outlook for us housing markets · 2016. 10. 4. · us housing market: boom, bust, ... green = 2016...
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Outlook for US Housing Markets
North American ConferenceOctober 2016
Economic Advisor, Wood ProductsRobert Berg
Outlook for US Housing Market
• Current shelter market conditions
• Outlook for shelter production
• Risks
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Current Shelter Market: More of the Same• Strong demand for shelter (realized and postponed)• Excess inventory of “for sale” and “for rent” eliminated
• Lagging housing starts stunting growth in shelter stock
• Net result Continued tightening of shelter markets (occupancy rate) Escalation in home prices and rent outpacing overall inflation
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From Last Year’s Presentation:US Housing Market: Boom, Bust, Crisis (?)
• Ingredients for a housing crisis Shelter occupancy high Household formations (demand) growing faster than additions to shelter stock (supply) Shelter prices (rent and home prices) escalating significantly faster than inflation
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Fundamental Demand for Shelter: How many homes do we need?
1970s 1980s 1990s 2000‐2015 2016‐2021
Household Formations 1.61 1.24 1.23 0.98 1.29
Net Removals 0.26 0.27 0.30 0.26 0.28
Second Homes 0.04 0.05 0.15 0.06 0.05
Total 1.91 1.56 1.68 1.38 1.69
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• Demand for shelter will average around 1.5 million units per year in 2010‐2020
• Household formations will average around 1.1 million
Demand Gap: Market and policy pressure to close the gap is building
0.0
0.5
1.0
1.5
2.0
2.5
Millions
US Housing StartsMonthly, SAAR
Single‐Family
Multifamily
1.21
Fundamental Demand (1.45 million)
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7© Copyright 2016 RISI, Inc. | Proprietary Information
14%
15%
16%
17%
18%
19%
20%
-7-6-5-4-3-2-1012345
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16*
Change in US Total Payroll EmploymentMillions and Share of Part-Time Employment (Right-Hand Scale)
Demand: Job growth continues to improve along with the quality of jobs
Source: BLSGreen = 2016 year-to-date thru August, annualized
Household Formations Have Fallen Well Below Trend and Underlying Demographic Fundamentals…
1.72
0.00.20.40.60.81.01.21.41.61.82.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
*
Household FormationsMillions, Average 1990-1999 = 1.17 Million
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* First half annualized
…And Have Pushed Pent‐Up Demand for Shelter Higher
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2009 2010 2011 2012 2013 2014 2015 2016*
Millions
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* First half annualized
Net Additions to Shelter Fall Short of Household Formations
1.24
0.0
0.5
1.0
1.5
2.0
2.5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Net Additions to ShelterAnnual, Millions
Delta Shelter StockAvg: 1990sAvg: 2000‐2008Avg: 2009‐2015
1.29
1.62
0.63
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Transactional Inventory Excess Has Been Worked Off
‐1.0
‐0.5
0.0
0.5
1.0
1.5
2.0Excess Inventory of Vacant Units (Million Units)
For Sale
For Rent
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Net Result: Very Tight Shelter Market
93.5%
94.0%
94.5%
95.0%
95.5%
96.0%
Shelter Occupancy Rate, Adjusted*
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* Adjustment: Shelter Stock (ADJ) =Shelter Stock - Second Homes - Bank Owned Homes
Apartment Vacancy Rates: Drift lower nationally but edge up in major metropolitan areas…
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
Percen
t
Vacancy Rate
Federal Reserve
Reis
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But the upturn in apartment vacancy rates in metropolitan areas reflects overbuilding in luxury apartments
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Escalation in Home Prices Running Well Above Overall Inflation
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
US Home PricesPercentage Change Year‐over‐Year
FHF
Case Shiller
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Prices: Some Markets Are Extremely Tight
0% 2% 4% 6% 8% 10% 12% 14%
OR‐PortlandWA‐SeattleCO‐DenverTX‐DallasFL‐Tampa
CA‐San FranciscoFL‐Miami
CA‐San DiegoGA‐Atlanta
NV‐Las VegasCA‐Los Angeles
MI‐DetroitMA‐BostonAZ‐Phoenix
Composite‐20MN‐Minneapolis
NC‐CharlotteComposite‐10
IL‐ChicagoOH‐ClevelandNY‐New York
DC‐Washington
Case Shiller Home Price Indices, Average Sept‐Nov 2015Year‐over‐Year Percent Change
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Warnings of a Housing Bubble: Source of the bubble matters
