Presentation slides for BONDMulti 2014 Conference on April 24 with focus on Multifamily Housing

1. BONDMulti 2014 Conference
April 24, 2014

2. Outlook for the Economy and
Multifamily Housing
Presented by: Bernard M. Markstein
Reed U.S. Chief Economist

3. About Reed Construction Data
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professionals throughout the US and Canada.
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4. How we do it: our channels

5. Our coverage and penetration
Private projects
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80%acquisition rate
Plans and specs
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130,000public and private
Non-residential construction information
industry sources
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Plans and specs

6. Every state and
every area in
USAcovered
including
Alaska and Hawaii
More coverage in
Canada
than anyone in the
construction industry
Our coverage and penetration

7. 7
The U.S.
Economy

8. 8
 Economic growth – improving, but should be better
 Employment growing, but should be faster
 Inflation remains moderate, too low?
 Washington less of an obstacle, but will wrangling
break out again and hinder basic business?
 Federal Reserve has started to taper, when do
interest rates rise?
Overview of the economy

9. 9
Risks to the economy
 Spike in interest rates due to Fed unwinding its
Quantitative Easing program too fast
 Sharp cuts to federal government spending in the
near term
 European government debt default
 The euro
 Energy (oil) prices
 Russia?

10. 10
Construction
Outlook

11. 11
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
35
3-Month Moving Average, Year-over-Year % Change
Reed Total Starts
(3-Mo MA YoY)
Source: Reed Construction Data
Shaded area represents recession
Overview of construction

12. 12
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
02 03 04 05 06 07 08 09 10 11 12 13 14 15
Residential Nonresidential Building Heavy Construction
$ Billions
History
Source: History – U.S. Census Bureau; Forecast – Reed Construction Data
Forecast
Forecast: Construction to improve
Construction Spending and its Components
Overview of construction

13. 13
47%
32%
20%
2002
Residential
Nonresidential Building
Heavy Construction
56%
27%
17%
2005
Residential
Nonresidential Building
Heavy Construction
2002 Total - $848 Billion 2005 Total - $1,104 Billion
Construction Spending Components
Source: U.S. Census Bureau
Overview of construction

14. 14
56%
27%
17%
2005
Residential
Nonresidential Building
Heavy Construction
31%
36%
33%
2010
Residential
Nonresidential Building
Heavy Construction
2005 Total - $1,104 Billion 2010 Total - $805 Billion
Construction Spending Components
Source: U.S. Census Bureau
Overview of construction

15. 15
38%
33%
29%
2013
Residential
Nonresidential Building
Heavy Construction
2005 Total - $1,104 Billion 2013 Total - $900 Billion
Construction Spending Components
Source: U.S. Census Bureau
Overview of construction
56%
27%
17%
2005
Residential
Nonresidential Building
Heavy Construction

16. 16
2002 Total - $848 Billion 2013 Total - $900 Billion
Construction Spending Components
Source: U.S. Census Bureau
Overview of construction
38%
33%
29%
2013
Residential
Nonresidential Building
Heavy Construction
47%
32%
20%
2002
Residential
Nonresidential Building
Heavy Construction

17. 17
Residential construction is
recovering, but from a low level
 Single-family housing market is on the mend, but much
further to go before it is back to normal
 Multifamily market has largely recovered, but still some
room for growth
Overview of housing

18. 18
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Thousands of Units, SAAR
Nation’s long-run (trend)
need for the next decade
Low Estimate
(1.4 million starts per year)
Nation’s long-run (trend)
need for the next decade
High Estimate
(1.8 million starts per year)
Total Housing Starts
(3-Month Moving Average)
Source: U.S. Census Bureau
Shaded areas represent recession
Overview of housing

19. 19
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Thousands of Units, SAAR
Nation’s long-run (trend)
need for the next decade
Low Estimate
(1.15 million starts per year)
Nation’s long-run (trend)
need for the next decade
High Estimate
(1.45 million starts per year)
Single-Family Housing Starts
(3-Month Moving Average)
Overview of housing
Source: U.S. Census Bureau
Shaded areas represent recession

20. 20
0
50
100
150
200
250
300
350
400
450
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Thousands of Units, SAAR
Nation’s long-run (trend)
need for the next decade
Low Estimate
(250,000 starts per year)
Nation’s long-run (trend)
need for the next decade
High Estimate
(350,000 starts per year)
Multifamily Housing Starts
(3-Month Moving Average)
Overview of housing
Source: U.S. Census Bureau
Shaded areas represent recession

