets are healthy with little chance of a downturn in the near term.

4 Houston The Woodlands Sugar Land TX 0 0 0

5 Atlanta-Sandy Springs-Roswell GA 2 1 1

6 Washington-Arlington-Alexandria DC-VA 1 1 0

7 Phoenix-Mesa-Scottsdale AZ 1 1 1

8 Dallas-Plano-Irving TX 0 0 0

9 Minneapolis-St. Paul-Bloomington MN-WI 2 2 2

10 Riverside-San Bernardino-Ontario CA 1 1 1

corresponding performance rankings

11 Tampa-St. Petersburg-Clearwater FL 2 2 1

12 San Diego-Carlsbad CA 1 1 1

13 Seattle-Bellevue-Everett WA 1 1 1

14 St Louis MO-IL 2 2 2

15 Denver-Aurora-Lakewood CO 0 1 1

16 Baltimore-Columbia-Towson MD 2 2 1

17 Anaheim-Santa Ana-Irvine CA 1 1 1

Performance Rankings:

POSITIVE+4

18 Warren-Troy-Farmington Hills MI 2 2 1

19 Pittsburgh PA 2 2 2

20 Oakland-Hayward-Berkeley CA 1 1 1

21 Portland-Vancouver-Hillsboro OR-WA 1 1 1

22 Nassau County-Suffolk County NY 2 1 1

23 Charlotte-Concord-Gastonia NC-SC 1 1 2

24 Mi i Mi i B h K d ll FL 1 1 1

NEGATIVE

NEUTRAL

- 4

0

24 Miami-Miami Beach-Kendall FL 1 1 1

25 Orlando-Kissimmee-Sanford FL 2 1 2

26 Cambridge-Newton-Framingham MA 2 2 2

27 Newark NJ-PA 2 2 2

28 Fort Worth-Arlington TX 0 1 1

29 Cleveland-Elyria OH 3 3 2

30 Cincinnati OH-KY-IN 2 2 2

31 San Antonio-New Braunfels TX 1 2 1

32 Sacramento-Roseville-Arden-Arcade CA 1 1 1

33 Philadelphia PA 2 2 3

34 Kansas City MO-KS 2 1 2

35 Columbus OH 3 3 2

36 Las Vegas-Henderson-Paradise NV 1 1 1

37 Indianapolis Carmel Anderson IN 2 2 2


37 Indianapolis-Carmel-Anderson IN 2 2 2

38 Boston MA 2 2 1

39 Fort Lauderdale-Pompano Beach-FL 2 2 2

40 Austin-Round Rock TX ‐1 0 0

* Largest 40 determined by number of households

† Data as of 2015 Q4See more at www.InTheNation.com/housing

HoHM Report 2016 Q1

Demographics should turn positive again for housing demand soon, in spite of a surprising g p p g g p p gdecline in household growth at the end of 2015

Trends in household growth are a key determinant of housing demand at the national and local levels.Household formations tend to accelerate as employment and income conditions improve, supportingfurther growth for both rental and owner-occupied units. The balance between housing supply anddemand is an important driver of healthy trends in house price growth and housing affordability.

Household growth, as the key demographic component of the LIHHM, contributes to the understanding ofmovements in housing demand at a fundamental level Dating back to 2001 (the starting point for themovements in housing demand at a fundamental level. Dating back to 2001 (the starting point for theLIHHM), the data show household growth impacting overall housing market health in the following ways:

• Above-average growth in the housing boom: Following a drop-off in 2002-03 in response to the 2001 recession and accompanying the “jobless recovery,” average household growth was stronger than the long-term median of 1.2 million per year. Positive economic growth, strong job gains, and double-digit house price gains led to a surge in household formations during the housing boom — helping to create imbalances in the housing market.

• Bust recession and tepid recovery: Weak household growth following the Great Recession (well-below• Bust, recession, and tepid recovery: Weak household growth following the Great Recession (well below the long-term median) was indicative of still strained labor market conditions for many potential homebuyers, particularly those from the millennial generation. Even younger workers who had a job were more likely to be underemployed or to live with others, rather than create new households.

• Recent growth and looking ahead: Beginning in the fourth quarter of 2014, the cumulative boost from stronger job growth over the prior two years, particularly for the 25-34 age cohort, and the pent-up demand to form households resulted in a sizable jump in national household formations. The recent economic, jobs and wage data do not support the surprising 2015 Q4 decline. Consequently, we expect h h ld f ti t l t i b ti h i d d d hi th LIHHMhousehold formations to accelerate again soon, boosting housing demand and pushing up the LIHHM.

Household Growth*

o‐year, M

illions

Long-term median

Change, year‐to


* 4-quarter change in the number of U.S. householdsSource: Census Bureau/Haver Analytics


HoHM Report 2016 Q1

Since the LIHHM scores in many MSAs have remained positive over the last year, half of theSince the LIHHM scores in many MSAs have remained positive over the last year, half of the LIHHM rankings have not changed — reflective of continued health in local housing markets

• The best measure of the near-term health of housing markets is the current LIHHM (page 3), but looking at movements in the LIHHM over the course of a year can provide useful information, as well.