020406080100120140160180200
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%Case‐Shiller US National Home Price Index
Index (R)%Ch Year‐over‐Year
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And Inflation in Rents Is Rising
‐1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumer Price Index‐Shelter RentMonthly Percentage Change, Year‐over‐Year
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US Census
Constraints on Production: Cost of buying a home is not the problem with mortgage rates hovering at historical lows
02468
101214161820
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
30‐Year Conventional Mortgage RatePercent, Weekly, Not Seasonally Adjusted
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Affordability, while down, is still very attractive
50%
70%
90%
110%
130%
150%
170%
190%
210%
230%
250%
1981
1982
1984
1985
1987
1988
1990
1991
1993
1994
1996
1997
1999
2000
2002
2003
2005
2006
2008
2009
2011
2012
2014
2015
Affordability Index
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Source: Federal Reserve
But Home Sales Remain Muted
0
200
400
600
800
1,000
1,200
1,400
1,600
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000New and Existing Single-Family Home Sales (X 1,000)
ExistingNew (R)
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And Home Ownership Is Falling (Historical Averages Around 64%)
0.63
58%
60%
62%
64%
66%
68%
70%
1970
s19
80s
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
*
Portion of Households That Own Their Home
Federal Housing Enterprises Financial Safety and Soundness
Act (GSE Act, 1992)
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* Year-to-date through the first half
Constraints on Shelter Production
• Mortgage finance lending conditions remain restrictive
• Labor slow to return to the construction market
• Land in high demand markets Availability Drawn‐out permitting process
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Access to Financing: The thaw in the mortgage credit market has a long way to goMortgage availability index up 90%... …but a little perspective helps.
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Source: Mortgage Bankers Association 2004‐2011: Point estimates (Dots) and Interpolation
Shelter Market Outlook: Key Trends in the Shelter Market• Mortgage lending Announcements of credit easing almost on a daily basis
• Increased government policy activity• Strong investment performance of housing• Spillover into suburbs and second‐ and third‐tier cities
• Persistently low mortgage lending rates
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Shelter Market Outlook (Continued)
• Desire to form households will be strong as employment gains remain strong
• But shelter supply will hold back household formations
• Land and labor constraints will ease through market forces, policy and geographic shifts in demand
• Home prices and rent will continue to move higher as supply lags
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Government Policy: Issue has and will continue to gain increasing attention from policymakers• Traditional demand‐focused policy will not help
Rent controls Rent subsidies Lower cost of financing
• Policy must be directed at shelter supply Streamline permitting process Ease anti‐growth policies Tax incentives to builders of low and middle income apartments. Labor training programs Infrastructure investment to open access to suburbs and improve
second‐ and third‐tier cities
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Shelter Production: Vacant inventory overhang absorbed and demand is shifting to new construction
0.0
0.5
1.0
1.5
2.0
2.5
Total Shelter ProductionMillions
Conventional StartsMobile HomesFundamental Demand
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Multifamily units led the housing recovery, but the single-family share has stabilized
0.4
0.5
0.6
0.7
0.8
0.9
0.0
0.5
1.0
1.5
2.0
2.5
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percen
t
Millions
US Housing StartsAnnual
Single‐Family Multifamily Single‐Family Share (R)
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Risk: Upside
• Shelter inventory Lower than reported as estimated demolitions very low
• Demographics Millennials housing requirements
• Excessive policy response to housing crisis• Spillover into suburbs and second‐ and third‐tier cities
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Risk: Downside
• Timing• US economy• Demographics Further decline in household formations for the 34 years old and under age group
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