21. 21
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
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
Thousands of Units, SAAR
Nation’s long-run (trend)
need for the next decade
High Estimate
(350,000 starts per year)
Nation’s long-run (trend)
need for the next decade
Low Estimate
(250,000 starts per year)
Multifamily Housing Starts
(3-Month Moving Average)
Overview of housing
Source: U.S. Census Bureau
Shaded areas represent recession

22. 22
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
3-Month Moving Average, Year-over-Year % Change
Reed Residential Starts
(3-Mo MA YoY)
Overview of housing
Source: Reed Construction Data
Shaded area represents recession

23. 23
0
100
200
300
400
500
600
700
800
02 03 04 05 06 07 08 09 10 11 12 13 14 15
Improvements Single-family Multifamily
$ Billions
Residential Spending Components
Source: History – U.S. Census Bureau; Forecast – Reed Construction Data
History Forecast
Overview of housing

24. 24
0
50
100
150
200
250
300
350
400
450
Single-Family Multifamily Improvements
$ Billions
2006 to 2013 ’14 ’15
Residential Construction Spending
Source: History – U.S. Census Bureau; Forecast – Reed Construction Data
Overview of housing

25. 25
Issues Facing
Housing

26. 26
Headwinds for housing
 Builders’ inventory of land for development and
construction is low  prices for land rising
 Shortages of skilled labor in some markets
 Lending standards easing, but still rigorous by
historical standards
 Debt burden by young adults—student debt
 Fear of homeownership?

27. 27
Changing lending
standards for
residential real
estate loans

28. 28
-20
-10
0
10
20
30
40
50
60
70
80
90
100
Overall (discontinued series)
Prime loans
Nontraditional
Sub-prime
Net % of Banks Tightening Standards
for Mortgage Loans
Percent
Lending standards
Source: Federal Reserve Board of Governors
Shaded areas represent recession

29. 29
Net % of Banks Tightening Standards
for Commercial Real Estate Loans
Percent
Lending standards
-40
-20
0
20
40
60
80
100
Source: Federal Reserve Board of Governors
Shaded areas represent recession

30. 30
Net % of Banks Reporting Stronger Demand
for Commercial Real Estate Loans
Percent
Lending standards
-80
-60
-40
-20
0
20
40
60
Source: Federal Reserve Board of Governors
Shaded areas represent recession

31. 31
Would you lend to a person
carrying a large amount of
student debt?
Would you want to borrow
more money if you were
such a person?
The debt burden headwind

32. 32
Headwinds for housing

33. 33
Headwinds for housing

34. 34
Are views about
homeownership
changing ?

35. 35
0
5
10
15
20
25
30
15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+
2006
2008
2010
2012
Millions
Head of Household by Age Cohort in 2012
Source: U.S. Census Bureau, American Community Survey (ACS)
Demographics and housing

36. 36
0
5
10
15
20
25
30
15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+
Millions
Head of Household by Age Cohort in 2012
Demographics and housing
Source: U.S. Census Bureau, American Community Survey (ACS)

37. 37
0
5
10
15
20
25
30
35
40
45
50
15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+
Millions
Population by Age Cohort in 2012
Source: U.S. Census Bureau
Demographics

38. 38
63
64
65
66
67
68
69
70
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Homeownership Rate
Percent
Lowest rate:
Q4 1985
63.6%
Peak rate:
Q2 2004
69.4%
65.1%
Demographics and housing
Source: U.S. Census Bureau
Shaded areas represent recession

39. 39
30
31
32
33
34
35
36
37
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Rental Rate
Percent
Highest rate:
Q4 1985
36.4%
Lowest rate:
Q2 2004
30.6%
34.9%
Demographics and housing
Source: U.S. Census Bureau
Shaded areas represent recession

40. 40
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Rental Vacancy Rate (SA)
Percent
Peak rate:
Q3 2009
10.9%
8.2%
Demographics and housing
Source: U.S. Census Bureau
Shaded areas represent recession

41. 41
Regional Economic
Performance

42. 42Source: Philadelphia Federal Reserve Bank
Regional economic performance

43. 43Source: Philadelphia Federal Reserve Bank
Regional economic performance

44. 44
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Contact

45. 45
Contact Information and Links
Bernard M. Markstein
 Office: 301-588-5190
 Mobile: 404-952-3381
 b.markstein@reedbusiness.com
 U.S. Forecast and Commentary:
http://www.reedconstructiondata.com/market-
intelligence/articles/
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http://www.reedconstructiondata.com/market-
intelligence/bernie-markstein/
Contact