• Roughly a quarter of MSAs demonstrated improvement in their LIHHM performance rankings over the past year, but only four local markets had larger increases.

• Another quarter of MSAs posted declines in their rankings during 2015. The majority of the MSAs that decreased, however, fell only slightly — there were eight MSAs that declined more sharply, led by several MSAs in Texas.

Current LIHHM 4Q change †

INCREASED≥ +3

UNCHANGED

DECREASED≤ -3


400 Victoria TX

399 San Angelo TX

398 Grand Junction CO

Largest Increase Largest Decrease


1 Weirton-Steubenville WV-OH

2 Lima OH

3 Lansing-East Lansing MI

397 Laredo TX

396 Williamsport PA

395 Farmington NM

394 Buffalo-Niagara Falls NY

393 Asheville NC

4 Glens Falls NY

5 Waterloo-Cedar Falls IA

6 Dubuque IA

7 Fairbanks AK

8 Roanoke VA


392 Boulder CO

391 Santa Fe NM

9 Columbus IN

10 Oshkosh-Neenah WI

† Change in performance ranking; Data as of 2015 Q4 See more at www.InTheNation.com/housing

Appendix

Leading Index of Healthy Housing Markets (LIHHM)

Nationwide’s LIHHM is a data-driven view of the near-term performance of housingmarkets based upon current health indicators for the national housing market and400 metropolitan statistical areas (MSAs*) and divisions across the country. Foreach MSA, the LIHHM uses local-level data to incorporate the idiosyncraticcharacteristics of regional housing markets. The focus of the LIHHM is on the entirehousing market’s health, rather than a projection of house prices or home sales.

Nationwide Economics LIHHM methodology

The LIHHM is calculated using a number of variables that describe many of thedrivers of the housing market for each MSA. In order to provide the best indicator ofhousing health, the included variables and corresponding weights for each provideg , p g g pthe optimal leading perspective on future housing markets for each MSA. The driverscan be grouped into the following categories:

1. Employment2. Demographics3. Mortgage Market4. House Prices

As an illustration, if job growth increases in an MSA, then the resulting rise in incomescreates additional housing demand. Consumers have a greater ability to earn andsave for home purchases, increasing sales and pushing up house prices. The LIHHMmeasures the movements in the included employment, demographic, mortgagemarket, and house price variables versus the long-term trends within each MSA.

These drivers are used to derive an overall LIHHM score on a scale from 75 to 125centered around a neutral value of 100. These values are placed into performancerankings to allow for better comparisons across MSAs. These performance rankingsare the key metric in comparing the MSAs both to each other and across time. RawLIHHM values are used for calculation purposes only and will only be shown on thenational level as the national score is standalone and is not compared to other areas.


* MSA: Geographical region with high population density and close economic ties throughout the nearby area, capturing 85-90% of the U.S. population


DAVID BERSON, PhD

David holds a doctorate in Economics and a master’s degree in Public Policy from the University of Michigan. Prior to Nationwide, David served as Chief

i S i d d f i k l i f h G d

Senior Vice President, Chief Economist

Authored by Nationwide Economics

Economist, Strategist and Head of Risk Analytics for The PMI Group, Inc., and Vice President and Chief Economist for Fannie Mae. David has also served as Chief Financial Economist at Wharton Econometrics and visiting scholar at the Federal Reserve Bank of Kansas City. His government experience has included roles with the President’s Council of Economic Advisors, U.S. Treasury Department and the Office of Special Trade Representative. He is a past President of the National Association for Business Economics.

BRYAN JORDAN, CFA

Bryan is a frequent author and knowledgeable source on economic topics, and has been featured in The Wall Street Journal and New York Times. Bryan holds degrees in Economics and Political Science from Miami University and has earned the Chartered Financial Analyst designation. He currently serves as Chairman of the Ohio Council on Economic Education and is a member of the Ohi G ’ C il f E i Ad i th N ti l A i ti f

Deputy Chief Economist

Ohio Governor’s Council of Economic Advisors, the National Association for Business Economics, and the Bloomberg monthly economic forecasting panel.

BEN AYERS, MS

Ben authors periodic economic analyses from the Nationwide Economics team, as well as commentary on key economic topics. Ben is also responsible for

Senior Economist

Additional contributors: Chrissy Charters, Ankit Gupta, Daniel Hadden, Steve Hall, and Matt Workman

y y p punderstanding and analyzing the enterprise business drivers to assist the strategic planning process. He holds a Master of Science in Economics from the Ohio State University, specializing in applied economic analysis, and a BSBA from the Fisher College of Business at the Ohio State University, with a focus on economics and international business.

The information in this report is provided by Nationwide Economics and is general in nature and not intended as investment or economicadvice, or a recommendation to buy or sell any security or adopt any investment strategy. Additionally, it does not take into account anyspecific investment objectives, tax and financial condition or particular needs of any specific person.

The economic and market forecasts reflect our opinion as of the date of this report and are subject to change without notice. Theseforecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they will not reflect actualperformance. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness orfairness.


Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company.

NFM-13575AO.2


housing report david berson nationwide

Documents